Montreal-based distributor emerges victorious over Costco: Québec retailers put on notice to respect third-party rights
A unanimous judgment of the Court of Appeal of Québec, handed down on October 15,
2020, ended a legal saga spanning more than 10 years. In a stunning victory for Montreal-based high-end clothing distributor Simms Sigal & Co (“Simms”), represented by Kugler Kandestin LLP, the Court ordered multinational Costco Wholesale Canada Ltd. (“Costco”) to pay Simms over $1 000 000 in damages.
In its proceedings, Simms alleged that Costco had illegally sold Rock & Republic branded clothing (primarily jeans), in clear violation of an exclusive distribution agreement between Simms and Rock & Republic for the sale of Rock & Republic merchandise across Canada. Despite receiving letters from Simms’s counsel to cease and desist from selling the jeans, Costco ignored Simms’s exclusive rights and continued to sell them for less than $100 in its stores, while their retail price in high-end boutiques across Canada varied between $250 and $325.
The judgment of the Court of Appeal upheld a judgment of the Superior Court of Québec of more than 110 pages rendered in November 2017, which had ordered Costco to pay Simms compensatory damages, as well as $500,000 in punitive damages.
The Court, relying heavily on the extensive evidence before it, found that Costco had intentionally committed the fault of contractual interference which, in addition to causing Simms significant losses in sales, seriously damaged its coveted reputation in the Canadian market.
The condemnation of $500,000 in punitive damages represents one of the largest sums ever allocated in this regard in Québec. It serves as a serious warning to all retailers in Québec to respect the rights of third parties and avoid being complicit in the breach of their contractual rights.