Case: Cana International Distributing Inc. v. Standard, 2018 ONCA 145 (CanLII)
Keywords: Sexual Health and Wellness Products; Contracts; Exclusive Distribution; Agreement Signed in Counterparts; Foley v. The Queen, 2000 CanLII 232 (TCC)
The Respondent, Standard Innovation Corporation (“SIC”) enters extensive discussions with the Appellant, Cana International Distribution Inc. (“Cana”) to distribute “adult sexual health and wellness products”. Negotiations involve two streams of distribution: “mainstream industry” targeting and the “sex toy industry”. The Appellants argue separate agreements are reached for both streams, granting them exclusive distribution rights for the Respondent’s product, the “We-Vibe”.
The Trial Judge rejects both contractual claims, finding no binding agreements. The Court of Appeal disagrees, allowing the Appellant’s appeal in part. Although the Court of Appeal finds the “mainstream industry” agreement was binding, it does not accept that the Trial Judge erred in refusing to find an agreement for the “adult industry” stream.
Is there a binding agreement? The Court of Appeal said “yes” on the basis of an exchange of correspondence between the parties with respect to obtaining signatures on a written “term sheet”. The Court also noted that, after representatives of both parties signed, “Internal SIC emails and memoranda indicate that SIC was proceeding on the basis of a concluded agreement.” (See paras. 5-6).
The Trial Judge described the same exchange of correspondence in the following terms: “[A]t best, the two separate signed copies were two unique offers, neither having been accepted by the other party. This is evidenced by subsequent negotiation of their intended agreement.” (See para. 8 quoted from Cana International Distributing Inc., c.o.b. as Sexy Living v Standard Innovation Corporation, 2016 ONSC 7197 (CanLII) at para. 23).
For the Court of Appeal, the Trial Judge’s “characterization” fell into error because it ignored “the legal doctrine that an agreement signed in counterparts is a binding agreement”. (See para. 11). In support of this position, the Court of Appeal cited a single passage from a single case, Foley v. The Queen, 2000 CanLII 232 (TCC) at para. 32.
Although the Court of Appeal acknowledged the Trial Judge’s determination was a finding of fact or mixed fact and law attracting a deferential standard, it concluded the Trial Judge’s non-consideration of agreements signed in counterpart represented an extricable error of law. (See paras. 4, 11).
The Court of Appeal was not persuaded that subsequent negotiations between the parties (following the exchange of signatures on the written “term sheet”) negated or altered the agreement reached: “In our view, these negotiations concerned relatively minor matters of the kind that would be expected to arise within the framework of a long-term exclusive distributorship agreement. We see nothing in the subsequent dealings between the parties that undermines the existence of the agreement they both signed…” (See para. 12).
The Court of Appeal was satisfied that, on the basis of the record before them, an agreement was reached between the parties with respect to the mainstream industry stream. Accordingly, the Court found the Appellant had been denied exclusive distributorship rights under the agreement and so remitted the issue of damages to the Trial Judge. (See para. 17).
With respect to the “adult industry” stream, the Court of Appeal found no palpable and overriding error of fact or an extricable error of law in the Trial Judge’s reasons: “In our view, there was evidence in the record to support the trial judge’s findings and we see no basis upon which this court should interfere with respect to the adult stream.” (See para. 20). Although draft terms were exchanged, there remained “…significant uncertainty” and Micheline Ciolli (owner and president of the Appellant) “admitted they never signed an agreement”. (See paras. 18-20).
Counsel for the Appellants: Shaun Laubman and Laura Wagner (Lax O’Sullivan Lisus Gottlieb LLP, Toronto)
Counsel for the Respondent: Peter Mantas and Tala Khoury (Fasken Martineau DuMoulin LLP, Ottawa & Toronto)