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Grey Market Candy, Restraint of Trade and Settlement Agreements

In Mars Canada Inc. v. Bemco Cash & Carry Inc., the Ontario Court of Appeal upheld a finding granted on summary judgment that the appellants had breached their settlement agreements and rejected their argument that the agreements were invalid for being an improper restraint of trade.

The appellants were involved in "grey market" trade of Mars trade-marked products, buying genuine branded products such as Mars, Snickers and M&Ms in the United States and then importing them for sale in Canada at retail prices below those offered by the respondent's local distributors.

Instead of advancing a defence of the lawfulness of their activities, the appellants entered into settlement agreements agreeing not to import or sell Mars products in Canada without the respondent's consent.  After they were found violating these settlement agreements, the appellants argued that the agreements were void for being an improper restraint of trade.

The Court of Appeal rejected the argument and upheld the analysis of the Superior Court judge, who noted that settlement agreements are strongly favoured and supported by the law.  The Court of Appeal further found that the settlement was unquestionably reasonable when considering the interests of the parties since it resolved their dispute and defined the scope of their trading rights.

The Court of Appeal further upheld the judge's decisions to direct a reference to determine the respondent's damages and to award costs against the appellants on a substantial indemnity basis.  In hearing the motion for summary judgment, the judge had the jurisdiction to decide the issue of liability and then order a reference as to damages.  The Court of Appeal similarly deferred on the question of costs, where the judge had found the appellants had engaged in "hardball tactics" and that they ought to have reasonably anticipated that their conduct would run up substantial legal fees.

The Court of Appeal's decision emphasizes the regard the courts have with respect to settlement agreements, especially where the parties are sophisticated business people represented by top-flight legal counsel and in the midst of serious litigation.

  • Par : Nicolas Businger