Unofficial English Translation Newad Media inc. c. Red Cat Media inc. 2013 QCCA 129 COURT OF APPEAL CANADA PROVINCE OF QUÉBEC MONTRÉAL REGISTRY No. 500-09-021394-119 (500-17-037103-077) (500-17-036156-076) DATE: January 22, 2013 CORAM: THE HONOURABLE NICOLE DUVAL HESLER C.J.Q. PAUL VÉZINA J.A. DENIS JACQUES J.A. (AD HOC) NEWAD MEDIA INC. APPELLANT – Plaintiff v. RED CAT MEDIA INC. ROUGE CAMPUS INC. ROUGE RESTO BAR INC. (FORMERLY,

CHAPITRE 66 INC.) MARTIN POITRAS RESPONDENTS – Defendants JUDGMENT [ 1 ] The Court, ruling on the appeal from a judgment rendered on January 6, 2011 by the Superior Court, District of Montréal (the Honourable Kevin Downs), that refused the permanent injunction sought by the appellant in order to force the respondents to remove all advertising vehicles from establishments where it had a licence agreement. [ 2 ] For the reasons of the Chief Justice, with which Vézina and Jacques JJ.A. concur, THE COURT: [ 3 ] DISMISSES the appeal, with costs. NICOLE DUVAL HESLER C.J.Q. PAUL VÉZINA J.A. DENIS JACQUES J.A. (AD HOC) Mtre. Marie-Josée Hogue and Mtre. Véronique Roy HEENAN, BLAIKIE For the appellant

Mtre. Guy Lemay LAVERY, De BILLY For the respondents Date of hearing: November 27, 2012 REASONS OF THE CHIEF JUSTICE [ 4 ] The appellant appeals from a Superior Court judgment refusing its application for a permanent injunction whereby the respondents would have been ordered to remove their advertising products from the establishments in which the appellant displayed its own products.

In support of its application, the appellant cited the exclusivity clauses in its agreements with the establishments concerned. [ 5 ] The trial judge found that the clauses were ambiguous and time varying, and that they could not prevent advertising in the establishments by means of products other than the appellant's. [ 6 ] The context of the dispute is as follows. [ 7 ] The appellant was founded in 1995, in Toronto, by Michael Reha, who is still its President & CEO. The appellant started its activities in Québec in 1998.

Initially, it focused on advertising in rest rooms, in 13-inch x 17-inch steel frames (mini-boards). Subsequently, it brought in other advertising formats: bigger boards, backlit boards, and postcards. When the respondents introduced mega banners onto the market, the appellant also began using them in its advertising. [ 8 ] Zoom Media Inc. ("Zoom") is the appellant's main competitor and has its own network of establishments. [ 9 ] The appellant contracts with various types of establishments, particularly educational institutions (colleges and universities) and resto bar-style establishments.

In exchange for the right to advertise in the establishments, the appellant pays the latter royalties, which vary with the advertisement. [ 10 ] The respondent Martin Poitras worked for Zoom from 1995 to 2002 and later founded the three respondent companies—Red Cat Media, Rouge Campus and Rouge Resto Bar (formerly,

Chapitre 66)—between 2003 and 2006. [ 11 ] The respondents' business model consists in displaying advertisements on large vinyl banners measuring 5 feet x 7 feet. [ 12 ] The respondents entered into agreements with establishments that were under contract with the appellant and installed such banners, which the appellant had never used before, in the establishments' premises. [ 13 ] Believing that the respondents knowingly induced the parties contracting with the appellant to breach the exclusivity clause in their advertising contracts, the appellant formally notified the respondents to cease those activities.

The formal notices were sent to the respondent Red Cat Media in November 2006 and to the respondents

Chapitre 66 and Martin Poitras in April 2007. [ 14 ] In the respondents' view, the appellant's exclusivity rights did not pertain to all types of advertising or to the entire premises of the establishments concerned, so they refused to remove their banners, hence the proceedings instituted by the appellant in 2007. [ 15 ] However, the proceedings did not target the establishments having entered into what the appellant saw as an exclusive agreement with it.

Rather, the proceedings targeted third persons to the agreement, namely, the respondents. [ 16 ] The right to issue orders affecting third persons is recognized in the jurisprudence. [ 17 ] In the landmark ruling Trudel v. Clairol Inc. of Canada , [1] the contracts binding the manufacturer Clairol to wholesalers provided that a type of products was for professional use only. A professional hairdresser who obtained the products from his wholesaler subsequently resold them directly to clients on her/his initiative alone and, in so doing, knowingly breached that clause.

She/he thus interfered with the manufacturer's rights. The injunction ordered against the hairdresser was upheld. The Supreme Court explained the basis of that civil fault as follows: 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 . . . ; for it is

an act of dishonesty to be associated knowingly with a breach of contract. . . . Everyone has a moral obligation not to contribute to the breach of a validly assumed undertaking; . . . [Emphasis added and reference omitted.] [2] [ 18 ] In Dostie v. Sabourin , [3] the Court reiterated that principle. A third person incurs its extracontractual liability if, through its actions, it contributes to or advises a contracting party to knowingly breach the other party's rights:

[TRANSLATION] 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, compliance with the relations 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. [4] [ 19 ] In Sobeys Québec inc. v. 3764681 Canada inc. , [5] Baudouin J., speaking for the Court, stated that a third person's conduct had to be marked by bad faith in order for the person to be found civilly liable: [TRANSLATION] [25] However, the jurisprudence allows for holding legally liable a third person who knowingly and with full knowledge of the facts violates a contract entered into by other parties. [26] That said, given the principle of the privity of contracts, the person must, on the one hand, know about the clause and, on the other hand, be of bad faith in violating it. [References omitted.] [6] [ 20 ] What about this case? [ 21 ] First, as regards the examination of the clauses themselves, the trial judge cannot be said to have erred. [ 22 ] Certain contracts provided for exclusivity solely with respect to advertising in rest rooms.

Some contracts extended the exclusivity to cloakrooms, changing rooms and specific hallways, or near public phones.

Other contracts explicitly stipulated that the exclusivity applied only to certain, specific areas: on the interior walls of the rest rooms and washrooms, the interior and exterior walls of the cubicles in rest rooms and washrooms, the walls of and other indoor public areas and near public phones, in each case only at specific locations approved by the Licensor. [ 23 ] All contracts with educational institutions (excepting that with the Sheridan College Athletics Centre) contained an exclusivity clause that was explicitly limited in regard to the areas concerned.

Thus, to the extent that competitors' advertising was not located in the areas covered by the exclusivity rights under the contract (e.g. rest rooms), the establisments were not, at first glance, breaching their contract. [ 24 ] That said, the bulk of the contracts binding the appellant to resto bar-style establishments contained, at the time of the relevant facts—around November 2006—a very generally worded exclusivity clause that, subject to different variations, read as follows: License.

The supplier hereby grants an exclusive license to NEWAD to install, affix, display, maintain, alter, remove and replace advertising, advertising frames, backlit advertising frames ("Advertising Frames"), advertising postcard displays and racks, VideoBoards and other advertising posting displays ("Other Advertising Displays") within the Premises (as described on the previous page), including, but not limited to, the interior walls, the ceiling(

s) and the floor(

s) of the Premises and all areas in the restrooms and washrooms. The Supplier hereby grants to NEWAD an exclusive license to promote and advertise products and services in the Premises, except that such license shall not preclude the Supplier from installing and/or display advertisements for products it sells, provided that the Supplier does not receive a fee or other monetary compensation for such advertisements. The license granted in this paragraph is referred to as the "Exclusive License". [ 25 ] Even were this text to be considered clear to the point of not raising any problems of

interpretation, it is appropriate to point out that ambiguity can occur even when a text is clear. As emphasized by authors Lluelles and Moore, judges must first do a

summary

interpretation (pre-interpretative phase) to ascertain whether there is ambiguity: [TRANSLATION] Doubt sometimes arises from the use of an inadequate term or from a contradiction between two clauses. But ambiguity stems most often from a lack of precision . . . One should be wary of apparent clarity.

A text can be clear, taken separately, but turn out to be obscure when considered in context with the rest of the agreement; it can also be completely unambiguous from the standpoint of form, but contradict the objective clearly sought by the parties. [References omitted.] [7] [ 26 ] The trial judge found that the exclusivity clauses were ambiguous: [TRANSLATION] [70] The exhaustive analysis of all the advertising exclusivity clauses in support of the application shows a degree of privity with respect to both the nature and the scope of the clauses. . . . [72] This is compounded by the type of equipment used—size, materials and location of advertising, etc.—which varies as much in the case of the plaintiff as in the case of the defendants. . . . [77] So, even were the

interpretation of the scope of the exclusivity clause to be favourable to the plaintiff, the exclusivity is limited to the nature of the product used by the plaintiff, that product being very different from the defendant's.

[ 27 ] The appellant did not satisfy me that the judge erred clearly and decisively in that regard, especially in light of the evidence as a whole, which also reveals the following. [ 28 ] In the present case, the respondents admitted that they knew about the contracts binding the appellant to the establishments, and even about the existence of a degree of exclusivity. However, they had understood that the exclusivity was limited to certain types of advertising and certain locations. [ 29 ] When the respondent Poitras was working for Zoom, he discussed exclusivity with Mr. Reha, President & CEO of the appellant.

It seems that it was clear to Mr. Poitras that Zoom and the appellant could not contract with the same establishment for a comparable product: [TRANSLATION] everyone, be it Zoom or Newad or the other players, tried to obtain exclusive rights for what they were doing . . . It was exclusive rights per product . I know that, at Zoom, that's the way it was in-house, it was important to have exclusive rights for what we were doing . [8] [Emphasis added.] [ 30 ] When he founded his companies and solicited campuses first, then resto bars, Mr.

Poitras continued to believe that the appellant's exclusive rights pertained solely to its own products, or comparable products, and to parts of the establishments' premises, not to the premises as a whole: [TRANSLATION] And, at the time, that was when we saw, as regards who was on the campuses, no, there were players, there were more players than ever. When we started up the bar end of the business, it was a similar exercise in that we saw that there was still a business presence, there were new players. And, no, I didn't call Zoom Media, which had let me go.

I didn't say to Zoom: "Hey, how's it going, do you have enough exclusivity, do you have complete control"? So, what we did was look with our own eyes. We saw there was still advertising around, there was more of it, there were other players. That was when we decided to pitch our program to bars. . . . The only checking we did was to go onsite and have a look. [9] [ 31 ] So, the respondents also based themselves on their visit to the establishments, where they saw that other advertising businesses were present.

The presence of a range of advertising companies in educational institutions and in the resto bar network is documented and confirmed the respondents in their belief that the appellant did not have total exclusivity. [ 32 ] According to the respondents, they also based themselves on the attitude of the establishments, which reportedly wasted no time in accepting their products.

Some of them allegedly even obtained the consent of their legal department before entering into a contract with the respondents, in order to make sure that they would not be violating the appellant's exclusivity rights. [ 33 ] It is of course difficult to interpret the parties' common intention, in the absence of one of parties (the signatory establishment in each case). The evidence appears to show that the respondents knew about the existence of a form of exclusivity, which varied with the establishments, and that, as of the formal notice, they definitely knew how the appellant interpreted it.

However, the appellant cannot impose on the respondents the grounds it might be able to raise against the establishments as part of a dispute with them, namely, recognition by the establishments that their contract with the appellant conferred full and unequivocal exclusivity rights on the latter. [ 34 ] The trial judge concluded rightly, on the basis of the evidence, particularly the cross-examinations of Philippe Marchessault and Michael Reha, the latter having acknowledged that the appellant, Newad, began installing banners similar to those of the respondents only after the respondents had introduced the product on the market. [ 35 ] It must be concluded, as the trial judge did, that the appellant did not demonstrate bad faith on the part of the respondents or their participation, knowingly and with full knowledge of the facts, in breaching the contracts entered into between third persons, if indeed there was a breach. [ 36 ] For these reasons, I propose that the appeal be dismissed.

NICOLE DUVAL HESLER J.C.Q.