4207602 Canada Inc. (Cameo Knitting) c. Kodiak Group Holdings Co. 2024 QCCS 292 SUPERIOR COURT (Civil Division) CANADA PROVINCE OF QUEBEC DISTRICT DE MONTREAL No.: 500-17-128503-243 DATE : JANUARY 29, 2024 PRESIDING: THE HONOURABLE PATRICK BUCHHOLZ, J.S.C. 4207602 CANADA INC. (d.b.a. CAMEO KNITTING) Plaintiff v. KODIAK GROUP HOLDINGS CO. -and- IW APPAREL, LLC.

Defendants JUDGMENT RENDERED ORALLY (PROVISIONAL INTERLOCUTORY INJUNCTION) [ 1 ] The Plaintiff, Cameo Knitting, seeks a provisional injunction against the Defendants, (collectively herein, the “Defendant”), pursuant to an Originating Application dated January 19, 2024. [ 2 ] The order sought is more in the nature of a safeguard order as it essentially seeks to temporarily maintain the parties’ long-lasting and important commercial relationship. [ 3 ] The criteria for the issuance of a provisional injunction, or safeguard order, are well-established.

They both require an examination of the appearance of right, of the alleged serious or irreparable prejudice, of the balance of inconvenience and of the urgency of the matter. [1] In the case of a mandatory injunction, the appearance of right must be particularly strong. [2] [ 4 ] The burden is on the Plaintiff to establish its case for a temporary order.

The Court is of the view, that on the basis of the facts as alleged, and attested to by the Plaintiff’s representatives, and taking into account as well the sworn declaration of the representative of the Defendant, that the Plaintiff has met such a burden, having established, prima facie , all of the applicable criteria. [ 5 ] It is useful to explain the Court’s view through its analysis of the Defendant’s well-argued contestation.

The Defendant argues that the Application should be dismissed on four grounds: 1) Absence of urgency of Plaintiff’s Application; 2) Absence of a strong appearance of right for Plaintiff’s claim; 3) Absence of an irreparable prejudice; and, 4) Absence of clean hands on Plaintiff’s part.

Urgency [ 6 ] The Defendant has recently sent notices to the Plaintiff terminating a twenty-year relationship. Indeed, for approximately two decades, the Plaintiff has been the authorized exclusive distributor of socks and other apparel wares bearing certain of the Defendant’s well-known trademarks, including the Kodiak mark, within the territory of North America. [ 7 ] The matter appears urgent. The Plaintiff and its customers must quickly know where things stand.

While the Defendant is not wrong that one of the underlying issues commenced as early as 2018, the real issue before the Court is wholly new, being the termination notice for default sent by Defendant, just before the holidays, on December 23, 2023, and essentially reiterated on January 3, 2024, [3] seeking to immediately end the parties long-standing relationship. [ 8 ] The delay incurred between the beginning of January and the filing of the Application can easily be explained by the fact that the parties are commercial in nature and, at least on the Plaintiff’s part, it hoped to conclude a finalized agreement, the details of which are mutually satisfactory to both parties, through negotiation.

The Court adds that it does not appear that the Plaintiff either caused the alleged urgency, nor acted as if the matter was not urgent.

Strong Appearance of Right [ 9 ] At the present stage, the Court can take as established the facts alleged by the Plaintiff. [ 10 ] On the basis of said facts, the Plaintiff argues renewal of its agreement with the Defendant as well as bad faith on the part of the Defendant in the conduct of their more recent discussions towards a signed agreement. [ 11 ] The Court is of the view that the Plaintiff’s submission shows a strong appearance of right regarding both the allegation that the contract has been renewed [4] and the allegation that the Defendant has acted abusively or in bad faith. [ 12 ] Since 2004, the Plaintiff’s license agreements have been renewed several times.

The latest agreements between the parties, signed and amended in 2015 and 2016, [5] provided that the Plaintiff had the option to extend the term of the distributorship for four further terms of three years, potentially going as far as December 31, 2030.

Indeed, the term of the agreement was first extended to December 31, 2020 [6] and again extended to December 31, 2023. [7] [ 13 ] The Plaintiff claims that during the last contractual periods, a change in fundamental business practices of the Defendant, essentially in ceasing to distribute Kodiak boots at two of the Plaintiff’s major customers, Costco and Walmart, caused the Plaintiff a great loss of business, their yearly sales recently plummeting to 8 M$ from approximately 20 M$. [ 14 ] The Plaintiff was unhappy with the situation, which, among other things, prevented it from exercising an option to renew its contract because it did not meet the existing minimum sales requirements, so, from February 2023 onwards, the Plaintiff, instead of paying the minimum licence fee instalments to Defendant, placed same in trust with the Plaintiff’s attorneys. [ 15 ] It appears from the evidence that, soon thereafter, the parties began seriously discussing updated terms for the Plaintiff’s contract after December 2023.

While doing so, the Defendant put the Plaintiff on notice, on July 24, 2023, that unless it received payment of the outstanding licence fees, it would terminate the parties’ agreement on August 31, 2023. [8] [ 16 ] In August 2023, the parties continue discussing the terms of the next contract. According to the Plaintiff, the parties agree, on August 22, 2023, on the essential terms of the new agreement. The main terms thereof are contained in the licence proposal term sheet forming part of Exhibit P-20.

[ 17 ] That the parties came to a general agreement on key issues in August 2023 appears corroborated by the fact that the Defendant did not put an end to the Plaintiff’s contract for non-payment of royalties, as threatened, at the end of the month, and undertook instead to have its lawyers draft the first version of the new agreement between the parties. [ 18 ] Regarding the allegation of bad faith or abusive action, the Plaintiff has also made out a strong prima facie case. [ 19 ] As mentioned, the Plaintiff has been the exclusive distributor of certain Kodiak-branded wares for more than 20 years.

At the present stage, it appears abusive to terminate its contract, during final contract revision, on a few days’ notice, just prior to the Holidays, particularly where the Defendant, by its actions and/or its words, allowed the Plaintiff to believe (

i) that the Plaintiff’s key terms were agreed upon and (ii) that its default to pay outstanding licence fees could be remedied upon closing of the new contract. [9] [ 20 ] It is to be noted that, after the August discussions, a first draft of the new agreement is only transmitted by the Defendant to the Plaintiff in the middle of October 2023. As the draft agreement did not accurately reflect what the parties agreed to in August, new drafting was required.

In the meantime, Plaintiff continued to deposit the minimum monthly licence fee instalments in trust with its attorneys, doing so again in October and November 2023. [ 21 ] On November 17, 2023, the Defendant sends a new draft of the agreement to the Plaintiff by email, including the following language in the body of the email: “Separate from our conversations regarding new contract terms, I am formally requesting payment in-full of all past due Royalties for Kodiak/Terra. Consistent with all our previous conversations, we fully expect to finalize mutually agreeable terms for our go-forward agreement.

However, we will not be executing any new agreements until all past-due royalties are paid in-full. For your review, I have attached updated draft copies of our revised agreement(s).” [10] [Underlining is by the Court] [ 22 ] Such language, which claims the amounts owing, yet, at the same time, (

i) reassures that the parties will end up agreeing, (ii) transmits new drafts and (iii) indicates only that there will be no signature if the amounts are not paid, clearly suggests to the Plaintiff that payment of the past-due royalties can be made at the closing, which was consistent with Plaintiff’s view and position for some time. [ 23 ] In late November and December, the language of the Defendant becomes more threatening however, suggesting eventually that there will no further discussion between the parties until the sums in trust are remitted to the Defendant. Yet, revision of the draft agreement(

s) continues. Comments are sent back and forth in November and December. [ 24 ] As mentioned, on December 23, 2023, lawyers for the Defendant again demand immediate payment of the amounts held in trust, otherwise the Defendant will terminate the existing agreement, one week later, on December 31, 2023. [ 25 ] Urgent discussions are held during the holidays. Eventually, on December 29 or December 30, 2023, the Defendant’s position becomes that it may be prepared to agree to a single 1-year term contract renewal for Plaintiff.

The parties fail to resolve the matter and the Defendant’s attorneys advise Plaintiff’s lawyer on January 3, 2024 that the Plaintiff’s contract is terminated for cause with immediate effect. [ 26 ] In the circumstances of the present matter, immediate termination by Defendant, stripping Plaintiff of rights that it has held for twenty years, does indeed appear, at the present stage, to be abusive. [ 27 ] To conclude on this issue, the facts as alleged suggest a strong appearance of right for Plaintiff’s claims, as well as a particularly strong appearance of right for the temporary 10-day order sought.

Irreparable prejudice (and the balance of inconvenience) [ 28 ] Contrary to Defendant’s submission, the Court rather easily conceives of Plaintiff’s serious or irreparable prejudice in the present matter.

As presently alleged by Plaintiff, without the order sought from the Court, it will not be in a position to honour contracts that it has previously signed with multiple customers on the basis of its assumed rights . [ 29 ] According to its allegations, the Plaintiff has also issued purchase orders totalling millions of dollars with its suppliers and will suffer important penalties if it does not fulfill its commitments. [ 30 ] Furthermore, the Plaintiff is known internationally as the exclusive distributor of the licensed products in North America and much of its business model revolves around said distributorship.

The immediate loss of same, even if reinstituted later, would cause irreparable reputational harm to the Plaintiff and directly affect its goodwill with its customer base and suppliers. [ 31 ] The Court notes that the licensed products presently represent approximately 30% of the Plaintiff’s annual sales and that the Plaintiff employs approximately 70 persons at its main office. [ 32 ] In addition, the Court notes that the sole evidence submitted by Defendant at this early stage, being the sworn statement of Mr.

Bradford Bromstead, [11] makes no reference to any material inconvenience being potentially caused to the Defendant if Plaintiff’s application for a temporary order is granted. Indeed, as recently as December 30, 2023, the Defendant was willing to renew the Plaintiff’s contract for another year, and temporary continuation of the commercial relationship appears at first glance beneficial to both parties. [12] [ 33 ] As such, the Court finds, in addition, that the balance of inconvenience is presently clearly in favour of the Plaintiff.

Clean Hands [ 34 ] On the question of clean hands, it is tempting to follow the logic of Defendant’s argument, being that the matter presently before the Court was caused solely by Plaintiff not paying what has been due to Defendant. Indeed, the Plaintiff clearly took it upon itself, since early last year, to not pay the Defendant the minimum royalty amounts due under the trademark licence agreements, but rather to withhold such amounts in trust with one of its attorneys.

In doing so, according to the Defendant, the Plaintiff is in clear default of the license agreements, and as such, does not come to Court with clean hands. [ 35 ] However, as previously discussed, from a prima facie review of the file, it appears that what Defendant alleges as a default leading to a loss of clean hands, was generally accepted by it until most recently. [ 36 ] Throughout the lengthy discussions between the parties, the Plaintiff made it clear that it would cause the remittance of all sums placed in trust to Defendant upon signature of the new agreement.

In the unique circumstances of the present case, given the long- standing relationship between the parties, the fact that Plaintiff’s default has been existing for nearly a year, that the parties have allegedly agreed on all essential conditions of a new agreement, that the delay in executing the new agreement appears generally to be by Defendant’s fault, it is difficult to find that the Plaintiff is not presently coming to the Court with clean hands. [ 37 ] Assuredly, its strategy of not paying past licence fees is not without risk, and their representatives do not always seem to be easy to deal with, it remains that its conduct, all things considered, does not appear to warrant, at the present time, a disallowance of the requested order.

Conclusion

[ 38 ] On the whole, after weighing all of the applicable criteria, the Court determines that the Plaintiff should be entitled to the immediate and temporary relief sought. [ 39 ] It is noteworthy to consider that the present Court renders its decision at a very early stage in the parties’ proceedings.

The Court does not in any way seek to prejudge the parties’ rights and recourses at a later stage, when new evidence may be adduced and the matter may be considered more fully by the Court. [ 40 ] Also, at further stages along the judicial process, circumstances will change, notably the time passed since the very recent position taken by the Defendant regarding immediate termination. That alone may lead a future Court to vary the present order or to dismiss Plaintiff’s application. [ 41 ] The Court also notes that the Defendant should be entitled to prepare the conditional future.

The broad conclusions sought, which may restrict the Defendant’s ability to conclude agreements with third parties applicable in the event that the Plaintiff loses its rights under the Trademark Licence Agreements are not wholly appropriate in the circumstances and appear unduly harmful to the Defendant. As such, the Plaintiff’s requested conclusions have been somewhat refined in the conclusions to the present Court order. They are to be reviewed carefully by the parties.

Security for costs [ 42 ] Finally, on the question of security for costs, the Defendant seeks same in the amount of the monthly minimum royalty payments owed by Plaintiff on a going-forward basis, and that such security be placed in trust with the Court. [ 43 ] However, security for costs will not be necessary in the present case as the present order will require that the said monthly minimum royalty payments or other royalty amounts properly invoiced to the Plaintiff by Defendant be directly paid by the Plaintiff to Defendant without making such payments in trust.

FOR THESE REASONS, THE COURT: [ 44 ] SHORTENS the delays of presentation and service of the Originating Application given the urgency of the present matter; [ 45 ] GRANTS , in part, the Application for the issuance of a provisional injunction; [ 46 ] SUSPENDS the Defendant Kodiak Group Holdings Co.’s January 3, 2024, Notice of termination of the Trademark License Agreement (P-37); [ 47 ] ORDERS the Defendants, their officers, directors, agents and employees to cease and desist from enforcing or taking any measures relating to the January 3, 2024 Notice of termination of the Trademark License Agreement (P-37); nothing in this order, however, prevents the Defendants and their representatives from discussing or concluding arrangements with third parties, if such arrangements are applicable only in the event the Plaintiff loses its rights under the Trademark License Agreements [13] ; [ 48 ] ORDERS the parties to abide by the Trademark License Agreements [14] as if they were still applicable; [ 49 ] ORDERS Defendants, their officers, directors, agents and employees to refrain from entering into any agreement of any kind with a third party, pertaining to the Licensed Trademarks, which is in contravention with Plaintiff’s exclusive rights contained in the Trademark License Agreements [15] ;

[ 50 ] ORDERS Plaintiff to remit to counsel for Defendant IW Apparel LLC, in trust, the amount of $931,500.00 upon said counsel’s confirmation in writing to Plaintiff that Defendant IW Apparel LLC has executed the Fourth Draft of the Trademark License Agreements (P-38) and has placed one original thereof in trust with said counsel; [ 51 ] AUTHORIZES counsel for Defendant IW Apparel LLC to release said amount of $931,500.00 to Defendant IW Apparel LLC upon his providing to Plaintiff’s counsel an original of the Fourth Draft of the Trademark License Agreements (P-38) executed by IW Apparel; [ 52 ] ORDERS Plaintiff to cause the funds held in trust with Mtre Stephen A.

Simmons, namely, the amount of $1,035,000.00, to remain in trust until final judgment in or resolution of the present file, or until Defendant IW Apparel LLC executes the Fourth Draft of the Trademark License Agreements (P-38), or until all parties consent otherwise, or until this honourable Court orders otherwise; [ 53 ] ORDERS Plaintiff to pay, as of January 2024, on presentation of a standard invoice, all monthly royalty amounts and Minimum License Fees due to Defendant IW Apparel LLC under the Trademark License Agreements directly to said Defendant, without holding same in trust with its lawyers or otherwise, and such until final judgment in or resolution of the present file, or until all parties consent otherwise or until this honourable Court orders otherwise; [ 54 ] ORDERS the Defendants to cause their officers, directors, and senior executives to take knowledge of the judgment to be rendered herein and ORDERS that they be bound thereby; [ 55 ] AUTHORIZES the service of the provisional injunction at any time outside legal hours, any day of the week, including a non- juridical day and by means of electronic services, bailiff, telecopy, by leaving certified copies of same in the mailbox of Defendants, by sliding same under the door or by any other means in the absence of Defendants or should Defendants refuse to accept such service; [ 56 ] DISPENSES Plaintiff from furnishing any security for costs in the context of the present proceedings; [ 57 ] ORDERS provisional execution of the present injunction, notwithstanding appeal; [ 58 ] THE WHOLE AS A PROVISIONAL INJUNCTION EXPIRING FEBRUARY 8, 2024, AT 5:00 PM , and with costs to follow suit. ___________________________ PATRICK BUCHHOLZ, J.S.C.

Me Laurent Debrun Me Maria Patricia Ghannoum Spiegel, Sohmer, inc. Attorneys for Plaintiff Me Alexandre Fallon Me Maggie Fortin Me Aurélie Gagnon Osler, Hoskin & Harcourt, S.E.N.C.R.L./s.r.l

Attorneys for the Defendant Hearing date : January 25, 2024