COURT FILE NO.: CV-19-613166 DATE: 2019-05-28 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: PIONEERING TECHNOLOGY CORP., Plaintiff AND: LAIRD COMBER, WAYNE ZU, and STEPH COOPER, Defendants
BEFORE: Schabas J.
COUNSEL: P.A. Neena Gupta and Jeramie Gallichan, Counsel, for the Plaintiffs Robert C. Taylor, Counsel, for the Defendants, Wayne Zu and Steph Cooper William Gale, Counsel, for the Defendant, Laird Comber
HEARD: May 17, 2019
Endorsement
Overview
[1] This is a motion brought by the plaintiff for an interlocutory injunction against the defendants to (a) prevent them from using confidential and proprietary information of the plaintiff to its detriment; and (b) prevent them from developing a competing business venture. For the reasons which follow, the motion is dismissed.
BACKGROUND
[2] The plaintiff, Pioneering Technology Corp. (“PTC”), develops, distributes and sells cooking fire prevention products, including attachments and stove-top products that prevent cooking oil fires. It is a small company with 9 full-time employees, one contractor and 6 full-time sales representatives, with sales usually in the range of $5 million annually (2017 saw higher sales resulting from one large contract). PTC claims to be North America’s leader in cooking fire prevention technologies and products. It is a publicly-listed Ontario corporation.
[3] The defendants worked for PTC prior to their termination on January 9, 2019. Laird Comber was the Vice-President of Sales, a position he had held since 2008. He had been with the company since 2006 and was responsible for the sales team, and developing sales forecasts and plans. He reported to the President. Wayne Zu is a professional engineer and was the Director of Engineering and Manufacturing at PTC. He had been with the company since 2012 and was described as the “technical mind” of PTC. He too reported to the President. Of note, he speaks Mandarin, and acted as the translator for PTC in its dealings with Chinese suppliers, including at meetings in China. Steph Cooper was the Controller of PTC and reported to the Chief Financial Officer. She had started as a bookkeeper in 2015. Unlike Comber and Zu, she was an independent contractor, whereas Comber and Zu were employees of PTC.
[4] PTC’s main product is the “Smart Burner”, an element that can be attached to electric stoves to prevent overheating and cooking fires. Haiyan Donghai Electric Appliances Co. (“Donghai”), a large appliance manufacturer in China, makes the Smart Burner for PTC. However, in 2016 Donghai introduced PTC to a new product called the 2 burner glass top (“2BGT”), which was a self-contained glass unit with two elements. PTC’s future plans contemplated the certification of this new product and for PTC to be the distributor of it in North America. However, this has not occurred, and events related to that have given rise to this action.
[5] In May/early June 2018, PTC’s CEO Kevin Callahan, its President Dan MacDonald, and Zu travelled to China to meet with Donghai and its CEO, J.D. Xu. Following the meeting, on August 22, 2018, Donghai advised PTC that it would not work with PTC to distribute the 2BGT product.
[6] Subsequently, on November 12, 2018, PTC’s CEO, Callahan, found a 3-page memo on a printer at PTC entitled “Post Ordower Meeting Thoughts”. It discussed issues involving a proposal by the defendants to create a business entity, referred to as SWL (the initials of the defendants’ first names, Steph, Wayne and Laird) which would collaborate with Donghai to market the 2BGT in North America, and which might or might not include PTC. “Ordower” referred to Matthew Ordower, a corporate lawyer from whom the defendants had sought legal advice.
[7] Following further investigation by PTC, including forensic work reviewing emails and other records on PTC computers, PTC learned that in October 2017 Zu had prepared an agenda and detailed slide deck, with assistance from Comber, for a meeting proposed by Donghai regarding the North American market. The deck reviewed how Donghai, with Zu and Comber, could market cooking oil fire prevention products in North America in competition with PTC. However, although Zu flew to China, he apparently had second thoughts and decided not to meet with Donghai and did not provide the slide deck to Mr. Xu or anyone else at Donghai. Zu and Comber did not tell anyone about the preparation of the slide deck or the aborted meeting with Donghai.
[8] In or around August 2018, when Donghai advised PTC that it would not be using PTC to distribute the 2BGT, Xu contacted Zu again to discuss Donghai’s plans for doing its own distribution in North America. Over the course of the fall, without disclosing anything to PTC, the defendants Zu, Comber and Cooper (who became involved at that time) discussed how their proposed entity, SWL, could market Donghai products in North America. However, the defendants, who are all shareholders of PTC and were concerned about PTC’s future and the risk that all of its business with Donghai could be lost to a U.S.-based entity, contemplated involving PTC in their (SWL’s) distribution arrangement with Donghai. This was known to Xu who agreed to SWL working with PTC so long as he did not have any direct dealings with PTC. SWL competed for this opportunity with a U.S.-based distributor, and in December 2018 Xu advised SWL that Donghai intended to use SWL. None of this was disclosed by the defendants to PTC.
[9] Two months after the memo was found on the printer, on January 9, 2019, the plaintiff terminated Comber and Zu’s employment and its contractual relationship with Cooper. The plaintiff then commenced this proceeding alleging, among other things, breach of contract, breach of fiduciary duty, conspiracy and breach of confidence. By notice of motion dated February 4, 2019, the plaintiff sought injunctive relief. Extensive evidence was exchanged, cross-examinations conducted and considerable production made, creating an extensive record that was before me on May 17, 2019.
[10] In the meantime, plans for SWL to help market Donghai products and the 2BGT in North America have not advanced. SWL’s plans were at a preliminary stage. No company was incorporated or detailed business plans developed. Donghai has taken no steps to move forward with SWL since December 2018, and Donghai continues to manufacture the Smart Burner for PTC. Comber has now found new employment. Zu is unemployed and Cooper is seeking or performing other contract work.
TEST FOR AN INJUNCTION
[11] A party seeking an interlocutory injunction must address the three part test in RJR MacDonald v. Canada, [1994] 1 SCR 311 at para. 48: (1) is there a serious issue to be tried? (2) will the applicant suffer irreparable harm if the injunction is not granted? (3) which party will suffer the greater harm if the injunction is granted or refused – the balance of convenience test?
[12] It is accepted that not all parts of the RJR test must always be met by the moving party, and that the three parts must be assessed as a whole, that strength on one branch may compensate for weakness on another branch. In some circumstances, a showing of a strong prima facie case is required, rather than just a serious issue to be tried, such as when a restrictive covenant is sought to be enforced or restrictions are placed on the ability to earn a livelihood: Jet Print Inc. v. Cohen, 1999 CarswellOnt 2357 (Ont. SCJ) at para. 11.
[13] In this case, I accept that the serious issue test applies as the order sought would not prevent the defendants from earning a livelihood, but simply prevent them from pursuing a particular business venture. The ultimate consideration, and on which my decision turns, is whether an injunction is necessary to prevent harm that cannot be adequately compensated in damages if the defendant proceeds with, or continues, the actionable harm prior to trial: Ausman v. Equitable Life Insurance Co. of Canada, [2002] O.J. No. 3066 at para. 17; Potash Corp. of Saskatchewan Inc. v. Mosaic Potash Esterhazy Limited Partnership, 2011 SKCA 120 at para. 26.
ANALYSIS
(a) Serious Issue
[14] The plaintiff alleges breach of fiduciary duty arising from the defendants’ actions. The plaintiff argues that each defendant is a fiduciary, holding important positions within a small company where Comber and Zu in particular were privy to confidential information, involved in management and strategy meetings and, in Zu’s case held a key position of liason with Donghai. Cooper, as Controller, had knowledge of PTC’s customers and financial information, relying on Frame v. Smith, [1987] 2 SCR 99 at paras. 39-42; and GasTOPS Ltd. v. Forsyth, 2009 CarswellOnt 5773 (Ont. S.C.J.) at paras. 80-106.
[15] The plaintiffs submit these duties were breached by the defendants using their knowledge and positions to pursue a corporate opportunity in competition with PTC and without disclosing it to PTC, drawing parallels with the seminal case of Canadian Aero Service Ltd. v. O’Malley, [1974] SCR 592 (“CanAero”).
[16] The defendants submit that they are not fiduciaries, noting a lack of authority, even on the part of Comber, to hire and fire. Zu was not part of the senior management team, and Cooper, it is said, simply did the books: Jetco Heavy Duty Lighting v. Fonteyne, 2018 ABQB 345 at paras. 59-87. On the other hand, the plaintiff submits that if one of them is a fiduciary and they then work together in breach of that duty, then they are all fiduciaries.
[17] At this stage, I need only conclude that there is a serious issue to be tried. In my view, there is at least a serious issue as to whether the plaintiffs are fiduciaries, recognizing that the outcomes may be different respecting each of the defendants, as the case appears stronger for Comber and Zu than it does for Cooper.
[18] There also exists a serious issue as to whether the defendants have breached those duties, should they be found to exist. Zu and Comber did prepare a proposal for Donghai in 2017, after Donghai contacted Zu, which included PTC’s confidential information. On the other hand, the proposal was never presented to Donghai and there is no evidence that any confidential information was disclosed to Donghai in 2017 or, in fact, in 2018. Zu and Comber did not disclose their contact with Donghai in 2017 to PTC, even though it was relevant to PTC’s relationship with Donghai, especially as PTC’s CEO and President travelled, with Zu, to meet with Donghai in the spring of 2018, which was followed by Donghai’s decision not to use PTC to distribute the 2BGT in North America. Nor, of course, did they disclose the more recent contact with Donghai in the fall of 2018.
[19] The defendants worked together, without disclosure to PTC, to seek a contract with Donghai to be its distributor of the 2BGT. They point out, however, that PTC seemed to have already lost this opportunity and therefore their actions were not in competition with PTC; indeed, there is evidence that the defendants intended to involve PTC in the distribution of Donghai’s products should the SWL entity obtain the distribution contract. To this, the plaintiff argues, as in CanAero, that the issue is not whether the business opportunity was within its grasp. As Laskin J., as he then was, stated in CanAero at pp. 621- 622:
“Liability of O'Malley and Zarzycki for breach of fiduciary duty does not depend upon proof by Canaero that, but for their intervention, it would have obtained the Guyana contract; nor is it a condition of recovery of damages that Canaero establish what its profit would have been or what it has lost by failing to realize the corporate opportunity in question. It is entitled to compel the faithless fiduciaries to answer for their default according to their gain.”
[20] In this case, however, the business opportunity for PTC to distribute the 2GBT appears to have no longer been within its grasp as Donghai had told PTC it would not be contracting with it to distribute the product. Whether that is the end of the matter, or still gives rise to a breach of fiduciary duty similar to CanAero, in circumstances where the defendants’ plans were not highly formed when they were uncovered, is a matter for trial. These are, however, serious issues: see, e.g., Tracey v. Tracey, 2012 ONSC 3144 at para. 56; Aquafor Beech Ltd. v. Whyte, 2010 ONSC 2733 at para. 43.
[21] The defendants also submit that there is no serious issue because there is no evidence that confidential information has been disclosed by them (indeed, there is an issue as to what information, if any, is confidential that should be prohibited from being disclosed). Further, they point out that none of them is bound by a non-competition agreement with PTC. However, as I have found that there is at least a serious issue that they are fiduciaries who failed to disclose their discussions with Donghai, and may have improperly pursued a corporate opportunity, the serious issue test is met.
(b) Irreparable Harm
[22] Irreparable harm is harm that cannot be quantified in monetary terms, or that cannot be cured, usually because one party cannot collect damages from the other. The plaintiff argues that it will suffer irreparable harm from the loss of the business opportunity to market and distribute the 2BGT. However, should the defendants ever be in position to move forward with that opportunity, it is a defined business venture that could be measured in damages – their profits could be assessed and ordered disgorged – and loss of business by PTC, if any, can be quantified: Berkeley v. Miller, 2018 ONSC 3645 at para. 23.
[23] On the issue of damages, the plaintiff asserted that sales were down significantly in 2018 during which it had suffered losses of approximately $2.5 million and its share value declined by approximately $50 million. I am not in a position to assess the cause of those losses or the extent, if any, to which they were caused by the defendants, on which there is no evidence. As noted at the outset of these reasons, with the exception of 2017 during which PTC had a large contract with one customer which approximately doubled its sales, the usual sales volume was approximately $5 million per year.
[24] It is also relevant, in my view, that nothing has progressed between Donghai and SWL since December 2018. It was said that “the ship had sailed” and there was no prospect of the defendants now benefiting from, or contracting with Donghai to market or distribute the 2BGT. While it is not clear from the evidence that the opportunity has completely disappeared, time is marching on, Comber has found new employment (with a distributor used by PTC), and there is no indication that any new steps are likely, let alone imminent, to advance what the plaintiff seeks to enjoin.
[25] The plaintiff also argues that an injunction is necessary to prevent the disclosure of confidential information which would be irreparable. However, there is no evidence of the disclosure of any confidential information by the defendants to date, and the plaintiff has failed to identify precisely what information it believes is confidential. Thus, it is difficult to find that the plaintiff will suffer irreparable harm on this basis.
[26] Plaintiff’s counsel notes that PTC seeks a quia timet injunction, to restrain wrongful conduct before it has been committed. In such circumstances, there must be a high probability that, if the injunction is not granted, the harm will occur imminently or in the near future: XY, Inc. v. IND Lifetech, Inc., 2008 BCSC 1215 at para. 70. It seems appropriate to consider this under the irreparable harm heading, as it goes to the likelihood of the harm. For the reasons I have stated, it is doubtful that harm is imminent; indeed it may never occur, and for that reason too I can give little weight to irreparable harm in considering the requested relief.
(c) Balance of Convenience
[27] This branch requires consideration of which of the parties will suffer the greater harm if the injunction is granted or refused pending a decision on the merits. In light of the fact that the defendants appear unlikely to proceed with Donghai, it is easy to conclude that they may not suffer much harm from the granting of the injunction. On the other hand, enjoining them from doing so may prevent that and cause them harm which may or may not arise from unlawful conduct. In the plaintiff’s case, if the injunction is not granted PTC may suffer no harm at the hands of the defendants if no contract is made between SWL and Donghai; and, if the defendants do obtain a contract with Donghai, the harm may be calculated in damages assuming PTC makes out its cause of action. In considering this factor, one must also bear in mind that Donghai had already decided that it would not contract with PTC for the 2BGT.
[28] The granting of an injunction remains an extraordinary remedy and should be done with caution and restraint: Boehmer Box LP v. Ellis Packaging Ltd., [2007] O.J. No. 1694 at para. 74; Embedia Technologies Corporation v. Blumell, 2018 ABQB 222 at paras. 6 and 24. The conduct of the defendants is concerning, but in the circumstances, having regard to the three-part test in RJR MacDonald v. Canada, [1994] 1 SCR 311, including the uncertainty over the ultimate outcome of the litigation, and the ability of the plaintiff to be compensated in damages if in fact the defendants ever do move forward with the proposal, the test for injunctive relief is not met here. While the plaintiff has raised a serious issue, perhaps even a strong prima facie case, and PTC has reason to be upset with the defendants’ conduct, the circumstances do not warrant court intervention to restrain activity that had only progressed to a preliminary stage, has not moved ahead in the past six months, and for which the plaintiff can seek damages, if necessary.
[29] Accordingly, the motion for an interlocutory injunction is dismissed.
The “Clean Hands” Issue
[30] The defendants also submitted that the injunction should not be granted because the plaintiff did not come to court with “clean hands”. They cited the review and use of the Ordower memo found on the printer which contains some legal advice and is therefore, in part, privileged. They also point to the taking of Steph Cooper’s personal laptop without her consent, and copying all of the data on it, which included personal and private information as well as privileged communications, despite objections by her counsel. In light of my finding that an injunction should not be granted, it is unnecessary for me to address this issue.
COSTS
[31] Unless the parties can agree on costs, the defendants shall provide me with submissions within 15 days, and the plaintiff shall have 7 days to respond. Each counsel shall limit their costs submissions to 3 pages, excluding any bill of costs, costs outline or related attachments.
Schabas J. Date: May 28, 2019