07 Fév 2013

The Dangers of Drafting Vague and Ambiguous Exclusivity Clauses

Par Sarah D. Pinsonnault
Revenu Québec

Newad Media inc. c. Red Cat Media
inc.
(2013 QCCA 129) consists of an appeal from a Superior Court decision that
refused to issue a permanent injunction to force the Respondents to remove all
of their advertising from the establishments where the Appellant held license
agreements that contained exclusivity clauses. The trial judge, Justice Kevin
Downs, concluded that these clauses were ambiguous and could not prevent other
advertising from being displayed in these establishments.

 

The Appellant, Newad Media Inc., is an agency that pays a certain fee, depending
on the type of advertisement, to obtain the right to display the latter in
various establishments, such as school and resto-bars.

The Respondents, Martin Poitras and his three companies: Red Cat Media,
Rouge Campus and Rouge Resto Bar (formerly Chapter 66), conducted the same type
of business. However, their advertisements were displayed on large vinyl
banners measuring 5 x 7 feet;
whereas the Appellant advertised on mini steel-framed boards, backlit panels,
and postcards.

At one point in time, the Respondents began to contract with and install
their large banners in the same establishments as the Appellant. Rather than
instituting an action against the establishments for alleged breach of
exclusivity, the Appellant sent cease and desist letters to the Respondents,
claiming that they knowingly encouraged these establishments to violate the
exclusivity clauses stipulated in their advertising agreements.

The Supreme Court of Canada recognized the possibility for a third party
to incur liability for having knowingly contributed to a breach of contract
between two contracting parties in the case of Trudel v. Clairol Inc.
of Canada
, [1975] 2 SCR 236. However, in order for the third party to be
held liable, it is necessary to prove, on the one hand, that he was aware of
the clause and, on the other hand, that he acted in bad faith by contravening
said clause (Sobeys
Québec inc. v. 3764681 Canada inc
.,
C.A. Montréal, no 500-09-011184-017, 15 février 2002, j.j. Baudouin, Fish and
Pelletier). 

In the case at hand, the Court of Appeal found that the trial judge did
not err in considering the exclusivity clauses to be drafted in very general,
and at times, ambiguous terms:

“[24] Ceci étant dit,
la grande majorité des contrats liant l’appelante aux établissements de type
resto-bars  contenaient, au moment des
faits pertinents – soit vers novembre 2006 
– une clause d’exclusivité rédigée en termes très généraux, laquelle,
sous réserve de variations diverses, se lisait comme suit :

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.”

The Respondents admitted that they were aware of the contract that
existed between the Appellant and the establishments, as well as the existence
of certain exclusivity; however their understanding was that the exclusivity
was limited to certain types of advertising and to certain areas
of the establishments.

In fact, as previously mentioned, both parties had different products.
It was only once the Respondents introduced large banners into the market that
the Appellant followed suit. Also, when the Respondents decided to approach the
establishments, there was already a variety of advertising campaigns on the
premises. Furthermore, when approached, the establishments were eager to accept
the Respondents’ products; some of them having even obtained the consent of
their legal department before contractually committing to the Respondents.

In light of all this, the Court of Appeal dismissed the appeal:

“[33] Il est sûr
qu’il est difficile d’interpréter l’intention commune des parties en l’absence
de l’une d’elle (soit, dans chaque cas, l’établissement signataire). La preuve
semble démontrer que les intimés connaissaient l’existence d’une certaine forme
d’exclusivité, variable selon les établissements, et connaissaient
certainement, à compter de la mise en demeure, l’interprétation qu’en faisait
l’appelante. Cette dernière ne peut cependant imposer aux intimés les moyens
qu’elle pourrait peut-être faire valoir contre les établissements dans le cadre
d’un litige contre ces derniers,  soit la
reconnaissance, par ces établissements, que leur contrat avec l’appelante
conférait à cette dernière une exclusivité complète et sans équivoque.

[…]

[35] À l’instar du
juge de première instance, force est de conclure que l’appelante n’a pas réussi
à démontrer que les intimés ont fait preuve de mauvaise foi ou qu’ils se sont
associés sciemment et en toute connaissance de cause à la violation de contrats
intervenus entre des tiers, si tant est qu’il y ait eu violation.”

To read this decision in its entirety, click here.

 

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