



COURT OF APPEAL FOR ONTARIO

CITATION: Mars Canada Inc. v. Bemco Cash & Carry Inc.,
    2018 ONCA 239

DATE: 20180313

DOCKET: C64077

Strathy C.J.O., Hourigan and Miller JJ.A.

BETWEEN

Mars Canada Inc.

Plaintiff (Respondent)

and

Bemco Cash & Carry Inc., GPAE Trading Corp.
    and Aizic Ebert

Defendants (Appellants)

Patrick T. Summers, for the appellants

Jim Holloway and Essien Udokang, for the respondent

Heard: January 15, 2018

On appeal from the judgment of Justice Frederick L. Myers
    of the Superior Court of Justice dated November 18, 2016, with reasons reported
    at 2016 ONSC 7201, and the costs judgment dated December 6, 2016, with reasons
    reported at 2016 ONSC 7643.

Strathy C.J.O.:

[1]

This appeal concerns the enforcement of contracts in restraint of trade,
    the courts jurisdiction to order a reference on a summary judgment motion, and
    the award of substantial indemnity costs.

[2]

The following summary of the facts will put the issues in context.

A.

Background

[3]

The respondent Mars Canada Inc., an Ontario company, is related to the
    well-known American candy company. It sells candy products under
    Canadian-registered trademarks, including MARS, M&Ms, MILKY WAY and
    SNICKERS.

[4]

The appellant Aizic Ebert (Ebert) owns and controls the corporate
    appellants, Bemco Cash & Carry Inc. (Bemco) and GPAE Trading Corp.
    (GPAE). Through those companies, he sold grey market Mars products in
    Canada. He bought the products in the United States, imported them to Canada,
    and sold them at a price lower than those offered by the respondent. The law is
    unsettled as to whether a Canadian trademark holder can prevent this activity.

[5]

In about 2006, the respondent discovered that Bemco was selling Mars products
    in Toronto. It brought an action in the Federal Court. After lengthy
    negotiations and legal advice, the parties settled the action (the Bemco
    Settlement).

[6]

Under the Bemco Settlement, Bemco agreed to identify the source of its
    grey market products. It also agreed that it would not import or sell Mars products
    in Canada without the respondents consent or without obtaining a declaratory
    judgment in the Superior Court authorizing it to do so.

[7]

After the settlement, Bemco disclosed that GPAE was its supplier of foreign
    Mars products.

[8]

On disclosure of this information, the respondent demanded that GPAE
    cease its activities. GPAE agreed to do so. It agreed not to import or sell Mars
    products in Canada without the respondents consent (the GPAE Settlement).
    The GPAE Settlement was to be binding on related companies and their
    shareholders  that is, Bemco and Ebert.

[9]

In 2010, the respondent discovered that foreign products bearing its
    trademarks were once again being sold in Canada, through another company, in
    concert with Bemco and GPAE. It brought this action to enforce the Bemco
    Settlement and the GPAE Settlement and for damages. The appellants defended on
    the ground, among others, that the settlement agreements were in restraint of
    trade and, therefore, void.

B.

The Motion Judges Reasons

[10]

The
    respondent brought a motion for summary judgment. It sought declaratory relief
    and damages. It also sought rectification of the Bemco Settlement, to correct an
    error in Bemcos corporate name.

[11]

There
    was a voluminous documentary record, transcripts of cross-examinations and
    third party examinations, as well as an expert report.

[12]

The
    Bemco Settlement was made in the name of Bemco Confectionary Sales, the company
    from which Ebert had purchased the business, rather than in Bemcos proper
    name. The motion judge found that both parties intended the agreement to be the
    name of Bemco and granted rectification. That order is not appealed.

[13]

The
    motion judge also found that both Bemco and GPAE had breached their settlement
    agreements. Bemco by continuing to engage in grey marketing, and GPAE by
    continuing to import Mars products into Canada.

[14]

The
    motion judge rejected the appellants argument that the settlement agreements
    were void as being in restraint of trade. He applied the test identified by this
    court in
Tank Lining Corp. v. Dunlop Industrial Ltd.
(1982), 40 O.R.
    (2d) 219 (C.A.). For the purposes of argument, he was prepared to assume that
    the agreements were in restraint of trade and that they did not fall within one
    of the recognized exceptions. He found, however, that the agreements were
    reasonable in the interests of the parties and reasonable in the interests of
    the public. The agreements were made to settle litigation, a purpose favoured
    and supported by the law and by public policy. The respondent was entitled to
    enforce its registered trademarks. Finally, the products imported from the U.S.
    by the appellants did not comply with Canadian labelling and packaging laws.

[15]

Having
    found that the appellants breached the agreements, he directed a reference as
    to damages pursuant to r. 20.04(3) of the
Rules of Civil Procedure
, R.R.O.
    1990, Reg. 194. He rejected the appellants submission that this was an
    improper bifurcation of the proceedings without their consent, contrary to r.
    6.1.01.
[1]

[16]

In
    a subsequent endorsement, the motion judge granted costs to the respondent on a
    substantial indemnity basis, in the amount of $225,000, all-inclusive. He found
    that the appellants brazenly breached their settlement agreements, contrived
    to avoid the settlements they made, raised trivial grounds of argument and made
    the litigation lengthier and more expensive than it ought to have been.

C.

Issues

[17]

The
    appellants raise three issues on appeal.

[18]

First,
    they submit that the motion judge erred in giving effect to the settlement
    agreements. He should have found they were void as being in restraint of trade.

[19]

Second,
    they submit that the motion judge erred in directing a reference to determine
    damages. The appellants argue that the agreements could only be enforced if the
    respondent established that it suffered damages. Because the motion judge made
    no finding that the respondent had sustained damages, he improperly bifurcated
    the proceedings by ordering a reference. The appellants also argue that the
    bifurcation of liability and damages violated r. 6.1.01.

[20]

Third,
    the appellants seek leave to appeal the award of substantial indemnity costs.
    They say that the motion judge erred in principle in awarding such costs as a
    result of their conduct prior to the commencement of the litigation. They also
    argue that the respondent itself increased the cost of the proceedings by
    asserting claims that were abandoned at the outset of the hearing.

D.

Analysis

(1)

Agreements in Restraint of Trade

[21]

Before
    the motion judge, the restraint of trade issue was argued and decided on the
    basis of the leading case,
Tank Lining
.

[22]

In
Tank Lining
, Blair J.A. stated that the test requires a four-stage
    inquiry (at p. 223). The first and second stages ask whether the covenant is in
    restraint of trade and, if so, whether it falls within one of the limited
    exceptions to the rule that such restraints are void. The third question asks
    whether the restraint can be justified as reasonable in the interests of the
    parties. The fourth asks whether it is reasonable with reference to the
    interests of the public. Blair J.A. noted, at p. 225, that the onus is on the
    party seeking to enforce the covenant to show that it is reasonable in the
    interests of the parties. The onus is on the party opposing enforcement to show
    that the covenant is not reasonable in the public interest: see also
Martin
    v. ConCreate USL Ltd. Partnership
, 2013 ONCA 72, 359 D.L.R. (4th) 123, at
    paras. 49-50.

[23]

The
    appellants focused their argument on the question of whether the restraint can
    be justified as reasonable in the interests of the parties. The appellants
    argue that because the judge made no finding that the respondent had sustained
    damages, he did not consider whether the respondent had demonstrated that it
    had an interest in need of protection. In effect, they say that a determination
    that the respondent suffered damages was a necessary prerequisite to the motion
    judges conclusion that the settlement was not void in restraint of trade. No
    authority was cited to us to support the appellants submission that proof of
    damages is a necessary requirement of an action to enforce an agreement in
    restraint of trade.

[24]

To
    be reasonable between the parties, the agreement must not be wider than
    necessary to protect the legitimate or proprietary interests of the party in
    whose favour it was granted: see
Tank Lining
, at p. 225;
MEDIchair
    LP v. DME Medequip Inc.
, 2016 ONCA 168, 129 O.R. (3d) 161, at para. 38. The
    factors relevant in determining whether the restraint on trade is reasonable
    are the geographic coverage of the agreement, the period of time that it is in
    effect and the extent of the activity prohibited:
Martin v. ConCreate USL Ltd.
    Partnership
, at para. 54.

[25]

However,
    as noted by Blair J.A. in
Tank Lining
, at p. 225, [w]hen two
    competently advised parties with equal bargaining power enter into a business
    agreement, it is only in exceptional cases that the courts are justified in
    over-ruling their own judgment of what is reasonable in their respective
    interests.

[26]

In
    the circumstances of this case, the respondent has legitimate interests tied to
    its trademark rights. As recognized by the motion judge, at para. 42, [t]he [respondent]
    has an obvious interest in the enforcement of its intellectual property rights
    which, as noted above, remain valid unless or until declared otherwise.

[27]

The
    appellants have identified no error in the motion judges application of
Tank
    Lining
. The settlement of the litigation was unquestionably reasonable in
    the interests of the parties. It resolved their dispute and defined the scope
    of the parties trading rights. It was also reasonable in the public interest.
    It prevented confusion between the respondents trademarked products and the
    appellants improperly labelled grey market products.

[28]

I
    would therefore reject this ground of appeal.

(2)

Directing a Reference

[29]

The
    appellants submit that the motion judge erred in ordering a reference without
    having found that the respondent had, in fact, sustained damages. They point to
    the judges conclusion, at para. 50, in refusing to order the appellants to
    provide an accounting, that [t]he [respondents] damages,
if any
, are the damages that reasonably flow from the
    breach. They are readily calculable as lost profits (emphasis added). The
    appellants say that without a specific finding that the respondent sustained
    damages, it was improper to order a reference.

[30]

The
    appellants also argue, as they did below, that the motion judge had no
    jurisdiction to bifurcate liability and damages, relying on
Bondy-Raphael
    v. Potrebic
, 2015 ONSC 3655, 128 O.R. (3d) 767 (Div. Ct.).

[31]

I
    would reject both submissions. As to the first, there was evidence before the
    motion judge to support a conclusion that the respondent sustained some
    damages. There was evidence given by the respondents witness that every sale
    of a grey market Mars bar by the appellants represented a loss of a sale by the
    respondent. As well, the appellants own expert testified that the appellants
    sales would cannibalize the respondents sales.

[32]

In
    any event, the respondents action was in breach of contract. The motion judge
    found that the appellants were in breach of their agreements. He granted a
    declaration to that effect. Unlike in tort, damages are not an essential
    element of a cause of action for breach of contract. The plaintiff need only
    establish the existence of a contract with the defendant and its breach: Angela
    Swan and Jakub Adamski,
Canadian Contract Law
, 3rd ed. (Markham:
    LexisNexis Canada Inc., 2012), at §2.16.1.

[33]

Having
    established a valid contract and a breach, the respondent was entitled to
    damages, even nominal damages. Nominal damages are always available in a breach
    of contract action: see
Place Concorde East Ltd. Partnership v. Shelter
    Corp. of Canada Ltd.
(2006), 270 D.L.R. (4th) 181, at para. 76 (Ont.
    C.A.).

[34]

As
    to the bifurcation argument,
Bondy-Raphael
does not assist the
    appellants in any way. That case involved the interpretation of r. 6.1.01,
    which provides as follows:

With the consent of the parties, the court may order a separate
    hearing on one or more issues in a proceeding, including separate hearings on
    the issues of liability and damages.

The majority of the Divisional Court held, at paras.
    37-38, that a judge did not have inherent jurisdiction to bifurcate a
trial
into a determination of liability and a damage
    assessment without the consent of the parties. The majority of the Divisional
    Court was careful to observe, at para. 39, that the decision should be confined
    to its particular context:

It is important when dealing with Rules of new and potentially
    broad application to not decide anything more than is specifically before the
    court in the given case.  [W]here there is provision in the Rules for deciding
    an issue by summary judgment or by a ruling on a point of law, that situation
    might not necessarily be the same as a motion for bifurcation of a trial, such
    that Rule 6.1.01 might not be paramount. Our ruling in this case should be
    confined to the specific issue before us whether a motion judge can order
    bifurcation of a trial without the consent of the parties.

[35]

I
    agree with the motion judge that on a motion for summary judgment the courts
    jurisdiction is governed by r. 20.04(3), which provides:

Where the court is satisfied
    that the only genuine issue is the amount to which the moving party is
    entitled, the court may order a trial of that issue or grant judgment with a
    reference to determine the amount.

[36]

I
    reject the appellants submission that r. 6.1.01 applies to summary judgment
    motions. It is inconsistent with r. 20.04(3) and the underlying philosophy of
    the summary judgment process, described in
Hryniak v. Mauldin
, 2014
    SCC 7, [2014] 1 S.C.R. 87. Its application would gut the efficacy of summary
    judgment. The appellants argument has been rejected in the Superior Court
    cases that have considered it. In this case, the motion judge stated at para.
    51:

Summary judgment is not a separate hearing under Rule 6.1.01.
    There will not be two trials or a trial of one issue followed by a separate
    trial of a second issue. Summary judgment is its own, alternative model of
    adjudication. It is not a hearing as contemplated by Rule 6.1.01.

[37]

The
    motion judge came to a similar conclusion in
Anjum et al. v. Doe et al.
,
    2015 ONSC 5501, at para. 8. See also
Fontenelle v. Canada (Attorney
    General)
, 2017 ONSC 6604, at paras. 136-141;
Abuajina v. Haval
,
    2015 ONSC 7938, at paras. 42-45.

[38]

It
    is conceivable that a judge hearing a summary judgment motion could decline to
    determine liability and order a reference as to damages because of a risk of
    inconsistent findings on liability and damages. This is not such a case.

[39]

It
    follows that I reject the appellants submissions that the motion judge had no
    jurisdiction to order a reference as to damages and that it was necessary to
    establish that the respondent had sustained more than nominal damages, before
    ordering a reference.

(3)

Substantial Indemnity Costs

[40]

The
    motion judge identified the principles to be applied in fixing costs under s.
    131 of the
Courts of Justice Act
, R.S.O. 1990, c. C.43, and considered
    the factors set out in r. 57.01.

[41]

He
    also considered the appellants argument that the costs award should have
    reflected the fact that the respondent advanced several causes of action, some
    of which it ultimately withdrew. He found this was reasonable given the
    lengths to which the [appellants] would go to try to avoid accountability for
    their conduct (at para. 5).

[42]

The
    motion judge found that the appellants brazenly breached the settlements. They
    relied on an obvious slip (the misnomer of Bemco) to try to avoid living up to
    their agreements. Their efforts to undermine the agreements were dishonourable
    and deserving of censure. They altered a document in a transparent attempt to
    hide their illicit activities. He found that their conduct of the action
    reprehensibly maximized costs and delay (at para. 5). Their kitchen sink
    approach lengthened the proceedings and they made the litigation lengthier and
    more expensive than it ought to have been.

[43]

The
    applicable principles can be summarized as follows:

a.

the fixing of costs is discretionary and the motion judges costs award
    attracts a high level of deference  it should be set aside on appeal only if
    the trial judge erred in principle or if the award is plainly wrong: see
Hamilton
    v. Open Window Bakery Ltd.
, 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27;

b.

costs on a substantial indemnity basis should only be awarded where
    there has been reprehensible, scandalous or outrageous conduct on the part of
    one of the parties:
Young v. Young
, [1993] 4 S.C.R. 3, at p. 134; and

c.

the kind of conduct that will justify an elevated level of costs is not
    limited to conduct in the proceedings and can include the circumstances that
    gave rise to the litigation:
Mortimer v. Cameron
(1994), 17 O.R. (3d)
    1 (C.A.), at p. 23;
Clarington (Municipality) v. Blue Circle Canada Inc.
,
    2009 ONCA 722, 100 O.R. (3d) 66, at para. 30.

[44]

The
    motion judge applied these principles. In awarding substantial indemnity costs,
    he was entitled to consider that the litigation was caused by the appellants
    duplicitous breach of agreements made in settlement of the previous litigation:
    see Mark M. Orkin,
The Law of Costs
, looseleaf, 2nd ed. (Toronto:
    Thomson Reuters, 1987), at §219. He properly had regard to the appellants
    conduct during the litigation, including litigating what was clearly a
    technical slip, altering a document, and engaging in tactics that increased
    costs. He considered the appellants argument that the respondent had increased
    the costs by asserting claims that were ultimately abandoned and gave reasons
    for rejecting it.

[45]

The
    appellants have not demonstrated an error in principle in the motion judges
    award of costs and I would not grant leave to appeal.

E.

Disposition

[46]

For
    these reasons, I would dismiss the appeal. I would award costs to the
    respondent, fixed at $20,000, inclusive of disbursements and all applicable
    taxes.

Released: GRS  MAR 13 2018

G.R. Strathy C.J.O.

I agree. C.W.
    Hourigan J.A.

I agree. B.W. Miller
    J.A.





[1]

Rule 6.1.01 With the consent of the parties, the court may
    order a separate hearing on one or more issues in a proceeding, including
    separate hearings on the issues of liability and damages.


