2013 QCCQ 100, 2013 QCCQ 100

JP1736 2013 QCCQ 100 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL Civil Division No: 500-22-177094-102 DATE: January 9 th , 2013 ______________________________________________________________________ BY THE HONOURABLE MICHEL A. PINSONNAULT, J.C.Q. ______________________________________________________________________ K&B SOURCING LIMITED Plaintiff/Cross-Defendant v. 2754380 CANADA INC. carrying on business under the trade name of M.J.

APPAREL Defendant/Cross-Plaintiff ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] Plaintiff, K&B Sourcing Limited (“ K&B ”) is claiming $34,529.47 from Defendant, 2754380 Canada Inc., carrying on business under the trade name of M.J. Apparel (“ M.J. Apparel ”) for services rendered and goods sold and delivered. [ 2 ] M.J.

Apparel contests the present claim on the basis that it never ordered the goods in question and that, in any event, they were delivered to a different legal entity carrying on business under the trade name of Kitchen Orange at 450, Port-Royal, suite 501 in Montreal; premises that are not M.J. Apparel’s place of business. In other words, M.J. Apparel never ordered nor received the goods in question. [ 3 ] K&B will reply that the persons that its representative was dealing with gave them reasons to believe that they were acting on behalf of M.J.

Apparel and as such they were binding the latter contractually toward it. K&B invokes in support thereof, the legal concept of the apparent mandate of the Civil Code of Québec and the Indoor Management Rule . [ 4 ] As Cross-Plaintiff, M.J. Apparel claims that it notified the former attorneys for K&B at the outset that their client was suing the wrong party, but to no avail, K&B persisted. M.J. Apparel considers that the present proceedings constitute harassment on K&B’s part and that they are illegal and abusive given its knowledge that Defendant was not involved in the transaction. As Cross-Plaintiff, M.J.

Apparel claims $11,840.04 (amended from $5,000 during the trial) in damages due to the fact that the present claim is abusive and frivolous pursuant to

article 54.1 of the Code of civil procedure . THE FACTS

[ 5 ] Based on the evidence, the Court understands the relevant facts as follows. [ 6 ] Plaintiff, K&B Sourcing Limited, is a corporation from Hong Kong and is represented in Canada by Mr. Pierre Ragot (“ Ragot ”). The latter acts as an intermediary and a representative between K&B and Canadian customers who want to purchase garments manufactured in China. In the present instance, the goods were ladies' garments, knitted garments. [ 7 ] Ragot, who testified on behalf of K&B, acknowledged that neither K&B nor he had ever dealt with M.J. Apparel before March 2009.

That company was not known to them. [ 8 ] In early 2009, Ragot is approached by a person named Marta Matejczuk (always referred to by everyone as Marta). Marta is a fashion designer and production manager for Kitchen Orange and represented herself to Ragot as such. She remitted her Kitchen Orange business card to Ragot, but the latter could not locate it. Marta asked for a quotation on ladies’ sweaters (knits). Soon after, she requested that samples of the garments be imported from China. In order to do so, Ragot asked and received from her the RN Number and the CA Number of the importer.

The CA Number (the “ CA# ”) is registered for the exclusive use of a Canadian garment dealer/importer and appears on the label of each consumer textile

article in place of a name and postal address. The RN Number (the “ RN# ”) serves the same purpose for imports to the USA. RN stands for Registered Identification Number. It is a number issued by the Federal Trade Commission to U.S. businesses that manufacture, import, distribute, or sell products covered by the Textile, Wool, and Fur Acts. Businesses can use this number on product labels in lieu of their company name.

These numbers basically identify the Canadian or US importer on each garment instead of indicating its full company name. [ 9 ] Evidence will reveal that although Ragot was dealing with Kitchen Orange, he was remitted by Marta the RN# and the CA# registered to M.J. Apparel. At the trial, he will mention that, in his mind, 2754380 Canada Inc. was operating under the trade name of M.J. Apparel and was also using the trade name of Kitchen Orange.

Kitchen Orange also served as a trade mark on the garments’ labels; they all had a label identified to Kitchen Orange. [ 10 ] For Ragot, Marta was working for Meir and both were working for Kitchen Orange and therefore, for M.J. Apparel. [ 11 ] From Ragot’s standpoint, he was particularly convinced that he was dealing with M.J. Apparel since he was not only provided M.J. Apparel’s numbers but K&B also received a cheque in the amount of $1,536.75 from 2754380 Canada Inc. (P-3) in payment of the samples ordered through Marta.

He produced an invoice issued by K&B on March 14 th , 2009 (D-14) that was addressed to 275 4389 Canada Inc. at 9250 L’Acadie, #205 in Montreal , the actual place of business of 2754380 Canada Inc. Ragot explained that the error in the corporate name was a simple typo, he was indeed doing business with 2754380 Canada Inc. [ 12 ] These elements (the CA#, the RN# and the $1,536.75 cheque) represent essentially what can be described as 2754380 Canada Inc.’s brief involvement in this matter. Mr.

Daniel Revah (“ Revah ”), the president, director and main shareholder of 2754380 Canada Inc., testified that the $1,536.75 invoice (D-14) was never remitted to him and explained his company’s limited involvement as follows. [ 13 ] In March 2009, he is approached by a person named Meir Sarfati (always referred to by everyone as Meir). Revah knows Meir. In the past, he briefly met with him on one or two occasions while Meir was a salesman for another garment wholesaler.

At the meeting, Meir tells him that he wants to start his own business and would like to offer him a good deal on a brand new line of garments for ladies. Meir shows him sketches of the proposed garments and offers to provide him with samples. However, he does not have the money to pay for them. He asks Mr. Revah to pay for the cost required to purchase and import the samples from China. As there were very little risks, Revah accepts to pay for the samples for Meir. The latter then asks him to make a cheque payable to K&B for $1,536.75 (P-3). Mr.

Revah did not receive any invoice for it and simply remitted to Meir the cheque payable to the order of K&B, as requested. The cheque will be cashed by K&B. That will constitute the extent of 2754380 Canada Inc.’s dealings with K&B. Revah will always claim that his company never really dealt with K&B, but rather helped Meir who needed financial assistance to import samples that could have been of interest to his own company, at the time. [ 14 ] In order to import the samples, Revah provided the RN# and the CA# of 2754380 Canada Inc. as the importer.

He pointed out that his company regularly receives various samples throughout the year and it is always customary to supply M.J. Apparel’s CA# and RN# beforehand. He saw nothing odd here as the numbers are limited to tags on a few garments only (the samples). In any event, it is easy to find out the specific numbers registered to any given importer as they can be found on each

article of garment imported and sold. Revah just did not expect third parties using subsequently his numbers, without his knowledge and consent beyond the said samples. [ 15 ] Revah will meet with Meir a second and last time after the latter receives the samples. As a matter of interest, the samples were not delivered to M.J. Apparel by K&B. It is not known where they were shipped by K&B as Ragot did not or could not produce the purchase order issued for the samples nor the applicable delivery documents.

Revah never issued a purchase order for the samples. [ 16 ] Soon after, Revah called back Meir to tell him that the samples were not the type of products that M.J. Apparel wanted to sell. He told Meir that 2754380 Canada Inc. was not interested and would not place an order for the production of the goods in question. That will be his last contact with Meir and since then, he has never been able to locate him. [ 17 ] Revah does not know Ragot and Marta, he never met with them. Marta was never an employee of M.J. Apparel or its representative. The same applies to Meir.

Moreover, 2754380 Canada Inc. never used the trade name or trade mark of Kitchen Orange that belongs to a third party. The Court will deal with that issue later. [ 18 ] Back to Marta, she told to Ragot that the samples had been approved and that an order would be placed with K&B for the production of the garments. Ragot received from her a production purchase order dated April 21, 2009 (P-2). Under the heading “bill and ship to”, the following information appears: MJ Apparel (KO) 2754380 Canada Inc

450 Port Royal #501 514-385-4567 ATT: Marta [ 19 ] (KO) stands for Kitchen Orange. The production purchase order was not prepared or issued by M.J. Apparel. It was prepared by Marta and does not resemble at all to the purchase orders normally issued by M.J. Apparel (D-13). [ 20 ] Revah was totally unaware that Marta had remitted to Ragot the production purchase order dated April 21, 2009 (P-2) to proceed with the production of the garments linked to the samples that he had refused. [ 21 ] Not only M.J. Apparel never ordered the garments in question, but it never received them either.

The goods were delivered on August 24, 2009 to Kitchen Orange at the address indicated in the production purchase order on Port-Royal Street. The bill of lading and the shipping receipt, filed en liasse with the August 17, 2009 invoice (P-1), show that the goods were shipped from Hong Kong by K&B to 1171218 Ontario Inc. in Scarborough in Ontario. The bill of lading does not mention anywhere 2754380 Canada Inc. or M.J. Apparel. There is however a mention Shipping Mark: Kitchen Orange Style No. - P.O. No. - Montreal C/NO.

The shipping receipt indicates that the shipper is C.A.S., 800 Stuart Graham S.110, in Dorval and the consignee is Kitchen Orange 450 Port-Royal, #501, Montreal . The receipt appears to have been signed by one certain A. Lalonde. [ 22 ] Revah testified that he never had anyone called Lalonde at M.J. Apparel’s employment.

Ragot does not know who the gentleman is neither. [ 23 ] In cross-examination, Ragot confirmed that he was not present on the premises at the time of the delivery and that he did not attempt to collect on delivery the amount of the invoice, $34,529.47, despite the fact that the invoice (P-1) stipulated that it was payable C.O.D. ( Cash On Delivery ). [ 24 ] Ragot also acknowledged that he attended the Port-Royal offices only once before the delivery where he met with Marta and other people whom he did not know.

He could see at the time that the name of Kitchen Orange appeared on the board and Kitchen Orange products but, no mention whatsoever of 2754380 Canada Inc. or of M.J. Apparel. This detail apparently did not strike his attention. [ 25 ] As to the invoice of the $34,529.47, Revah never received it and never heard of it until K&B mandated a collection agency from Boca Raton in Florida to collect the same from 2754380 Canada Inc. As the collection efforts were unsuccessful, a letter of demand was sent on March 31 st , 2010, to 2754380 Canada Inc. by M tre Louise Gauthier on behalf of K&B (D-7).

This triggered an exchange of letters between M.J. Apparel and K&B’s respective lawyers, M.J. Apparel always insisting that it never ordered nor received the goods in question, but to no avail. [ 26 ] Despite Revah’s claims that 2754380 Canada Inc. never dealt with Ragot and K&B, the legal proceedings were instituted on December 6 th , 2010, followed with a letter dated December 13, 2010 (D-3) from the lawyer for 2754380 Canada Inc. reiterating once again that K&B was suing the wrong party; hence, the Cross-Demand in damages.

QUESTIONS AT ISSUE [ 27 ] Based mainly on the facts that K&B was provided with the CA#, the RN# and the cheque for $1,536.45 (P-3) issued by 2754380 Canada Inc. to pay for the samples, K&B alleges that these elements conferred upon Meir and Marta credibility that they were acting on behalf of M.J. Apparel for the entire transaction, not just for the samples.

Once it decided not to go ahead with the full production, 2754380 Canada Inc. had the obligation to notify K&B that Meir and Marta were no longer representing it; therefore, its failure to do so triggered its contractual liability towards K&B regarding the $34,529.47 purchase. [ 28 ] K&B is invoking the provisions of the Civil Code of Québec dealing with the apparent mandate and the Indoor Management Rule as well to support its claim. [ 29 ] In order to determine whether M.J.

Apparel is actually liable for the order and purchase of the goods in question and is consequently indebted to K&B for the amount claimed, the Court must first determine whether Meir and Marta were representing M.J. Apparel for the purpose of completing that particular transaction.

In other words, was K&B, as a third party allegedly doing business with 2754380 Canada Inc., justified in believing that Marta and Meir were duly acting on its behalf and therefore, could bind it contractually? [ 30 ] For that purpose, the Court shall examine the applicability herein of the Civil Code 's apparent mandate and of the Indoor Management Rule . [ 31 ] Secondly, the Court must determine if the proceedings instituted by K&B are abusive and illegal within the purview of

article 54.1 of the Code of civil procedure ? In the affirmative, what is the appropriate remedy? DISCUSSION K&B’s legal position [ 32 ] K&B’s approach is relatively simple. [ 33 ] At all relevant times, it was dealing or genuinely thought that it was dealing with M.J. Apparel represented by Meir and Marta, as their actions and representations led its own representative, Pierre Ragot, to believe.

[ 34 ] K&B’s keystone argument is that Meir and Marta ordered the samples for 2754380 Canada Inc. who was properly invoiced on March 19, 2009. M.J. Apparel provided its CA# and RN# for the production of the samples and paid the invoice promptly with its cheque (P-3) indicating on its face its company name, 2754380 Canada Inc. trading as M.J. Apparel. The purchase order for the production of the garments, that was given on April 21, 2009 (P-2), did not come as a surprise to Ragot who still believed that he was dealing with 2754380 Canada Inc. (M.J.

Apparel) through Meir and Marta, as its company name appeared once again on the purchase order in question. The fact that the address on it was different from the March 19 th invoice (D-14) did not particularly preoccupy Ragot nor did the addition of KO (for Kitchen Orange) next to its corporate name. Kitchen Orange was indeed M.J. Apparel in the eyes of Ragot. [ 35 ] The payment of the samples by 2754380 Canada Inc. was sufficient to create a lien de droit with K&B for the following production purchase order that was the logical conclusion to a transaction initiated with the production of samples.

Obviously, M.J. Apparel had to have approved the production of the articles of garments. [ 36 ] For K&B, the presence of Kitchen Orange and of the Port-Royal address on the production purchase order is not relevant, in the present circumstances. The CA# and the RN# as well as the $1,536.75 cheque (P-3) issued by 2754380 Canada Inc. are sufficient to generate its contractual liability for the subsequent production order. [ 37 ] K&B also argued that, from its standpoint, there was a joint venture between Meir Sarfati and 2754380 Canada Inc. and that Marta acted as their representative.

Therefore, 2754380 Canada Inc. had the obligation to warn K&B that Marta and Meir were no longer acting on its behalf when Revah decided not to go ahead with the production of the samples. By paying for the samples, M.J. Apparel established and confirmed the authority of Marta and Meir and gave credence to the subsequent transaction. It also induced K&B to extend credit for that second transaction by requesting payment on delivery (C.O.D.) as specified on the invoice (P-1), instead of asking for payment by the usual letter of credit. [ 38 ] As K&B had also been given at the outset, M.J.

Apparel’s CA# and RN# that were used for the samples and the full production of the garments as well, 2754380 Canada Inc.’s implication made no doubt for K&B. M.J. Apparel’s legal defence [ 39 ] In defence, Revah argued that K&B, through its representative, Pierre Ragot, was negligent and did not act as a prudent and diligent businessman. The fact that $1,536.75 was paid, did not automatically generate an obligation to pay the $34,529.47 debt that was never incurred by 2754380 Canada Inc. to start with. To succeed in its claim, K&B had to establish in a preponderant manner that M.J.

Apparel ordered the goods in question, which K&B failed to do, in his view. [ 40 ] Moreover, Ragot was aware of sufficient elements or clues to give him grounds to doubt that M.J. Apparel was really involved in the second transaction and that Meir and Marta were not representing it. [ 41 ] For instance, Ragot visited the place of business of Kitchen Orange on Port-Royal with no indications whatsoever of M.J. Apparel operating there as opposed to Kitchen Orange. Yet, M.J.

Apparel’s real place of business was only a few blocks away on L’Acadie Boulevard, a fact well known to Ragot who never saw fit to ever pay a visit, especially when he was experiencing significant difficulties to collect the $34,529.47 invoice, an invoice that K&B sent to 2754380 Canada Inc. several months after the delivery of the goods at an address that never belonged to Defendant. The Indoor Management Rule and the apparent mandate [ 42 ] K&B argued that the Indoor Management Rule and that the provisions of the Civil Code of Québec dealing with the apparent mandate applied herein.

In other words, did Marta and Meir, through their actions and representations, trigger the contractual liability of 2754380 Canada Inc. toward K&B pursuant to those legal principles? [ 43 ] In virtue of the Indoor Management Rule , a third party contracting with a legal corporate entity is only bound to know about the information contained in the public documentation available; the third party is not obliged to verify that all indoor management requirements have been respected by the person it is dealing with on behalf of the corporation. [ 44 ] The

Canada Business Corporations Act [1] has codified this rule in its sections 18 and 116 : 18.

(1) No corporation and no guarantor of an obligation of a corporation may assert against a person dealing with the corporation or against a person who acquired rights from the corporation that: (

a) the articles, by-laws and any unanimous shareholder agreement have not been complied with; (

b) the persons named in the most recent notice sent to the Director under

section 106 or 113 are not the directors of the corporation; (

c) the place named in the most recent notice sent to the Director under

section 19 is not the registered office of the corporation; (

d) a person held out by a corporation as a director, officer, agent or mandatary of the corporation has not been duly appointed or has no authority to exercise the powers and perform the duties that are customary in the business of the corporation or usual for a director, officer, agent or mandatary; (

e) a document issued by any director, officer, agent or mandatary of a corporation with actual or usual authority to issue the document is not valid or genuine; or (

f) a sale, lease or exchange of property referred to in subsection 189(3) was not authorized. Exception

(2) Subsection (1) does not apply in respect of a person who has, or ought to have, knowledge of a situation described in that subsection by virtue of their relationship to the corporation. 116.

An act of a director or officer is valid notwithstanding an irregularity in their election or appointment or a defect in their qualification. [ 45 ] The Indoor Management Rule ’s counterpart in Civil Law is found in the Civil Code of Québec at its

Article 2163 : 2163.

A person who has allowed it to be believed that a person was his mandatary is liable, as if he were his mandatary, to the third person who has contracted in good faith with the latter, unless, in circumstances in which the error was foreseeable, he has taken appropriate measures to prevent it. [ 46 ] Sections 62 and 82 of the Act respecting the legal publicity of sole proprietorships, partnerships, and legal persons [2] also add to the abovementioned rules in that the information relating to each registrant [corporations, sole proprietorships and partnerships] is proof of its contents in favour of third persons in good faith from the date on which it is entered in the statement of information : 62.

The information relating to each registrant is proof of its contents in favour of third persons in good faith from the date on which it is entered in the statement of information . Third persons may submit any proof to refute the information contained in a declaration or in a document transferred to the enterprise registrar under

section 72, 72.1 or 73. Description of information.

That information shall include: (1) the registrant's name; (2) any other name used by the registrant in Québec ; (3) an entry indicating the fact that the registrant is a natural person operating an enterprise or, as the case may be, an entry indicating the registrant's juridical form and the Act under which the registrant is constituted; (4) the registrant's domicile; (5) the domicile elected by the registrant for the purposes of this Act with an entry indicating the name of the addressee; (6) the names and domiciles of the directors, with an entry indicating the position held by each; (7) the names and domiciles of the president, secretary and principal officer, where they are not members of the board of directors, with an entry indicating the positions they hold; (8) the name and address of the registrant's attorney; (9) the name, address and capacity of the person mentioned in

section 5; (10) the addresses of the establishments possessed by the registrant in Québec, specifying which is the principal establishment; (11) the date on which the registrant foresees ceasing to exist; (12) the name and domicile of each partner, with an entry indicating that no other person is a member of the partnership, distinguishing, in the case of a limited partnership, the general partners from the special partners known at the time the contract is entered into; (13) the object pursued by the partnership; (14) the name of the State in which the registrant was constituted as a legal person and the date of constitution; (15) the name of the State in which the amalgamation or division giving rise to the legal person took place, the date of the amalgamation or division and the name, domicile and business number of any legal person that was a party to the amalgamation or division; (16) the date of its continuation or other transformation.

Restriction. No registrant whose registration has been the subject of an ex officio striking off may controvert any information described in the first paragraph that is contained in the statement of information. 82. Information relating to a registrant may be set up against third persons from the time it is entered in the statement of information. Third persons may submit any proof to refute the information contained in a declaration or in a document transferred to the enterprise registrar under

section 72, 72.1 or 73. Description of information. That information shall include: (1) the registrant's name and, if previously registered, its business number; (2) any other name used by the registrant in Québec ;

(3) an entry indicating the fact that the registrant is a natural person operating an enterprise or, as the case may be, an entry indicating the registrant's juridical form and the Act under which the registrant is constituted; (4) the registrant's domicile; (5) the domicile elected by the registrant for the purposes of this Act with an entry indicating the name of the addressee; (6) the names and domiciles of the directors, with an entry indicating the position held by each; (7) the names and domiciles of the president, secretary and principal officer, where they are not members of the board of directors, with an entry indicating the positions they hold; (8) the name and address of the registrant's attorney; (9) the name, address and capacity of the person mentioned in

section 5; (10) the address of the principal establishment possessed by the registrant in Québec; (11) the name and domicile of each partner, with an entry indicating that no other person is a member of the partnership, and distinguishing, in the case of a limited partnership, the general partners from the special partners known at the time the contract is entered into; (12) the object pursued by the partnership; (13) the name of the State in which the registrant was constituted as a legal person and the date of constitution; (14) the name of the State in which the amalgamation or division giving rise to the legal person took place, the date of the amalgamation or division and the name, domicile and business number of any legal person that was a party to the amalgamation or division; (15) the date of its continuation or other transformation.

Precision. For the purposes of

article 2195 of the Civil Code , only the information described in the second paragraph is that required in a declaration of partnership or an amending declaration. [Emphasis added] [ 47 ] In Quebec, this corporate information is easily available without any cost on the Internet [3] . The Registre des entreprises (CIDREQ System) reflects the statutory information that each legal entity carrying on business in Québec must provide on an annual basis. This information comprises, inter alia , any other name used to carry on business in Quebec or trade names, if any, used by any given legal entity.

This applied to trade name of “ Kitchen Orange ”. These requirements exist to enable anyone doing business with Kitchen Orange , for instance, to easily find out who is the legal entity (corporate or individual(s)) operating behind it. In the present case, was the corporate entity using Kitchen Orange , 2754380 Canada Inc.? The answer is no. According to the public records available, at all relevant times, 2754380 Canada Inc. never used that trade name. That information was easily available to K&B and to Ragot in 2009. [ 48 ] The Court echoes the comments of Mr. Justice Cameron in the case of Royal Bank v.

Ag-Com Trading Inc. [4] , in which he described the Indoor Management Rule as follows: […] The rule is based on the assumption that the company which has hired and supervises its officers and holds them out as its agents, and which does not publicize its by-laws and internal proceedings, should bear the burden of their unauthorized activity, as opposed to the outsider dealing with the company in good faith who has no opportunity to investigate compliance with internal procedures .

Commercial transactions would become unduly slow, cumbersome and expensive if those dealing with the company had to ensure that all internal corporate procedures underlying the transaction had been complied with, including due election of the board, due authorization of the transaction, due appointment of the officer or other employee, and due authorization of the officer or employee to act in this transaction on behalf of the company. [Emphasis added] [ 49 ] In

summary, these two rules ( Indoor Management and apparent mandate) have been setup to protect third parties dealing with corporations. Under such circumstances, the corporation must necessarily be acting through persons who are representing it or claim to represent it. In certain circumstances, the corporation will be bound by the representations made or the agreements or contracts entered into by any such representative even if the latter was not authorized to do so by the corporation. One essential condition must however be present to benefit from these rules. The third party must have always acted in good faith in its dealings with the corporation. As good faith is always presumed (

article 2805 [5] of the Civil Code of Québec ), it is up to the person challenging the same to establish the absence of good faith in a preponderant manner. [ 50 ] The defence of 2754380 Canada Inc. necessarily implies that, throughout the relevant period of time surrounding the present transaction, Pierre Ragot’s good faith was questionable at best. [ 51 ] This is the first question that the Court must answer in order to determine if the apparent mandate and the Indoor Management Rule apply to Marta, Meir and Ragot, in the present case. [ 52 ] To determine the absence of good faith, the Court must consider all the facts that were presented at trial and in that context,

consider as well the behaviour of the parties. [ 53 ] As previously indicated, K&B’s approach was simple. M.J. Apparel allowed Marta and Meir to act as its intermediaries and representatives for the purchase of the samples that were paid for by M.J.

Apparel, and as the production purchase order was the logical following step, it had to originate from 2754380 Canada Inc. as well as trigger its contractual liability. [ 54 ] In support of its claim, K&B produced initially a single exhibit, namely the August 17 th , 2009 invoice together with the corresponding bill of lading and the delivery receipt to Kitchen Orange at an address that never belonged to 2754380 Canada Inc. (P-1). [ 55 ] After the filing of the Defence and the Cross-Demand, K&B amended its proceedings to add and file Exhibit P-2, the April 21 st , 2009 production purchase order received from Marta indicating 2754380 Canada Inc. (KO) as the purchaser, but with the Port-Royal address that never belonged to the Defendant. [ 56 ] Quite sometime after the examination on discovery of Ragot in June 2011, K&B’s lawyer filed additional documents as a result of several undertakings made by the witness, albeit incomplete.

Later, the cheque issued by 2754380 Canada Inc. to pay for the samples was filed as Exhibit P-3. [ 57 ] The Court realizes that if 2754380 Canada Inc.’s defence is accurate, namely that its involvement herein was minimal at best and that it was totally ignoring the existence of the production purchase order (P-2), the Defendant only disposed of very few elements to establish that it was not involved. Given the few documents filed in support of K&B’s principal claim, the examination on discovery of Ragot was crucial for 2754380 Canada Inc.

What really happened between Ragot, Marta and Meir regarding the $34,529.47 transaction in order to trigger the contractual liability of Defendant? [ 58 ] As a result of the examination on discovery of Ragot held in June 2011, an issue arose as to when M.J. Apparel was really invoiced for the $34,529.47 transaction. It was not on August 17 th , 2009 as invoice P-1 may lead to believe. [ 59 ] 2754380 Canada Inc. has always maintained that K&B did not invoice it initially but rather another corporation carrying on business under the trade name of Kitchen Orange .

Ragot knew then or should have known that Kitchen Orange had nothing to do with M.J.

Apparel. [ 60 ] Ragot had sufficient indications and clues all along to give him cause for concern in a timely manner, even before the delivery of the $34,529.47 goods. [ 61 ] With the benefit of the evidence adduced during the first day of trial and especially, during the second day held two months later, prompted by the decision to reopen the hearing at the request of both parties, the Court finds that the preponderant evidence favours 2754380 Canada Inc.’s version of the facts and does not believe that Ragot acted as a prudent and diligent businessman at all relevant times.

The Court cannot conclude that Ragot always acted in good faith regarding 2754380 Canada Inc. and the latter’s actual involvement therein. [ 62 ] K&B ultimately decided to exercise a legal recourse against 2754380 Canada Inc. only after realizing that it could not successfully exercise the same against Kitchen Orange , a trade name used by two different corporations as will be more fully explained hereinafter. [ 63 ] The Court understands that the August 17 th , 2009 invoice filed as Exhibit P-1 was never remitted to 2754380 Canada Inc., at the time.

It is not even clear if the latter, Marta and Meir ever received that specific invoice. In fact, the evidence reveals that K&B prepared three different invoices for the $34,529.47 transaction. All three invoices bear the same invoice number No.

C-29029: - a first one dated August 17 th , 2009 addressed to 2754380 Canada Inc. on L’Acadie (P-1); - a second one identical to P-1, addressed to 2754380 Canada Inc. on L’Acadie, but dated August 26 th , 2009 (D-12); and - a third one also dated August 26 th , 2009 but this time, addressed to 7210159 Canada Inc. (Kitchen Orange) at 450 Port-Royal, #501 in Montreal (P-7). [ 64 ] In connection with the foregoing, the Court found Ragot’s testimony at trial to be vague and evasive and filled with reticence.

With all due respect, the Court also believes that the witness tried to induce it into error regarding the invoice filed as P-1, and more particularly the “real invoice” that should have been attached to Exhibit D-11, with a series of emails more fully described hereinafter. [ 65 ] A three-page document (D-11) consisting of certain emails exchanged between Marta and Ragot on August 26 th , 2009, was produced during the first day of the trial. The emails were sent two days after the delivery of the garments on August 24 th .

The emails forming Exhibit D-11 included one attachment, an invoice dated September 10 th , 2009 addressed to 7210159 Canada Inc. at the Port- Royal address in an amount of $1,657.69 (the “ Invoice SMPL-29019 ”). [ 66 ] The email sequence was initiated by Ragot at 11h13AM: Bonjour Marta, 1- Attached is a copy of the production invoice Please make the payment a.s.a.p. Merci

Pierre [ 67 ] The attachment to this first email that not produced, Ragot claiming that he could not find it. The Court believes that it was the invoice filed as Exhibit D-12, it is identical to invoice P-1 but bears the date of August 26 th , 2009 instead of August 17 th , 2009.

Both invoices are addressed to 2754380 Canada Inc. on L’Acadie. [ 68 ] A few minutes later, Marta responds as follows: salut pierre, excuse moi, mais sur la facture le ship & bill est comme suit: kitchen orange 7210159 canada inc 450 port royal #501 mtl, qc h3l2b8 svp corrige et je l’envoie à mes supérieurs presto! merci marta [ 69 ] At 11h25AM, Ragot returns another document in attachment with the following comment: Voilà [ 70 ] The attachment that accompanied the emails in question that were initially provided by Ragot to the lawyer for 2754380 Canada Inc. as part of his undertakings was the $1,657.69 Invoice SMPL-29019 dated September 10 th , 2009 addressed to 7210159 Canada Inc. on Port-Royal.

Oddly, this invoice is post-dated September 10 th , 2009 (a couple of weeks after August 26 th ) and relates the sale of salesman samples. The evidence will show that Marta and Meir ordered these samples for Kitchen Orange during the summer of 2009 and that this order had nothing to do with M.J.

Apparel. [ 71 ] The Court is convinced that Ragot knew that the Invoice SMPL-29019 is not the one that he sent to Marta on August 26 th immediately following her request that “ la facture ” be readdressed to 7210159 Canada Inc. who was the real company carrying on business under the trade name of Kitchen Orange . [ 72 ] In his first email, Ragot refers to a “production invoice” payable A.S.A.P. But, the Invoice SMPL-29019 that he claims to have attached to his “Voilà” email was an invoice for salesman samples, not for production.

If the invoice was payable A.S.A.P., why was it post-dated to September 10 th , 2009?

The Court does not believe Pierre Ragot in that respect. [ 73 ] Until the reopening of the hearing in October 2012, the witness Ragot refused to acknowledge that on August 26 th , 2009, he had sent, at Marta’s request, a $34,529.47 invoice with 7210159 Canada Inc. (Kitchen Orange) as the client instead of 2754380 Canada Inc. [ 74 ] It was only in October 2012, after being confronted with additional documents that should have been communicated to 2754380 Canada Inc.’s lawyer much earlier as part of his undertakings made in June 2011 that the $34,529.47 invoice to 7210159 Canada Inc. (Kitchen Orange) (P-7) was somewhat reluctantly introduced into evidence by Ragot. [ 75 ] Hadn’t it been for the reopening of the hearing, 2754380 Canada Inc. and the Court would have never been able to “discover” the “real” invoice sent by Ragot to Marta at her specific request on August 26 th , 2009. [ 76 ] At the October 12 th , 2012 hearing, Ragot also produced what he claimed to be the entire correspondence between Marta, Meir and himself evidencing his efforts to collect the $34,529.47 invoice from them.

Several emails and attachments were produced en liasse as Exhibit P-7 including the August 26 th , 2009 invoice addressed to 7210159 Canada Inc. (Kitchen Orange) at 450 Port-Royal, #501 in Montreal in the amount of $34,529.47. [ 77 ] The series of emails span from August 27 th to September 14 th , 2009. These emails attest to Ragot’s multiple efforts to collect the $34,529.47 invoice from Meir, after he sent it to Marta on August 26 th . The invoice that Ragot was referring to at the time was the one addressed to 7210159 Canada Inc. (Kitchen Orange) (P-7).

The Court comes to that conclusion after having taken cognizance of the various emails and attachments produced en liasse as Exhibit P-7. However, these documents also reveal the following additional relevant information set out hereafter in chronological order: - September 2 nd , 2009 (10:12AM) email from Ragot to Meir : Re. Invoice C-29029: Please be reminded that this invoice of $34 529.47$ was due COD on the 20 th of August. To this day we have not received any payment.

Originally, the payment was to be by letter of credit, but we modified the terms for you in order to give you a break. - September 4 th , 2009 (10:01AM) email from Ragot to Meir (meir@rogers.blackberry.net): I sent you this message [above] on Wednesday [ September 2 nd ] and have not received any news from you. Please advise the payment status. Regards, Pierre - September 4 th , 2009 (10:32AM) email from Meir to Ragot : We are sending them out today to a company that will check them one by one.

We haven’t had time to open boxes [ received by Kitchen Orange on August 24 th ]. - September 4 th , 2009 (13:23) email from Ragot to Meir : Please expedite the process as this is affecting our cashflow (sic). Also, please note that if payment would have been by LC [ Letter of credit ] (as initially agreed) there would not of (sic) been this hold up in the payment. It is only out of good faith that I agreed to COD payment… - September 8 th , 2009 (12:37PM) email from Ragot to Marta : RE: KOK S10-07: -Salesman samples can only be ready sometime next week.

Please advise if it (sic) too late for you so that I can stop the computer knitting on time. - September 8 th , 2009 (7:41PM) email from Ragot to Meir : …I stressed the fact that this [ the shipment in question ] was initially an LC shipment that I changed to COD, out of good faith, in order to help you out and that my cash flow (right in the middle of peak season) is hurting because you have not respected the terms that we agreed on… - September 8 th , 2009 (7:43PM) email from Meir to Ragot : You don’t have to worry.

We always pay our bills - September 8 th , 2009 (9:04PM) email from Meir to Ragot : I tried calling marta about 100 times since friday because I need her for supplier that’s checking goods. I don’t even know if she is alive at this point. Hopefully tomorrow she’ll call me. - September 9 th , 2009 (8:41AM) email from Ragot to Meir : Please advise a time and place that I can go pick up your payment today. - September 9 th , 2009 (8:42AM) email from Meir to Ragot : I’m waiting for marta to call me back. - September 9 th , 2009 (10:05PM) email from Meir to Ragot : Marta called me early morning.

She couldn’t really talk because of doctor appointment. She was supposed to call me back. She didn’t. I tried to call her maybe 20 times since this morning till 9pm but no luck. - September 10 th , 2009 (8:22AM) email from Ragot to Meir : This is getting ridiculous. Marta is not the person that makes the cheque. If you have any issues with her, that is between you and her and should not implicate me. I consider that I have been very patient to date… - September 10 th , 2009 (11:50AM) email from Meir to Ragot : Hi Pierre, Marta ran the company a-z. We are lost. I don’t know who suppliers are.

I don’t know where my patterns are. I’m really lost. I never worked in the office. I’m in the office now but I can’t figure it out. Marta has not entered all fall orders in the computer. Now you have the picture. I was just a middle man between marta and a silent investor. Investor is fuming because we have to need to finish S 10 collection [ This is

the order for other samples placed by Marta in July 2009 for 7210159 Canada Inc. (Kitchen Orange) ]. As it is we are 6 weeks late vis- à-vis buyers in canada. Vis-à-vis bloomingdales saks nordstrom we are 10 weeks late to show S 10. Fall 09 we can’t ship because marta has full control of hangtags, rn# and the company who has to pack the knits for us and ship (I don’t know what to negotiate with them). Silent investor is now with lawyers. I risk being sued also because I introduced him to KITCHEN ORANGE and Marta the head designer and production head.

What is your connection to marta boyfriend jean francois parent? Do you have their home address? Please we need your help. The KITCHEN ORANGE investor is a very respected business man in mtl and europe. Don’t worry about our credibility. The investor pays everyone no matter what. Just team up with us and we’ll build together.

Please don’t withhold info you have about Marta or jean francois or this order [ The order for samples placed by Marta in July 2009 for 7210159 Canada Inc. (Kitchen Orange) ] - September 11 th , 2009 (05:04) email from Meir to Ragot : Hi pierre, I just forwarded [ below ] a copy of a standard e-mail I send to every buyer with our KITCHEN ORANGE slogan --- 100% made in canada. […] Also before investor calls you I need some answers for him.

A) You told me you didn’t know marta and neither who referred her to you, then why is it you trusted her with c.o.d. and not L/C?

B) Did marta know that it was made in china?

C) did marta want to fool us and switch the labels? I’ve sent marta a e-mail and sms how wrong it is to dump made in china goods to a company that advertises “100% made in canada” on all their literature and editorial in magazines. Pierre please find a solution to a double problem we are facing. If we don’t ship knits to our clients we’ll lose credibility. If we ship chinese goods we’ll be misleading them. What do I do? This e-mail cannot be shown or forwarded to any party due to confidential info I have shared with you. See below.

The attachment is an email from Meir to Christine Kelly dated August 27, 2009 with the following subject: Subject: KITCHEN ORANGE www.kitchenorange.com 100% made in Canada… - September 11 th , 2009 (08:46) email from Ragot to Meir : Mr Meir, As you asked, here is a reply in the same order as your questions:

A) No, I cannot exchange the goods for goods made in Canada. We exclusively have all our goods made in China.

B) Since the salesman samples were paid on time, we accepted to COD terms.

C) Yes, marta did know that the samples and production are made in China. Even the billing is in Hong Kong.

D) I have no idea if Marta wanted to fool you and switch the labels. Even if I sympathize with your situation, with all due respect, this has nothing to do with K & B. We fulfilled our part and are now being held hostage by your internal struggles. The only thing I can propose to you, is that you come to my office this morning so that I can show you any communications with Kitchen Orange hopping (sic) that this can help you out. - September 11 th , 2009 (11:30) email from Ragot to Meir : Mr. Meir, I expect full payment for invoice C-29029 [$34,529.47] and sample invoice SMPL-29019 of 1 657,69$ by 5:00pm today.

It would be sad if you were to leave me no option but to take legal action. - September 14 th , 2009 (10:44) email from Ragot to Meir : Mr. Meir, -1 RE. Invoice C-29029 and SMPL-29019: Invoice C-29029 was due on the 24 th of August, it is now 3 weeks overdue.

Invoice SMPL-29019 was due on the 10 th of September. You keep on telling me that the “investor” will contact me for the payment, but he never does. If you are not the person I need to contact re. the payment, please advise if I should contact Daniel Hazan or Sandra Berkovits in order to receive the payments. [ Following this email are two printouts obtained on September 11, 2009 from the Régistraire des entreprises (Système CIDREQ).

One concerns 3209814 Canada Inc. with Sandra Berkovits as president, secretary and director; it indicates that 3209814 Canada Inc. has been using Kitchen Orange as a trade name since January 10, 2001 and still is.

The other one concerns 7210159 Canada Inc. with Daniel Hazan as president, secretary, director and principal shareholder; there is also an indication that 7210159 Canada Inc. has been using Kitchen Orange as a trade name since July 20, 2009 and still is. ] - September 21 st , 2009 (08:39) email from Ragot to Daniel Hazan, president of 7210159 Canada Inc. carrying on business under the trade name of Kitchen Orange : Hello Mr.

Hazan, Please advise re. the invoices Best regards, Pierre [ there are two attachments to the email ] - September 21 st , 2009 (09:57) email from Ragot to Daniel Hazan : Hello Daniel, Attached re the invoices in question, please advise re. the payment. Once again, I invite you to come to our office so that we may meet and discuss our relationship for the future. Best regards, Pierre [ there are two attachments to this email.

Invoice C-29029 – August 26, 2009 for $34,529.47 (P-7) and invoice SMPL-29019 – September 10, 2009 for $1,657.69 (P-7 and D-11) - Both invoices are addressed to 7210159 Canada Inc. (Kitchen Orange) at 450 Port-Royal, #501 in Montreal ] [Emphasis and comments added] [ 78 ] This series of emails and attachments shed far more light on what really went on in August and September 2009, outside the presence and any involvement of 2754380 Canada Inc. and without any knowledge of its president, Revah. [ 79 ] Based on the preponderant evidence, the Court concludes that, in all probabilities, Ragot as representative and mandatary of K&B in Canada knew or should have known that he was not dealing, at all relevant times, with 2754380 Canada Inc. [ 80 ] With all due respect, the fact that Meir obtained and remitted to Ragot the $1,536.75 cheque to pay for the samples was not sufficient to relieve Ragot and K&B from acting as prudent and diligent business people for subsequent transactions.

As to the CA# and the RN#, the Court comes to the same conclusion; such numbers were also easily obtainable by anyone.

Giving these numbers once for the samples did not necessarily and automatically establish that 2754380 Canada Inc. knew or authorized their subsequent use by Marta and Meir. [ 81 ] In any event, several factual elements lead the Court to conclude that Pierre Ragot cannot be considered as having acted in good faith throughout this matter: - At the outset, Marta told Ragot that she was working for Kitchen Orange as its head designer and she gave him her Kitchen Orange business card [6] ; Ragot undertook during his examination on discovery to provide Marta’s business card, but subsequently claimed that he could not locate it; - Ragot did not produce any document evidencing the initial purchase order received for the samples that were ultimately paid for in April 2009 with the cheque of 2754380 Canada Inc. (P-3); if the transaction for the samples was as it appears on the invoice dated March 19 th , 2009 (D-14), why weren’t the samples delivered directly to 2754380 Canada Inc. at the address appearing on the invoice?

Maybe that invoice did not exist then (especially since Revah testified that he never saw it or received it). Maybe the purchase order for the samples that was never produced, did not show 2754380 Canada Inc. as the purchaser? The purchase order would have certainly helped to corroborate Ragot’s affirmation that he always dealt with 2754380 Canada Inc. from the outset and that Meir and Marta were the latter’s representatives.

It is surprising, if not somewhat revealing, that the initial purchase order was never produced; - Exhibits 7 and 8 filed after the reopening of the hearing, lead the Court to conclude that Ragot knew that he was not really dealing with 2754380 Canada Inc. as early as in July 2009; these exhibits contradict certain statements made by Ragot during the first day of the trial; - Exhibits D-11, P-7 and P-8 considered together reveal relevant information; - As previously discussed, Exhibit D-11 is a short series of emails exchanged between Ragot and Marta on August 26 th , 2009, two

days after the delivery to Kitchen Orange ; in the first email, Ragot sends to Marta for immediate payment, the August 26 th invoice addressed to 2754380 Canada Inc. (D-12); a few minutes later, Marta responds and asked that the invoice be readdressed to 7210159 Canada Inc. ( Kitchen Orange ) on Port-Royal; within minutes, Ragot obliges and sends the same invoice but this time readdressed to 7210159 Canada Inc. (Kitchen Orange) with one simple word: “ Voilà ”, no complaints, no requests for any explanations given the fact that he claims that he was always doing business with 2754380 Canada Inc. Why?

Maybe because Ragot was not really doing business with 2754380 Canada Inc. and he knew it. On the first day of the trial, Ragot tried to convince the lawyer for 2754380 Canada Inc. as well as the Court, that the invoice that he sent back to Marta on August 26 th , was Invoice SMPL-29019, the one that he attached to the emails D-11, an invoice that he claimed to be irrelevant to the present case. Ragot was right about that but it was the only invoice available “matching” Marta’s instructions without having to disclose the other invoice, the “real one”.

Ragot maintained that Marta’s request was unrelated to the $34,529.47 invoice. Maybe that is the reason why Ragot did not produce as well the attachment to his first email, the production invoice that he wanted paid A.S.A.P.

The Court believes that the two invoices sent on that day to Marta pertained to the $34,529.47 claim; - However, Invoice SMPL-29019 dated September 10 th , 2009 provides another clue and reveals something else when considered with other emails exchanged at the time between Ragot, Marta and Meir in Exhibits P-7 and P-8; - In P-7, in a September 10 th email to Ragot, Meir writes about the S10 collection : I was just a middle man between marta and a silent investor. Investor is fuming because we have to need to finish S 10 collection . As it is we are 6 weeks late vis-à-vis buyers in canada.

Vis-à-vis bloomingdales saks nordstrom we are 10 weeks late to show S 10 . Fall 09 we can’t ship because marta has full control of hangtags,rn# and the company who has to pack the knits for us and ship (I don’t know what to negotiate with them). Silent investor is now with lawyers. I risk being sued also because I introduced him to KITCHEN ORANGE and Marta the head designer and production head. … Just team up with us and we’ll build together .

Please don’t withhold info you have about Marta or jean francois or this order. [Emphasis added] - The S10 Collection relates to the other samples ordered by Marta from K&B, in all likelihood, for the various prospective clients mentioned by Meir in his abovementioned email; when one looks at Invoice SMPL-29019 attached by Ragot to his D-11 emails, which invoice, by the way, is identical to the one sent by Ragot to Daniel Hazan, president of 7210159 Canada Inc. ( Kitchen Orange ) on September 21 st , 2009, one can easily see that it pertains to salesman samples; those samples are all S10 Style; - Exhibit P-8 contains two series of emails, a first one mainly between Ragot, Marta and an employee of 2754380 Canada Inc. in April 2009 and another one between Ragot and Marta in August 2009; they were also produced by Ragot en liasse at the reopening of the hearing to establish, in all likelihood, that an employee of M.J.

Apparel had sent the latter’s CA# to Marta, at her request, by email of April 29 th , 2009; this email does not establish clearly what use was to be made of the CA# by Marta; this Exhibit would have been of little value if it was not for the second series of emails; - The other emails forming part of Exhibit P-8 appear quite clearly to be emails assembled by Ragot in response to his Undertaking #3 – Fournir copie du bon de commande pour les échantillons . Why weren’t they remitted to the lawyer for 2754380 Canada Inc. earlier in the process? Be that as it may, there is no purchase order attached to those emails.

However, one email reveals that on July 10 th , 2009, Ragot was writing to Marta to inform her that he would start receiving fit samples on about July 20 th and that in order for her to receive her salesman samples by mid-August, she would have to advise him how many samples she would need per style/color/size; Ragot adds that normally it takes two months minimum in order to have such samples; less than two hours later, Marta responds under subject heading: Asked for the samples , and provides Ragot with the various style/color/size required for the samples; all products are S10 Style; in fact, all the samples detailed in Marta’s July 10 th email to Ragot are identical to the samples invoiced by K&B on September 10 th , 2009 in Invoice SMPL-29019 addressed to 7210159 Canada Inc. ( Kitchen Orange ) (D-11 and P-7); clearly, these samples were never ordered by Marta on behalf of 2754380 Canada Inc. who was never invoiced for it; only 7210159 Canada Inc. ( Kitchen Orange ) was; otherwise, the present proceedings would have surely included this second $1,657.69 invoice.

Instead, in two September 21 st , 2009 emails sent to Daniel Hazan, Ragot chose to claim Invoice SMPL-29019 and the $34,529.47 invoice from of 7210159 Canada Inc. ( Kitchen Orange ). [ 82 ] As previously indicated, the September 10 th , 2009 Invoice SMPL-29019 was never charged to 2754380 Canada Inc. and was never added by K&B to the present proceedings for obvious reasons. The samples were never ordered by 2754380 Canada Inc. but were nevertheless ordered by Marta and Meir on or before July 2009, before the delivery of the $34,529.47 goods to Kitchen Orange in August.

How can Ragot maintain that when he dealt with Marta and Meir there were always representing M.J. Apparel?

With all due respect, Ragot knew or should have known, as early as in early July 2009, the difference between 7210159 Canada Inc. ( Kitchen Orange ) and 2754380 Canada Inc., as well as the real involvement of Marta and Meir, who seemed to be experiencing difficulties of their own in September 2009, according to the emails (P-7). [ 83 ] Based on the foregoing, the Court finds that Ragot, as an experienced businessman, knew or should have known that Kitchen Orange had never been a trade name used by 2754380 Canada Inc.

Obviously, Ragot knew of the CIDREQ System offered on the Internet by the Québec Government as evidenced by the two print outs attached to his own series of emails (P-7). At the time, Meir was referring to a Kitchen Orange silent investor without ever identifying that person in his emails.

As he never heard from that person regarding the payment of the two outstanding invoices due by 7210159 Canada Inc. ( Kitchen Orange ), Ragot identified, with the assistance of the CIDREQ System, two different corporations that were reporting to the governmental authorities that they were using the trade name of Kitchen Orange :

- 3209814 Canada Inc. with Sandra Berkovits as president, secretary and director reported using Kitchen Orange as a trade name since January 10, 2001; and - 7210159 Canada Inc. with Daniel Hazan as president, secretary, director and principal shareholder also reported using Kitchen Orange as a trade name since July 20, 2009. [ 84 ] In his September 14 th , 2009 email to Meir, Ragot is complaining that the two invoices are still outstanding and that the “silent investor” has yet to contact him.

Ragot adds If you are not the person I need to contact re. the payment, please advise if I should contact Daniel Hazan or Sandra Berkovits in order to receive the payments . Clearly, Ragot had done his homework and had identified Sandra Bercovits and Daniel Hazan as potential contacts to resolve his predicament.

On September 22 nd , 2009, Ragot will send the two outstanding invoices to Daniel Hazan of 7210159 Canada Inc. ( Kitchen Orange ), not once, but twice on the same day; but, to no avail. [ 85 ] Until November 2009, there are no attempts whatsoever by K&B to collect the $34,529.47 invoice from 2754380 Canada Inc. The latter becomes the “debtor” of K&B in November when Defendant is approached by a Florida collection agency mandated by K&B.

Why such a gap between the August 24 th delivery and the first transmission of an invoice to 2754380 Canada Inc., especially if it was the corporation that Ragot was dealing with from the outset? With the benefit of the various exchanges between Ragot, Meir and Marta in August and September, the Court can certainly appreciate K&B’s reluctance to go after 2754380 Canada Inc. sooner.

With all the relevant facts on hand, the recourse was hazardous, at best. [ 86 ] At the hearing, Ragot will mention on more than one occasion that he was following the instructions of K&B. [ 87 ] Based on the overwhelming preponderant evidence, the Court finds that 2754380 Canada Inc. never ordered nor received the goods that are presently claimed by K&B, a critical information that was known or should have been known to K&B and its representative, Mr. Pierre Ragot. The behaviour of Mr. Ragot throughout reveals that he was not always acting in good faith within the meaning of

Article 2163 of the Civil Code of Québec and that he knew or should have known that 2754380 Canada Inc. was not doing business under the trade name of Kitchen Orange . Ragot had all the means available to him to effect reasonable and diligent verifications about 2754380 Canada Inc. and determine the true involvement of Marta and Meir with that corporation. The information of the CIDREQ was easily obtainable and could have alerted Ragot early in the process that Kitchen Orange was not linked with M.J.

Apparel but rather with the other two abovementioned companies. [ 88 ] If Ragot had really been doing business with M.J. Apparel from the outset, if 2754380 Canada Inc. was the “true” purchaser of the goods, as he now claims, why did he readily accept to change the buyer on the $34,529.47 invoice so easily, without any questions or objections? Why did Ragot tolerate the situation with Meir for as long as he did in late August and September 2009 without ever contacting someone in authority at 2754380 Canada Inc.?

Was it that Meir’s Just team up with us and we’ll build together was more important than to hold 2754380 Canada Inc. responsible for the $34, 529.47 invoice? Who was the “ us ” that Meir was referring to in writing “ with us ”? Was it 2754380 Canada Inc.? The Court does not believe so.

If 2754380 Canada Inc. was the “true” purchaser of the goods, why did Ragot send the two invoices to Daniel Hazan of 7210159 Canada Inc. ( Kitchen Orange ) and demand payment for that company? [ 89 ] With all due respect, in light of the overwhelming preponderant evidence, the behaviour of Ragot, as representative of K&B, does not support in any convincing manner that he was doing business with 2754380 Canada Inc. carrying on business under the trade names of M.J. Apparel and of Kitchen Orange when he was dealing with Meir and Marta.

Had it been the case, K&B would not have simply ignored the Defendant for months until it mandated the Florida collection agency in November 2009. [ 90 ] The preponderant evidence leads the Court to conclude that 2754380 Canada Inc. was, in all likelihood, a victim of schemes orchestrated by Marta and Meir that were oblivious to the Defendant. [ 91 ] It is not all that clear that the same applies to K&B. At the very least, K&B was in a much better position to be more alert, diligent and prudent, given the information that was available to Ragot throughout.

The negligence of Ragot reached such an extent that the Court cannot conclude to his good faith when it comes to determining whether Ragot believed in “ good faith ” that Marta and Meir were indeed representing 2754380 Canada Inc. for the $34,529.47 transaction. Clearly, during that critical period, evidence supports the fact that Ragot knew that Marta and Meir were not only acting for 2754380 Canada Inc., but as well for 7210159 Canada Inc. (Kitchen Orange), the order placed for the S10 samples speaks volumes that they were not acting for M.J.

Apparel and that Ragot knew it. [ 92 ] Moreover, with a new somewhat unknown customer, why did Ragot waive the LC [Letter of credit] usual requirement for the $34,529.47 transaction? Why did he convert that requirement to Cash on Delivery (C.O.D.), and yet, he made no effort whatsoever to be on site to collect K&B’s money on August 24 th , 2009? The explanation given at trial by Ragot that the quick payment by M.J. Apparel of the first invoice of $1,536.45 by cheque was sufficient to induce K&B to “extend credit” to the new customer, is simply not credible coming from an experienced businessman.

The emails in P-7 reveal that it was more of a concession made by Ragot to Meir to give him a break . If Ragot was dealing with a corporation [2754380 Canada Inc.] that was paying so quickly that it justified extending it credit right away, why did he have to “ give a break ” to Meir regarding the usual mean of payment by way of a letter of credit for new customers? [ 93 ] For those reasons, the Court finds for the Defendant, 2754380 Canada Inc., carrying on business under the trade name of M.J.

Apparel, and therefore, dismisses K&B Sourcing Limited’s action. [ 94 ] As to the Cross-Demand in damages, the Court finds that the evidence favours overwhelmingly the position that K&B, with the information that it had at hand, at all relevant times, could not reasonably conclude to the contractual liability of 2754380 Canada Inc. herein. [ 95 ] Since 2754380 Canada Inc. was not involved beyond the payment of the initial samples, the Defendant did not have any evidence on the subsequent $34,529.47 transaction.

Only Ragot, Marta and Meir were in a position to shed light on what really happened and they were the ones that had any relevant documentation relating thereto. In the absence of other any evidence, M.J. Apparel’s CA#

and RN# together with the $1,536.45 cheque (P-3) issued by 2754380 Canada Inc. were the only pieces of evidence linking the latter to the present claim via Meir to whom the cheque had been given. [ 96 ] At first glance, and without any of the relevant information and documentation that obviously existed since the summer of 2009 available to Defendant, K&B stood a reasonable chance of convincing the Court that it was indeed doing business with the Defendant through Meir and Marta. [ 97 ] However, with the benefit of all the facts introduced into evidence during the two-day trial, the Court cannot ignore certain facts that are particular to this case.

Among others, K&B readily changed its $34,529.47 August 26 th invoice to 7210159 Canada Inc. (Kitchen Orange) and tried to collect the same from that company for a certain period of time.

When it became evident that K&B could not succeed, it switched to 2754380 Canada Inc., some months later. 2754380 Canada Inc. did not receive any invoice regarding the $34,529.47 transaction until November 2009. [ 98 ] Basically, the $1,536.45 cheque (P-3) was to become the principal piece of evidence to link the Defendant with the $34,529.47 transaction, provided however that Marta and Meir are considered to be the representatives of 2754380 Canada Inc. for that transaction. This link was crucial as neither Ragot nor K&B knew anyone else at M.J. Apparel.

Yet, as early as in July 2009, before the delivery of the $34,529.47 goods to Kitchen Orange, K&B and Ragot were already dealing with Meir and Marta who were representing a different company for the S10 Collection samples, a fact unknown to 2754380 Canada Inc. until late in the trial. [ 99 ] The evidence shows that between November 2009 and the institution of the present legal proceedings in December 2010, 2754380 Canada Inc.’s lawyer tried repeatedly to convince K&B that his client had absolutely nothing to do with the transaction in question, but to no avail. [ 100 ] The Court cannot ignore either that during the examination on discovery of Pierre Ragot in June 2011 some thirteen undertakings were subscribed by the witness, undertakings pertaining to highly relevant facts, in retrospect.

Not all the undertakings were fulfilled by the July 20 th , 2011 deadline. The efforts of the lawyer for 2754380 Canada Inc. to obtain the missing undertakings were fruitless and eventually warranted the presentation of a Motion to order the production of the undertakings that was granted in May 2012.

Even then, not all the relevant information and documentation was provided, judging on the additional one Exhibits P-7 and P-8 that, surprisingly, only surfaced after the reopening of the hearing and yet, the order to reopen the hearing was not even issued in connection with these documents that were unknown until then to the Defendant. These exhibits were filed to support K&B’s claim but ended convincing the Court that Plaintiff’s recourse was ill-founded and bound to fail. [ 101 ] K&B relied essentially on the cheque of $1,536.75 (P-3) issued by 2754380 Canada Inc. at the request of Meir.

If the facts and the documentary evidence had been limited to those alleged and produced by K&B at the outset, the Court could have understood the reasonableness of K&B’s need to exercise the present legal proceedings, despite the existence of obvious risks usually linked to any litigation. [ 102 ] However, the evidence now establishes without any doubt that K&B instituted those proceedings in spite of repeated serious objections on the part of 2754380 Canada Inc.

When those objections are combined with the additional information and documentation that was clearly available, at all relevant times, to K&B and its representative, Pierre Ragot, the Court concludes without any hesitation, that K&B introduced those legal proceedings knowing very well that if all the facts that it had in its possession or control, were known and all the relevant documentation was produced, its recourse could only fail, as it was suing the wrong party.

The Court’s conclusion is strengthened by the repeated unsuccessful attempts of 2754380 Canada Inc.’s lawyer to obtain all the undertakings made by Pierre Ragot during his June 2011 examination on discovery. Even then, at trial the exercise was arduous as Pierre Ragot’s testimony was not forthcoming and spontaneous, in the eyes of the Court and in certain respects aimed at inducing the Court into error on relevant documents.

It took the reopening of hearing in October 2012 to finally get, by chance, additional documentation that was clearly available to K&B and Pierre Ragot since 2009. [ 103 ] Such behaviour on the part of Plaintiff and its representative, Pierre Ragot, is unacceptable and constitutes an inappropriate and excessive use of legal proceedings, thus causing prejudice to 2754380 Canada Inc. within the meaning of the provisions of

Article 54.1 of the Code of civil procedure . Such behaviour reflected bad faith on the part of K&B and must be condemned. K&B caused 2754380 Canada Inc. to incur unnecessary legal fees by literally “dragging” to the extent it did, the communication of relevant evidence to which 2754380 Canada Inc. was clearly entitled. K&B knew or should have known that this evidence, if disclosed, would be very relevant to the present proceedings and would have a determining impact on its outcome. [ 104 ] 2754380 Canada Inc. is claiming extrajudicial legal fees of $11,840.04 in its Cross-Demand.

In light of K&B’s unacceptable and inappropriate conduct in the course of the present proceedings, the Court finds that 2754380 Canada Inc. is entitled to damages established at $7,500. FOR THOSE REASONS, THE COURT: FINDS for Defendant, 2754380 Canada Inc., carrying on business under the trade name of M.J. Apparel; DISMISSES the action of K&B Sourcing Limited; GRANTS in part Defendant’s Cross-Demand; CONDEMNS Plaintiff/Cross-Defendant, K&B Sourcing Limited, to pay to Defendant/Cross-Plaintiff, 2754380 Canada Inc., carrying on business under the trade name of M.J.

Apparel, the sum of $7,500.00 with interest thereon at the legal rate of 5% per annum with the indemnity of

Article 1619 of the Civil Code of Québec from December 7 th , 2010, the date of assignment of the present proceedings. THE WHOLE , with costs in favour of 2754380 Canada Inc., carrying on business under the trade name of M.J. Apparel, on the principal action as well as on the Cross-Demand.

MICHEL A. PINSONNAULT, J.C.Q. M tre Gordon M. Selig Attorney for Plaintiff/Cross-Defendant M tre Michel M. Amar AMAR & ASSOCIÉS Attorney for Defendant/ Cross-Plaintiff Dates of hearing: August 29 th and October 12 th , 2012