The Ontario Superior Court of Justice dismissed an injunction sought by an online retainer against an e-commerce platform which refused to allow it to carry on business selling objectionable products: RageOn Inc. v. Shopify Inc., 2021 ONSC 1456 (CanLII).
The customer, RageOn Inc., is an online business of "user-generated" products, which allows third party users to upload and offer for sale clothing and other products bearing their own prints and designs. RageOn does not create images or designs itself. Rather, customers select artwork uploaded by other users. A third party manufacturer then produces the product and ships it to the customer.
Since 2013, RageOn operated its business through Shopify Inc., the Canadian-based online e-commerce platform which provides merchants with the tools and technology to set up online stores and sell their products and services. Shopify has over a million merchants using its services.
Beginning in October 2020, Shopify notified RageOn on several occasions that it found and removed content on RageOn's online store that promoted or condoned hatred or violence, including paraphernalia associated with QAnon, the Proud Boys, the Boogaloo movement, Nazism and depictions of the Confederate battle flag. Shopify advised RageOn that such content violated Shopify's policies which prohibited certain activities, including the use of services to promote or condone hate or violence, or allowing content which is associated with terrorist organizations. Shopify required RageOn to remove such content from its site.
These demands culminated in January 2021, when Shopify gave RageOn a final warning that content which violated its policy would not be tolerated and that any further violation would result in the immediate termination of RageOn's account. RageOn responded that it was committed to complying with Shopify's policy, and it asked Shopify to assist it to do so. However, after this final warning, Shopify again identified objectionable products which had not been removed from RageOn's website and which Shopify identified as being hateful and associated with terrorist organizations. On February 17, 2021, Shopify gave written notice that it was terminating its agreement with RageOn.
RageOn then sought a motion for an interim injunction requiring Shopify to restore access to all web facilities pending final determination of the issues relating to its dispute.
In February 2021, Justice Cavanagh dismissed RageOn's motion for an injunction. As discussed in prior blogs, the usual criteria for obtaining an interim or interlocutory injunction requires showing (a) a serious issue to be tried with respect to an infringement of the moving party's rights; (b) "irreparable harm" if an injunction is not granted; and (c) the balance of convenience favours granting the relief sought.
In the case at hand, what RageOn was seeking was a "mandatory" interim injunction since the order sought would require Shopify to take steps to restore RageOn's access to the online platform until the dispute was finally determined. Accordingly, RageOn had to establish not just a serious issue to be tried but "a strong prima facie case": R. v. Canadian Broadcasting Corp., 2018 SCC 5, at para. 15. As a result, the court engaged in an extensive review of the merits of the parties' positions to assess whether there was a strong likelihood that RageOn would ultimately be successful in its action against Shopify.
In support of its claim, RageOn argued, amongst other things, that Shopify was not entitled to terminate its agreement to provide services as the breaches by RageOn did not go to the "root" of the contract and that the notice provided on February 17, 2021, was premature since it did not allow for the requisite time to cure the new breaches.
Justice Cavanagh rejected these arguments, finding that Shopify had repeatedly provided notice to RageOn of the breaches relating to the content at issue dating back to October, 2020. In Justice Cavanagh's view, it did not make commercial sense to require that each new alleged violation be considered separately as this would put the onus on Shopify to expend resources to monitor RageOn's online shop on an ongoing basis to ensure that no content in violation of their agreement was present. The failure of RageOn to ensure that the objectionable content had been removed went to the root of the agreement in accordance with established law for fundamental breach of contract: Growthworks WV Management Ltd. v. Growthworks Canadian Fund Ltd., 2018 ONSC 3108.
RageOn further argued that Shopify had failed to act in good faith in performing their contractual agreement, relying on the Supreme Court of Canada's decision in Bhasin v. Hrynew, 2014 SCC 71 (CanLII) at para. 65. Justice Cavanagh found that there was no evidence that Shopify had acted in bad faith since the agreement clearly provided Shopify with the right to prohibit content that promoted or condoned hatred or violence, and that the subject material which had been identified fit within those parameters. Shopify used proprietary and confidential methods to monitor compliance with their agreement and there was no evidence that this was done in bad faith. Accordingly, RageOn failed to establish that it had a strong likelihood of success for the purposes of obtaining a mandatory injunction.
Notwithstanding that RageOn failed the first part of the test, Justice Cavanagh considered RageOn's argument that it would suffer irreparable harm due to loss of business without Shopify's hosting and software, as it would have no ability to promote, sell, process orders, and manage its business or generate any revenue. RageOn asserted that it would lose approximately $12,750 per day as well as significant damage to its reputation in an intense and highly competitive industry. RageOn claimed that it could take years to re-establish itself on another platform and the cost of doing so would put it into bankruptcy.
In response, Shopify demonstrated that there were alternative platforms in the marketplace and that there is no reason to believe that RageOn could not continue its business from another e-commerce platform or website. Shopify pointed to the fact other merchants have had their agreements terminated by Shopify who had successfully moved their content to other platforms within a short period of time.
Of note, Shopify provided evidence that on February 23, 2021, RageOn had published a post to its Facebook account that included the statements, "[w]e have some super big and exciting announcements where RageOn will be live again - please stay tuned!" and "PS - most of our iOS app is still working because it's mostly custom-built, check it out here," with a link to access the application. Accordingly, RageOn's own evidence appeared to belie its assertions of irreparable harm and imminent bankruptcy, and there was no clear evidence to the contrary.
Lastly, Justice Cavanagh found that the balance of convenience favoured Shopify since the injunction sought would require it to restore access to its platform to a merchant who had repeatedly breached an agreement not to allow the sale of objectionable material. RageOn was allowed to have administrative access to its accounts and to fulfill existing orders while it transitioned to another platform. The remedy in damages for breach of the agreement by Shopify, if proven, was a matter for determination on another day. As a result, RageOn's motion was dismissed.
The decision reflects the considerable hurdles that a party is required to meet in order to obtain a mandatory injunction in a dispute which involves a breach of contract. The ordinary relief for breach of contract is damages, established after a trial is held to prove that a breach has occurred. When a party seeks to force another party to restore services that it has terminated before there is a final adjudication of the matter, the court will necessarily engage in an extensive assessment of the merits of the parties' positions at an early stage of the matter, likely before there has been any significant documentary or oral discovery to obtain evidence of the underlying claims. Mandatory injunctions are rarely granted in such circumstances. A PDF version is available to download here.
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