2020 QCCA 1331, 2020 QCCA 1331

Unofficial English Translation of the Judgment of the Court Costco Wholesale Canada Ltd. c. Simms Sigal & Co. Ltd. 2020 QCCA 1331 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTRÉAL No.: 500-09-027254-184 (500-17-060159-103) DATE: October 15, 2020 CORAM: THE HONOURABLE FRANÇOIS PELLETIER, J.A. SUZANNE GAGNÉ, J.A. LUCIE FOURNIER, J.A. COSTCO WHOLESALE CANADA LTD. APPELLANT – defendant v. SIMMS SIGAL & CO. LTD.

RESPONDENT – plaintiff JUDGMENT [ 1 ] The appellant appeals against a judgment rendered on November 6, 2017, corrected on November 22, 2017, by the Superior Court, district of Montreal (the Honourable Mark G. Peacock), which granted the respondent’s action in part and dismissed the appellant’s counterclaim, with legal costs; [ 2 ] For the reasons of Fournier, J.A., with which Pelletier and Gagné, JJ.A. agree, THE COURT: [ 3 ] DISMISSES the appeal, with legal costs. FRANÇOIS PELLETIER, J.A. SUZANNE GAGNÉ, J.A. LUCIE FOURNIER, J.A.

Mtre Sophie Perreault Mtre Catherine Cayer Mtre Catherine Martel LANGLOIS LAWYERS Counsel for the appellant Mtre Sandra Mastrogiuseppe Mtre Jean-François Carpentier

KUGLER KANDESTIN Counsel for the respondent Date of hearing: January 30, 2020 REASONS OF FOURNIER, J.A.

INTRODUCTION [ 4 ] This appeal deals primarily with the extracontractual fault known as “contractual interference” and the burden that must be satisfied to establish it. [ 5 ] The appellant, Costco Wholesale Canada Ltd. (“Costco”), pleads that the judge erred regarding the constituent elements of the fault alleged against it and that he strayed from the principles accepted by the case law in a context similar to this case in concluding that Costco committed the fault of contractual interference by selling in its stores in Canada products for which the respondent, Simms Sigal & Co.

Ltd. (“Simms”), had exclusive distribution rights in Canada. [ 6 ] In the alternative, this appeal also concerns the apportionment of liability between Costco and Rock & Republic Enterprises Inc. (“R & R”) – since the first argues the greater liability of the second – and the $500,000 in punitive damages awarded to Simms by the judgment when there was no unlawful and intentional interference by Costco with Simms’ reputation.

BACKGROUND [ 7 ] It is important to recount the circumstances in which the main facts occurred as the issues raised by the appeal bear essentially on the facts. [ 8 ] Simms is a Canadian business specialized in the importation and distribution of high-end apparel to retailers of this type of merchandise across Canada. [ 9 ] R & R is an American apparel manufacturer that owned the Rock & Republic trademark. [ 10 ] In 2006, Simms signed an initial agreement with R & R for the exclusive distribution of R & R products in Canada.

On March 1, 2009, a new distribution agreement was signed for a term to end on December 31, 2012 (the “Distribution Agreement”). R & R granted Simms exclusive distribution rights to retailers in Canada for the following products: the denim line, ready-to-wear apparel, and Rock & Republic accessories. [ 11 ] Thus, since 2006, Simms had been distributing R & R products to high-end stores in Canada. R & R jeans were sold for a price ranging between $250 and $325. [ 12 ] In the spring of 2009, Costco, a business operating in Canada as a “membership warehouse club”, was approached by Kontakt U.S.

International Inc. (“Kontakt”), an intermediary with whom it did business, regarding the purchase of R & R products. Since Costco was interested in R & R’s high-end line, it was agreed that Kontakt would purchase R & R merchandise to be sold to Costco by Abfi Inc. (“Abfi”), a distributor with whom Costco did business in Canada. [1] In June 2009, Costco made an initial order of R & R jeans. The jeans were to be sold across the Canadian market, including in Quebec, so the labels had to be in French and in English.

The cost of the jeans was $84 and the sale price to Costco warehouse customers would be $98.99. [ 13 ] In November 2009, Costco started selling R & R jeans in its Canadian warehouses. [ 14 ] Simms immediately received complaints from its clients. On November 12, 2009, Simms wrote to Costco to demand that it immediately cease selling R & R products and written confirmation that it had removed R & R products from its warehouses and ceased using that trademark.

This formal notice from Simms’ attorneys stated that it was the exclusive distributor of R & R products in Canada, that the jeans sold by Costco bore Simms’ identification number [2] (“CA number”) under the Textile Labelling Act , [3] contrary to the applicable regulation, and that the sale of R & R products by Costco constituted unfair competition under the Trademarks Act . [4] [ 15 ] On November 13, 2009, Costco’s attorneys replied that the R & R merchandise it was selling was authentic and that, because they were goods acquired on the grey market, [5] Costco had a right to sell them.

Furthermore, it was not legally allowed to remove the CA number affixed on the jeans. [ 16 ] On November 16, 2009, Simms replied that it could not be grey market merchandise given the presence of its CA number on the R & R jeans sold by Costco. Simms demanded that Costco disclose the name of its supplier because its clients’ purchasers would conclude that the jeans for sale at Costco had been sold to it by Simms.

Costco’s attorneys refused to identify the supplier and reiterated Costco’s right to sell the R & R jeans purchased on the grey market. [ 17 ] In the meantime, Costco contacted Abfi for confirmation that the products purchased were authentic and that R & R knew that Costco intended to sell them in Canada.

Costco asked for written proof of its right to sell them. [ 18 ] Abfi sent Costco a letter, dated September 18, 2009, signed by R & R, confirming that Quetico had purchased authentic goods. [6] Abfi told Costco that R & R “are already dealing with the mad distributor” [7] and “please do not release this letter to the distributor”. [8]

[ 19 ] Costco continued selling R & R products bearing Simms’ CA number until late January or early February 2010. R & R’s address and name then appeared on the labels of R & R products sold by Costco. [9] [ 20 ] In January and April 2010, Costco placed new orders for greater quantities of R & R products. [ 21 ] In April 2010, R & R filed a voluntary petition for relief under U.S. bankruptcy legislation. [10] [ 22 ] In May 2010, Simms learned that Costco was still selling R & R products.

Its clients expressed their discontent and several canceled their orders. [ 23 ] In June 2010, following discussions with Simms, R & R provided Simms with a statement to reassure its clients in which, among other things, R & R declared: [11] … Rock & Republic is also aware that products bearing the brand’s trademark have recently appeared at Costco in Canada. It is important our loyal customers are reassured that Costco is not on Rock & Republic’s customer list and a full investigation concerning this matter is ongoing based on these findings.

Also to put further speculation to rest, there is no connection between the Costco Product and the recent

Chapter 11 filing, Rock & Republic maintains its premium lifestyle brand image, not that of a discount warehouse .

Rock & Republic takes its integrity and brand image very seriously, along with that of its valued partners in Canada and will pursue further investigations of this matter. [Emphasis added.] [ 24 ] The same day that R & R made this statement, Costco confirmed a new order of R & R products with Abfi, followed by other orders in June and August 2010. [12] [ 25 ] On July 20, 2010, Simms sent Costco a new formal notice in which it reminded Costco of its exclusive right to distribute R & R products in Canada and of the terms of its formal notice sent in November 2009.

It added that the sale of R & R products by Costco had caused it damage and again demanded that it immediately cease selling R & R products. [ 26 ] In its reply, dated July 30, 3010, Costco again argued that it had a right to sell R & R products acquired on the grey market and that neither the trademark owner nor Simms “as exclusive authorized distributor has any recourse in objecting to our client’s activities”. [13] [ 27 ] On August 2, 2010, Simms’ attorneys advised Costco’s attorneys that proceedings were about to be instituted against Costco.

That same day, R & R sent Simms a notice of termination alleging a violation of the Distribution Agreement following order cancellations without R & R’s prior authorization. Simms vigorously resisted R & R’s attempt to terminate. [ 28 ] On August 6, 2010, Simms instituted its proceedings against Costco for a permanent injunction ordering Costco to cease selling R & R products and for damages. [ 29 ] On August 12, 2010, R & R, before the U.S.

Bankruptcy Court, Southern District of New York (the “American Court”), filed a “Motion to reject exclusive distribution agreement pursuant to 11 USC art. 365(a)”. [14] [ 30 ] In August 2010, Costco canceled its orders for R & R products, except one order made on June 11, 2010, for which payment agreements had already been concluded. [15] [ 31 ] On September 13, 2010, following Simms’ withdrawal of its Objection, the American Court ended the Distribution Agreement as of August 12, 2010, without prejudice to Simms’ right to institute an action for damages against R & R. [ 32 ] Simms filed a “Proof of Claim” before the American Court to obtain damages of $6,383,600.

The settlement of that claim was approved in October 2012 in consideration for US$2,700,000. [ 33 ] In the meantime, on November 30, 2010, Simms amended its action against Costco to withdraw its injunctive conclusions and claim $6,383,600 in compensatory damages and $500,000 in punitive damages. The compensatory damages were later reduced to $4,593,038, after the Proof of Claim was settled in the R & R bankruptcy. In 2016, the parties amended their proceedings for a final time.

Costco added a counterclaim alleging abuse of procedure against Simms, while Simms asked that the counterclaim be dismissed given that it was abusive. [16] [ 34 ] In September 2016, the trial was conducted over 10 days. JUDGMENT UNDER APPEAL [ 35 ] In a corrected judgment, dated November 22, 2017, the judge provided a detailed 111-page report of the evidence adduced, the parties’ positions, and the law he considered applicable to all of the issues submitted before him. [ 36 ] Since Costco was not a party to the Distribution Agreement, the judge characterized the alleged fault as contractual interference.

He first determined the validity of Simms’ rights under the terms of the Distribution Agreement and confirmed Simms’ exclusive right to sell R & R products in Canada to its “approved retailers”, that is, to “first class, ‘high-end’ retail departments or clothing stores”, [17] which excluded Costco, who could not purchase R & R products in Canada given the exclusivity granted to Simms to distribute them within Canada. [ 37 ] The judge then considered the fault of contractual interference to determine whether, in this case, Costco had incited R & R to breach the Distribution Agreement or participated with it in such breach.

[ 38 ] He did not accept Simms’ theory that Costco had known about Simms’ rights since January 2009, and that, as of that time, it had participated in breaching the Distribution Agreement in conjunction with R & R in the context of a project called “Project X”.

He described Project X, which R & R’s managers referred to whenever they discussed Costco’s orders for products that would be manufactured in Guatemala, rather than in the United States, as follows: [18] [162] From the evidence, the Court infers that “Project X” was a term used by certain “in the know” R & R senior managers to refer to the sale of these “second-tier goods” to Costco.

It is likely that this suspicious terminology may have been developed by this R & R senior management team to keep the R & R operations' employees who were dealing directly with Simms “in the dark” about these “back channel” sales to Costco. [163] While internal R & R emails refer to “Project X”, there is nothing in this title alone that would cause Costco employees to conclude that R & R was trying to hide an exclusive distributorship agreement. [ 39 ] This allowed the judge to conclude that R & R had always known that the merchandise was intended for Costco.

As for Costco, although certain facts left the judge perplexed, in particular, Costco’s acceptance, without any objection, of second-tier merchandise manufactured in Guatemala when Costco had been told that it was being sold first-tier merchandise manufactured in the United States, this did not, however, lead the judge to conclude that Costco had committed a fault with respect to Project X: [19] [167] The Court understands, in the context of everything that has transpired since 2009, that Simms could have reasonable suspicions concerning the use of the “Project X” appellation.

However, such reasonable suspicions - in the context of the evidence produced in this file - do not reach the level of balance of probabilities. [ 40 ] The situation is altogether different, however, after the first formal notice was received in November 2009. Costco was then informed of the existence of the Distribution Agreement and that the merchandise it was selling bore Simms’ CA number. For the judge, different signs also pointed to the existence and breach of the Distribution Agreement.

As of that point, by continuing to sell R & R products and by placing new orders, Costco committed an extracontractual fault making it liable for the damage caused to Simms as of the first formal notice. [ 41 ] The judge rejected Costco’s argument of a novus actus interveniens . First, regarding the termination of the Distribution Agreement, the judge held that it was due rather to R & R’s desire to end the agreement in order to continue selling its products to Costco.

Second, even though the sale of the R & R trademark in March 2011, in the context of the restructuring proceedings, constituted a novus actus interveniens , it had no impact on causality since the period of damages granted to Simms also ended in March 2011. [ 42 ] The judge accepted the approach of Costco’s expert concerning the lost profits claimed by Simms for the period from January 1, 2010, to March 30, 2011. He took into account that Simms had already been compensated for the losses suffered between August 10, 2010, and March 1, 2012, following the settlement approved by the American Court.

He therefore assessed the damages at $722,010.89 for the period from January 1, to August 10, 2010. He apportioned this amount equally between Costco and R & R, despite the settlement approved by the American Court, given that Simms had not intended to release Costco. [ 43 ] Regarding punitive damages, the judge noted the gravity of Costco’s fault, that the contractual interference had seriously harmed Simms’ reputation on the Canadian market, and that Costco could not have been unaware of the consequences of its fault.

The judge found that the deterrent effect sought by this type of damages, the gravity of the fault, and the patrimonial situation of Costco justified an award of $500,000 in punitive damages. [ 44 ] The judge dismissed both parties’ applications with respect to abuse of procedure and their ancillary conclusions.

ISSUES [ 45 ] According to Costco, the judge erred in: ➢ concluding that Costco committed an extracontractual fault within the meaning of art. 1457 of the Civil Code of Québec ( C.C.Q. ); [20] ➢ apportioning liability equally between R & R and Costco; ➢ awarding $500,000 in punitive damages. [ 46 ] The validity of the Distribution Agreement, the rights it conferred on Simms, and the quantum of compensatory damages are not under appeal, nor are the abuse of procedure claims raised at trial. ANALYSIS 1.

The fault of contractual interference [ 47 ] Although, in principle, a contract has effect only between the contracting parties pursuant to art. 1440 C.C.Q., contractual interference occurs when a third party incites, helps, or participates in the breach of a contract, in which case there is an extracontractual fault under art. 1457 C.C.Q.

Authors Jobin and Vézina describe this type of fault as follows: [21] [ translation ] 487 - Complicity in breach of contract - That a third party sometimes becomes liable with respect to a contracting party because it has participated in the breach of a contractual obligation by the co-contracting party appears paradoxical and even illogical when the relative

effect of contracts is raised. In principle, third parties are bound by real rights, opposable to all, but not by personal rights. This liability is economically and socially necessary, however, because clearly reprehensible behaviour would otherwise be tolerated and in reality weaken the binding force of contracts. Therefore, French case law has always accepted this liability for complicity in breach of contract. Quebec case law, although less extensive and more recent, also recognizes it. Because it is opposable to them, every contract is a juridical fact that third parties must comply with.

It may even be claimed that it is fundamentally because of its binding force that the commitment applies to third parties who will be legally sanctioned if they knowingly contribute to its breach. French authors have proposed various juridical bases, but the soundest basis - and the simplest - for the extracontractual liability of third parties remains the acquilian fault, here as in France.

Knowingly inciting someone, even implicitly, to breach his or her contractual obligation towards another is undeniably a violation of the “rules of conduct incumbent on him, according to the circumstances [and] usage”, according to the useful wording of art. 1457 of the Civil Code of Québec . … Grants of exclusivity in other areas, for example through commercial distribution contracts, is an altogether fertile ground for this liability.

The scope of application of third-party liability is vaster that it appears to be at first glance. [References omitted.] [ 48 ] These same principles were accepted by the Supreme Court in Trudel v. Clairol Inc. of Canada , an authority on the issue: [22] As this, however, would not give respondent what it is mainly seeking, namely the discontinuation of such sales for personal use, we must examine the validity of the other ground accepted by the Superior Court judge in his discussion of the law, the substance of which is in the following passages: ...

It is clear that if defendant becomes party to a breach of the contract between plaintiff and each of its agents, he commits a delict for which he is liable (H. et L. Mazeaud et Tunc, Traité de la responsabilité civile , 6th ed. 1965, Vol. I, no. 144, page 175; for it is

an act of dishonesty to be associated knowingly with a breach of contract (Lalou et Azard, Traité de la responsabilité civile, 6th ed. 1962, no. 716, page 449). Defendant is aware of plaintiff’s policy and instructions concerning the sale of its products.

The contractual prohibition against retail resale is mentioned in the action herein; it was already stated in the notice printed on the packages of the product as early as 1966 … Defendant has an obligation not to prejudice plaintiff by favouring even indirectly a breach of the undertaking previously quoted; for this undertaking not to resell the product at retail is justified both by a significant interest on the part of plaintiff and, to a certain degree, by the public interest.

Everyone has a moral obligation not to contribute to the breach of a validly assumed undertaking; contravention of this moral obligation is subject to sanction under the civil law (G. Ripert, La règle morale dans les obligations civiles , 3rd ed. Paris 1935, no. 170, page 336). [Emphasis added.] [ 49 ] In Dostie c. Sabourin , the Court set out the circumstances where the liability of a third party to the contract may be incurred: [23] [ translation ] [36] In principle, agreements — a non-competition clause in this instance —have effect only between the contracting parties.

Nevertheless, barring exceptions, authors and the jurisprudence agree that this rule does not preclude imposing, on third persons, respect for the relationship between the parties established by the agreement. In short, the rule of the privity of contracts does not mean that third persons have every freedom to interfere with the contractual rights of others.

Thus, a person who knowingly helps another person to breach the latter's contractual obligations, such as the obligation not to compete with the buyer of its business, commits an extracontractual fault respecting the victim of the act . [Emphasis added.] [ 50 ] The following constituent elements of the fault of a third party may be drawn from the case law and the doctrine: ➢ the third party’s knowledge of the contractual rights; ➢ incitement to or participation in the breach of the contractual obligations; and ➢ bad faith or disregard for the interests of others. [ 51 ] Of course, the precondition to considering such a fault is the existence of a contract and valid contractual obligations that the third party allegedly contravened. [ 52 ] In this case, the judge, after having extensively analyzed the parties’ evidence and arguments, concluded: [215] It is sufficient for Simms to prove, as it has done, that Costco has committed a civil fault.

In the Sobeys’ judgment of the Court of Appeal, Mr. Justice Baudouin decides that the principle of the relative effect of contracts requires proof not only of knowledge of the exclusivity clause but also bad faith on the part of the defendant. [216] The dual requirement of fault and bad faith has been cited in other subsequent Court of Appeal judgments. [217] This Court relies on legal authors Lluelles and Moore who interpret that what the Court of Appeal means in referring to

“ mauvaise foi ” is really a “ mépris caractérisé des intérêts d’autrui ”, that is a component of “the fault”. In other words, bad faith is not a separate standalone condition but rather a component of the fault that must be proven. [218] The Quebec Charter ’s

preamble speaks to the fact that rights are inseparable from obligations (“Whereas the rights and freedoms of the human person are inseparable from the rights and freedoms of others….”). Similarly, in CCQ art. 7, no one may exercise a right with the intent of injuring another, including where the wrongdoer is reckless (in criminal law the term “wilful blindness” has a related connotation).

Accordingly, a business that is aware that another business is protected by an exclusive distributorship agreement cannot knowingly do anything that contravenes rights under the agreement even where it is not bound by that agreement, whether one calls that conduct “bad faith” or the “reckless disregard for the rights of others”. The fault arises even where the wrongdoer has not specifically set out to harm the rights holder but where, if they thought about it, those are the probable consequences of their actions. [219] Both Ms. Ells and Ms.

Janek, experienced as they were in the retail clothing business, could not ignore the probable negative impact on Simms of the Costco sales due to the substantial price differential i.e. their R & R Product would be sold at one third of Simms’ customers’ retail price. Ms. Ells confirmed that Costco was a retailer and that “every other retailer was competition”. At the same time, Ms.

Ells who was aware of the “buzz” around the R & R brand having been to a Holt Renfrew store herself, knew or should have known that Costco would benefit, without having expended any money on marketing, with the consumer desire to purchase this premium brand product at one third of the normal price (the Costco “treasure hunt” effect). [220] After receiving the first cease-and-desist letter, Costco was told by Simms that only Simms was the exclusive Canadian distributor of authentic R & R merchandise in Canada.

The Court has already determined that as a result of the cease-and-desist letters Costco was fixed with sufficient knowledge of the Simms' exclusivity that it was required to respect that exclusivity. Under cross- examination, Ms. Ells admits that she had no reason to believe that Simms assertion of exclusivity was untrue. [221] Costco asserts that it never “helped or encouraged R & R to… breach” the EDA. [222] This assertion is not supported by the evidence.

The fact that Costco chose to ignore the uncontradicted assertion of exclusivity by Simms in the context of everything that Costco knew or should have known, proves that Costco’s subsequent orders to and through ABFI and Quetico to R & R were undertaken with the effective knowledge that they were inducing the breach of contract between R & R and Simms. [223] This implied intention by Costco demonstrates the fault on Costco’s part. [References omitted.] [ 53 ] The appellant submits that the judge erred in his analysis of the fault by imposing a burden on Costco to inform itself about an agreement to which it was not a party and in finding that it was in bad faith.

In this regard, Costco proposes its own view of the evidence and an

interpretation of the facts that is favourable to it without raising any specific errors in the judge’s findings. [ 54 ] It is established that a court of appeal must show great restraint when the issue is the assessment of the evidence adduced at trial and should only intervene in the case of palpable and overriding errors. In Regroupement des CHSLD Christ-Roi c. Comité provincial des malades , [24] the Court defined a palpable and overriding error, which alone authorizes the Court to intervene in the absence of an error of law, as follows: [translation] [55] When evidence of some complexity lends itself to

interpretation and requires the trial judge to make an individual and then overall assessment of multiple elements, some of which are divergent or contradictory, it is not sufficient, for the purpose of the appeal, to select everything that could have been interpreted differently while excluding all the rest and once again raise a theory that the trial judge held to be without merit.

An error in the finding of a disputed fact is not palpable unless its obvious or flagrant nature is clear upon a re-examination of the relevant part of the evidence and a different conclusion regarding the fact in dispute necessarily comes to mind. An error is overriding only if it deprives the impugned judgment of a necessary factual basis, thereby skewing the conclusions of the decision rendered in first instance and, as a result, commanding appellate intervention with respect to the conclusions.

Nowhere is this question, although an important one in appeal, addressed by the private appellants under agreement, according to whom it seems that all errors or allegations of error are created equal. It was their responsibility to specifically identify and clearly set forth in their factum that which constituted such a weakness in the judgment, which they did not do. 1.1 Knowledge of the Distribution Agreement [ 55 ] In Costco’s view, the judge erred in concluding that it knew about Simms’ exclusivity under the Distribution Agreement after receipt of the first formal notice in November 2019.

According to Costco, this formal notice referred to the agreement only briefly and incidentally. Costco’s knowledge of the content and the actual scope of the Distribution Agreement was instead only acquired after proceedings were served in August 2010, when it received a copy of the Distribution Agreement. [ 56 ] Since the judge and the parties referred to it repeatedly, it is useful to reproduce the content of the first formal notice sent by Simms to Costco, almost immediately after Costco started selling R & R products: [25] We are counsel for Simms & Sigal Co. Ltd. ("Simms").

Our client is the exclusive Canadian distributor of the "Rock & Republic" line of ready-to-wear apparel and accessories, including jeans . It has come to our client's attention that you are selling in your stores "Rock & Republic" jeans bearing our client's CA Identification Number.

As you know or ought to know, the CA identification Number appearing on the garments you are selling is registered for the exclusive use of our client , and allows our client to comply with the Textile Labelling Act and the Textile Labelling and Advertisement Regulations, which provide that the public is to be duly informed as to the person who has sold the particular product ln Canada.

Simms did not sell Costco the garments that are currently in your stores. Pursuant to the Trade-marks Act and the common law of unfair competition, your sale of jeans bearing the Rock & Republic trade-mark along with our client's CA identification Number constitutes passing-off of the goods in question. Such use will also likely have the effect of depreciating the value of the goodwill attached to the Rock & Republic mark as well as the value of the goodwill attached to our client's business. Moreover, such sales render you liable for injunctive relief, damages and costs .

We hereby demand that you immediately and permanently cease and desist any use in Canada of the Rock & Republic mark. More particularly, without limitation, we demand that you immediately cease selling and remove from your stores the garments bearing the Rock & Republic Mark and our client's CA Identification Number.

To settle this without the substantial costs associated with litigation, we hereby request that you furnish the undersigned by the close of business on November 13, 2009 with the following: · 1. a written undertaking confirming that you will immediately and permanently cease using the Rock & Republic Mark in association with garments bearing our client's CA Identification Number; and 2. a written undertaking that you will immediately remove all such garments from all of your stores in Canada within the next five (5) business days, or sooner, if this is possible.

We look forward to receiving your prompt response to our foregoing requests. Upon receipt of your response, we will discuss with our client the issue of waiving damages against you. However, if a satisfactory response is not received prior to the foregoing deadline, we have instructions to take all steps necessary to protect our client's rights. We trust, however, that such action will be unnecessary and that you will voluntarily comply with our requests.

Yours truly, [Emphasis added.] [ 57 ] The case law and the doctrine do not require receipt of a copy of the contract by the third party or even that the exclusivity clause was read by the third party to find that the third party committed a fault. Knowledge of the contractual obligation that the third party breached with one of the contracting parties is essentially contextual. Indeed, in Trudel v. Clairol and Dostie c.

Sabourin , the third parties knew of the existence and the content of the contract clauses without having received or even read the contract. [ 58 ] The formal notice of November 2009 is not ambiguous with respect to the Distribution Agreement. Simms informed Costco that it was the exclusive Canadian distributor of R & R products. This assertion by Simms is clear and requires no

interpretation. Costco’s representative, Ms. Ells, examined precisely on this fact, attempted to evade the question and her answers betray her reticence to discuss this subject: [26] Q.834 So, when they say or when their attorneys say, in paragraph 2 that: « Our client is the exclusive Canadian distributor of the Rock & Republic line of ready-to-wear a p p a r e l a n d accessories, including jeans. » Did you have reason to think they were lying? A. They allege that they're the exclusive Canadian distributor. My viewpoint was this letter, the content, the concern is the CA number.

Q.835 I'm going to get to the CA number, Ms. Ells, in due course. But my question to you is specific to the second paragraph which contains an important statement. It says: « Our client is the exclusive Canadian distributor of the Rock & Republic line of ready-to-wear a p p a r e l a n d accessories, including jeans. » Do you see that? A. Yes, I do. Q.836 My question to you is, did you have any reason to believe that Simms Sigal, or their attorneys, were lying about that statement? A. I view that as an introduction to the letter. THE COURT: Q.837 That's not the question.

Please repeat the question for the last time. Listen very carefully, please. Mtre SANDRA MASTROGIUSEPPE: Q.838 There is a statement in paragraph 2 that Simms Sigal is the exclusive Canadian distributor of the Rock & Republic line of ready-to-wear apparel and accessories, including jeans. And my question to you, Ms. Ells, is whether you had any reason to

believe that that was an untrue statement or a lie? A. It's alleged that they are the exclusive Canadian distributor. [ 59 ] Costco’s representatives testified that this letter concerned only the CA number and that they rushed to correct that discrepancy which they acknowledged. [27] Examined several times on the fact that the formal notice also referred to the existence of a Distribution Agreement, both Ms. Janeck and her superior, Ms. Ells, maintained that the formal notice raised only the problem with the CA number. [28] Q- Yes.

So after somebody had told you, after your vendor had told you that he was authorized to sell this merchandise to you, you saw this statement in which on its face, meant that somebody else was an exclusive distributor and you didn't query that with your vendor? A- No. Again, I don't know what Simms distributorship Details were. The body of the letter really pertains to the CA number and that was my primary focus. Q- You didn't think it was important to ask or inquire as to whether or not Simms might have had some rights here? A- No. It's not my ...

Q- Did you ask for, did you ask for a guidance from your superiors within Costco as to whether or not you should continue buying R & R goods after receiving this demand letter? A- No. [ 60 ] The judge accepted that as of the formal notice of November 2009, Costco had knowledge of the existence of the Distribution Agreement and Simms’ exclusivity. In doing so, the judge relied not only on the content of the formal notice, but on other evidence as well: [183] When Ms. Janek asked for a further and better confirmation from Mr.

Rolnick, she received a copy of a Sept 18, 2009 letter from the President of R & R addressed to “Mr. Rolnick and Quetico” in which the “Re: line” said “Confirmation of Purchase and Sale of R & R Goods”. In the body of the letter it referred to the fact that “you have purchased authentic R & R goods” from R & R and “are authorized” to resell the goods. However, Mr. Rolnick did not purchase the goods, only Quetico did. The letter listed four separate purchase order numbers for a total of 9,234 units. However, the number of units and colour were not same as what Costco had ordered from ABFI (see Exhibit D-64 p. 2).

Also, there was no reference to the re-sale being in Canada nor Costco being the purchaser. Most importantly, there was no mention at all of ABFI’s role. Put bluntly, Ms. Janek did not get a letter with the content that she asked for. [184] Moreover, Ms. Janek was suspicious herself. She asked Mr. Agakanian if the letter was backdated (Exhibit D-8). Importantly, she also asks for scanned copies of the four purchase orders that are referred to in the R & R letter. There is no evidence that she gets these four purchase orders since only 2 pages (content not described) (Exhibit D-7) are sent by Mr. Agakanian.

When she asks whether there is anything else, Mr. Agakanian responds with a sarcastic email (“… you want a copy of the 30% deposit that we wire and copy of the LC that is written to R & R, blood. My first born? ME :”) and Ms. Janek does not pursue the matter further. [185] Importantly, Costco knows that Simms’ first cease-and-desist letter is correct in that the goods being sold by Costco bear the Simms CA number. Ms. Janek also has it confirmed to her at that time by Mr. Agakanian that R & R is “dealing with a very mad distributor (this Court’s note: Simms). This will all be resolved promptly.”

[186] Costco relies on the fact that they were dealing with a trusted intermediary. Costco has filed no evidence that it was ever advisedthat, in fact, R & R had “resolved promptly” the matter with Simms. Accordingly, there was no reason for Costco to believe it couldignore the cease and desist letters. [187] Costco allowed itself to limit its focus to the issue of authenticity of the Product despite being put on notice by Simms that the up-front issue with Simms was the EDA.

If Costco was not prepared to deal directly with Simms to resolve the issue, it needed to have theissue of the EDA asked and answered by R & R. Costco failed to do either. [188] The Court determines that, in the context of Costco’s post cease-and-desist knowledge that Simms was alleging an exclusivedistributorship agreement for Canada, Ms. Janek on behalf of Costco was at fault in not seeking: (

a) some confirmation emanating fromR & R that they knew the goods were being sold in Canada by Costco and (

b) that there was no Simms EDA that would prevent suchsales. The Court determines that this omission by Costco constituted a fault in the context of what Costco knew Simms was alleging inthe cease-and-desist letters. [189] There were at least two reasonable courses for Costco to pursue to ensure it was not running afoul of the law: (

a) gettingsatisfactory proof from Simms of the EDA (if Costco was not prepared to believe Simms attorneys’ assertions) and particularly, theexclusivity clause in issue and (

b) thereafter, confronting ABFI and Quetico with same. [190] The Court now comes to a critical red flag. As regards the R & R September 18 letter, Mr. Rolnick tells Ms. Janek that this “is theletter that Costco has been waiting for. Please do not release the letter to the distributor” (this Court’s emphasis). This last statementshould have put Costco on notice to a problem. Mr. Rolnick knew of the cease-and-desist letter sent by Simms and knew that Simms wasalleging exclusivity.

If this R & R authorization letter was supposed to “authorize the sale” which was “known to R & R”, why shouldthe letter not be allowed to be shown to Simms to resolve the whole issue? This should have been a clear warning to Ms. Janek andCostco that something was amiss. [61] Not only did Costco not obtain the confirmations demanded by Ms.

Janek, it also chose to ignore information it receivedindicating that Simms was the exclusive Canadian distributor of R & R products, even though it acknowledged selling products bearingSimms’ CA number. [62] Furthermore, the reply by Costco’s attorneys contradicts the approach and position of its representatives. The attorneys statedthat the R & R products sold by Costco in its warehouses were authentic R & R products acquired on the grey market that Costco had aright to sell:[29] I refer to your letters of November 12 and 16, 2009 in the matter above.

As you are likely aware, Canadian Courts on numerous occasions have refused the efforts of trade-mark owners or their authorizeddistributors to prohibit any activities in the nature of grey marketing. In the decision in Coca-Cola Ltd. et al. v. Musadlq Pardhan C.Q.B.as Universal Exporters et al. (1997), (FC), 77 C.P.R. (3d) 501, affirmed (1999), (FCA), 85 C.P.R.(3d) 489 (F.C.A.), a judgment of His Honour Justice Wetston, the Federal Court Trial Division dismissed an action by Coca-Cola Ltd. asfailing to disclose a reasonable cause of action.

The Defendant had purchased large quantities of genuine COCA-COLA goods from athird party source and then exported them abroad for re-sale without authorization of the Coca-Cola companies. The action by Cokealleged trade-mark infringement as well as depreciation of the value of the goodwill attaching to its trade-marks.

The Court quoted atpage 510 from the earlier well-known decision of the Federal Court of Appeal in Smith & Nephew Inc. which held that: “Goods which originate in the stream of commerce with the owner of a trade-mark are not counterfeit or infringing goods simplybecause they may have arrived in a particular geographical market where the trade-mark owner does not wish them to be distributed." Smith & Nephew Inc, v. Glen Oak Inc, et al. (1996), (FCA), 68 C.P.R. (3d) 153 (F.C.A.) at page 158.

These cases are simply two examples in a long line of decisions commencing with the well-known SEIKO case in which the SupremeCourt of Canada refused an authorized distributor’s efforts to prohibit grey marketing of SEIKO watches on the basis of passing off as todo so would prohibit free competition in the marketplace and the defendant's right to deal in legitimate goods. Consumers Distributing Co. Ltd. v. Seiko Time Canada Ltd. (1985), (SCC), 1 C.P.R. (3d) 1.

You have also advanced the position that the use of the CA number in question amounts to a passing off by our client as Simms Sigal'scustomers have been misled into believing that the goods offered for sale in Costco Canada's warehouses originate with your client. Wecompletely reject the notion that this constitutes some sort of passing off. We also note that our client is not the company responsiblehaving employed the CA number on these garments.

However, to assuage your client’s concerns Costco Canada is prepared to provideyour client a letter which it may then forward to its customers in which it will confirm that it did not purchase the jeans in question fromSimms Sigal. Finally, you have indicated your client insists on being advised as to the source of Costco Canada’s goods in question. You have notindicated however what you would provide to Costco Canada in return.

In any event our client is not prepared to provide this informationas it clearly constitutes confidential information in the nature of trade-secrets to our client Yours very truly, [63] Ms. Janeck and Ms. Ells instead asserted that the merchandise came from an authorized distributor and that R & R knew andconsented to Costco selling the products in Canada. Ms. Janeck moreover explained this to one of Costco’s customers, as the judgecorrectly noted:[30] [177] Costco clearly knew it received Guatemalan-made goods. In fact, Ms.

Janek wrote to a Costco customer in Edmonton in May2010 to say that the R & R jeans originating in Guatemala were not “grey market goods” because they came from an authorized

distributor. Ms. Janek considers ABFI to be the authorized distributor. In this regard, she is incorrect since the authorized distributor is actually Quetico according to R & R’s September 18, 2009 letter (D-5). [ 64 ] The judge did not err in finding that Costco chose to ignore the existence of the Distribution Agreement despite all of the information obtained. Nor did he impose an additional burden on Costco to inform itself.

The judge instead analyzed Costco’s behaviour in relation to the extracontractual fault alleged and found that Costco’s conduct was not that of a normally prudent and diligent person placed in the same circumstances. [31] [ 65 ] Costco has not convinced the Court that this evidence was analyzed through a distorting lens.

Costco instead proposes an incomplete and selective analysis of the evidence in contrast to the judge’s analysis, which considers the evidence as a whole before finding that Costco was aware, as of November 2009, of Simms’ exclusive distribution right in Canada. [ 66 ] There is no question here of ambiguity or

interpretation regarding Simms’ exclusivity that would have prevented Costco from understanding its scope or extent, but only of Costco’s knowledge of its existence. As the judge noted, Costco’s representatives are specialized in retail sales and are very familiar with the market. They knew that R & R products were being sold in Canada in high-end stores at almost three times the price that Costco would be selling them at its warehouses.

It was therefore not surprising to Costco that an agreement for exclusive distribution in Canada had been granted to Simms. [ 67 ] In November 2009, Costco ignored the information it obtained regarding Simms’ rights. When it received the Distribution Agreement in August 2010, it did not argue that it learned more about Simms’ rights. Indeed, its attorneys replied to the formal notice of July 2010: “… neither the trade-mark owner, its Canadian Licensees, nor your client as exclusive authorized distributor has any recourse in objecting to our client’s activities.

Accordingly, in view of the fact that our client is selling legitimate goods, it declines to discontinue its sales and will vigorously defend any action brought against it”. [32] [Emphasis added.] [ 68 ] Costco can hardly claim that it did not know about the Distribution Agreement. 1.2 Incitement to or participation in the breach [ 69 ] Costco claims that it did not know the extent and scope of the Distribution Agreement and therefore pleads that it could not have incited R & R to breach it, without further arguments. [ 70 ] Since I am of the opinion that the judge did not err in concluding that Costco knew of the existence of the rights granted to Simms, this ground is without merit. [ 71 ] It should nonetheless be noted that, despite this knowledge acquired in November 2009, Costco placed orders up until August 2010. [33] Although it cancelled orders made in June and August 2010, with the exception of one, [34] Costco continued to sell R & R brand apparel until June 2011, as the trial judge noted. 1.3 Bad faith or disregard for the interests of others [ 72 ] Costco pleads that the judge erred in finding it had committed a fault [ translation ] “without considering whether Costco had acted in bad faith or with a blatant disregard for the rights of others”.

Costco argues that no evidence has established its bad faith. The judge’s reasons, on the contrary, demonstrate that he performed this analysis. [ 73 ] Authors Baudouin and Jobin suggest that this condition be analyzed as a component of fault if the other conditions are met: [35] [ translation ] Certainly, the third party’s knowledge of the contractual obligation is essential; but it is sufficient, in the sense that it is not necessary to prove directly the intention to harm the beneficiary of the clause.

The contracting party who claims to be a victim is not required to prove words or positive actions of incitement; it only has to prove that the third party was fully aware that, in contracting with it, the debtor was breaching its contractual obligation. The contracting party claiming to be a victim may sometimes benefit from a presumption of fact in this regard: it is therefore more like complicity than true incitement.

A third party who encourages the contracting party to breach its contract is not only susceptible to paying damages: there may also be a prohibition against continuing such actions, even through an interlocutory injunction. [References omitted.] [ 74 ] It is in this context that the judge examined the third condition of contractual interference. The judge set out the facts that led him to conclude that Costco could not have been unaware of the negative impact on Simms of the sale of R & R products on the Canadian market at a substantially lower price than its own: [36] [219] Both Ms. Ells and Ms.

Janek, experienced as they were in the retail clothing business, could not ignore the probable negative impact on Simms of the Costco sales due to the substantial price differential i.e. their R & R Product would be sold at one third of Simms’ customers’ retail price. Ms. Ells confirmed that Costco was a retailer and that “every other retailer was competition”. At the same time, Ms.

Ells who was aware of the “buzz” around the R & R brand having been to a Holt Renfrew store herself, knew or should have known that Costco would benefit, without having expended any money on marketing, with the consumer desire to purchase this premium brand product at one third of the normal price (the Costco “treasure hunt” effect). …

[221] Costco asserts that it never “helped or encouraged R & R to… breach” the EDA. [222] This assertion is not supported by the evidence.

The fact that Costco chose to ignore the uncontradicted assertion of exclusivity by Simms in the context of everything that Costco knew or should have known, proves that Costco’s subsequent orders to and through ABFI and Quetico to R & R were undertaken with the effective knowledge that they were inducing the breach of contract between R & R and Simms. [ 75 ] Costco also raised errors by the judge regarding the date of an order placed in June 2010, as well as the number of units ordered.

Even if these are errors, they cannot be determinative since Costco admits to having ordered R & R products until August 2010 and that it only cancelled the order for which no payment had been made. Costco, moreover, continued to sell R & R products until 2011, even though it knew about the Distribution Agreement and Simms’ rights. [ 76 ] The judge did not err in concluding that Costco acted with disregard for Simms’ interests. 2. Apportionment of liability [ 77 ] Alternatively, Costco pleads that the judge erred in apportioning liability equally with R & R.

Costco agues that if both it and R & R are extracontractually liable, the latter should assume full liability, given the seriousness of its contractual fault, and that this is not a case of joint fault. [ 78 ] Since R & R’s fault is contractual and that of Costco extracontractual, the judge characterized the liability as in solidum , since the faults were different in nature. In these circumstances, the Civil Code of Québec provides for the apportionment of liability in proportion to the seriousness of the faults: 1478 .

Where an injury has been caused by several persons, liability is shared between them in proportion to the seriousness of the fault of each. The victim is included in the apportionment when the injury is partly the effect of his own fault. 1478. Lorsque le préjudice est causé par plusieurs personnes, la responsabilité se partage entre elles en proportion de la gravité de leur faute respective.

La faute de la victime, commune dans ses effets avec celle de l’auteur, entraîne également un tel partage. [ 79 ] For the judge, the faults of R & R and Costco are equally serious and liability must be shared equally: [37] [403] In its

summary of argument, Costco asserts that: “if R & R had not breached the Distribution Agreement, it would have been impossible to argue that Costco had any liability and therefore, liability should be shared among the in solidum co-debtors as follows: 100% for R & R and 0% for Costco” . [404] This conclusion is based on a false premise i.e. that R & R is 100% liable since only it could breach the EDA.

On the contrary, the Court determines that there could be no damages without two participants: a buyer: Costco and a seller: R & R. [ 80 ] The judge determined that here there was no principal debtor and no subsidiary debtor, but rather two debtors, equally liable for the damage to Simms, since without Costco, R & R’s fault would not have caused damage to Simms. [ 81 ] He distinguished the parties’ situation from that accepted by Chamberland, J.A. in Dostie c.

Sabourin , where he suggested that the co-contracting party assume full liability: [38] [ translation ] [73] As between the appellants only, I propose that Dostie assume full liability since in the end, he was supposed to be the only one to profit from the scheme. Indeed, he was the only debtor of the non-competition obligation and the sole purpose of the legal scheme imagined by Charland, and in which Fortier played merely a “straw man” role, was to allow him to compete with Sabourin anyway.

In this context, and beyond any undertakings he may have given to his two accomplices – a written undertaking in the case of the notary (see paragraph [13]) – it is fair that, ultimately, Dostie assume full liability. [ 82 ] The judge was also of the opinion that this case does not involve subsidiary liability as such liability was characterized in Bourque c. Poudrier : [39] [ translation ] [41] The rejection of the theory of the subsidiarity of an action for liability is therefore an obstacle to this “sort of prior obligation of discussion” in favour of the professional.

It not only allows this person to be sued at the same time as the other debtor, but also allows the two to be concurrently condemned, in solidum . This rejection, however, does not change the fact that, frequently, the professional’s fault- and this is the case here as it was in Prévost-Masson - is subsidiary. The consequence of this differentiation of the two faults is that between debtors in solidum of the condemnation, the ultimate liability will in principle be fully assumed by the primary debtor.

That is exactly what the Court did in Chartré , where such subsidiarity was recognized and where it was consequently concluded as between the debtors that the primary debtor would be 100% liable and the subsidiary debtors, the notaries, would be 0% liable. [References omitted.]

[ 83 ] The apportionment of liability according to the seriousness of the contributing faults under art. 1478 of the Civil Code of Québec is essentially a question of fact. [40] An appellate court will therefore only intervene in the trial judge’s assessment of the evidence in the presence of a palpable and overriding error. [ 84 ] In this case, the judge concluded that Costco played a central role in the contractual interference and that its liability was as significant as that of R & R.

Costco has not established an error of the judge other than to reiterate that it did not commit a fault. [ 85 ] This ground of appeal on the apportionment of liability is dismissed. 3. Punitive damages [ 86 ] The judge granted Simms’ application for punitive damages and condemned Costco to pay $500,000 in this respect.

The judge found that Costco interfered with a right protected by the Charter of Human Rights and Freedoms , that of protection from interference with its reputation, [41] and that this unlawful interference by Costco was intentional. [ 87 ] The awarding of punitive damages remains exceptional, as the Court recalled in Imperial Tobacco Canada ltée : [42] [translation] [999] The extraordinary nature of punitive damages in Quebec civil law requires that their award result from an express provision of law, as provided by

article 1621 C.C.Q. The second paragraph of

section 49 of the Charter authorizes the award of punitive damages where the unlawful interference with rights or freedoms protected by the Charter is intentional. [1000] It was settled during the hearing that the analysis of intent should focus on the consequences of the injurious misconduct and not on the conduct itself. The case law requires proof (

i) that the author of the interference wished to cause the consequences of the wrongful interference or (ii) that he or she was aware of the immediate and natural or extremely probable consequences of his or her misconduct. [ 88 ] Costco claims that the judge’s reasons for concluding that there was intentional interference with reputation were insufficient and could not justify punitive damages.

According to Costco, the fact that it was itself an experienced retailer and that it knew that Simms’ clients were high-end retailers was not sufficient to conclude that it should have known the immediate consequences of its actions on Simms’ reputation. [ 89 ] Although it is true that the evidence revealed that Costco is a business specialized in retail sales and that it had a good understanding of the market in which R & R products were sold, both before and after it started selling them, these are not the only reasons noted by the judge in finding intentional interference with reputation.

First, in its formal notices, and in particular that of July 2010, Simms pointed out that Costco’s sale of R & R products had an impact on its business and harmed its reputation on the market.

Also, the judge’s meticulous review of the evidence and Costco’s behaviour after the formal notices of November 2009 reveal other evidence: [43] [458] In the first cease and desist letter, Simm’s lawyers propose that if Costco undertakes to not use Simms’ CA number and to remove the impugned goods from sale, it will discuss with Simms waiving any damages. [459] In the second letter, Simms’ then counsel advises Costco’s then counsel that “Every day that is passing exacerbates the harm being done by your client” and asks that Simms be advised of the identity of the company from whom Costco purchased the Product.

This is a reasonable request for cooperation based upon Simms’ assertions that it benefits from the EDA and the concomitant right to stop interference with its rights under the EDA. [460] What is Costco’s response through its attorneys? The last paragraph of Exhibit P-8, Costco’s then attorneys’ response letter of November 18, 2009 establishes a pattern of uncooperative behaviour that has led to this protracted litigation: “Finally, you have indicated your client (Simms) insists on being advised as to the source of Costco Canada’s goods in question.

You have not indicated however what you would provide to Costco Canada in return.

In any event, our client is not prepared to provide this information as it clearly constitutes confidential information in the nature of trade secrets to our client “(this Court's emphasis). [461] The Court underscores that at this time Costco knows that it is selling goods with Simms’ CA number (which is contrary to federal labelling law since Simms was not the source of these goods), that R & R is dealing with a “very mad” Simms and yet Costco’s supplier is telling it not to provide Simms with R & R’s letter that would confirm that Costco’s supplier purportedly had the right to sell the goods in Canada and potentially resolve the whole issue. [ 90 ] In contrast to the decisions cited by Costco, where the grounds were considered insufficient, [44] the judgment relies extensively on the evidence before concluding that Costco intentionally interfered with Simms’ reputation, in addition to insisting on the seriousness of the fault.

This conclusion by the judge is not at all automatic, but is the result of his assessment of the evidence as a whole with respect to Costco’s behaviour regarding the harm caused to Simms. [ 91 ] Alternatively, Costco pleads that the judge erred with respect to the amount of the punitive damages awarded. [ 92 ] Assessment of the amount of punitive damages is set out under art. 1621 C.C.Q.:

1621 . Where the awarding of punitive damages is provided for by law, the amount of such damages may not exceed what is sufficient to fulfil their preventive purpose. Punitive damages are assessed in the light of all the appropriate circumstances, in particular the gravity of the debtor’s fault, his patrimonial situation, the extent of the reparation for which he is already liable to the creditor and, where such is the case, the fact that the payment of the reparatory damages is wholly or partly assumed by a third person. 1621.

Lorsque la loi prévoit l’attribution de dommages-intérêts punitifs, ceux-ci ne peuvent excéder, en valeur, ce qui est suffisant pour assurer leur fonction préventive. Ils s’apprécient en tenant compte de toutes les circonstances appropriées, notamment de la gravité de la faute du débiteur, de sa situation patrimoniale ou de l’étendue de la réparation à laquelle il est déjà tenu envers le créancier, ainsi que, le cas échéant, du fait que la prise en charge du paiement réparateur est, en tout ou en partie, assumée par un tiers. [ 93 ] In Agence du Revenu du Québec c.

Groupe Enico inc ., the Court explained the context in which this assessment is conducted and the weight to attribute to the relevant factors, as well as the deference owed by an appellate court in this regard: [45] [translation] [174]

Article 1621 C.C.Q. states a clear principle: punitive damages “may not exceed what is sufficient to fulfil their preventive purpose”. This is likely the reason why the Supreme Court, in Cinar , reiterated that punitive damages must in principle be awarded with some restraint.

Professors Baudouin, Deslauriers, and Moore offer a clear explanation of the idea that there is a general principle of moderation stating that the judge must look to the future rather than the past, while acknowledging that sometimes the seriousness of the fault requires that greater significance be assigned to this criterion and that significant damages be awarded. [175] In Time , LeBel and Cromwell, JJ. established that the amount awarded as exemplary damages must never surpass the amount sufficient to fulfil their preventive purpose, while acknowledging that the myriad elements constituting the circumstances of the case must be taken into consideration when determining the amount .

The judges emphasized the fact that the gravity of the fault was undoubtedly the most important factor and that the level of gravity is assessed from two perspectives: the wrongful conduct of the wrongdoer and the seriousness of the infringement of the victim’s rights. They added that the larger the debtor’s patrimony, the higher the award . The amount of the award that has already been ordered, namely, whether the compensatory damages are sufficient to discourage repetition, must be taken into consideration.

Finally, the amount awarded must be adjusted to take into account whether or not the debtor has personally taken on the obligation. The judge must also take various factors into account, such as the identity and profile of a legal person, the accumulated profits, the presence of a civil, disciplinary or criminal record, and any other factor considered relevant, including the consequences of the fault on the creditor of the obligation. … [177] The quantification of punitive damages must therefore be based on a review of all the facts and thus falls under the discretionary power of the trial judge.

Consequently, an appellate court must show great deference before varying the quantum of punitive damages established by a trial judge. [Emphasis added.] [ 94 ] In Cinar , the Supreme Court reiterated the circumstances justifying appellate intervention to vary the amount of punitive damages: [46] [134] In Richard , this Court held that an appellate court may only interfere with a trial judge’s assessment of punitive damages (1) if there is an error of law; or (2) if the amount is not rationally connected to the purposes for which the damages are awarded, namely prevention, deterrence (both specific and general), and denunciation (see para. 190). [ 95 ] In this case, the judge assessed the punitive damages based on the criteria provided in art. 1621 C.C.Q.

The judge specified in his analysis that damages must not exceed what is sufficient to fulfill their preventative purpose. According to the judge, the principal factor was the extent and gravity of Costco’s fault.

He also stated that the size of this business and the number of warehouses in Canada should be considered, as well as Costco’s marketing strategy of creating a “treasure hunt effect” by selling R & R products at a price nearly three times lower than the one its customers could find at high-end retailers, in other words, Simms’ clients. [ 96 ] The judge also took into consideration the compensatory damages granted by the judgment and the amount received from the settlement concluded before the American Court, in addition to Costco’s patrimonial situation.

He based himself on his review of the case law awarding significant punitive damages to find that the gravity of Costco’s fault justified an award of $500,000, which he considered appropriate in the circumstance to fulfill the criteria of art. 1621 C.C.Q.: [47] [495] In the present case, a punitive damages award of $500,000.00 would represent .00170 % of the total assets of Costco’s parent company (US$ 23,815 million in 2010) noted earlier in this judgment.

Moreover, three months before trial, Costco asserted a counterclaim against Simms for punitive damages for harm to its reputation in the amount of $100,000.00. The patrimonial situation of Simms, as shown in the financial statements of Simms filed by Costco (Exhibit D-61 en liasse) to the end of 2012 is: $6.974 million in assets, a figure “light years apart” from that of Costco and its parent.

In fact, it represents 1.43% of Simms total assets. [ 97 ] As stated above, the judge did not analyze Costco’s fault through a distorting lens, as Costco again argued on this issue, but by considering Costco’s behaviour as a whole rather than isolating certain elements that would be favourable to it. The fact that the judge took into account Costco’s objective of creating a “treasure hunt effect” that allowed it to attract customers and increase its sales and memberships using products customers would not expect to find at Costco, and at much lower prices than those they would have been

able to find elsewhere on the market, is not an error. [ 98 ] There are no errors of law in the judge’s assessment of punitive damages. Nor has Costco established that the amount awarded is disproportionate to the objectives of the law, that is, prevention, deterrence, and denunciation. In the circumstances, it is not for the Court of Appeal to substitute its assessment or its own evaluation of the punitive damages as this exercise is reserved for the trial judge, who had the advantage of hearing and assessing the evidence. [ 99 ] I would therefore dismiss Costco’s appeal, with legal costs.

LUCIE FOURNIER, J.A. [28] Transcripts of the examinations after Plea of Pamela Janek (held on February 24, 2011, March 10, 2011, and June 10, 2011) .