Decision highlights need for specificity in all aspects of drafting

Canada

A recent decision of the Ontario Superior Court of Justice highlights the risks that arise when an agreement is silent, or ambiguous, as to certain terms. The need for specificity when drafting agreements is crucial in mitigating the risk that a court will imply terms which may not coincide with the intention or expectation of the parties. In Skipper Online Services (SOS) Inc dba BoaterExam.com v 2030564 Ontario Inc dba Boatsmart Canada, the court was faced with two competing applications which arose out of alleged breaches of a settlement agreement entered into between the parties. 

Skipper Online Services (SOS) Inc and Boatsmart Canada both administer online training courses and examinations required for individuals to obtain a licence to operate a pleasure craft boat in Canada. Information about, and access to, the courses and examinations is primarily available over the internet. In an effort to optimise internet search engine results, each company used various names and trademarks as metatags and keywords, and registered several of those trademarks pursuant to the provisions of the Trademarks Act.

In August 2010 Skipper commenced an action in the Federal Court against Boatsmart alleging, among other things, trademark infringement and passing off. Skipper alleged that Boatsmart had used the registered trademark BOATER EXAM, and variations thereof, in the metatags for Boatsmart’s website. This was alleged to have permitted Boatsmart to gain priority in internet search results. The parties entered into a settlement agreement in August 2011 and the action was dismissed.

The agreement included provisions that both parties would refrain from using the other party's trademarks and other phrases and words. Specifically, Boatsmart agreed that it would refrain from using certain phrases or words, including 'examen de bateau', or any “reversals, misspellings, translations or plurals thereof as for any name or trademark or in any other manner”. 

Following the settlement, the Boatsmart website continued to use the terms 'boat exam' and 'boating exam' in its metatags. Those specific terms were not outlined as prohibited in the agreement. Skipper took the position that, by using 'boat exam' and 'boating exam', Boatsmart was in breach of the agreement. It commenced an application in the Ontario Superior Court of Justice for a declaration accordingly. In support of the application, Skipper submitted evidence from two interpreters which indicated that the term 'examen de bateau' can be translated by a number of terms in English, including 'boat exam' and 'boating exam'. 

Boatsmart countered that only use of the terms specified in the agreement were intended to be prohibited, and that the use of the word 'translations' referred to translations to any language other than English or French, since all the prohibited terms had already been translated into English and French in the agreement. It also argued that, by interpreting the agreement to include 'boat exam' and 'boating exam', the agreement would go beyond what the parties had intended.

The court reviewed the law relating to interpretation of contracts in Canada and focused on the fact that the fundamental precept of contractual interpretation requires an examination of the contract as a whole, not just a consideration of the specific words in dispute. The specific words or phrases must be read in the context of the entire agreement.

The entire basis of the dispute was related to priority in internet search results. Accordingly, the court found that the intention of the parties, as revealed by the language of the agreement, was to limit, as much as possible, the other party’s use of certain terms and phrases on their website so as to limit both the number of search result hits, and the priority of those results. Further, the agreement was reciprocal in that each party agreed to refrain from using certain terms and trademarks of the other party. The court found that a translation, unless it is specifically limited, necessarily includes any translation, whether to or from English, French or any other language. The agreement also specifically outlined that the prohibited terms would not be used in any way, whether as a name, trademark, or in any other manner, which would include a descriptive use or use as a metatag or keyword.

The court found that, on a plain reading of the agreement, any translation of a prohibited term was also prohibited.  Therefore, Skipper was entitled to a declaration that Boatsmart’s use of the terms 'boat exam' and 'boating exam' were prohibited by the agreement.

Another aspect of the agreement was also in dispute. By counter-application, Boatsmart alleged that Skipper had also breached certain of its obligations under the agreement. Specifically, Skipper had agreed to cease accepting, as payment for Skipper’s services, any form of prepayment, including prepaid authorised numbers, cards or vouchers issued by Boatsmart. The agreement was silent as to when this particular obligation commenced. 

Although the agreement was executed on August 10, Skipper continued to accept prepaid vouchers issued by Boatsmart until August 14 2011. Boatsmart took the position that Skipper should have immediately ceased accepting those prepaid vouchers. Skipper countered that it should have been afforded a reasonable amount of time to comply with this obligation under the agreement, especially since it required a change to the Skipper website.

The courts grappled with the question of what term of performance will be implied where an agreement anticipates that one party will do something that only it can do, but is silent as to when it should be done. The court found that the law will imply a term of performance within a “reasonable time”, and what period of time is reasonable is a question of fact and will differ based on the particular circumstances of each case.

In this case, the agreement was signed on August 10 2011, which was just before a weekend. For some highly technical reasons, the change that was required to the Skipper website was not simple. Skipper advised Boatsmart that its IT expert was on vacation and would return on Monday August 15. The website was indeed amended on August 15 and no vouchers were accepted after that time. The court found that, in the context of this agreement, a period of five days taken to implement the provision in question was reasonable and Boatsmart’s application was dismissed.

This case highlights the need for specificity in all aspects of drafting. If the parties had truly contemplated that only translations into languages other than English or French were prohibited, the agreement should have specifically set that out. Further, if Boatsmart was indeed adamant that Skipper should cease accepting its prepaid vouchers at the time the agreement was executed, it should have specifically set out that term. Agreements that have ambiguous or indefinite terms, or which are silent on terms, can lead to disputes or litigation down the road. It is particularly important to be specific in drafting in the context of documentation related to a litigation settlement where the parties are clearly adversarial. However, it is equally applicable in situations where the parties are, at the time the agreement is being negotiated, acting amicably, for example in a licensing situation. Although at the time the parties may be on good terms, one should not assume that state will continue. A little care and time in drafting may avoid the need for litigation and save parties substantial time and money later on.

Antonio Turco, Blake Cassels & Graydon LLP, Toronto

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