Executive Summary: Key Legal and Evidentiary Issues

• Scope of a counterclaim in unfair competition and trademark litigation, and whether its factual allegations can legally support a substantial damages claim.
• Threshold for striking a counterclaim at the preliminary stage under article 168 C.p.c., including the rule that facts are taken as true and doubts are resolved in favour of a full trial.
• Causation and quantification of damages in alleged unfair competition, particularly whether the claimant may base its loss entirely on the competitor’s increased revenues rather than its own financial data.
• Limits of disgorgement of profits in Quebec civil law and the narrow circumstances in which a defendant’s profits can be used as a proxy for a competitor’s loss in a competitive marketplace.
• Procedural conduct during pre-trial examinations (refusals, objections, and delayed admissions) and whether such behaviour may amount to an abuse of process.
• Judicial discretion to defer a ruling on alleged abusive procedure to the trial judge so that the issue is decided in light of the full evidentiary record.

Facts and procedural background

Nowa Inc. manufactures, distributes and sells water-leak protection systems, including products marketed under the names “Aqua-Protec” and “Nowa.” It holds the trademark Aqua-Protec and claims exclusive rights associated with that mark. Akwa Technologies Solutions Inc. and Système Leako Inc. are competitors in the same market. Leako manufactures a competing water-leak protection system, while Akwa sells and distributes that system through a distributor, Hydro Solution.
Nowa commenced proceedings against Akwa and Leako seeking a permanent injunction and damages. It alleges that the defendants infringed and counterfeited its Aqua-Protec trademark and engaged in unfair competition. According to Nowa, Akwa and Leako joined forces to market a competing product branded “Akwaprotect,” thereby causing confusion among distributors and consumers and diverting business from Nowa. Nowa further contends that the defendants disseminated false information about their own product, which it characterizes as unfair competitive conduct.
In response, Akwa and Leako instituted a counterclaim against Nowa. They allege that Nowa itself committed acts of unfair competition and misleading advertising. Specifically, they say Nowa misrepresented that its product complied with CSA certification standards and used misleading comparative documents that presented the parties’ products in a deceptive manner. On this basis, the defendants as counterclaimants contend that Nowa unlawfully “captured” customers through unfair methods and claim damages totaling $3,279,914, calculated by reference to Nowa’s increased revenues over a certain period which they say should have been theirs but for Nowa’s conduct.
The procedural history is lengthy and contentious. As early as April 2021, a case protocol contemplated the filing of a counterclaim. Examinations on discovery proceeded in 2021, during which the defendants communicated an initial version of their counterclaim. In August 2021, Nowa filed its first motion to dismiss that counterclaim and to have it declared abusive, alleging multiple procedural missteps by the defendants.
Interlocutory management continued over the next several years. The court issued decisions on objections in examinations, generally rejecting the defendants’ objections and emphasizing that a party who launches a counterclaim must be prepared to “open its books” and disclose otherwise confidential information. Further management orders in 2023 required the defendants to answer requests for particulars and permitted the examination of third parties when it emerged that documents regarding the choice of the “Akwaprotect” name were in a third party’s possession. Subsequent examinations took place on the revised counterclaim and on third parties, generating further objections that were the subject of additional case-management hearings.
In January 2024, the defendants filed a remodeled counterclaim accompanied by an Annex 1 that significantly increased the quantum of damages claimed. Annex 1 contained calculations and financial information relating notably to Nowa’s financial results, some of which had been provided under a confidentiality agreement. That annex was prepared by defendants’ counsel, who did not disclose its contents to their own clients. During examinations, defendants’ counsel systematically objected to questions put to the defendants’ representatives about Annex 1, which prevented Nowa from obtaining clarification on the large damages claim.
The dispute over objections and access to financial details culminated in an October 2025 hearing where the court was seized both of Nowa’s motion to dismiss the remodeled counterclaim and of the outstanding objections. During that hearing, the defendants made important admissions and concessions that changed the contours of the procedural debate.

Legal framework on irreceivability of a claim

Nowa’s April 2025 motion sought to have the remodeled counterclaim dismissed as legally unfounded under article 168 C.p.c. and, separately, to have it rejected as an abusive proceeding under articles 51 and following C.p.c.
On the irreceivability issue, the court restated the well-known principles governing a preliminary motion to strike for lack of legal basis. At this stage, the factual allegations of the impugned pleading, along with the supporting exhibits, are taken as true. The court does not weigh evidence, evaluate credibility, or assess the actual chances of success on the merits. Instead, the question is strictly whether, assuming the facts are true, they are capable of supporting the conclusions sought in law. The court must exercise prudence, avoid prematurely terminating actions that raise complex or debatable legal issues, and resolve doubts in favour of allowing the case to proceed to a full trial. Only where the legal situation is clear and unambiguous, and where the claim has no reasonable chance of success even if the facts are proven, will the court strike a pleading at this preliminary stage.

Damages theory and causation in unfair competition

A key legal and evidentiary issue in the counterclaim is how damages are to be conceptualized and quantified in the context of alleged unfair competition. Under Quebec civil law, a claimant seeking damages must show that the defendant’s fault caused it a prejudice, understood as a loss suffered or a gain of which it was deprived. In principle, simply obliging a defendant to disgorge profits it made as a result of its fault, in the absence of evidence of actual loss to the claimant, is described by the Supreme Court as “exorbitant” in relation to the structure of Quebec civil law.
However, jurisprudence recognizes an important nuance in the competitive marketplace. In certain unfair competition scenarios, if the defendant’s fault has given it an unfair competitive advantage at the claimant’s expense, the claimant’s loss or lost gain can, in some cases, correspond to the profits realized by the defendant. In that specific context, the defendant’s profits may serve as an evidentiary proxy for the claimant’s loss. The court cites prior appellate and Supreme Court authority where, in cases of unfair competition, courts have considered that the victim’s lost profit could be reflected in the wrongdoer’s additional profit generated by the unfair conduct.
In this case, the defendants’ remodeled counterclaim takes a distinctive tack: they have formally recognized that their claimed damages are calculated solely on the basis of Nowa’s financial results—specifically, the increase in Nowa’s revenue over a certain period—and that they do not intend to rely on their own financial data, including their sales, costs, forecasts, market share, or any information held through their distributor Hydro Solution. By their own admission, they seek to prove their loss entirely through Nowa’s income figures, asserting that the entirety of that incremental revenue would otherwise have accrued to them absent Nowa’s alleged unfair practices.
Nowa attacked this theory as legally untenable and factually speculative, arguing that in the absence of any evidence of the defendants’ own financial performance or market position, the counterclaim could not in law support a damages award approaching $3.3 million. It also stressed the procedural unfairness of being subjected to such a large counterclaim while being unable to obtain clear discovery on how the figure was calculated, owing to counsel’s objections and the confidential manner in which Annex 1 had been assembled.

Court’s analysis on irreceivability

The court acknowledged that Nowa appeared to have serious arguments to raise against the merits of the counterclaim and the robustness of the defendants’ damages theory. Nonetheless, applying article 168(2) C.p.c. and the prudential approach to motions to strike, the judge emphasized that the task at this preliminary stage is not to determine whether the counterclaim will ultimately succeed. The only test is whether, taking the factual allegations as true, they are capable of giving rise to the conclusions sought in law.
The court noted that the counterclaim alleges specific acts of unfair competition and misleading advertising by Nowa—such as misrepresenting compliance with CSA certification and publishing allegedly deceptive comparative documents regarding the parties’ products—and asserts that these wrongful acts caused the defendants to lose customers to Nowa through unfair means. On the basis of those allegations, the counterclaim seeks damages measured by the increase in Nowa’s revenues that the defendants say were wrongfully diverted from them.
In light of the jurisprudential exception for unfair competition cases, where a claimant’s loss may, in certain circumstances, be inferred from the wrongdoer’s profits, the court held that it could not, at this stage, rule out the possibility that the defendants’ alleged loss might be evaluated using Nowa’s profit figures. Although the court characterized the defendants’ position as “thin” and recognized that they would have a difficult task ahead in proving both fault and causation and in justifying using only their competitor’s financial data, it concluded that a full, context-specific examination of the evidence would be required to decide whether such a method of quantification is justified. That assessment belongs to the trial on the merits, not to a preliminary motion.
Accordingly, the court determined that the allegations in the counterclaim, if proven, could potentially satisfy the conditions for a damages remedy in unfair competition and misleading advertising. This was sufficient to defeat Nowa’s motion to strike the counterclaim as irreceivable.

Allegations of abuse of procedure

The second major branch of Nowa’s motion sought relief for alleged abusive procedure under articles 51 and following C.p.c. Nowa relied on several elements that, in its view, demonstrated procedural abuse by the defendants, including their conduct at examinations, persistent refusals to answer questions despite prior court orders, a lack of transparency regarding the foundation of their damages claim, and the opaque manner in which Annex 1 was assembled and shielded from meaningful scrutiny.
Annex 1 itself played a central role in these allegations. It contained calculations and financial information derived from material provided by Nowa under a confidentiality agreement. Defendants’ counsel prepared the annex without revealing its content to the corporate representatives. During examinations, counsel systematically objected to questions relating to Annex 1, effectively blocking Nowa from obtaining essential clarifications regarding the damages claim. Only at the hearing of the dismissal motion and related case-management issues did the defendants finally admit, through counsel, that they would quantify their damages solely by reference to Nowa’s financial information and would not rely on their own financial figures or market-share data.
The court was critical of the delay and the way in which these admissions were obtained. It expressly deplored the time taken by the defendants to clarify their position and the fact that Nowa had to engage in substantial procedural battles before the court to elicit this information. The court acknowledged that such conduct in managing the file could open the door to a finding of abuse of procedure.
However, the judge underscored that the power to declare a proceeding abusive is discretionary and must be exercised cautiously, particularly at a preliminary stage on the basis of a limited evidentiary record. Appellate authority warns against conducting a “trial within a trial” on abuse issues and instructs that the ultimate question—whether a pleading is so devoid of merit as to constitute an abuse and whether it is being pursued in an excessive or unreasonable manner—often can be answered more reliably by the trial judge, once the full body of evidence is available.

Decision on abuse and outcome of the motion

Applying those principles, the court concluded that, while the defendants’ conduct during the pre-trial phase could arguably support an eventual declaration of abuse, it was premature to grant such relief at this point. The better course was to defer the question to the judge who will hear the case on the merits, as that judge will be best placed to evaluate the entirety of the procedural history, including all future steps, and to determine whether any aspect of the counterclaim or the parties’ conduct should be sanctioned as abusive.
The same prudential approach informed the court’s view of the counterclaim itself. Although the court recognized that the defendants would “have much to do” to justify their theory and that the counterclaim may face serious challenges, it found that it could not say, at this preliminary point, that the counterclaim was clearly devoid of any reasonable chance of success. As a result, the judge held that it would be inappropriate to strike it out as an abusive proceeding at this stage.

Final orders and identification of the successful party

In its formal conclusion, the court rejected Nowa’s motion to dismiss the defendants’ remodeled counterclaim and deferred the determination of the abuse of procedure issue to the trial judge. It also ordered that costs “follow the event” of the main litigation, meaning that no specific award of costs was made at this interlocutory stage and any eventual allocation of legal costs would depend on the outcome at trial.
On this motion, the successful parties are Akwa Technologies Solutions Inc. and Système Leako Inc., because their counterclaim survives and will proceed to be heard on the merits. No damages, costs, or other monetary relief were awarded in favour of any party in this decision, and the total amount ordered in favour of the successful parties is therefore undetermined at this stage (effectively, zero in terms of concrete monetary award).