1

In the matter of Peoples Department Stores Inc. and Lionel Wise, Ralph Wise, Harold Wise v. Caron, Belanger, Ernst & Young Inc. and Chubb Insurance Company of Canada

Peoples Department Stores Inc. ("Peoples") was, since 1914, a chain of large surface stores operated as an unincorporated division of the British giant Marks & Spencer ("M & S"). In 1990, the 80 Peoples stores generated income in the range of 160M$ but with an annual deficit of 10M$. M & S decided to sell the division and, for this purpose, incorporated Peoples Inc. and transferred all the stores to this company.

Wise Stores ("Wise") were founded in the 1930s. In 1990, the company, managed by brothers Lionel, Ralph and Harold Wise, operates 50 stores and generates annual income of 100M$. The Wise brothers are interested in the acquisition of Peoples but cannot meet the cash requirements of M & S. The parties finally agree upon a sales price of 27M$ payable in instalments until June 2000.

The acquisition of Peoples is done through a numbered company, a subsidiary wholly owned by Wise. In order to give Wise a strong incentive to find another method of financing the acquisition, the sale is made with stringent provisions, among others the impossibility for Wise to merge with Peoples until the sales price has been fully paid.

In order to solve the increasing difficulties of the company, Wise implements an integration system for the purchases of the two chains of stores. The situation deteriorates and both companies become bankrupt.

Trustee in bankruptcy for Peoples files legal proceedings against the Wise brothers personally, alleging breach of their fiduciary duty and breach of their duty of care under section 122 of the Canada Business Corporations Act.

In a judgment that the Court of Appeal will qualify as the result of a serious reflection and considerable and precise work, Justice for the Superior Court grants the trustee’s action and holds the directors personally liable. He accepts the trustees’ position that the rights conferred by subsection 122(1) CBCA belong to the corporation and that the trustee is the ayant droit thereof. He makes this position stronger based on the provisions of the Bankruptcy and Insolvency Act.

The Court of Appeal reverses the decision of the Superior Court. The Court views the question submitted in the traditional perspective that tends to coincide the interest of the corporation with the interest of the shareholders in the pursuit of the objects for which the corporation was set up. The Court concludes that the Wise brothers did not incur any liability in this respect. At most, they committed an "honest error of business judgment".

With respect to the fiduciary duty, the Court of Appeal reminds that the Wise brothers were driven by the desire to solve a management problem, which in itself complies with the best interest of the corporation. With respect to the duty of care, the analysis a posteriori does not take into account the factual context of the adoption of the new system. This measure satisfies objectives as well as subjective standards of the duty of care.

The Court of Appeal reminds that it is difficult to forget the fact that the sole shareholder of Peoples, Wise, never considered that the directors were not fulfilling their duties. The Court is reluctant to assimilate the rights of the creditors to the rights of the shareholders, even in a case of bankruptcy.

The Court of Appeal grants the appeal of the Wise brothers and reverses the judgment of the trial judge.

In the matter of Peoples Department Stores Inc. and Lionel Wise, Ralph Wise, Harold Wise v. Caron, Belanger, Ernst & Young Inc. and Chubb Insurance Company of Canada. Court of Appeal. 500-09-007536-980. 13 March 2003. Honourable Justices Robert, Nuss, Pelletier.

2

Dylex Ltd. (Trustee of) v. Anderson et al.

In May 2001, Hardof Wolf Group Inc. ("HWGI") acquires all the issued shares of Dylex. A few months later, Dylex is bankrupt.

In his capacity as trustee in bankruptcy, Richter & Partners Inc. filed proceedings against, among others, previous directors, officers and shareholders of Dylex. The trustee challenges the validity of the agreements between Dylex and HWGI and request that their personal liability be held through an oppression remedy.

Respondents filed two motions asking, among other things, if the trustee in bankruptcy may qualify as "complainant" and be entitled to the oppression remedy. They allege that the trustee cannot be entitled to more rights than the corporation itself.

The Court first reminds that such motions cannot be granted easily. Previous decisions have recognized that the trustee in bankruptcy, whose main obligation is to represent the interest of the creditors, may qualify as complainant in order to file for an oppression remedy.

Motions are dismissed.

Dylex Ltd. (Trustee of) v. Anderson et al. Ontario Superior Court. File number ONSC 02-CL-4651. 11 March 2003. Honourable Justice Lederman.

3

BDDS Shandwick Corporation et al. v. Lebrun et al.

At trial, appellants BDDS Shandwich Corporation ("BDDS") and 3707822 Canada Inc. ("3707822") complained that Respondent Lebrun joined a competitor, in breach of his obligations under his employment contract and the agreement for the sale of his shares. In the course of a declaratory action and an action for permanent injunction, they obtained an order for safeguard pertaining to the non-solicitation of customers and the obligation of confidentiality.

The Superior Court dismissed the claims of BDDS and 3707822 and the latter appealed the decision within 10 days. Lebrun filed a motion to suspend the order for safeguard.

Justice Rochon of the Court of Appeal is of the opinion that the order for safeguard cannot be assimilated to an interlocutory injunction for the purposes of Articles 760 C.P.C. Per se, Article 760 C.P.C. is exceptional in stating that an interlocutory injunction remains in force beyond the final judgment if an appeal is filed within 10 days. The order for safeguard is a provisional measure issued without complete evidence. The legislator cannot have, through Article 760 C.P.C., granted priority to an order for safeguard. The motion for suspension is not required as no interlocutory injunction was issued for the purpose of Article 760 C.P.C.

Motion dismissed.

BDDS Shandwick Corporation et al. v. Lebrun et al. Court of Appeal. 500-09-013140-033. 5 March 2003. Honourable Justice Rochon.

4

Compagnie nationale Air France v. his excellence justice Kéba Mbaye, professor Mohamed Bennouna, justice Gilbert Guillaume, mr. Ousmane Diallo, ès qualité as clerk of the arbitration court, Libyan Arab Airlines and attorney general for Canada, International Air Transport Association

In 1972, Compagnie Nationale Air France ("Air France") and Libyan Arab Airlines ("LAA") entered into an agreement by which Air France undertook to maintain the aircrafts of LAA and to supply flying personnel and specialized services in air transportation. The agreement included an arbitration clause referring to the regulation of the International Air Transport Association ("IATA").

In December 1988 and September 1989, two aircrafts exploded and nearly 600 passengers were killed. A thorough investigation demonstrated that Libya and some of its citizens were directly responsible. The United Nations ("UN") then announced numerous measures to create an embargo against Libya.

On April 15, 1992, Canada integrated the commercial and aerial embargo of the UN into Canadian law. The day after, Air France informed LAA that it was terminating its contract due to the embargo.

In November 1993, the UN adopted more stringent measures and extended the embargo to all financial and commercial relations with Libya and its citizens and froze all Libyan assets in all countries. It is now forbidden to accept any Libyan claim.

LAA notifies Air France that a request for arbitration was filed with IATA on October 23, 1995, alleging that Air France has ceased to fulfill its obligations in two steps, first in a partial manner on November 1, 1985 and then completely on April 16, 1992. On November 23, 1995, after giving notice to the French Minister for Foreign Affairs, Air France notifies LAA that it cannot appoint an arbitrator due to the UN resolutions. LAA informs IATA of Air France’s default to appoint an arbitrator and requests IATA to do so. IATA agrees to LAA’s request and appoints an arbitrator. Both arbitrators appoint a third as president of the arbitral tribunal.

In February 1997, Air France, in a letter addressed to the president of the arbitral tribunal, explains that it intends to invoke the non-arbitrability of the dispute. In June 1997, the parties, with the cooperation of the arbitral tribunal, prepare an act of mission. The forum for the arbitration shall be Montreal, the governing law shall be French law and the procedure shall be governed by the Regulation for arbitration of the UN Commission for international commercial law.

On July 10, 1998, the arbitral tribunal dismisses the exception of non-arbitrability. The arbitrators are of the opinion that, under French law, under Canadian law and under transnational public order, the litigation is arbitrable. Consequently, the arbitration tribunal declares itself competent to hear the dispute but does not pronounce upon the questions that shall be decided later with respect to the consequences of the embargo.

On August 12, 1998, Air France files proceedings with the Quebec Superior Court asking the Court to declare that the appointment of the arbitrator by IATA is null and void, to declare that the litigation is non-arbitrable, to cancel the partial judgment rendered by the arbitral tribunal and to order the arbitrators to put an end to their work, at least as long as the international embargo against Libya shall remain in force.

Trial before the Superior Court lasts for 8 days in October and November 1999. In February 2000, the Superior Court dismisses Air France’s claims. The Superior Court is of the opinion that the claim is premature and that the matter of the illegal constitution of the arbitral tribunal can only be addressed in the course of a motion for homologation or annulment of a decision.

The Court of Appeal refers to the decision of the Supreme Court in Roberval Express Ltd in which it was held that the superintending and reforming power of the Superior Court cannot be invoked to control the legality of an arbitral tribunal, the latter not being established by law. The parties deliberately chose, in their agreement, to submit any dispute to arbitration.

After analysing the measures implemented by the UN and the powers of the Quebec Courts, the Court of Appeal is of the opinion that it cannot intervene with respect to this judgment.

The Appeal is dismissed.

Compagnie nationale Air France v. his excellence justice Kéba Mbaye, professor Mohamed Bennouna, justice Gilbert Guillaume, mr. Ousmane Diallo, ès qualité as clerk of the arbitration court, Libyan Arab Airlines and attorney general for Canada, International Air Transport Association. Court of Appeal. 500-09-009391-004. 31 March 2003. Honourable Justices Rothman, Mailhot, Chamberland.

5

Industries Flexart Ltée et al. v. Baril et al.

Michel Baril («Baril»), through various companies, controlled two wood manufacturing facilities located in Victoriaville.  In 1997, he decided to sell his factories and entered into negotiations with the representative of an American company, Full Circle Investments Inc. (“FCI”), who had recently purchased two similar companies located in St-Raymond-de-Portneuf.

The sale was concluded on July 11, 1997.  Baril’s shares were purchased by Industries Flexart Ltd. (“Flexart”) and its parent company, St. Raymond Wood Products Holdings Ltd. (“Holdings”), both companies under the control of FCI.

The sale was concluded for a total amount of approximately $6.7M and included the following undertakings:

• An amount of $4.8M was paid in cash;

• An amount of $1.2M payable by promissory note due on August 31, 2003 and bearing a 6% annual interest, payable every three months;

• Baril received 5% of the common shares of Holdings for a consideration of $500,000, representing 86,01$ per share;

• By a contract of employment, Baril was to act as President of Flexart for a period of 3 years.

During the trial, Baril testified for a period of almost 2 days on the facts that led to his departure in August 1999.  His testimony, combined with documentary evidence, led the trial judge to the conclusion that the unilateral amendments made to his employment constituted a wrongful dismissal and that Holding had acted oppressively, in contravention with section 241 CBCA and that, therefore, the provisions of the shareholders agreement preventing payment of the amounts due for the redemption of Baril’s shares could not be invoked against him.

The Court of appeal takes notice that Baril did not receive any financial information regarding the corporation, that he was not advised of important sales and acquisitions made by the group, and that he was never notified of shareholders meetings.  His leaving the company is assimilated to a forced resignation.  However, the Court of appeal reduces the amount awarded as damages by decreasing the amount of the bonus and by refusing moral and punitive damages.  The Court also refuses to grant lawyers fees.

Industries Flexart Ltée and St-Raymond Woods Products Holdings Ltd. v. Michel Baril and 3349900 Canada Inc., Court of Appeal, 200-09-003476, 3 February 2003, Honourable Justices Fish, Brossard, Rochette.

6

Joffre v. A.V.I. Financial Corporation (1985) Inc.

A.V.I. Financial Corporation (1985) Inc. («AVI») was incorporated in May 1985.  Organizational proceeding documents indicate that the corporation has 100 class A shares issued at $1.00 each.  Harold Joffre then holds 22 shares and his brother Elliot 27.  Laurence Klugerman, through his holding company, holds 51 shares.

A corporate reorganization takes place on August 12, 1986.  Elliot gives his shares to his mother, Ruth Joffre, who now holds 27% of the shares.  Klugerman’s holding company sells half of its shares to Bernard Weiser and the other half to his brother, Reginald Weiser.  The shareholders of the corporation now represent two groups, the Weiser group, Bernard and Reginald, who hold together 51% of the shares and the Joffre group, Harold and Ruth, who hold together 49% of the shares.

All the parties then sign a unanimous shareholder agreement.  The agreement sets the quorum at 2 directors and stipulates that an independent accounting firm will audit annual financial statements of the corporation.

On August 1, 1993, Bernard purchases his brother’s shares and becomes, through his holding company, majority shareholder of AVI.  He is considered to be the directing mind of the corporation.

At the trial, evidence reveals that the minute book of the corporation was not maintained as required by section 20 of the Canada Business Corporations Act and that it was prepared in bulk in March 2001 following requests made by the Joffre group to the corporation and its officers.  No meeting of the directors or of the shareholders was called nor held in more than 10 years and no resolution was signed by all the directors and/or the concerned shareholders.  The financial statements were never audited, notwithstanding the provisions of the unanimous shareholder agreement.  Bernard Weiser’ remuneration was never approved by the Board of directors, in contravention with the by-laws of the corporation.

The Court concludes that the contravention of numerous provisions of the CBCA and of the shareholder agreement amount to oppression of the minority shareholders.  In the circumstances, taking into account the tumultuous litigation between the parties, their serious and important disagreements and the long period during which the minority was oppressed, the Court orders that the corporation be wound up.

Harold Joffre and Ruth Joffre v. A.V.I. Financial Corporation (1985) Inc. and Bernard Weiser, Reginald Weiser and 4057830 Canada Inc., Superior Court, 500-05-067040-012, 14 March 2003, Honourable Justice Sévigny.

7

Dupont v. Technologies Silver Leap Inc.

Sébastien Dupont was employed by Technologies Silver Leap Inc. (“Technologies”) until he was dismissed in July 2002.  He also held common shares of Technologies and was party to a unanimous shareholder agreement.

The shareholder agreement provides that in case of dismissal, the ex-employee is presumed to offer all his shares for sale to the corporation.  Dupont refused and filed an action against Technologies for wrongful dismissal.  The next day, on October 11, 2002, Technologies filed proceedings to obtain title to the shares.

On October 18, 2002, Technologies held a special meeting of the shareholders in order to amend the rights pertaining to the common shares.  Upon reception of the notice of the meeting, Dupont sent his notice of dissent before the meeting.  On December 27, 2002, he filed a motion to have the fair value of his shares determined by the Court as provided by section 190 CBCA.

Technologies requests that the motion be dismissed on the grounds of lis pendens or, subsidiarily, that the proceedings be suspended until judgment on the main action.

The Court dismissed the motion based on lis pendens on the grounds that the cause is not identical in the two actions.  The action filed by Technologies is based on the shareholder agreement whereas Dupont’s motion is based on section 190 CBCA.

The Court grants the motion for suspension of the proceedings based on Article 46 C.P.C.  The right to dissent is an accessory to the ownership of the shares and it must be determined if Dupont is still a shareholder.

Sébastien Dupont v. Technologies Silver Leap Inc., Superior Court, 200-05-017846-028, 18 March 2003, Honourable Justice Blondin.

8

Restaurant L’Ancestral (1988) Inc. et al. v. 9089-6663 Québec Inc.

Plaintiffs have been operating a restaurant under the name «Restaurant L’Ancestral» since 1988.  The restaurant is located at 625 west, St. Martin Boulevard, in Laval.  They request a permanent injunction and damages in the amount of $50,000.

Defendant 9089-6663 Quebec Inc. («9089») was incorporated in April 2000.  It opened a restaurant under the name “Restaurant L’Ancestral” at 13234 Labelle Boulevard, in Mirabel.  It alleges that it is continuing the operation of the “Restaurant L’Ancestral” previously operated by Mr. Alain Henrichon since 1995, first in St. Hippolyte and then in Lafontaine.

The Court reviews section 13 of the Act respecting the Legal Publicity of Sole Proprietorships, Partnerships and Legal Persons (“ALP”) which forbids the use of a name that leads to confusion with a name already used by someone else.  The Court examines the criteria for evaluating confusion set in sections 4 and 5 of the Regulation of the ALP.

The Court holds that the two businesses are in direct competition, that the accent is on the word «ancestral» and that they both operated in the restrictive sector of the northern suburb of Montreal, within 30 km from each other.

The Court grants the injunction and orders 9089 to cease using the business names «Restaurant L’Ancestral» and «Restaurant La Maison L’Ancestral II», to remove immediately all outdoor signs and all the stationery used in the operation of the business.  The Court however refuses to grand damages as no evidence of prejudice was submitted.

9042-5703 Québec Inc. and Restaurant L’Ancestral (1988) Inc. v. 9089-6663 Québec Inc., Superior Court, 700-05-009674-007, 26 March 2003, Honourable Justice Courville.

1

Barton No-Till Disk Inc. et al. v. Dutch Industries et al.

Under the Canadian Patent Act and Patent Rules, an applicant must pay prescribed amounts, called “maintenance fees”, at specified times in order to keep the application or the patent in good standing.  The amount is lower for a “small entity” than for a “large entity”, in order to provide a modest monetary relief to inventors that are presumed to be of limited means.  However, the definition of “small entity” is complex and asks a number of questions, some of which are rather difficult to answer with precision.

It was the practice of the Commissioner of Patents to permit that the deficiency created when a “large entity” paid a fee applicable to a “small entity” be cured by  “top-up” payments, which could be made even after the deadline for the payment of the fee.  In the course of proceedings for patent infringement, Dutch Industries Ltd (“Dutch”) alleges that the Commissioner has no authority to accept top-up payments.

The Trial judge quashed the Commissioner’s decision to accept top-up payments on the grounds that there is no statutory authority allowing him to accept them.  Consequently, the patents were deemed abandoned and cannot be reinstated.

The Federal Court of Appeal agreed with the Trial judge that the Patent Rules preclude the Commissioner from extending the deadlines for the payment of maintenance fees.  That implies that the Commissioner lacks the authority to permit a deficient maintenance fee to be topped up after the date on which the fee was due.

However, the Court held that a person who meets the definition of “small entity” when applying for a patent maintains that status as long as the application is pending and as long as the patent remains in force.  There is no statutory requirement for the status of a person as a “small entity” or “large entity” to be redetermined at any other time, at least in relation to maintenance fees.  This interpretation is based upon the statutory objectives in play in this case, which are intended to defray part or all of the cost of the Patent Office.  There is no definition that stipulates the date at which the facts pertaining to the “small entity” status are to be determined.  The absence of any mention of a temporal element in the definition of “small entity” presents a statutory interpretation that should be solved in a manner that minimizes the risk of catastrophic consequences, such as the abandonment of a patent, due to an innocent error in the determination of the status.

Barton No-Till Disk Inc. and Flexi-Coil Ltd. v. Dutch Industries Ltd. and The Commissioner of Patents and Intellectual Property Institute of Canada. 2003 FCA 121, Docket A-573-01, A-574-01, 7 March 2003, Honourable Justices Rothstein, Sharlow and Malone.

2

Amazon.com Inc. v. PDC

Complainant is the well-known company Amazon.com, founded in 1995, that specializes in selling merchandise over the Internet.  Although it initially sold mainly books, it now sells a myriad of products, including health and beauty products.  For the first three quarters of 2002, it had revenue of U.S.$2.5 billion.  The company owns many “Amazon.com” trademark registrations in the United States and in many other countries.

Respondent, PDC of Ventura, California, is an enterprise selling herbs, vitamins, health products and health encyclopedias over the Internet.  Its founder, Ms. Zulfiyya Mammedova, thrives on promoting the healthy life style of vegetarianism and herbalism of Amazon plantations and promotes the Amazon’s natural products.  She registered the domain names “amazondrugs.com”, “amazonpharmacy.com” and “amazondoctor.com”.

Amazon.com complains that PDC added generic, descriptive terms to its mark intending to capitalize on its famous trademark.  PDC alleges that the domain names were created to promote a healthy lifestyle using plants, herbs and medications cultivated in the Amazon regions of South America.

One Panel member disagrees with the majority and finds that Complainant’s trademark is not a strong one because it is based on a geographical region.

The Panel majority finds that Amazon.com has demonstrated that its trademark is famous and orders that the three disputed domain names be transferred.

Amazon.com Inc. v. PDC, WIPO Arbitration and Mediation Center, Administrative Panel Decision, Case number D2003-0076, 26 March, 2003.

3

American Sporting Goods Corp. v. Sears Canada Inc.

American Sporting Goods Corporation (“American”) is appealing the decision of the Registrar of Trade Marks refusing registration of the trade mark NEVADOS in association with footwear on the grounds that it is confusing with a family of trade marks of Sears Canada Inc. (“Sears”) including the word NEVADA.

Substantial new evidence was filed before the Court on behalf of both parties, attesting to sales in Canada and samples of advertisements in Canada over the relevant period.

The Federal Court agrees with the decision of the Registrar.  The lack of inherent distinctiveness of the NEVADA trademarks in view of its geographic significance is not, of itself, determinative.  There is an overlap in the nature of the wares and a potential overlap in the nature of the trade of the parties.  The Court finds that the applicant has failed to meet the legal burden of showing that there would be no reasonable likelihood of confusion between the trademarks at issue.

American Sporting Goods Corporation v. Sears Canada Inc., 2003 FCT 320, Docket T-222-01, 18 March 2003, Honourable Justice Gibson.

4

Boston Pizza et al. v. Boston Market Corporation et al.

Boston Pizza International Inc. and Boston Pizza Royalties Limited Partnership (together referred to as “Boston Pizza”) seek an interlocutory injunction against the defendants Boston Market Corporation, McDonald’s Restaurants of Canada Limited, Boston Market Canada Company and Global Restaurant Operations of Ireland Limited (all related companies together referred to as “Boston Market”) to restrain them from using the trade name “Boston Market” in Canada in association with the operation of restaurants and sale of prepared food.

The motion arises in the context of Boston Pizza’s action for infringement of trademark, depreciation of goodwill and passing off. 

Boston Pizza has licensed franchisees that operate 162 restaurants in Canada.  It is the licensee of the registered trade-mark BOSTON PIZZA, which has been in use since 1965.

Boston Market restaurants have been operated in the United States since May 2000.  It opened its first restaurant in Canada in September 2002.  A second was opened in December 2002 and a third is planned to open in June 2003.  All three are located in Mississauga.  Boston Market claims to have a different focus that the Boston Pizza restaurants.  It falls into the category of “fast casual” service.  The Boston Market restaurants have drive-through, a cafeteria-style self-serve area and a small dining area.  Boston Pizza restaurants have full table service, dining and bar area and are licensed to serve alcohol.  The fall into the category of “casual dining”.

Expert evidence was submitted on behalf of both parties to demonstrate confusion and irreparable harm, or lack thereof.

In order to grant the injunction, the Court must first determine if a serious issue has been raised.  Both parties agree that there is a serious issue to be tried.  The Court must then decide if Boston Pizza will suffer irreparable harm if the injunction is not granted.  The Court states that while there is some evidence of confusion, the nature of the harm caused as a result of this confusion is not clear and is couched in somewhat hypothetical terms.

Finally, with respect to the “balance of convenience”, the Court is of the opinion that it favors the Respondents.  Boston Market has spent money and effort in advertising and marketing campaigns, including newspapers, billboard signs and mail outs to 50 000 households.

The application for an interlocutory injunction is denied.

Boston Pizza International Inc. and Boston Pizza Royalties Limited Partnership v. Boston Market Corporation, McDonald’s Restaurants of Canada Limited, Boston Market Canada Company and Global Restaurant Operations of Ireland Limited. 2003 FCT 382, Docket T-1319-02, 1 April 2003, Honourable Justice Blanchard.