



COURT OF APPEAL FOR ONTARIO

CITATION: Cana International Distributing Inc. v. Standard

Innovation Corporation, 2018 ONCA 145

DATE: 20180214

DOCKET: C63087

Laskin, Sharpe and Fairburn JJ.A.

BETWEEN

Cana International Distributing Inc. c.o.b. Sexy
    Living

Plaintiff

(Appellant)

and

Standard Innovation Corporation

Defendant

(Respondent)

AND BETWEEN

Standard Innovation
    Corporation

Plaintiff by
    Counterclaim

(Respondent)

and

Cana International Distributing Inc. c.o.b. as Sexy Living
    and

Micheline Ciolli

Defendants by
    Counterclaim

(Appellants)

Shaun Laubman and Laura M. Wagner, for the appellants

Peter Mantas and Tala Khoury, for the respondent

Heard: January 23, 2018

On appeal from the judgment of Justice P. Smith of the Superior
    Court of Justice, dated November 18, 2016, with reasons reported at 2016 ONSC
    7197.

REASONS FOR DECISION

[1]

The appellants submit that the trial judge erred in finding that there
    were no agreements reached between the appellant, Cana International Distributing
    Inc. (Cana), and the respondent, Standard Innovation Corporation (SIC), for
    exclusive rights to distribute SICs product, a sex toy called the We-Vibe.
    The appellants also argue that the trial judge erred by failing to consider
    their alternate claim for
quantum meruit
and by refusing to deal with
    the defence of qualified privilege to the respondents defamation counterclaim.

The alleged agreements

[2]

Cana is a distributor of adult sexual health and wellness products. The
    parties had extensive discussions relating to the distribution of SICs
    We-Vibe. These discussions involved two streams of distribution. The first was
    the mainstream industry targeting retail outlets such as food and drug stores.
    The second was the adult industry, also referred to as the sex toy industry.
    The appellants assert that separate agreements were reached giving them
    exclusive distribution rights for the We-Vibe in both streams. The trial judge
    rejected both contractual claims, finding that no binding agreement was reached
    for either stream.

[3]

For the following reasons, we conclude that the trial judge erred in
    finding no mainstream industry agreement and that a binding agreement was made
    and subsequently breached by the respondent. We do not, however, accept the
    submission that the trial judge erred in finding that no agreement was reached
    for the adult industry stream. We also reject the submission that he erred in
    failing to consider the alternate claim for
quantum meruit
and the
    defence of qualified privilege.

The mainstream agreement

[4]

The trial judges finding that no agreement was reached was a finding of
    fact or mixed fact and law attracting a deferential standard of review in this
    court. However, we are satisfied that the trial judge made palpable and
    overriding errors of fact and an extricable error of law that justifies
    appellate intervention with respect to the mainstream agreement.

[5]

The terms of the agreement were negotiated by Nelson Wood, president of
    SIC, and Micheline Ciolli, owner and president of Cana. On August 18, 2009,
    they exchanged emails requesting signatures on a written term sheet.  Wood
    asked Ciolli to sign the signature page and fax it back and stated I will sign
    and fax back a copy to you. He added I look forward to growing the mainstream
    market with you and noted [n]ow we can do a term sheet for the Sex Toy Industry.
    Ciolli signed the term sheet and mailed it as requested. Wood was away from the
    office at the time but on September 22, 2009 returned by email a scanned
    signature page of what he described as our mainstream agreement.

[6]

Internal SIC emails and memoranda indicate that SIC was proceeding on
    the basis of a concluded agreement. Both parties conducted themselves in this manner
    until their relationship broke down in May 2010. Cana performed its obligations
    as exclusive distributor, secured new customers and dealt with warranty claims.
    In November 2009, SIC notified its Canadian customers that Cana was the
    exclusive distributor for the We-Vibe in Canada. SIC and Cana issued a joint
    press release to the same effect.

[7]

In SICs original statement of defence, it admitted that a mainstream agreement
    had been reached. While that admission was withdrawn several years later, it
    corresponds with the tenor of the email exchanges and the way that SIC
    conducted itself up to that point. In an affidavit filed on an interlocutory
    injunction motion in September 2010, Wood swore that [t]he parties entered
    into an agreement in or about August 2009 for the sale of the We-Vibe II into
    the Food and Chain Drugstore market. He also swore: As far as I am aware,
    there is no dispute regarding the Mainstream Agreement. It has operated
    relatively smoothly. It was only well into this litigation in February 2014
    that SIC changed its position and obtained an order permitting it to withdraw
    the admission it had made in its statement of defence.

[8]

In his reasons for judgment, at para. 23, the trial judge described the
    August  September 2009 email exchange and the signing of the term sheet in the
    following way: [A]t best, the two separate signed copies were two unique
    offers, neither having been accepted by the other party. This is evidenced by
    subsequent negotiation of their intended agreement. At para. 124 he stated:
    The emails of August and September 2009, referring to a signed copy of the
    agreement, evidence, at best, two distinct offers, neither of which was
    accepted by the other party. Moreover, the parties continued to negotiate the
    terms of this agreement.

[9]

In our respectful view, these findings reflect both a palpable and
    overriding error and an extricable error of law.

[10]

The
    trial judges characterization of the August and September 2009 exchange of
    emails as an exchange of two unique offers cannot be reconciled with the
    evidence. There were not two unique offers but rather two copies of the same
    document signed in counterpart by both parties. That is borne out not only by
    the fact that Ciolli and Wood both signed the same document but also by the
    subsequent emails and conduct of the parties, particularly that of SIC,
    treating the term sheet they signed as constituting their agreement. The trial
    judge did not consider SICs internal emails indicating that an agreement had
    been reached. Nor did he advert to the fact that SIC had, until late in the
    day, taken the position from the pleading stage and through two interlocutory
    injunction motions that an agreement had been reached.

[11]

If
    the basis for the trial judges finding was that by signing in the way they
    did, the parties had not reached an agreement, he made an extricable error of
    law by ignoring the legal doctrine that an agreement signed in counterparts is
    a binding agreement. As stated in
Foley v. R
., [2000] 4 C.T.C. 2016
    (T.C.C.), at para. 32: Agreements signed in counterpart are a part of
    commercial life.

[12]

The
    trial judge placed considerable weight on the fact that there were ongoing
    negotiations subsequent to August and September 2009. These discussions were
    prompted by Wood in November 2009, who suggested changes to certain details of
    the agreement. The proposed changes were discussed and while the parties never
    signed an amending agreement, they continued to conduct their affairs on the
    basis of the exclusive distribution agreement formed in August  September 2009.
    In our view, these negotiations concerned relatively minor matters of the kind
    that would be expected to arise within the framework of a long-term exclusive
    distributorship agreement. We see nothing in the subsequent dealings between
    the parties that undermines the existence of the agreement they both signed in
    August and September 2009 and under which they operated until their
    relationship broke down in May 2010. Continuing negotiations between
    contracting parties do not necessarily negate or alter the agreement they
    reached, particularly if they continue to conduct themselves on the basis of
    their agreement:  Angela Swan & Jakub Adamski,
Canadian Contract Law
,
    3rd ed. (Markham: LexisNexis Canada, 2012) at p. 254.

[13]

Accordingly,
    we conclude that the trial judges finding that no mainstream agreement was
    reached cannot survive. We are satisfied that on the record, an agreement was
    made out and we so find.

[14]

We
    do not accept SICs submission that the Term/Cancellation term is fatal to
    Canas claim to exclusivity for the three year period following March 31, 2010 The
    term sheet of the mainstream agreement provides as follows under the heading
    Territory, Market Channel:

SEXY LIVING [the name under which Cana operated] will
    have exclusive rights, described herein, to import and redistribute the We-Vibe
    to the Food and Chain Drugstore Channel in Canada (Territory). SEXY LIVING
    and SIC are to develop a marketing and sales plan for the Territory.

[15]

Under
    the heading Term/Cancellation the term sheet provides:

SIC agrees that Sexy Living has the right of first
    refusal for exclusivity in the Territory, until March 31, 2010, subject to
    mutually agreed performance criteria after that, with an initial three-year
    term, following that, and with subsequent renewals for two-year periods after
    the initial three-year term.

[16]

While
    there is no evidence of a formal exercise of the right of first refusal, it is
    clear from the record that the parties proceeded on the basis that Cana did
    have exclusive rights up to March 31, 2010. At that point, the trial period
    ended and the initial three-year term was triggered.

[17]

There
    is no dispute that SIC terminated Canas distribution of the We-Vibe in March
    2012 at the conclusion of the interlocutory injunction proceedings. It follows
    that Cana was denied its exclusive distributorship rights for a period of one
    year up to March 2013. The trial judge made no findings as to Canas damages
    for that breach and we accept Canas submission that the issue of damages ought
    to be remitted to the trial judge.

The adult industry agreement

[18]

We
    are not persuaded that the trial judge made a palpable and overriding error of
    fact or an extricable error of law in finding that no agreement had been
    reached with respect to the adult industry stream. The parties exchanged and
    discussed draft terms but Ciolli admitted they never signed an agreement. The
    draft term sheet they did discuss contained no reference to exclusivity. The
    trial judge characterized the dealings between the parties in relation to the
    adult stream at para. 116 as follows:

Without a document that can be reliably identified as the Adult
    Agreement, the record supports the position of Standard Innovation that the
    parties had a distribution relationship and worked on an
ad hoc
basis from one purchase order to
    the next.

[19]

The
    trial judge recognized, at para. 117, that the absence of a written agreement
    is not necessarily fatal, and that the terms of an oral agreement may be
    sufficiently clear and identifiable to establish an agreement, but concluded at
    para. 120, that in the present case, there were too many conflicting documents
    and emails going back and forth over a lengthy course of time that create
    significant uncertainty.

[20]

In
    our view, there was evidence in the record to support the trial judges findings
    and we see no basis upon which this court should interfere with respect to the
    adult stream.

The
quantum meruit
claim

[21]

At
    trial, Cana alleged that oral discussions had led to an agreement between the
    parties in relation to the international market for the We-Vibe, the first step
    of which was for Canas representatives to attend two U.S. trade shows directed
    at that market. Cana does not appeal the trial judges finding that no
    agreement for the international market was reached. However, Cana does submit
    that the trial judge erred by failing to consider its
quantum meruit
claim for certain expenses Cana incurred in preparing for and attending the
    first trade show.

[22]

Cana
    concedes that the
quantum meruit
claim was not argued before the trial
    judge but points out that the claim was advanced in the statement of claim and argues
    that the trial judge erred in law by failing to consider the claim.

[23]

We
    would not give effect to this submission. The argument advanced on appeal was
    not made at trial and, in any event, we are not satisfied that it is supported
    by the record. SIC did agree to reimburse Cana for certain expenses. Cana
    invoiced SIC for those expenses and SIC paid the invoice. We are not persuaded
    that there is any basis in law to require SIC to pay the additional expenses
    now claimed on appeal.

Qualified privilege

[24]

SIC
    counter-claimed for damages for defamation. After the breakdown of the parties
    relationship, Ciolli wrote a lengthy letter to Health Canada alleging that she
    had received 100  150 letters complaining of defects and safety concerns with
    respect to several We-Vibe products. The trial judge found that Ciollis
    statements to Health Canada were ill-founded and awarded SIC damages for
    defamation.

[25]

The
    trial judge refused to consider the defence of qualified privilege, which was
    raised by Ciolli for the first time during closing argument at trial. The trial
    judge ruled that Ciolli did not plead qualified privilege or the factual basis
    to support the defence.

[26]

Ciolli
    concedes that her pleading does not mention qualified privilege but submits
    that the facts necessary to support the claim are contained in the pleading.

[27]

We
    would not give effect to this argument. In our view, it would take a strained
    reading of the facts pleaded in the reply and defence to counterclaim to
    discern a defence of qualified privilege. Moreover, even if the pleading were
    sufficient, the trial judge made the following finding at para. 204: The
    evidence demonstrates that the statements made are false and were timed and
    intended to cause harm to Standard Innovation and the sale of its products.
    That finding contains all the ingredients necessary for malice, which would
    defeat any possible claim of qualified privilege.

[28]

Accordingly,
    we dismiss the appeal from the judgment on the counterclaim.

Disposition

[29]

For
    these reasons the appeal is allowed in part. The dismissal of the plaintiffs
    claim for breach of the mainstream agreement is set aside and the issue of
    damages for that breach is remitted to the trial judge.

[30]

The
    parties may make written submissions on the appropriate disposition of the
    trial judges order as to the costs of the trial and the costs of this appeal
    in light of these reasons.

John Laskin J.A.:

Robert J. Sharpe J.A.

Fairburn J.A.


