Judgments

Decision Information

Decision Content

T-5465-78
87118 Canada Ltd. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Montreal, May 5; Ottawa, May 16, 1980.
Crown — Contracts — Incorporation of company — Action for damages for alleged negligence of servants or agents of Crown in failing to advise plaintiff of existence of a previously incorporated Company with a similar name — Automated search system was used by Crown and representations were made that the system to its clients was improved — After incorporation and on complaint of other Company, subsequent search revealed existence of other Company — Whether there existed a contract between the parties — Whether the Crown agents or servants were guilty of negligence — Quebec Civil Code, art. 1024 and 1053.
Action for damages against the Crown for alleged negligence on the part of its servants. Following an application for incorpo ration and an inquiry by the solicitors for the proposed corpora tion, a standard form letter was sent to them by the Depart ment of Consumer and Corporate Affairs advising that the name Mondial Ceramic and Marble Ltd. appeared to be avail able for use, subject to the applicants assuming full responsibil ity for any risk of confusion with existing business names and trade marks. The letter, which was sent following payment of a search fee of $10, was accompanied by a search report and a notice addressed "To Our Clients" advising that an automated search service was being used to provide better service. A certificate of incorporation was granted. Subsequently, the Department advised the plaintiff that a new search had revealed the existence of Mondeal Ceramics Ltd., and informed the plaintiff that it was obliged to apply for a change of name. The other Corporation was federally incorporated by the Department, but its head office was in Montreal. The solicitors for the plaintiff relied on the Departmental search, although a search in the index of corporations in the Montreal law library would have revealed the existence of the other Company. The Canada Business Corporations Act does not deal with search procedure or with the issuing by the Department of lists of names. The evidence established that a manual search should have been conducted in the case of the first list since it was sent prior to the inception of an improved automated search system, and since the word "Mondial" in French means "world-wide" and is pronounced substantially the same as "Mondeal". The issue is whether there was a contract between the parties and whether the defendant's servants were guilty of negligence.
Held, the action is allowed. There was a specific fee charged for a specific service to be performed. It can be nothing else but a consideration paid for a service rendered. Furthermore, the defendant regarded and referred to members of the public who applied for the service as "its clients". Even if there had been
no contract, article 1053 of the Civil Code may be interpreted to mean that, where a person, who holds himself out as or who is known as possessing some special knowledge, information or expertise in a particular field and who offers advice or furnishes information in that field to any party whom he knows or should know to be likely to rely on such advice or information, the law now imposes on such person a legally enforceable duty to exercise reasonable care in furnishing such advice or informa tion, and that a breach of the duty so imposed will found a claim for all damages directly resulting therefrom, notwith standing a complete lack of the consideration required to form a contract. The disclaimer does not include the category of "corporate names". Where a contracting party seeks to escape, by means of a disclaimer clause, a legal duty which would otherwise exist under a contract, the clause must be strictly interpreted against the contracting party seeking to rely on it. The disclaimer is of no help to the defendant: it merely disclaims any responsibility regarding confusion with existing business names and trade marks and not with existing corpo rate names. The defendant's servants were guilty of negligence in failing to discover and to disclose when the first list was published the similarity between the names of the two Corpora tions, in failing to verify the computerized search by a manual search and in failing to have applications examined by someone conversant with the French language. Where ordinary human skill and expertise are replaced by mechanical and electronic machines and devices, the persons employing them do so at their peril and remain subject to the tests as to performance which would otherwise prevail, unless there has been either an express or implied waiver given by the other party, after the latter had been adequately informed of the nature and of the extent of the inferior quality of the service to be expected, as compared with a manual service. Having regard to the notice sent by the defendant as to the alleged excellence of its new computerized system, plaintiff cannot be blamed for relying on the search and is not guilty of contributory negligence. The case is different from cases which hold that the approval and granting to a new company of a name upon its incorporation, does not render the incorporating authority liable for damages resulting from the similarity of the name to that of any other previously existing corporation or business. This action is founded on a contractual obligation to render for a fee the specific service of carrying out a name search.
ACTION. COUNSEL:
N. Segal for plaintiff.
B. Bierbrier for defendant.
SOLICITORS:
Lech ter & Segal, Montreal, for plaintiff.
Deputy Attorney General of Canada for defendant.
The following are the reasons for judgment rendered in English by
ADDY J.: The plaintiff instituted the present action for damages against the Crown for alleged negligence on the part of its servants or agents in failing to advise the plaintiff of the existence of a company known as "Mondeal Ceramics Ltd." which had previously been incorporated as a feder al corporation in May 1974.
A certificate of incorporation had been granted to the plaintiff by the Director of the Department of Consumer and Corporate Affairs under the name of Mondial Ceramic and Marble Ltd. The damages claimed are for loss of goodwill and for extra advertising expenditures incurred, which allegedly re slted from the fact that the plaintiffs original name was changed by the Department to that shown in the style of cause when the existence of Mondeal Ceramics Ltd. was discovered, follow ing the lodging of a complaint by this last-men tioned Corporation.
There is little dispute as to the facts. On the 18th of May 1977, following an application for incorporation and an inquiry by the solicitors for the proposed corporation, a standard form letter was sent to them by the Department, advising of the availability of the proposed name. The latter (filed as Exhibit P-2 at trial) was forwarded fol lowing the payment by the solicitors to the Depart ment of the usual search fee of $10. Exhibit P-2 reads in part as follows:
Dear Sir
This is in reply to your recent enquiry concerning the availabili ty of the following name(s):
[ I ] MONDIAL CERAMIC & MARBLE LTD.
The name appears to be available for use as a corporate name subject to and conditional upon the applicants assuming full responsibility for any risk of confusion with existing business names and trade marks (including those set out in our search ...)
The letter was signed by an examiner of the Department. It also contained the following cau tion following the signature:
Caution
An indication that a name appears to be available at this time is not to be construed as an undertaking that the said name will be granted if and when a formal application is made. It is only a tentative indication that the name might be available at the time of the incorporation of a new company or of the change of
a corporate name. If any printing or other use of the name is made in advance, it will be done entirely at the risk of the applicants.
Where applicants are to accept full responsibility for risk of confusion with other names, acceptance of such responsibility will comprise an obligation to change the name to a dissimilar one in the event that representations are made and establish that confusion occurs, errors and omissions excepted.
Attached to the letter was a search report (Exhibit P-3 at trial) containing some 37 names which included federal and provincial companies, trade marks, trade mark applications and regis tered trade names. Attached also was a notice from the Corporation Branch addressed "TO OUR CLIENTS" advising that an automated search ser vice was now being used. It explains to some extent the data provided and concludes with the following paragraph:
We think that the change will mean better service for all our clients, and hope you will find that these automated, and integrated, search reports make this phase of obtaining a corporate name easier.
Nowhere in the search list does the name Mon- deal Ceramics Ltd. appear.
On or about the 18th of May 1977, a certificate of incorporation dated the 27th of April 1977 was forwarded to the plaintiffs solicitors certifying that it was duly incorporated under the name of Mondial Ceramic and Marble Ltd. The plaintiff was carrying on a business in Montreal as an importer, seller and distributor of ceramics under the last-mentioned name, when it received from another examiner of the Department a further letter dated the 21st of March 1978 (Exhibit P-5 at trial). The letter stated that a new search had revealed the existence of the other corporation and informed the plaintiff that it was obliged to apply within sixty days for a change of name. Enclosed with the letter was a required form for that purpose.
The plaintiff did not comply with the request and was subsequently advised, by letter from the Department dated the 30th of May 1978, that its name was now changed to 87118 Canada Ltd. Also enclosed with the letter of the 21st of March 1978 (Exhibit P-5) was a new search report dated
the 16th of March 1978, containing some 22 dif ferent names (Exhibit P-6 at trial). Mondeal Ceramics Ltd. was the first name on the list after that of the plaintiff. The list showed not only that Mondeal Ceramics Ltd. has been granted incorpo ration as a Canadian corporation and that it has been incorporated by the Department itself, but that its head office was also situated in the Mon- treal area.
The evidence established that the incorporators of the plaintiff did not know of the existence of Mondeal Ceramics Ltd. previous to the incorpora tion. It also established that no search of corporate or business names was made by them, the solicitors for the plaintiff having relied entirely on the search furnished to them by the Department. There was also a joint admission by the parties to the effect that a search of the hereinafter-men tioned Register of Companies and Partnerships Declarations in the Judicial District of Montreal would not have revealed the existence of the other Company although a search in the index of corpo rations in the Montreal law library would have done so. The Companies and Partnerships Decla ration Act' requires that each company, each part nership and each individual using a trade name or a firm name register the details of its operation in every Superior Court judicial district where it or he carries on or intends to carry on business and the prothonotary of the district concerned is obliged to enter the details in a register of compa nies and partnerships and to have the register available for public inspection at his office.
Counsel for both parties agreed that there was no provision in the Canada Business Corporations Act 2 nor in the Regulations [Canada Business Corporations Regulations, SOR/79-316] regard ing any search procedure or dealing in any way with the issuing by the Department of lists of names.
It was established, mainly through a computer scientist who was in charge of the computer research section of the Department and who had been first employed by it at the time when the computer system was installed in 1972, that the original system which remained in use until
' R.S.Q. 1977, c. D-1.
2 S.C. 1974-75-76, c. 33.
August 1977 and which provided the first list of names (Exhibit P-3) was known as the A.N.S. (or Automated Name Search system). In August 1977, it was replaced by the N.U.A.N.S. that is, the New Improved Automated Name Search system. It was the latter system which of course produced the second list of March 1978 (Exhibit P-6) and which, as previously stated, confirmed the existence of the other corporation.
It appears that A.N.S. only dealt with proper names or coin words and merely included in addi tion the first three letters of any generic words or group of generic words, for instance, in the case of the first search, the words "Mondial Cer" were fed into the computer. The N.U.A.N.S. system, on the other hand, has a dictionary of generic words which are likely to occur most frequently and the generic words are not abbreviated when they are contained in a name in regard to which a search is being made. In the case of the second search, the words "Mondial Ceramic Marble" were fed into the computer. The system and the dictionary of words are continually being improved and updated.
There also exists a parallel card system for manual searches. This expert testified that, to the best of his knowledge, from the time when A.N.S. was installed in 1972 until a month or two before N.U.A.N.S. replaced it in August 1977, a parallel manual search was always carried out to check on the searches made by the computer. After that time, the checking by means of a manual search was reduced from 100% to approximately 70% of the cases, so far as he could estimate. It is to be noted here that, according to this evidence, a manual search should have been conducted in the case of the first list since it was sent to the plaintiff's solicitors on the 18th of May 1977. There was, however, no evidence whatsoever of any manual search having been made.
It is of some importance that the Examiner for applications for incorporation, who testified for the defendant, stated that, in April 1977, on receipt of the plaintiff's application, he would have called for a manual search of the name had he realized that the word "Mondial" in the French language meant "world-wide" and also would have ordered a manual search had he known that, in that lan-
guage, it also was pronounced substantially in the same way as the word "Mondeal." He was unilin- gual and never suspected the implications of the word in the French language.
The evidence established that, according to the policy in effect at all relevant times, that is throughout 1977 to April 1978, it was not expect ed that all business names were to be programmed into the computer but at least all the corporate names of all federally incorporated companies were supposed to be so recorded. It was also established that in all probability the name of "Mondeal Ceramics Ltd." was in the computer during that whole period. In addition, the defend ant's expert agreed that if N.U.A.N.S. had been in effect when the first list was prepared "Mondeal Ceramics Ltd." would have appeared.
A question was originally raised as to whether the law of the Province of Quebec or the law - of the Province of Ontario should apply but the matter was quickly resolved when it was realized that the Department was actually situated in the City of Hull rather than in Ottawa and that, therefore, everything in fact took place within the jurisdic tional limits of the Province of Quebec.
Article 1024 of the Civil Code of the Province of Quebec reads as follows:
Art. 1024. The obligation of a contract extends not only to what is expressed in it, but also to all the consequences which, by equity, usage or law, are incident to the contract, according to its nature.
Counsel for the defendant argued that there was really no contract between the parties and that the claim of negligence in the performance of or improper performance of a contract could not be sustained. I do not accept this contention. There was a specific fee charged for a specific service to be performed. It is neither a mere statutory charge nor a tax, for, as stated previously, there is not even a statutory or regulatory provision supporting the $10 fee. It can be nothing else but a consider ation paid for a service rendered. Furthermore, the defendant regarded and referred to the members of the public who applied for the service as "its clients" and extolled the excellence of the new computerized search service which it was provid ing.
Even if there had not been any consideration paid and, therefore, no contract between the par ties, I would have been prepared to hold that, on a proper contemporary interpretation of article 1053 of the Civil Code of the Province of Quebec, as in the case of common law jurisdictions today, where a person, who holds himself out as or who is known as possessing some special knowledge, information or expertise in a particular field and who offers advice or furnishes information in that field to any party whom he knows or should know to be likely to rely on such advice or information, the law now imposes on such person a legally enforceable duty to exercise reasonable care in furnishing such advice or information, and that a breach of the duty so imposed will found a claim for all damages directly resulting therefrom, notwithstanding a complete lack of the consideration required to form a contract.
Counsel for the defendant relies also on the disclaimer contained in the letter (Exhibit P-2) which I have quoted above. The expression "... subject to and conditional upon the applicants assuming full responsibility for any risk of confu sion with existing business names and trade marks ..." does not include the category of "cor- porate names," although that expression is used at the beginning of that very sentence where it is stated that the name appears to be available for use as a "corporate name." It is elementary law that, where a contracting party seeks to escape, by means of a disclaimer clause, a legal duty which would otherwise exist under a contract, the clause must be strictly interpreted against the contracting party seeking to rely on it. Since the expression "corporate names" was omitted from the operative portion of the disclaimer, it must be taken that the expression "business names" means persons or cor porations doing business in names other than their own proper names, and that it excludes "corporate names" as such. The identical use of the two distinct expressions "tous noms d'affaires" and "nom corporatif" in the corresponding French text of Exhibit P-2 inevitably leads to the same conclu sion. Neither the Act nor the Regulations are of any assistance in this regard as neither the expres sion "business name" nor the French "nom d'af- faires" is defined, although the expression "trade name" and the French equivalent of "nom com mercial" are defined in section 12 of the Regula-
tions. The disclaimer is, therefore, of no help to the defendant: it merely disclaims any responsibility regarding confusion with existing business names and trade marks and not with existing corporate names.
Turning now to the question of negligence, I find that the defendant's servants were guilty of the following negligence in the performance of the contract:
1. In failing to discover and to disclose to the plaintiff when the first search list was published, the patently obvious similarity between "Mon- deal Ceramics Ltd." and "Mondial Ceramic and Marble Ltd." especially where both Corpora tions were incorporated by the defendant itself within three years of each other, where the head offices were both situated in the Montreal area and where, in the French language, the descrip tive words "Mondeal" and "Mondial" are pro nounced in the same manner and also have the same meaning.
2. In failing to verify the computerized search by a manual search where the word "Mondial" means "world-wide." This, according to the defendant's own expert would have been done had he realized this fact.
3. In failing to have applications, at the very least those emanating from the Province of Quebec, examined by some person conversant with the French language. In the case at bar, the meaning attributable to "Mondial" would have been immediately realized.
4. In failing to have the computer search veri fied by a manual search in any event. A manual search could not have helped but reveal the obvious similarity between the two words regardless of their meaning, especially where immediately followed by the word "ceramic" or "ceramics."
5. It is obvious from a mere cursory examination of the two names that the A.N.S. system was woefully inadequate and that all searches made pursuant to it should have been verified by a manual search.
Where a service could obviously be performed properly by an individual and where that service
has been computerized and has not been rendered properly, it is no answer, as the defendant has attempted to do in the case at bar, for the person who has chosen to install the computerized system to establish that it was as efficient a computerized service as could be reasonably furnished having regard to the state of the art at the time. Before installing such a service, or at least before relying on it in substitution for a previously existing manual one, then, failing full disclosure of the reduction of the quality of the service to be ren dered or failing any valid legislation limiting or exempting liability, the person rendering it must satisfy the Court that the new automated service is as efficient as the previous existing manual one. The normally applicable standard of care cannot be changed unilaterally, without more, by the mere installation of machinery to replace human effort. Where, as in the present case, the standard of performance is obviously lowered by the instal lation of an automated system, then, before the service is offered, there must be a clear and unequivocal disclosure to the other party that the standard of performance to be expected will be inferior and also a disclosure of the general areas where such inferior standards are likely to occur. Failing full disclosure or some special exemption, the standard to be applied is still that of the reasonably prudent individual skilled in the art. Mechanical and electronic machines and devices today are so complicated that the general public cannot be expected to even begin to understand or realize their possible weaknesses and failings. As a result, where ordinary human skill and expertise are replaced by such devices, the persons employ ing them do so at their peril and remain subject to the tests as to performance which would otherwise prevail, unless there has been either an express or implied waiver given by the other party, after the latter had been adequately informed of the nature and of the extent of the inferior quality of the service to be expected, as compared with a manual service.
The defendant claimed that there was contribu tory negligence on the part of the plaintiff's solici tors, which, of course, would be imputable to the plaintiff, in failing to make an additional search and to satisfy themselves whether the name was similar to that of any other business or corpora tion. As stated previously, the principal sharehold-
er and incorporator of the plaintiff was and had been in the ceramics business and did not know of the existence of the other Corporation. A search of the official Register of Corporation and Partner ship Names for the District of Montreal would not have revealed its existence although a search in the index at the law library would have. In the circum stances of the present case, having regard to the notice sent by the defendant as to the alleged excellence of its new computerized A.N.S. system and to the statement in the notice that the "change will mean a better service for all our clients," I cannot blame the plaintiff for relying on the search and cannot find that there was negligence on its part in relying solely on the report furnished and in failing to make a further manual search nor can I find that such negligence in fact was a contributo ry cause of the resulting damage.
This case is evidently of an entirely different nature from the line of cases which hold that the approval and the granting to a new company of a name, upon its incorporation, does not render the incorporating authority liable for damages result ing from the similarity of the name to that of any other previously existing corporation or business. The present action is not founded on the granting of a charter or of a certificate of incorporation but on a contractual obligation to render for a fee the specific service of carrying out a name search. The action would still have been fully maintainable had the plaintiff decided subsequently to seek provin cial rather than federal incorporation.
As to the damages themselves, the plaintiff claimed for the expense of all advertising incurred from the inception of the Company until the name was actually changed against the will of the plain tiff about the 30th of May 1978. On or about the 21st of March 1978, the plaintiff was in fact advised of the existence of the other Company and requested by the defendant to change its name. Not only can it not claim for any advertising expenditure made in its former name subsequent to the receipt of such notification, but from that
date it was legally obliged to mitigate as much as reasonably possible any damages resulting from the error. The defendant cannot be held respon sible for any loss of goodwill which occurred subse quently thereto as a result of the plaintiffs con tinued use of the name of "Mondial Ceramic and Marble Ltd."
The total of the money spent on advertising from the inception of the Company until the end of March 1978 amounts to approximately $4,600. This total amount of course was not lost as the Company in its first year produced sales amount ing to $285,250. On the other hand, the total advertising for the full first year amounted to $6,857 as compared to the second year's total of $10,424 which produced total sales of some $320,- 532. The plaintiff claims that the increase in cost of advertising is attributable in part to the change in name. However, no specific figures or concrete evidence was given as to what items were involved. Under the circumstances and having regard to the onus of proof being on the plaintiff, I find that the amount of $2,000 as opposed to the $9,961 claimed would be a fair allowance for extra adver tising incurred and loss of advertising under the old name resulting from the negligence of the defendant in the performance of its contract.
Loss of goodwill is, under the best of circum stances, most difficult to determine. There actually was an increase of some $37,000 in the gross sales during the second year although there was a sub stantial decrease in the amount of net profits. Loss of goodwill, of course, would be reflected mainly in the sales as opposed to the net profits, the calcula tion of which is subject to such items as the costs of administration, the amounts allocated for sal aries, etc. The plaintiff argues that, having regard to inflation, there in fact was no increase in gross sales during the second year. No evidence was led to establish that the operation in the second year was any better or any more poorly organized from a sales or from an administrative standpoint than in the past and it becomes doubly difficult in such circumstances to decide what any actual loss of revenue and even loss of goodwill might be attributed to. Having regard to the paucity of
evidence as to the actual operation of the business, I award the mainly nominal amount of $2,000 for loss of goodwill.
The plaintiff will, of course, be entitled to its costs.
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