2016 QCCQ 1926, 2016 QCCQ 1926

9171-8908 Québec inc. (Dyane Lachance Mode inc.) c. Mode TXT Carbon inc. 2016 QCCQ 1926 COURT OF QUEBEC Small Claims Division CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-32-145436-152 DATE: February 19, 2016 ______________________________________________________________________ PRESIDED BY THE HONOURABLE DAVID L. CAMERON, J.C.Q. ______________________________________________________________________ 9171-8908 QUÉBEC INC. Doing business under the name of Dyane Lachance Mode Inc. 5-105, rue Marie Victorin Saint-Eustache, Qc J7P 0A4 Plaintiff v.

MODE TXT CARBON INC. 400-433, rue Chabanel Ouest Montréal, Qc H2N 2J4 Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] 9171-8908 Québec Inc. doing business under the name of Dyane Lachance Mode Inc. (“Lachance”), sues its former client, the Defendant Mode TXT Carbon Inc. (“TXT”), alleging that TXT cancelled the exclusive sale representative agreement on / or around June 30, 2014, an agreement that had been in place since August 2, 2011, and which, according to its terms, required the cancelling party to give a six-month notice to the other. [ 2 ] The principal of Lachance is Dyane Lachance who does all of her sales work through her corporation [1] . [ 3 ] She asserts that because she was not given sufficient notice of the discontinuation of a product line she was handling for TXT, the Lady Dutch label, she was not able to replace the brand with a product from another clothing manufacturer and therefore lost commissions which were anticipated to be $ 7,600. [ 4 ] She claims that if she had been given the proper notice, she would have been able to mitigate the loss of commissions by incorporating a replacement product into the line of products she was marketing as a sales representative in the maritime territory for clothing manufacturers. [ 5 ] TXT does not deny that it terminated the relationship without giving notice as forseen in the agreement, but takes the position that the notice provision does not apply to the present case, because TXT did not seek to replace Lachance by someone else as its exclusive sales representative, it simply discontinued the line. [ 6 ] TXT admits that if it had decided to change its representative and did not give notice six months in advance, it would have to indemnify Lachance for lost commissions if it could not make them up elsewhere.

But in the present case, when the business was winding down its activities for valid business reasons, it should not have to pay this indemnity. [ 7 ] To resolve this dispute, the Court must answer the following questions:

1. In the circumstances of this case, does the agreement between the parties impose upon TXT an obligation to indemnify Lachance, because it did not give adequate notice of resiliation of the agreement? 2. If so, what amount of damages is Lachance entitled to? FACTS [ 8 ] The agreement of August 2, 2011 (D-1) is a fairly simple document whereby TXT grants to Lachance, refered to as “Dyane” in the agreement, the “exclusive sales representative” for the Maritimes territory, which consist of Nova Scotia, New Brunswick, Prince Edouard Island and Newfoundland / Labrador. [ 9 ] A

schedule to the agreement establishes a commission formula for all net sales in the territory, whether the orders are taken with Dyane or anyone else. In other words, it is an exclusive arrangement.

Ms Lachance informed the Court that the sales process consists of the showing of samples and the placing of orders by the retailers she services in this case the Spring 2015 Collection was to be shown by her at various venues in Eastern Canada where she would exhibit samples of all the collections she represents. [ 10 ] She had made all the arrangements for these showings which were to take place beginning in August so that the retailers could order the products they needed for the following spring, hence the “Spring 2015 collection”. [ 11 ] Paragraph 5 of the agreement reads: This Agreement can be canceled [sic] by either party with 6 months, full selling seasons notice.

To cancel this agreement a registered letter must be sent to Dyane by the Company or Dyane to the company. [ 12 ] The wording of this agreement is somewhat ambiguous to an outsider as to when the six-month notice would be due for the Spring 2015 season.

Both parties agree that the notice would be given six months before the beginning of sales activities, in this case six months before August, say in February 2014. [ 13 ] TXT did not give this notice in the early part of 2014, because it believed that it would be able to transfer this product line to a person with whom it was negotiating, and in the meantime, it continued the process of designing and preparing the samples that would be shown in the late summer and early fall. [ 14 ] TXT’s business plans did not go well, however, and on June 30, 2014 (D-2), TXT’s principal, Erminio Zappitelli sent an email to all of TXT’s sales agents, advising them that it would not be shipping the Lady Dutch collection from the Spring 2015 season and onwards: […] For reasons that are out of our control, we will not be able to produce a sample collection for Lady Dutch for the spring 2015 season.

Which means that you will not have a Lady Dutch sample line to show at your August/September shows. […] [ 15 ] A transition is explained in the letter whereby the orders that have already been placed for the current fall season, would be fulfilled. [ 16 ] For Dyane Lachance, this meant that the efforts she had taken to include Lady Dutch in the August/September showings for the Spring 2015 collection, came to nothing and she did not have time as late as the end of June 2014 to make up for this loss by finding another supplier with a different label.

She had the capacity to make sales, but it was too late for her to arrange a replacement product: manufacturers had already made their arrangements with other sales representatives several months earlier. [ 17 ] Clearly, she lost the ability to make sales and the amount she claims as lost commissions is reasonable in that it was based on the volume of sales of TXT’s products in the previous period. [ 18 ] It is impossible to establish scientifically how much she would have been able to earn from a replacement collection, but given the relatively small amount in issue, it would not have made sense for the Court to hear sophisticated expert evidence to establish the exact amount of her business loss.

The number she presents does not show her full loss, in a sense, because, if the Lady Dutch line had continued, there may have been growth resulting in even higher commissions. This growth might have applied to the replacement product, if she could have found one. [ 19 ] Mr Zappitelli argued that, if the agreement applies, the Court should take into account that Ms Lachance could have found a replacement product since she was informed at the end of June: there is always something that can be done to get samples if a supplier wants to work with a sales representative.

He also argues that the agreement only provides for a minimum commission based on 80% of booked orders, and that any award of damages should be limited with reference to that formula as well. [ 20 ] The Court accepts Ms Lachance’s testimony that she simply was unable to replace the line in such a short period. As to the 80% formula, this is not an action for the recovery of a minimum commission; it is an action for damages because of the faulty resiliation of an agreement.

The award of damages is based upon the probable recovery and that Lachance would have been able to make if it had been given adequate notice and, as stated above, this is essentially a process of arbitrating a reasonable and probable assessment.

The amount claimed is modest and the Court finds it to be reasonable and justified in the light of the figures provided from the previous season (P-4). [ 21 ] This issue to be decided, then, is whether, as Mr Zappitelli asserts, the six-month notice provision would only apply if TXT was continuing with the line and decided to substitute a different agent, and not if it was winding it down. [ 22 ] While the Court understands the difficulty TXT must have had in trying to maintain the business so that it could be sold, from the point of view of the exclusive sales representative, it would make no difference whether she was deprived of the commissions because

someone else received them as opposed to the product line being suddenly discontinued. [ 23 ] She makes a good case that the prejudice to her is actually more severe when the product line has been discontinued, because her relationship with the retailers is aversely affected.

These retailers would have counted upon the collection being showed to them so that they could stock the stores with these very elegant products as had been shown to them in the Spring 2015 catalogue, on page 38, right beside Lachance’s ad on page 39 (P-2). [ 24 ] Not being able to fulfill the commitment to her retailer clients must have been very prejudicial to Ms Lachance. [ 25 ] Considering all of the circumstances surrounding the business relationship and the signing of the agreement, the Court does not see a distinction between different reasons that would compel TXT to discontinue its arrangement with Lachance.

The agreement simply states the way in which the agreement can be brought to an end by either party, the justification for doing so or the lack thereof being in no way expressed in the agreement and, in the Court’s view from the evidence heard, not significant. [ 26 ] TXT, very honourably, took efforts to satisfy all of its creditor’s legitimate claims when it was winding up its affairs, and this judgment provides a reason for it to do so, as well, in the case of Lachance.

FOR THESE REASONS, THE COURT: CONDEMNS the Defendant to pay the Plaintiff the amount of $ 7,600, together with interest at the legal rate and the additional indemnity provided for in

section 1619 of the Civil Code of Québec , calculated from November 17, 2014; CONDEMNS the Defendant to pay the Plaintiff’s costs for the judicial stamp in the amount of $ 250. __________________________________ DAVID L. CAMERON, J.C.Q. Date of hearing: February 9, 2016