Court File and Parties
COURT FILE NO.: 11-52233 DATE: 2017/07/11 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Oz Optics Ltd., Plaintiff AND Jing Ru Zhang, Nai-Guang Wang and Chen Wang, Defendants
BEFORE: Madam Justice Robyn M. Ryan Bell
COUNSEL: Porter Heffernan, for the Plaintiff William Parker, for the Defendants
HEARD: May 18, 2017
Endorsement
Overview
[1] The defendants Jing Ru Zhang and Nai-Guang Wang are former employees of the plaintiff Oz Optics. Oz Optics says they resigned from the company in July 2011, and that at the time they resigned, they appropriated Oz Optics’ confidential and proprietary information which they then sold or transferred to third parties. Oz Optics also says that its former employees transferred confidential information to their daughter, the defendant Chen Wang, who in turn sold or transferred the information for compensation. The defendants dispute these allegations and counterclaim for damages for wrongful dismissal.
[2] Examinations for discovery scheduled for July 2015 did not proceed because of a lack of documentary production. In July 2016, Justice MacLeod granted leave to Oz Optics to add Chen Wang as a defendant and to amend its claim to plead breach of confidence. Oz Optics was ordered to provide particulars of its alleged damages and losses within 30 days.
[3] The Amended Statement of Claim seeks an accounting of all revenues received by the defendants, an order for the disgorgement of profits, and damages for lost sales and loss of reputation. The breach of confidence claim is set out in paragraphs 35 to 38 of the Amended Statement of Claim.
[4] Both the plaintiff and the defendants move for further and better affidavits of documents. Ms. Chen Wang has not provided an affidavit of documents at all. In brief, Oz Optics seeks production of the defendants’ personal financial records from January 1, 2010 to the present. The defendants seek production of numerous documents--many dating back to 2007--they say are relevant to the plaintiff’s claim for financial losses.
[5] There are two issues to be determined:
(i) Are some or all of the financial records of the defendants relevant to any matter at issue in these proceedings? If so, which financial records should be produced and over what time period?
(ii) Are the plaintiff’s business records relevant to its claim for financial losses? If so, what specific categories of business records should be produced and over what time period?
[6] For the following reasons, I conclude that all parties are required to provide further and better affidavits of documents. Ms. Chen Wang is to provide an affidavit of documents listing relevant documents, including the documents required to be disclosed as a result of this decision.
Affidavits of Documents – General Principles
[7] Rule 30.03(1) of the Rules of Civil Procedure requires a party to disclose in its affidavit of documents all documents relevant to any matter in issue in the action that are or have been in the party’s possession, control or power. Where the court is satisfied “by any evidence” that a relevant document in a party’s possession, control or power may have been omitted from that party’s affidavit of documents, the court may, under Rule 30.06(b), order service of a further and better affidavit of documents. The level of proof required should take into account the fact that one party has access to the documents, while the other party does not. (*RCP Inc. v. Wilding*, at para. 9). While there must be evidence that documents have been withheld before an order under Rule 30.06 will be made, commencing discovery and moving for further production after obtaining admissions is not the only appropriate procedure to be followed. I agree with Master MacLeod (as he then was), that the court should be cautious about endorsing a process “which results in successive rounds of discovery, productions and motions.” (*RCP Inc. v. Wilding* at paras. 9 and 10).
[8] In making a determination as to whether a party is required to produce a document, the principle of proportionality requires that I consider whether, the time required to produce the document would be unreasonable; the expense associated with producing the document would be unjustified; production of the document would cause undue prejudice; production of the document would unduly interfere with the action’s orderly progress; and the document is readily available from another source: Rule 29.2.03(1). The overall volume of documents is also a factor to be considered: Rule 29.2.03(2).
Issue 1: The defendants’ records relating to cash receipts are relevant and must be produced
[9] Oz Optics seeks access to the personal financial records of each of the defendants from January 1, 2010 through to the present, including “records of all transactions through bank or trust accounts in which any or all of the Responding Parties have a legal or beneficial interest, wherever those accounts may be located (including but not limited to Canada, the USA, and China).” Oz Optics also seeks access to “receipts, notes, memoranda or other records” relating to cash payments received by any of the defendants during the same period. Oz Optics says that the information contained in these records is relevant as it will tend to prove or disprove its allegation that the defendants received compensation for the sale or transfer of Oz Optics’ intellectual property.
[10] Mr. Zhang, Ms. Nai-Guang Wang and Ms. Chen Wang say I should not order the disclosure requested by Oz Optics for three reasons: (i) Oz Optics has failed to lead “convincing evidence” as to both the existence and the relevance of the documents sought; (ii) the defendants have produced their tax returns and have preserved the hard drive of their personal computer for inspection; and (iii) they will be prejudiced by having to disclose all of their personal financial records while Oz Optics has denied their request for disclosure as to its alleged damages. Addressing the third argument first, I have considered the plaintiff’s motion and the defendants’ cross-motion independently, each on their own merits.
[11] I am satisfied that documents relating to or disclosing cash receipts by Mr. Zhang, Ms. Nai-Guang Wang and Ms. Chen Wang for the period 2010 to 2015 are relevant to the breach of confidence allegations in the Amended Statement of Claim and Oz Optic’s request for an accounting of all revenues received, a disgorgement of profits, and damages for lost sales and for loss of reputation. There is some evidence before me that Mr. Zhang and Ms. Nai-Guang Wang forwarded information from their Oz Optics’ email accounts to personal email accounts and to an email account belonging to Ms. Chen Wang. The relevant documents relating to or disclosing cash receipts by each of the defendants include their personal financial records disclosing cash receipts. I am satisfied that these personal financial records exist. The record before me discloses that the defendants object to the production of their personal financial records on the basis of relevance and proportionality, not because the documents do not exist. With respect to other documents that relate to cash receipts, I am not satisfied that a proper search by the defendants for such documents has been conducted.
[12] While Mr. Zhang and Ms. Nai-Guang Wang have produced their tax returns for the years 2010 to 2015 and have agreed to preserve the hard drive of their computer for inspection by a third party, the records relating to and disclosing cash receipts are also relevant to matters at issue in the action and are required to be produced under Rule 30.02(1). Production of these documents at this stage should help to avoid successive rounds of discovery, production and motions. Ms. Chen Wang has not produced an affidavit of documents and is required to do so, including documents relating to or disclosing cash receipts for the period 2010 to 2015. Production of these documents would not cause any of the defendants undue prejudice or interfere with the progress of the action. To the contrary, production of these documents should assist the action to move forward.
[13] I am not prepared to order Mr. Zhang, Ms. Nai-Guang Wang and Ms. Chen Wang to produce their personal financial records in their entirety in advance of discoveries. To do so would be to embark on disproportionate discovery. However, nothing in this order limits appropriate questions on discovery aimed at establishing the basis for relevance or the right of Oz Optics to renew a motion for a further and better affidavit of documents as a result of answers given on discovery.
Issue 2: The plaintiff’s financial statements and sales figures are relevant
[14] Oz Optics has disclosed two documents in support of its damages claim: a sales report document from May 2011 to April 2012 for the products for which Mr. Zhang and Ms. Nai-Guang Wang were responsible while at Oz Optics and a chart detailing the part numbers for which they were responsible. In their cross-motion, the defendants seek production from Oz Optics of the following:
- Annual and monthly sales figures (2007 to 2016);
- Sales summaries and invoices (2007 to 2016);
- Sales by customer (2007 to 2016);
- Price catalogues and price lists for all products sold by Oz Optics;
- All documents concerning marketing initiatives (2007 to 2012);
- Internal reports and financial statements showing gross profit by product for all products (2007 to 2016);
- Chart/index setting out product managers, designers, technical directors and schedules (2012 and 2013);
- Financial statements, audited “or otherwise” with supporting general ledgers (2010 to 2016);
- Customer contracts (2007 to 2016); and
- “Detailed calculation of the damages claimed.”
[15] Oz Optics’ position is that its claim for damages for sales losses relates only to the product lines on which Mr. Zhang and Ms. Nai-Guang Wang worked, arising over the 12 months following their departure from the company. Oz Optics says that the only relevant documents are the two it has produced and that the broad categories of documents sought by the defendants are irrelevant and are tantamount to a fishing expedition.
[16] The categories of documents were generated by Mr. Darrell Sherman, a Chartered Professional Accountant retained by the defendants. Mr. Sherman has provided an affidavit setting out the documents he would require to evaluate Oz Optics’ alleged damages. In essence, Mr. Sherman has provided opinion evidence that these categories of documents are relevant. Mr. Sherman is not qualified to give such an opinion. In any event, a legal expert’s opinion as to the relevance of a document on a question of domestic law is not admissible opinion evidence. (*Fischer v. IG Investment Ltd.*, 2015 ONSC 3525, at para. 7).
[17] One party is not required to accept the other party’s theory of the appropriate manner of calculating damages. (*1414614 Ontario v. International Clothiers Inc.*, 2013 ONSC 4821, at para. 13). While I find the production made by Oz Optics on the issue of its alleged damages to be too narrow, the categories of documents sought by the defendants are overly broad. Requiring the production of all of these documents would be contrary to the proportionality principles in Rule 29.2.03(1). I will address each of the categories of document in turn.
[18] Annual and monthly sales figures (2007 to 2016): Oz Optics’ existing financial disclosure covers a scant year—May 2011 to April 2012—and is restricted to those product lines on which Mr. Zhang and Ms. Nai-Guang Wang worked. The defendants are not required to accept Oz Optics’ theory of calculating damages. I am satisfied that annual and monthly sales figures for the entire company, not restricted to particular product lines, for the period 2010 to 2015, are relevant. These documents must be produced.
[19] Sales summaries and invoices (2007 to 2016): There is evidence before me that the sales invoices from 2007 to 2016 represent approximately 200,000 pages. While a subset of these documents may have a semblance of relevance, it is not enough to embark upon disproportionate documentary discovery. These documents need not be produced.
[20] Sales by customer (2007 to 2016): I am not persuaded that documents detailing sales by customer are relevant. They need not be produced.
[21] Price catalogues and price lists for all products sold by Oz Optics: I am not persuaded that these documents are relevant to the damages claimed by Oz Optics. They need not be produced.
[22] All documents concerning marketing initiatives (2007 to 2012): These documents may have a semblance of relevance to the matters at issue; however, there is evidence before me that these documents comprise approximately 100,000 pages. Production of these documents would amount to disproportionate discovery. They need not be produced.
[23] Internal reports and financial statements showing gross profit by product for all products (2007 to 2016): There is evidence before me that Oz Optics’ internal system is not capable of tracking gross profit by product. These documents do not exist.
[24] Chart/index setting out product managers, designers, technical directors and schedules (2012 and 2013): I am not satisfied that these documents are relevant to the damages claimed by Oz Optics. They are not required to be produced at this time.
[25] Financial statements with supporting general ledgers (2010 to 2016): Oz Optics’ financial statements, for the period 2010 to 2015 are relevant and must be disclosed. I am not satisfied that the general ledgers are relevant. They are not required to be produced at this time.
[26] Customer contracts (2007 to 2016): I am not satisfied that the particular customer contracts are relevant to the calculation of damages. These documents need not be produced.
[27] “Detailed calculation of the damages claimed”: Oz Optics has produced the two documents on which it says it intends to rely for the calculation of its alleged damages. The defendants will have an opportunity to examine Oz Optics’ representative for discovery and ask questions relating to the calculation at that time. Oz Optics is not required at this time, to produce any additional documentation under this heading.
Conclusion
[28] For the above reasons, I order that:
(i) Mr. Zhang and Ms. Nai-Guang Wang are to provide within 60 days, further and better affidavits of documents that include all documents and records relating to and disclosing cash receipts for the period 2010 to 2015;
(ii) Ms. Chen Wang is to provide within 60 days, an affidavit of documents that includes all documents and records relating to and disclosing cash receipts for the period 2010 to 2015; and
(iii) Oz Optics is to provide within 60 days, a further and better affidavit of documents that includes annual and monthly sales figures for the period 2010 to 2015 and financial statements for the company for the period 2010 to 2015.
[29] Success on both motions has been divided. If the parties are unable to agree on costs, they may make brief written submissions on costs within 10 days of the release of this endorsement.