Archive for August, 2011

Sometimes It Pays to Shut Up

Tuesday, August 30th, 2011

I was reading a write-up in the latest issue of Law Times that reported a decision of Madam Justice Pepall of the Ontario Superior Court back on August 9. It’s an interesting decision for a couple of reasons – but with a common thread. The gist of the case is that someone decided to write blog posts about a lawyer who didn’t like what was being said about him (exactly what was said isn’t set out in the decision) and he turned around and sued. This decision related to a motion to: (i) approve of service by e-mail; (ii) to grant an injunction to restrain the publication of the blog; and (iii) to force the blogger and others to reveal their identities.

Justice Pepall’s decision can be found here.

Her Honour granted the relief sought and ordered both the injunction and the requirement for the blogger to reveal his/her identity. Central to this latter part of the Order was the fact the Court held that anyone who was publishing defamatory statements on the Internet, with a possible exception for those commenting on political matters, had no reasonable expectation of privacy and thus could be compelled to reveal his/her identity. This also serves as a reminder to everyone to really think about what is being said before it is put into writing – whether in a blog, an e-mail or even just plain old pen and paper. Yesterday’s “flame war” on a forum can be tomorrow’s defamation lawsuit.

The final issue was that of service by e-mail. At the outset I should mention that with a few limited exceptions, the Rules of Civil Procedure haven’t quite made it to the 21st Century yet. Generally speaking, service via e-mail is one of the areas where the Rules haven’t caught up yet – although such service is permitted in some instances when the e-mails are between lawyers. In this case, the blogger had given a Gmail account and the plaintiff had sent the motion materials for the injunction to the blogger via e-mail. The blogger responded by saying that he/she had received the e-mail but didn’t receive the attachments. It was clear, though, that the blogger was trying to be cute. Justice Pepall didn’t buy it and found that the blogger had received sufficient notice of the motion that he/she could have tried to get the attachments if he/she wanted and that therefore the service via e-mail, even though it didn’t meet the full requirements of the Rules, was sufficient to be validated.

The common feature among the decision – sometimes it pays to shut up. If the blogger had kept his/her mouth (keyboard?) shut and not made the defamatory comments, then he/she wouldn’t be stuck in this lawsuit in the first place. Meanwhile, if he/she hadn’t responded to the e-mail serving the motion record then Madam Justice Pepall would have had more concern about granting the Order since she would have been worried that the blogger had no idea that the motion was being heard.

Beyond this, though, one should also give thought to the concept that it pays sometimes to shut up in a slightly different light. In the example of this case it is what the blogger said about the lawyer (that is, another person) that gave rise to legal problems for the blogger. However, in another case one’s own comments could come back to haunt you. As an example, a relative of mine was mentioning to me yesterday the situation of a person who posted to a forum that my relative frequents. This person gave numerous types of personal details about the person’s approach to parenting. One of the forum participants thought that these comments were examples of improper parenting. The person had given sufficient personal information over a series of posts such that the other participant was able to determine who the person was and then make a complaint to the local children’s aid society about the person. The children’s aid society investigated and found nothing improper. However, the reality with children’s aid societies is that if a second complaint is ever made against this person then the automatic presumption is that “where there’s smoke, there’s fire”. (How do I know? I had a similar case where a complaint was made against one of my clients to a children’s aid society that was ultimately dismissed by the CAS but because it had been a second complaint – the first one being an unsupported “anonymous” complaint that had been quickly investigated and determined to be unmeritorious – it was much harder to satisfy the CAS that there wasn’t a problem.) In this case, it was the person’s own posts to the forum that resulted in the person having to deal with the CAS – in other words, this person’s own words came back to haunt him/her.

Something to think about – and seriously consider whether sometimes it just might be better to shut up than to say anything.

CALC

Selling Your Business? Get Everything Clearly in Writing!

Thursday, August 25th, 2011

The Ontario Court of Appeal release a decision this past Monday regarding the sale of a business.  In Kapuskasing Plumbing, the vendor and the purchaser were both franchisees of Culligan in different towns.  The purchaser was interested in buying the vendor’s business (and thereby expanding the purchaser’s business and territory).  After discussions, it was ultimately agreed that the business would be purchased for $1.6 Million of which $600,000 would be paid on closing and the remaining $1 Million to be paid over time through a consulting agreement.

While negotiations were ongoing for the purchase and before the agreement of purchase and sale was drafted, the President of the purchaser, Mr. Fortier, went on a walk-about through the vendor’s business with the President of the vendor, Mr. Villeneuve.  At one point, Mr. Fortier asked Mr. Villeneuve how many 18 litre jugs of water the vendor sold in the prior year.  Mr. Villeneuve looked out in the shop floor, counted the number of pallets, multiplied that by 20 working days per month, multiplied that by 12 months and came up with the number of approximately 200,000 as an annual number.  As it turned out, Mr. Villeneuve’s “quick math” was more than double what the actual number was for the prior year.  When the purchaser learned after closing that the actual number was closer to 95,000, it refused to pay any more money on the $1 Million consulting portion of the purchase price.  The vendor sued for what was owed on the consulting portion and the purchaser counterclaimed for damages for misrepresentation on the sales figures.  At trial, the judge found that there had been a misrepresentation and therefore dismissed the vendor’s claim and awarded damages to the purchaser of approximately $70,000.  The vendor appealed and the Court of Appeal granted the appeal.

There are five elements to a claim for misrepresentation: (i) there must be a duty of care owed between the maker and the recipient of the statement; (ii) the statement must be untrue, inaccurate or misleading; (iii) the person who made the statement must have acted negligently; (iv) the recipient must have relied reasonably on the statement; and (v) there must have been some damage resulting from the reliance on the representation.  The vendor agreed that four of the five elements were present for the purchaser, but it disagreed that the purchaser reasonably relied on the misrepresentation about sales volumes.  The vendor showed that in pre-agreement discussions it had been stressed that the payment was to be without regard to sales volumes.  Moreover, the evidence was that the purchaser asked for all of the accounting information - including sales figures – and that it could have been relatively easily figured out if one took the sales and divided by the known sales price per water jug.

Justice Armstrong agreed that there was no reasonable reliance on the statement of 200,000 jugs.  He wrote:

In summary, the case comes down to this: Kapuskasing [the Vendor] refused to enter into a contract that was based on the number of bottles sold in the prior year.  Mr. Fortier accepted that position and asked that he be supplied with documentation from which he could review the sales figures prior to signing the agreement and address any issues with Mr. Villeneuve.  Mr. Fortier received the appropriate documentation and did nothing.  If he had an issue in respect of his ability to calculate unit sales from the information provided, he could have raised it with Mr. Villeneuve or sought the assistance of Mr. Gravel [the purchaser's accountant and controller].  He did neither.

As a result, the Court found that the reliance upon the “quick math” and estimate of 200,000 was unreasonable and therefore there was no actionable misrepresentation.  It further followed that the purchaser had no right to complain or to withhold payment under the consulting agreement.

While this case deals with the negotiations leading up to the signing of an agreement of purchase and sale to sell one’s business, the principle will be the same for any contract.  If you are going to base your transaction upon a statement or an assumption – even if it is a shared assumption – then you had better get it included in writing in your contract.  If you do that, then you can have a claim for breach of warranty of the contract.  However, if you do not, then you cannot simply take any representation at pure face value.  You have to ask for documents to support the assertions made in the statement that you intend to rely upon – which the purchaser did in this case.  But then you have to actually look at what is given to you and ensure that what you have been sent is consistent with what you have been told – that is where the purchaser failed.  The process is called “due diligence” not because it is a simple label for the process.  You actually have to be diligent in your review of the facts or statements that underly your transaction.  Failure to do so can prove to be costly later on.

Something to think about.

CALC

Clearing Your Name on the Internet

Thursday, August 25th, 2011

I have a client who operates a repair shop for high end cars.  Unfortunately, he hasn’t been able to find someone who wants to sell me their luxury or sports car for an amount I can afford.  Oh well.  In any event, as with any other business, there are disgruntled customers from time to time.  One of those customers a few years ago decided to go onto various blogs or web forums and wrote “reviews” of my client that certainly skirted the edge of defamation but never quite crossed the line.  Needless to say, the reviews were not favourable to my client.  However, my client did not know about these until a few months ago.  Then he did a Google search on his business and started to realize that when people did searches on his business, these darned “reviews” were coming up and they were high enough in the search rankings that people would see these reviews and that it would (and probably has) hurt my client’s business.

Could I help my client?  Not really.  The reviews were written VERY carefully (I wondered whether they had been vetted by a lawyer).  They did not cross the line of defamation, so my client could not sue for that.  They also did not satisfy all of the elements for other claims such as the tort of interference with economic relations.  After looking at numerous options, it was clear that there were no legal obligations or standards that had been broken and, accordingly, there was nothing that I could do for my client.  The other, practical, reality was that if he proceeded to bring a claim about these “reviews” then this could backfire against him and his business since it would thrust these reviews back into the forefront and might increase their ranking on Google searches.

I was watching the France2 news today (France’s equivalent of the national news) and they had a story about a French company that is a combination of lawyers, marketing people, web specialists, etc. that work as a team to “rehabilitate” your online reputation after your name has been dragged through the mud through blogs, social media sites, etc.  In the example given in the news story, a business executive ran into some legal problems that were resolved but his name was smeared with false information, etc. in various articles or blog postings.  Because the statements were false, the lawyers were able to get those articles / posts pulled and then the marketing people worked on building new “friendly” references to the executive to force the other rankings lower.  This was done for a cost of about 2,000 Euros (about $2,800 at recent exchange rates).  (Somewhat ironically, I then went to check out the French company’s web site but Google Chrome immediately warned me that the site was infected with a virus, so it looks like there were hackers or other malcontents watching the French news tonight.  I don’t think that that was the reaction that the company was hoping for from the news story.)

A Google search for other similar companies showed several in Europe and the U.S. and even one in Toronto.  Is this a definite solution?  Probably not.  If my client’s disgruntled customer was truly someone with little better to do but to take shots at my client’s business, then he could probably counteract the positive web spins put on by the online reputation rehabilitation people.  But with the knowledge that there might not be a complete success, even partial success might be worthwhile if it reduces any loss of business due to the damaging comments made on the web.

I always tell my clients that there are two aspects to every dispute: the legal and the practical.  For my client with the car repair shop, the legal aspect of his problems with his former customer isn’t helpful for him.  It may be that the practical aspect of using a reputation rehabilitation company is worthwhile.

If nothing else, however, my client’s story reiterates what lawyers and others tell small businesses – Google your business on a fairly regular basis.  It is easier to minimize reputational damage on the Internet if it is caught quickly.  If damaging statements are made on the Internet and months or years go by, it could very well be too late.  As a personal practice, I Google my name every week or so because I represent the banks and often have to do litigation against self-represented persons who have no love lost for the Bank and thus, in turn, for me.  Thankfully, nobody has taken any significant shots at my reputation, but that doesn’t mean that it can’t or won’t happen at some point in the future.

Hopefully this is not a problem for your small business.  But if it is, then using one of these companies could well be something to think about.

CALC

 

A Domain Name is Property!

Monday, August 8th, 2011

I have to smile sometimes when decisions come out that most non-lawyers would say “um, you mean it wasn’t that way before, it seems kind of obvious that it should be the case, doesn’t it.”  But in the wonderful world of law, where it’s often difficult to fit the square pegs created by new technology into the round holes of legal categories, it’s not always so obvious.  Such is the result of a decision released by the Ontario Court of Appeal this past Friday in Tucows.com v. Lojas Renner.  Put briefly, Tucows.com purchased another domain name registration company that had among its list of registered domain names the domain name “renner.com”.  Lojas Renner is a Brazilian company that wanted the registration de-listed (so it could, then, register the name on its behalf).  Renner made a complaint to have the issue of who was entitled to the “renner.com” name determined under the ICANN protocol for such disputes.  In response, Tucows.com brought a lawsuit in Ontario to have the same issued decided and the arbitrator ultimately decided to stop the arbitration proceeding that Renner had started and to let the Ontario courts decide the issue.

Renner then brought a motion to strike the lawsuit in Ontario – with the result, then, that the matter would go back before the arbitrator.  Renner was successful before the motions court but Tucows.com appealed and the Ontario Court of Appeal allowed the appeal, with the result that the lawsuit will continue.  In making its decision, the Court had to determine whether Tucows.com was suing with respect to “personal property in Ontario”.  In other words, (1) is a domain name “personal property” and (2) would it be located in Ontario?

There were not a lot of prior court decisions to guide the Court and it had to return to basic principles.  When one considers a domain name, it is really a combination of a word locator description (the URL) and an IP numerical address.  If the domain name is really just a form of an address, how would that fit into the “old school” thinking about addresses?  For example, my office is at Suite 806, 121 Richmond Street West, Toronto.  Do I have any property rights in that address?  Does my landlord?  In and of itself, the answer is “no”.  On that basis, it would follow that domain names, which are really just a form of address, wouldn’t be considered as property.  However, the Court went on to hold that domain names should be seen as a new form of “intangible property” – like a patent or a copyright (you cannot hold a copyright, it is merely a “bundle of rights” that exists and is recognized as a type of personal property).  Similarly, a domain name consists of more than just an address, per se, because it gives exclusivity to the use of that address.  Again, to use the address example, if I move my office from 121 Richmond Street West to 1 First Canadian Place, I don’t have the ability to say that from that time onwards the physical building will be known as 121 Richmond Street West.  However, if I have the domain name ontariolegal.com and I have it registered with Tucows.com and if someone types in that URL it goes to the servers at Tucows.com and then I leave Tucows.com for whatever reason and renew my registration with GoDaddy.com (or whomever else), then I cansay that from that point in time onwards when you type in “ontariolegal.com” it will go to the servers at GoDaddy.com rather than Tucows.com.  In that sense, then, the Court found that domain names are a “bundle of rights” like other forms of intangible property and not just like the address of old and, accordingly, are a form of personal property.

The second issue was whether the domain name was personal property “in Ontario”.  In this regard, the Court looked at where registrant of the domain name was located, where the registrar of the domain name was located and where the servers for the domain name were physically found and concluded that the domain name was “in Ontario”.

Why does this matter for your small business?  A couple of things immediately jump to mind.  In recent years on a sale of a business one of the items to be included in the purchased assets was the domain name.  But how much does one pay for a domain name?  If it is seen as part of the business’ “goodwill”, then it is seen as something less than an “actual” asset.  It sort of went into the “catch all” category and perhaps would not be separated out as copyrights or trade-marks would be.  However, once you have a Court stating that domain names are now to be classified as separate personal property, more money can be charged for the domain name and it may well become more of a negotiating point on sales of businesses.  To give an example, I have a client who was involved in a therapy clinic.  He sold the clinic in one area but wanted to start up a similar business in another province.  Previously, one wouldn’t care too much about this – even if the same name was being used – because the buyer and seller wouldn’t be anywhere near each other.  But if they both want to use the same domain name, what now?  This will be more of an issue in the future.

A second item that immediately comes to mind is the issue of jurisdiction.  Not necessarily for the purposes of litigation like in this case, but for the purposes of taxation.  Where a company is resident is always a hot topic because companies want to be found to be resident in a location that has a lower tax rate.  Traditional indicators were items such as the location of the head office of the business.  These won’t go away, but will Revenue Canada look at this decision now and say that because a company that has its domain name registered through Tucows.com or some other registrar in Ontario and/or that because the servers where the domain name resolves to are located in Ontario that these are additional factors that can show that the company is resident in Ontario?  That could very well be the case. 

Something to think about.

CALC

Need Group Benefits?

Wednesday, August 3rd, 2011

One of my clients was chatting with me the other day about how his company is downsizing and, after several prior rounds of layoffs, he now fears that it may finally be his turn to be let go.  As such, he was contemplating going out on this own and setting up a consulting business.  He isn’t worried about getting work as he has very good connections both at his current employer and elsewhere.  Instead, his concern was health insurance for his family.  More particularly, one of his children has special needs and he has learned from experience that when insurance companies find this out, for example when he was looking for travel insurance on a trip outside of the country, they are looking for any possible excuse to deny his application because of his child – and some don’t even bother coming up with an excuse, they simply say that they are more than happy to insure the other members of his family but will not insure the child.  Where he is working right now he has the advantage that he is part of his company’s group benefits plan – which means that the insurer takes all employees and all of their dependents.  If and when the axe falls, my client will be on his own.  Or will he?

Did you know that the various boards of trade / chambers of commerce have their own group insurance plan?  You can be a member of the plan so long as you are a member of one of the boards of trade or chambers of commerce.  To find out more, you can go to this web site.

I am not a member of the plan – but it seems that few people know about this benefit of being a member of a board of trade (I will leave it to others to debate whether the other benefits of being a member make it worthwhile) and I certainly did not know about this when I first started out on my own.  Will the plan provide you with all of the coverage you are after?  Probably not – because that’s often the case of any group plan.  However, it might be something worthwhile to know about should you decide to start up your own business.  It could also be a bonus in attracting employees if you can offer them both salaries and participation in the benefit plan.

Something to think about.

CALC