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.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.