Court File and Parties

COURT FILE NO.: CV-17-579590 DATE: 2020 05 27

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THE MANUFACTURERS LIFE INSURANCE COMPANY, Plaintiff - and - ASG TECHNOLOGIES GROUP, INC., Defendant

BEFORE: Master Todd Robinson

COUNSEL: N. Wong and M. Migus, for the defendant / moving party S. D’Souza, A. Bond and A. Forest, for the plaintiff / responding party

HEARD: December 13, 2019

REASONS FOR DECISION

[1] ASG Technologies Group, Inc. (“ASG”) moves to impose a discovery plan pursuant to Rule 29.1 of the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”). The Manufacturers Life Insurance Company (“Manulife”) opposes the discovery plan proposed by ASG and argues that its own version of the discovery plan should instead be imposed. The parties have agreed on substantially all terms of the discovery plan. The only substantive dispute is regarding relevance and proportionality of a number of disputed categories of documents that each party has requested from the other.

[2] Before this motion was brought, the parties spent over a year attempting to reach agreement on the scope of documentary production. Both parties have invested considerable time and expense in bringing, responding to, and arguing this motion. Affidavit evidence has been tendered not only by a client representative, a legal assistant, and a law clerk, but also by a US attorney and an Ontario lawyer opining on relevance and e-discovery issues, and a business valuator identifying documents needed to assess the market value of the disputed software license fee. Affiants were cross-examined. Detailed facta have been exchanged and substantial supporting case law filed.

Background

[3] This litigation arises from a software licensing dispute between ASG and its licensee, Manulife. The parties have had a lengthy business relationship dating back to June 30, 1993, when the predecessor to Manulife, Standard Life Assurance Company, entered a licensing agreement with Mobius Management Systems, Inc. (“Mobius”) for use of business software. Mobius ultimately sold its business to ASG, and ASG and Manulife have had an ongoing relationship since that time. The initial licensing agreement has been amended four times. Two amending agreements were executed and, subsequently, two product schedules were executed amending the products available under the agreement.

[4] In advance of what ASG argues was the renewal deadline for the licensing agreement, ASG conducted a “heath check” by reviewing Manulife’s use of the licensed software. ASG alleges that this health check uncovered that Manulife was permitting unauthorized use of the software by third parties in breach of the licensing agreement, as well as use of the software at unauthorized locations and on unauthorized equipment.

[5] In June 2017, ASG notified Manulife that the licensing agreement was expiring on July 25, 2017 and sought increased fees relating to third party use of the software and retroactive fees for the allegedly unauthorized use. Manulife disputes that it breached the licensing agreement. It also takes the position that the licensing agreement was not up for renewal until the following year, so ASG’s demands for increased fees were in breach of contract and in breach of ASG’s duty of good faith performance of the licensing agreement. Manulife accordingly refused to pay the additional fees and continued using the software.

[6] Manulife ultimately commenced this litigation seeking various declarations regarding the term, renewal rights and fees, permissible use of the licensed software by third parties, and locations for use of the software, as well as seeking damages for ASG’s breaches of the licensing agreement. Manulife alleges that ASG acted in bad faith and repudiated the agreement. Manulife also seeks punitive damages for ASG’s conduct. ASG counterclaims for unpaid licensing and maintenance fees, and seeks declarations that the licensing agreement had expired, that Manulife has continued to use the unlicensed software without payment, and that Manulife has and continues to provide unauthorized third parties with access to the software.

Preliminary Issue – Conditional Withdrawal of Responding Position

[7] At the conclusion of Manulife’s responding submissions, Manulife sought to withdraw its request for production in four categories of documents (item nos. 7, 11, 15 and 21 in Schedule “C” to Manulife’s responding factum), withdraw a further category provided ASG first made a concession (item no. 12), and narrow the scope for a sixth category (item no. 14). The proposed withdrawals were all without prejudice to examining on the subject issues during discoveries and thereafter seeking production of the documents. During the break before ASG’s reply submissions, I asked ASG’s counsel to consider and advise if it would accept those terms or would require the court to adjudicate on the relevance and proportionality of the original production requests. During reply, ASG’s counsel confirmed that ASG seeks a determination on relevance and proportionality of the requested production.

[8] A moving party is entitled to withdraw relief it seeks on a motion. When that is done, in the absence of consent to withdrawal, a responding party is entitled to seek costs of the motion for the withdrawn relief. That is not the case here. Manulife, as the responding party, seeks to withdraw its position on relevance of certain categories of documents regarding which ASG has moved for a determination on relevance, but without Manulife conceding that the documents are irrelevant.

[9] In my view, had Manulife unequivocally withdrawn its position on relevance of the documents in the six categories, the only remaining issue would have been costs. However, Manulife seeks to withdraw its position without prejudice to later arguing relevance and proportionality of the categories after examining ASG’s representative. It is a conditional withdrawal, not an unequivocal one.

[10] No authority was provided by Manulife supporting that a responding party may withdraw its position on terms where a moving party has sought a determination on that position. Absent agreement of ASG to Manulife’s proposed terms of withdrawal, ASG remains entitled to pursue the determinations it originally sought on relevance and proportionality of the disputed document categories. Put another way, once ASG joined swords with Manulife over these six categories, Manulife cannot choose to sheath its sword and fight another day without ASG’s agreement. Manulife must fully yield or hold its ground.

[11] ASG, as the moving party, has not accepted Manulife’s conditional withdrawal. It is accordingly entitled to all determinations for which this motion was brought. I thereby do not grant Manulife’s request to effectively adjourn a portion of ASG’s motion sine die.

Relevant Law

[12] Where parties fail to agree on a discovery plan, Rule 29.1.05(2) of the Rules of Civil Procedure permits the court to impose one that will govern examinations for discovery, including imposing such limits on the right of discovery as are just.

[13] Rule 30.02 of the Rules of Civil Procedure provides for disclosure and production for inspection of every document relevant to a matter in dispute that is within the possession, control or power of a party, subject to a privileged document being exempt from production. At the discovery stage, relevance is determined by the pleadings: Mohamed v. The Durham Regional Police Services Board, 2011 ONSC 1600 at para. 6; Ontario v. Rothmans Inc., 2011 ONSC 2504 at para. 129.

[14] Proportionality is a significant disputed issue in this motion. ASG’s position is that the scope of documentary production sought by Manulife, even if found relevant, is “onerous and invasive”. A substantial amount of evidence and argument was focused on proportionality. Rule 29.2.03 of the Rules of Civil Procedure outlines a number of factors to be considered by the court when determining whether to order production of documents, as follows:

General

29.2.03 (1) In making a determination as to whether a party or other person must answer a question or produce a document, the court shall consider whether,

(a) the time required for the party or other person to answer the question or produce the document would be unreasonable;

(b) the expense associated with answering the question or producing the document would be unjustified;

(c) requiring the party or other person to answer the question or produce the document would cause him or her undue prejudice;

(d) requiring the party or other person to answer the question or produce the document would unduly interfere with the orderly progress of the action; and

(e) the information or the document is readily available to the party requesting it from another source.

Overall Volume of Documents

(2) In addition to the considerations listed in subrule (1), in determining whether to order a party or other person to produce one or more documents, the court shall consider whether such an order would result in an excessive volume of documents required to be produced by the party or other person.

[15] The default rule for discovery starts with proportionality and a recognition that not all conceivably relevant facts are discoverable in every case. While relevance is a threshold requirement, satisfying relevance is not a licence to obtain discovery regardless of the burden or expense imposed on the opponent if the costs of discovery outweigh the likely benefit: Meuwissen v. Perkin, 2013 ONSC 2732 at para. 48, citing with approval Warman v. National Post Co., 2010 ONSC 3670 (Master).

[16] Generally, a party seeking to limit production of otherwise relevant documents on the basis of proportionality must put forward some evidence to address the factors in Rule 29.2.03 of the Rules of Civil Procedure, which assists the court in assessing those factors: Seelster v HMTQ and OLG, 2015 ONSC 908 at para. 110; Midland Resources Holding Limited v. Shtaif, 2010 ONSC 3772 at para. 15.

[17] Rule 29.1.03(4) of the Rules of Civil Procedure requires that, in preparing a discovery plan, parties must consult and have regard to the document titled, “The Sedona Canada Principles Addressing Electronic Discovery” developed by and available from The Sedona Conference. Neither party disputes the applicability of the twelve principles from that document, which are outlined by Justice Mitchell in Palmerston Grain v. Royal Bank of Canada, 2014 ONSC 5134 at para. 44.

[18] The foregoing are the principles I have applied in assessing the relevance and proportionality of the disputed document requests and in determining an appropriate final discovery plan.

[19] In addition to the above, one issue that must be addressed at the outset is whether New York law has any bearing on determinations of relevance on this motion. ASG argues that it does because the licensing agreement and its amendments are governed by New York law. ASG has tendered expert evidence from Eric Prager, a New York attorney, opining on relevance of the disputed document requests taking into account New York law. Mr. Prager’s opinion consists largely of extracts from New York case law. He opines that New York law does not support discovery of ASG’s contractual relationships, pricing and communications with third parties in order to evaluate alleged breaches of contract by ASG or Manulife, and that extrinsic evidence is only considered if an agreement is ambiguous.

[20] Manulife disputes that New York law applies to the licensing agreement at all. Manulife submits that local law is presumed to apply unless foreign law is pleaded, arguing that ASG has not pleaded that New York law applies, although ASG argues that the terms of the licensing agreement are incorporated by reference into the pleadings. Manulife further argues that applicability of New York law is not before the court on this motion and should be left to the trial judge. Regardless, Manulife argues that under both New York and Canadian law, extrinsic evidence is relevant to interpreting ambiguous contractual terms, which are at the heart of this litigation.

[21] In my view, ASG has gone down a rabbit-hole regarding the applicability of New York law in the context of this motion. The licensing agreement does state that it “will be governed by the laws of the State of New York.” I agree that New York law may ultimately bear on what evidence at trial is relevant to interpreting the licensing agreement, subject to the success of Manulife’s arguments that New York law does not apply. ASG also correctly points to cases such as Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 regarding the standard of relevance applicable to trial evidence. However, I agree with Manulife that whether or not New York law applies is a matter for the trial judge.

[22] This is a pre-discovery motion dealing with the scope of relevant documentary discovery. A determination that a category of documents is relevant for discovery purposes is not a determination that those documents will be relevant and admissible evidence at trial. It is for the trial judge, not me, to decide what evidence is relevant to determining disputed issues, guided by case law such as Sattva.

[23] This proceeding has been brought in Ontario and proceeds pursuant to the Rules. I was directed to nothing in the licensing agreement or its amendments suggesting that the parties agreed to the procedure of an action brought in Ontario being governed by rules of court and related law other than in Ontario, nor was I directed to any case law supporting that governing law clauses extend to procedure or procedural determinations in an action. In my view, New York law has no bearing on the issues of relevance and proportionality for the purposes of discovery that are before me on this motion. If New York law applies to the licensing agreement, then the role that New York law will play in the determination of issues is a matter for trial.

Analysis

Overview of disputed documents

[24] As noted, ASG and Manulife have agreed on substantially all terms of a discovery plan, other than the dates by which affidavits of documents and Schedule A productions will be exchanged, the timing of examinations for discovery, and whether the disputed document categories at issue on this motion should be part of documentary discovery. The scope of documentary discovery is outlined at paragraph 12 of each party’s draft discovery plan, with specific categories of documents identified in subparagraph 12(e).

[25] A total of 21 categories of documents are requested by Manulife in subparagraph 12(e) of its version of the discovery plan, also outlined in Schedule “C” to Manulife’s responding factum. Each of these categories is disputed by ASG in some fashion, with the majority of objections being on the basis of relevance and proportionality. Appendix “A” to ASG’s factum outlines ASG’s position on 17 of the disputed document categories, noting proposed amendments or deletions consistent with its version of the discovery plan. The remaining 4 document categories are only disputed by ASG insofar as they include the word “all”.

[26] ASG has separated the main 17 disputed document categories on which argument was focused into two groups, namely “Disputed Third Party Requests” (11 items) and “Disputed Financial Requests” (6 items). Manulife has separated the disputed document categories somewhat differently into two groups, namely “Misconduct Documents” (1 item) and “Valuation Documents” (17 items). Since Schedule “C” to Manulife’s responding factum includes all 21 disputed document categories, I refer below to the document categories by their numbering in that schedule.

[27] Only 2 document categories requested by ASG in paragraph 12(e) of its version of the discovery plan are disputed by Manulife. These are disputed by Manulife as being irrelevant. Manulife has not advanced an argument regarding proportionality of the requests.

“Misconduct Documents” requested by Manulife

[28] Item no. 7: Manulife’s discovery plan includes a production request for the following documents from ASG, characterized as the “Misconduct Documents”:

All complaints, pleadings, affidavits, deposition transcripts, orders and settlement agreements from litigation or threatened litigation between ASG and any clients concerning excessive license, maintenance and support fees sought by ASG to renew the licensing of the software licensed under the Agreement. At a minimum, this should include relevant material from litigation commenced against ASG by McLane Company, Nissan North America and Entergy Services Inc.

[29] Manulife argues that these documents are relevant to its pleaded allegations that ASG’s bad faith conduct toward Manulife is similar to complaints made by other customers of ASG (see para. 37 of the amended statement of claim) and to its claim for punitive damages arising from such conduct (see para. 1(q) of the amended statement of claim). Manulife pleads that ASG’s conduct toward Manulife has been the same to other customers of ASG, specifically identifying US litigation against ASG by McLane Company, Nissan North America, and Entergy Services Inc. Manulife pleads that allegations regarding ASG’s conduct are advanced in those proceedings similar to the conduct alleged by Manulife in this action.

[30] ASG argues that good faith in contractual performance relies solely on the evidentiary context of the two contracting parties, citing Bhasin v. Hrynew, 2014 SCC 71 at paras. 65 and 73 and Larizza v. Royal Bank of Canada, 2018 ONCA 632 at paras. 14-15. ASG argues that what has occurred in other relationships is accordingly not relevant. However, the cited passages from Bhasin and Larizza do not hold that treatment of other customers by a contracting party is irrelevant to assessing good faith in contract dealings between the two contracting parties.

[31] The duty of honesty in contractual performance requires “that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”: Bhasin, supra at para. 73. I do not agree with ASG that its conduct toward other customers will not be considered relevant by the trial judge in assessing ASG’s conduct toward Manulife, particularly given pleaded duties and the claim for punitive damages. In the absence of any case law support for ASG’s proposition, I do not accept that, simply because the primary inquiry focuses on the dealings between the contracting parties, conduct between a contracting party and non-parties is clearly irrelevant.

[32] Nevertheless, and contrary to Manulife’s apparent position, the fact that Manulife has pleaded these allegations and ASG has not moved to strike them is not an end to the inquiry. Manulife is correct that admissibility of similar fact evidence should be left to the trial judge. However, production of documents from similar fact litigation must still be considered in context of the circumstances in which similar fact evidence is permitted: Meuwissen, supra at para. 39. Evidence regarding general propensity or disposition of a party is typically excluded. Admissibility of such evidence depends upon its probative effect balanced against the prejudice caused by its admission, whatever the purpose: R. v. Handy, 2002 SCC 56 at paras. 36 and 49-50. The fact that a plaintiff is permitted to plead allegations involving similar fact evidence relating to other lawsuits does not, in and of itself, lead to the conclusion that the plaintiff is entitled to production of records from those lawsuits: Meuwissen, supra at paras. 40-41.

[33] I do not agree with Manulife that its pleading contains a high degree of particularity regarding the alleged pattern of conduct. Manulife pleads that three other customers of ASG have made allegations against ASG in litigation. That is not, in my view, a sufficiently particular pleading to support the requested scope of documentary production. Simply put, I am not satisfied that “all litigation or threatened litigation” concerning similar alleged conduct is relevant based on the limited pleading of allegations made by three of ASG’s other customers in US litigation, particularly when ASG has tendered evidence from Michael Scarpato, ASG’s Senior Vice President, Global Software Asset Management, that there has been no final determination of any court nor any determination of liability in litigation. Mr. Scarpato was not cross-examined on this evidence. In my view, the production request is overly broad and, in any event, it would not be proportionate to require such extensive production on such a narrow pleading at this time.

[34] Since I have not been asked to determine a narrower scope of production in this category, I do think it appropriate to do so, particularly given the evidence that documents captured by Manulife’s request are subject to US protective orders and include confidential material belonging to adverse litigants, which I accept.

[35] Notwithstanding my determination, I agree that Manulife is entitled to examine on its allegations regarding ASG’s similar conduct toward other customers during discoveries and make more specific production requests at that time tied to specific questions asked or answers given. Relevance and proportionality of narrower disputed requests will be more readily addressed by the court after examinations. I note that this result is consistent with the proposed without prejudice withdrawal of item no. 7 made by Manulife’s counsel during responding oral submissions.

Third party access documents requested by Manulife

[36] Item no. 8: Manulife seeks production of all internal emails, correspondence, communications and documents at ASG and Mobius “that reference ASG clients allowing third parties to access ASG products” as well as the license agreements with those clients. Manulife argues that these documents are relevant to Manulife’s pleading that ASG promoted the use of its software to give customers indirect access to the software and use it in an outsourced environment (see paras. 35(a) and (c) of the amended statement of claim and para. 19 of Manulife’s amended reply and defence to counterclaim).

[37] ASG argues that the documents are irrelevant because what occurred with ASG’s other customers, including whether ASG enforced terms of their licensing agreements, is not relevant to interpreting the subject licensing agreement or good faith as between ASG and Manulife. ASG further argues that the licensing agreement includes a waiver clause expressly providing that the failure to enforce a term or condition of the agreement does not waive or relinquish the right of performance of that term or condition. Narrower language is proposed by ASG limiting production to documents referencing Manulife and its predecessor.

[38] Neither para. 35(c) of the amended statement of claim nor para. 19 of the amended reply and defence to counterclaim deal with other ASG customers. They contain only general references to ASG’s course of dealing and usage. In my view, these are insufficient to establish relevance of the requested documents regarding other customers of ASG (and Mobius).

[39] In para. 35(a) of the amended statement of claim, there is limited reference to other customers of ASG. It states that ASG was aware of Manulife providing its customers, brokers and agents with web portal access to certain licensed software and “consented to and promoted such usage to its customers, including Manulife, both directly and indirectly including through a course of dealing and usage of trade”. Essentially, Manulife pleads that ASG consented to or promoted access to the licensed software by third party customers, brokers and agents of ASG’s customers.

[40] In my view, the scope of requested internal documents from ASG and Mobius, as well as related licensing agreements with other customers, is an overly broad ask based on the limited pleading in para. 35(a). I have a number of concerns, including the following:

(a) The request is for documents that “reference” third party access. In my view, that would yield a substantial volume of documents that are likely to have no relevance to whether ASG consented to or promoted third party access to software.

(b) I do not agree that all licensing agreements with other customers who may have allowed third party access to software are relevant based on para. 35(a). For example, on the wording of Manulife’s request, a licensing agreement with a customer who was similarly rebuked in correspondence from ASG for allowing third party access would be producible. I fail to see the relevance of the licensing agreement of a customer similarly challenged by ASG for permitting third party access.

(c) No conduct of Mobius towards its customers prior to ASG’s acquisition is pleaded as being connected to the alleged consent or promotion by ASG. In any event, Mobius was a separate corporate entity. In my view, the requested internal documents from Mobius are not relevant based on the pleadings.

[41] The statement in para. 35(a) also engages the same similar fact evidence issue discussed above. Manulife is entitled to examine on its allegations regarding ASG’s consent and promotion of third party access during discoveries. However, that does not mean documentary production at this time is necessary or proportionate, particularly taking into account the presumptive bar against similar fact evidence. I accordingly agree with ASG’s proposed alternative language.

[42] It is conceivable that there are some internal documents that deal with other customers permitting third party access, which would reasonably be relevant based on para. 35(a) of the amended statement of claim. However, in my view, it is not for the court to abstractly recast a clearly overbroad and expansive request to some conceivable narrower scope. The documents as requested need not be produced as part of documentary discovery. Manulife may make more specific production requests during discoveries tied to specific questions asked or answers given. As I have already observed, relevance and proportionality of narrower disputed requests will be more readily addressed by the court after examinations.

“Valuation Documents” requested by Manulife

[43] Manulife argues that the balance of disputed document categories are relevant and necessary for its business valuation expert, Vimal Kotecha, to assess the applicable license fee and whether or not the fee that ASG sought to charge Manulife in 2017 was commercially unreasonable, as Manulife alleges. Mr. Kotecha’s “report” dated October 4, 2019 (a letter containing no findings, opinions or conclusions on any disputed matter) has been tendered on this motion. In that report, Mr. Kotecha outlines a series of documents that he says are needed “to assess the market value of the software license fee currently disputed.” During cross-examination, Mr. Kotecha confirmed that he understood “market value” to mean “the fee to be paid between the parties”. Manulife also argues that these documents are probative to interpreting ambiguous contractual terms and Manulife’s pleadings regarding ASG’s bad faith conduct and punitive damages.

[44] ASG disagrees, arguing that Manulife’s requests are irrelevant, overbroad and not proportionate. ASG characterizes them as seeking “highly confidential financial information” from ASG spanning a period of 26 years, including millions of documents related to its business and the business of its predecessors with all non-party customers. ASG also argues that none of the financial documents requested by Manulife would have been in its possession at the time of negotiating a renewal, so are irrelevant to establishing the fees that Manulife would have paid.

[45] ASG’s view is that the issues in the action can be determined by looking solely at the licensing agreement and, if necessary, extrinsic evidence of the parties’ intent when contracting and conduct towards one another. According to ASG, adjudication is required on only the following matters:

(a) interpreting the licensing agreement in relation to the term of the agreement, including amending agreements, renewal rights and fees, restrictions on third party use, and restrictions on the designated environments where the software can be used;

(b) making declarations in respect of the parties’ obligations under the licensing agreement relating to breach, repudiation, duty to act in good faith, and failure to perform duties; and

[46] I am not the trial judge. In my view, it is not for me to determine, at this pre-discovery stage, what the actual issues to be determined at trial will be and what evidence will be relevant to those trial determinations. I am also not in any position to do so. I accordingly cannot accept ASG’s argument that the above matters correctly outline the issues that will need to be decided at trial. Those issues may well expand, reduce, or become more nuanced through the course of discoveries. Relevance at this stage is governed by the pleadings.

[47] Manulife argues that if its interpretation of the licensing agreement is not accepted, then fees will be payable to ASG and the court will need to fix the amount of fees to which ASG is entitled. Mr. Kotecha’s report asserts that the documents are necessary to determine an appropriate market value of the software license fee, for which he would consider three valuation approaches: the return on asset approach, the market approach, and the historical relationship between the parties. Each are briefly explained in Mr. Kotecha’s report.

[48] ASG’s position is that an after-the-fact determination of the market value of the fees does not supersede what the parties agreed and, accordingly, is irrelevant to disposition of the action. The documents are also said to be irrelevant to the period of unlicensed use after ASG says the agreement had expired, since there was no obligation on either party to renew at market rates and both parties had the right to walk away. ASG further submits that the only reference to the concept of “market” in the pleadings is in para. 16 of the amended reply and defence to counterclaim, which refers to “market fees” generally and not “market value”. ASG accordingly argues that Mr. Kotecha’s mandate to determine “market value” is not the same as assessing “market fees” as referenced in the pleadings.

[49] Manulife correctly points out that ASG pleads that the licensing agreement does not address the quantum of a renewal fee, does not permit third parties to access the software, and does not permit the software to be used in other locations or environments (see amended statement of defence and counterclaim at paras. 37, 40-42, 52, and 56-57). I accept that, in the event Manulife is unsuccessful, the market rate of the license fees and maintenance services charged by third party providers for software similar to that Manulife is receiving may be relevant for the trial judge’s assessment of ASG’s damages. ASG’s losses from unlicensed use may well be held to be damages that are not contemplated by the terms of the licensing agreement, in which case expert evidence may assist the court in quantifying the losses.

[50] I nevertheless agree with ASG that the documents outlined by Mr. Kotecha are generally overreaching. While I am not satisfied by ASG’s argument that there is a material distinction between “market fees” as pleaded and “market value” of the fees charged by ASG, I am also not satisfied from the limited evidence provided by Manulife that the approaches suggested by Mr. Kotecha will establish a “market value” that will be of assistance to the trial judge with relevance supported by the pleadings.

[51] A fair market value is what a seller is willing to accept and a buyer is willing to pay on the open market in an arm’s length transaction: Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519 at para. 62. In my view, all three approaches as described by Mr. Kotecha appear primarily focused on assessing the reasonableness of fees charged to Manulife as compared to other customers of ASG, not as compared to fees charged by other providers for the same or similar software to similar customers. No evidence supports that ASG holds the market for licensing the subject software and no adequate explanation was provided for how what seems to be an ASG-focused analysis will lead to a reliable “market value” assessment. I make the following observations regarding Mr. Kotecha’s comments on the three approaches:

(a) As described in Mr. Kotecha’s report, the “return on assets” approach focuses on the reasonableness of ASG’s fees in relation to ASG’s costs of delivery, which Mr. Kotecha says would be used as a basis to compare ASG’s expected return with that of other software providers. However, the described assessment appears focused on determining ASG’s actual profitability of licensing the software. The report fails to adequately explain how or why the seemingly internal assessment of ASG’s profits bears on a market evaluation. In my view, neither the reasonableness of the charges contractually agreed by Manulife nor ASG’s profits from licensing the software are otherwise relevant based on the pleadings.

(b) Mr. Kotecha describes the “market approach” as involving consideration of “the arm’s length market price of same or similar software provided by third parties in the marketplace.” Mr. Kotecha further describes assessing what other customers of ASG are paying for the same or similar software as part of assessing arm’s length transactions. Although not stated in his report, during cross-examination, Mr. Kotecha acknowledged that the assessment would include consideration of competing software in the market, including any software that Manulife sought out to replace ASG’s software. Nevertheless, the “market approach” assessment as described by Mr. Kotecha appears more focused on comparing ASG’s fees charged to Manulife against those charged to other customers, as opposed to assessing the fees charged to Manulife against comparable third party fees for the same or similar licensed software.

(c) The “historical relationship” analysis is described by Mr. Kotecha as understanding the reasons for any differences between the previous licensing fee charged to Manulife and ASG’s list prices in order to compare to prices paid by other customers of ASG. The report fails to adequately explain how or why such an internal ASG-focused assessment bears on a market evaluation. It appears instead to be a comparison of internal pricing variance between ASG customers.

[52] Although I have accepted that, in general terms, the market rate of fees may be relevant to the trial judge’s assessment of damages, that does not mean each category of documents requested by Manulife is rendered producible. For example, many of the requested documents relate solely to profits and losses of ASG and it predecessors. While these may be relevant to assessing the market value of the licensing agreement, they are not in my view logically connected to assessing reasonable market fees for licensing and maintenance services of the subject software. No argument was made for how they would be and, for reasons outlined above, I am not satisfied that Mr. Kotecha’s report provides an adequate explanation.

[53] Having made those general observations, I turn now to the relevance and proportionality of each of the specific document categories requested by Manulife.

[54] Item no. 4: I agree with ASG that this category of documents is overbroad, although do not agree with ASG that the request contemplates all of ASG’s business. As drafted, it is limited to software licensed to Manulife. I do not agree with Manulife that all marketing, promotion, sales and support of the licensed software is relevant to the cited paragraphs in the pleadings. In my view, paras. 55 and 58 of the amended statement of defence do not plead a basis for quantifying ASG’s alleged losses that makes such documents relevant, nor does Mr. Kotecha’s report provide any explanation for how such specific documents are probative to a market value assessment. In my view, the allegations cited by Manulife at paras. 28 and 34(d) of the amended statement of claim at best only support relevance of fees actually charged to other customers of ASG for the same or similar licensed software. That is the subject matter of item no. 5.

[55] There is reference in para. 16 of the amended reply and defence to counterclaim that the renewal fees and terms proposed by ASG are ones that it “does not market or charge other customers for the same or similar software”. In my view, while the reference to fees and terms that ASG “markets” affords Manulife with a slim basis for relevance of marketing and promotion by ASG to other customers, I fail to see how marketing and promotion, as opposed to actual fees charges, has any actual relevance to the commercial reasonableness of ASG’s proposed renewal fees and terms.

[56] I accept the evidence of Michael Scarpato regarding the time involved in obtaining and reviewing responsive documents to the valuation document requests, although agree with Manulife that the estimated time and expense should be mitigated by proper use of e-discovery technology and methods, which it does not appear were fully considered in Mr. Scarpato’s assessment. However, in my view, given the slim relevance of marketing, promotion and support to other ASG customers based on the pleadings and no apparent relevance to actual damages quantification, requiring such production for all of ASG’s customers who have similar licensed software to Manulife will require unreasonable investment of time by ASG and will unduly interfere with the orderly progress of the action. It is accordingly not proportionate.

[57] ASG proposes the addition of limiting language to marketing, promotion, sales and support of the licensed software to Manulife and its predecessor. In my view, ASG’s proposed language is appropriate since I have determined most requested documents are irrelevant or would not be proportionate to produce, and fees actually charged by ASG to other customers for the same or similar software are addressed in item no. 5.

[58] Item no. 5: I agree that license, maintenance and support fees charged to ASG’s customers who have licensed the same software is relevant based on the pleadings (see paras. 28 and 34(d) of the amended statement of claim). I do not agree, however, that all internal emails, correspondence, communications and documents spanning back to 1993 are relevant or proportionate. In my view, fees charged by Mobius are not relevant based on the pleadings. Manulife’s pleaded dispute is over the commercial reasonableness of ASG’s proposed renewal fees and terms, not the reasonableness of what Manulife and its predecessor were historically charged. Nothing in Mr. Kotecha’s report explains how data spanning back to 1993 is relevant to a current market assessment. In the absence of submissions or evidence on a reasonable or proportionate period, I find that it is proportionate to required production of documents relevant to the amount of fees charged since June 2014 (three years prior to ASG’s first proposal for renewal fees and terms).

[59] Item no. 9: I do not agree that license agreements for all customers of ASG and Mobius licensed to use the same software is a distinct category from documents relevant to fees charged (item no. 5). Licensing agreements may be responsive documents, but there is no evidence before me supporting that they will clearly be responsive in all cases. ASG has an obligation to produce all relevant documents in its possession, control or power. During discoveries, Manulife may test the relevance of licensing agreements that are not produced in response to the extent of ordered production for item no. 5 above, at which time Manulife may make more specific document requests based on the questions asked or answers given.

[60] Item no. 10: I agree that ASG’s proposed alternative language is appropriate and should be used. I have already determined that the fees actually charged for the same or similar software are relevant based on the pleadings (see paras. 28 and 34(d) of the amended statement of claim). I see nothing in this requested category that distinguishes it from the documents already captured by the allowed portion of item no. 5. The request deals with a schedule of license, maintenance and support fees for ASG’s (and Mobius’) customers licensed to use the same software as Manulife, which would be an internal document captured by item no. 5. In my view, item no. 10 is nothing more than a specific subcategory of documents already included in item no. 5. However, to the extent that item no. 5 is intended to focus on ASG’s other customers, which appears to be the case, ASG’s proposed language will capture production of pricing relevant to the agreement with Manulife (and its predecessor).

[61] Item no. 18: For reasons outlined in paras. 54-56 above, in my view, production of marketing materials is minimally relevant and would not be proportionate.

[62] Item no. 19: This category of documents has two components. The first portion is overbroad, seeking any and all proposals by ASG made to existing or prospective customers that identify price lists, without any language restricting production to proposals regarding the same or similar licensed software. In my view, Manulife’s second request for “reasons why the customer did not sign with ASG” is not a category of documents and is more properly a discovery question. I agree, though, that any proposals prepared by ASG for existing or prospective customers regarding the same or similar licensed software is relevant based on the pleadings (see paras. 28 and 34(d) of the amended statement of claim and para. 16 of the amended reply and defence to counterclaim). It is appropriate that the discovery plan include such a scope of production, subject to the same limitations that I have determined should apply to item no. 5 above.

[63] Item no. 20: I do not agree that this category of documents is relevant based on the pleadings. Manulife argues relevance both to assessing the market value of licensing fees for the same or similar software and to Manulife’s pleadings that ASG’s renewal fees were out of proportion and not consistent with what ASG markets and charges to other customers. However, it is not clear how rebates or other sales incentives provided by ASG to its customers would be relevant. Mr. Kotecha’s report only states that the information will assist him in “understanding whether the market price as listed in any pricing list or marketing brochure is a gross or net price”. He does not explain how that understanding factors into his proposed assessment.

[64] Absent evidence regarding the circumstances in which rebates or sales incentives would arise and how they factor into an assessment of market rates, I cannot determine if documents relating to rebates or incentives are reasonably relevant to ASG’s alleged loss of fees (see paras. 55 and 58 of the amended statement of defence and counterclaim) or Manulife’s allegations that ASG’s renewal fees were excessive, out of proportion with what it charged to other customers, or inconsistent with market fees (see paras. 28 and 34(d) of the amended statement of claim and para. 16 of the amended reply and defence to counterclaim). I accordingly do not view this category as being relevant based on the pleadings.

[65] If, during discoveries, Manulife can establish relevance of the circumstances and amounts of rebates or incentives given to ASG’s other customers, then Manulife may request more specific documents at that time based on questions asked or answers given.

[66] Item nos. 11-17 and 21: For each of the document categories in item nos. 11-17 and 21, Manulife points to ASG’s allegations at paras. 55 and 58 of the amended statement of defence and counterclaim for relevance. Those two paragraphs generally allege that ASG has lost licensing and maintenance fees “among other things” as a result of Manulife’s breaches of the licensing agreement and continued use of the software. I was directed to no other paragraphs in the pleadings supporting relevance of these documents.

[67] Item no. 11: I do not agree that annual financial statements of ASG and its predecessors are relevant. I agree with ASG that the request seeks complete financial disclosure of ASG’s business (and that of its predecessors) spanning back to 1993, without limiting the request to business involving the licensed software. Had I accepted Manulife’s arguments regarding relevance, which I do not, I would nevertheless have found that Manulife’s request was not proportionate.

[68] Item no. 12: For reasons already outlined above, I am not satisfied from Mr. Kotecha’s report or the arguments advanced that ASG’s and Mobius’ cost of maintaining the licensed software is relevant based on the pleadings.

[69] Item no. 13: Based on the portions of the pleadings to which I have been directed, I see no relevance of documents identifying updates and revisions made to the licensed software. In his report, Mr. Kotecha indicates that the information will assist him in understanding the relationship between fees charged by ASG and ASG’s development, maintenance or other costs of delivering the software, which will inform his opinion on market value. The report does not explain how. I also agree with ASG that “over time” is an indeterminate period rendering the document request overly broad.

[70] Item no. 14: I see no relevance of the calculation of the purchase price or the contents of the share purchase agreement or other agreements for ASG’s acquisition of the licensed software from Mobius. Manulife advanced no argument supporting how or why the details of the acquisition bear on any matter in issue. Mr. Kotecha’s report does not assist, suggesting only that Mr. Kotecha would like to know how the purchase price was arrived at, but failing to state why he needs that information and how it would bear on any valuation.

[71] Item no. 15: I am not satisfied that ASG’s revenue, cost of sales, expense and gross margin of providing the licensed software on a customer by customer basis since 1993 is relevant based on the pleadings. In any event, as outlined above, I have accepted ASG’s evidence regarding time and expense of collecting and reviewing responsive documentation, albeit mitigated by available e-discovery methods. Since, in my view, Mr. Kotecha’a report does not provide an adequate explanation for how analysis of such documentation would yield a market value assessment of any probative value, even if I am wrong regarding relevance, I am not satisfied that the requested production would be proportionate in the circumstances.

[72] Item no. 16: I am satisfied that how the renewal fee proposed by ASG to Manulife was determined is relevant to quantification of ASG’s claimed losses of licensing and maintenance fees pleaded at paras. 55 and 58 of the amended statement of defence and counterclaim. While ASG has proposed the same alternative language as for item no. 10, discussed above, I am not satisfied that the language is equivalent. Manulife’s wording is appropriate, with minor amendment.

[73] Item no. 17: Particularly given the dispute regarding the renewal fee, I agree that documents regarding the negotiation of the initial fee between Manulife and ASG are relevant to assessing the commercial reasonableness of ASG’s claim for lost fees. However, I do not agree that ASG’s revenues, costs and gross margin with respect to the initial fee over the period of the initial agreement are relevant based on the pleadings. In my view, those documents appear to be relevant only to assessing the market value of the licensing agreement itself, not the market value of fees for licensing and maintenance services. Mr. Kotecha’s report does not provide an adequate explanation supporting relevance, stating only that it will assist “in understanding whether the initial arrangement was profitable or not.” No explanation is given for how profitability of the initial licensing agreement over its term bears on a assessment of the current market value of licensing and other fees.

[74] Item no. 21: Documents relating to an accounting of all profits and losses on a customer by customer basis since 1993 is evidently overbroad. The request as drafted goes beyond the licensed software and, in any event, ASG’s damages claim as pleaded at paras. 55 and 58 of the amended statement of defence and counterclaim is regarding losses suffered from Manulife’s breaches and continued use. I do not agree that profits and losses with other customers is relevant to such a damages pleading. I am also not satisfied from Mr. Kotecha’s report regarding why such information is needed or how it would be used to assess market rates for chargeable licensing and maintenance fees.

Disputed documents requested by ASG

[77] Two categories, including four subcategories, of documents requested by ASG are disputed by Manulife. Although oral argument focused on Manulife’s requested document categories, both facta address ASG’s requested document categories. ASG’s counsel also made brief submissions regarding them. They relate generally to Manulife’s dealings with its own customers regarding ASG’s products and services, namely:

(a) Manulife’s promotion, sale, and support for ASG products and services made available to customers, brokers and agents through its web portal, including:

(i) Manulife’s activities in advertising and selling products and services made available through its web portal;

(ii) Manulife’s activities in directing its customers and potential customers to its web portal;

(iii) Manulife’s provision of web portal access to its customers, brokers and agents, including any terms of service related thereto; and

(iv) instructions provided by Manulife to its customers, brokers, and agents regarding how to access and use its web portal, including how to gather, digest or retrieve reports and other documents; and

(b) documents reflecting any representations that Manulife made to its customers in relation to the ASG products.

[78] ASG argues that these documents are relevant to pleadings regarding the scope of third party use permitted by Manulife (see para. 35(a) of the amended statement of claim, paras. 51-57 of the amended statement of defence and counterclaim, and paras. 7-8 of the amended reply and defence to counterclaim). ASG submits that these documents bear on determination of the extent and scope of Manulife’s breaches of the licensing agreement, arguing that each breach represents a separate cause of action for which damages were suffered.

[79] Manulife submits that these documents are neither relevant nor probative to any contested issue in the action, since Manulife does not dispute that its customers, brokers and agents used the licensed software. The only dispute is whether Manulife was entitled to permit its customers, brokers and agents to do so. Put simply, Manulife argues that what it said to its customers, brokers and agents is entirely irrelevant.

[80] I agree with Manulife. ASG pleads that Manulife permitted unauthorized use of the licensed software and, in doing so without ASG’s consent, breached the agreement resulting in lost licensing fees and other damages to ASG. Manulife pleads that it did not breach the agreement and was entitled to grant software access to its customers, agents and brokers. I am not satisfied that whether and how Manulife promoted, directed or instructed its customers, agents and brokers on use of the software, the terms of service between Manulife and those non-parties regarding such use, or any representations made by Manulife to its customers in relation to ASG’s software are relevant to the fact of use, extent of use, and associated losses in licensing fees as pleaded. Manulife has already agreed to produce documents relevant to those issues.

Final scope of documentary production

[81] Given my determinations above, para. 12(e) of the discovery plan shall be substituted with the following:

e) documents relevant to the above central issues include, but are not limited to, the following:

From Manulife’s perspective

i. internal emails, correspondence, communications and documents at ASG and its predecessor Mobius regarding the Agreement;

ii. internal emails, correspondence, communications and documents at ASG and Mobius relevant to Mobius’ transfer of (a) the source code of the software licensed under the Agreement to ASG, and (b) its rights and obligations under the Agreement to ASG;

iii. internal emails, correspondence, communications and documents at ASG and Mobius relevant to any alleged consent by ASG to the foregoing transfers;

iv. internal emails, correspondence, communications and documents at ASG and Mobius relevant to the marketing, promotion, sales and support to Manulife and Standard Life Assurance Company of the ASG software licensed under the Agreement;

v. documents at ASG relevant to the amount of license, maintenance and support fees charged to ASG’s clients who have licensed the software licensed under the Agreement since June 2014 (three years prior to ASG’s initial renewal proposal in June 2017);

vi. internal emails, correspondence, communications and documents at ASG and Mobius that reference interactions with Manulife and Standard Life Assurance Company employees and agents;

vii. internal emails, correspondence, communications and documents at ASG and Mobius that reference Manulife and Standard Life Assurance Company allowing third parties to access ASG products through a web portal, API or otherwise;

viii. a schedule of List Prices for license, maintenance and support fees that formed the bases for the same fees for Manulife and Standard Life Assurance Company for the ASG software licensed under the Agreement;

ix. documents relevant to how the renewal fee determined by ASG as detailed in paragraphs 26 and 27 of the Amended Statement of Claim was determined;

x. documents relevant to how the initial fee between Manulife and ASG was determined;

xi. proposals prepared and provided by ASG to existing customers or prospective customers identifying pricing lists for licensing the software licensed under the Agreement since June 2014 (three years prior to ASG’s initial renewal proposal in June 2017);

From ASG’s perspective

xii. the nature of the relationship between Manulife and its “brokers” and “agents”;

xiii. Manulife’s use of ASG’s products in its day-to-day operations;

xiv. the use of ASG’s products by Manulife, its customers, brokers and agents to gather, store, digest, retrieve ‘on demand’ and utilize data, reports and other documents;

xv. the operation and function of Manulife’s web portal, which is made available to Manulife’s customers, brokers and agents, including:

how ASG’s products, or data, reports and other documents derived therefrom, are used in association with Manulife’s web portal;
the ASG products or services available to Manulife’s customers, brokers, and agents through Manulife’s web portal;
the nature of the documents and reports available through Manulife’s web portal, including whether they were gathered, stored, digested or retrieved ‘on demand’ using ASG’s products;

xvi. details regarding the usage of Manulife’s web portal, including:

The length of time the web portal has been in existence;
The number of Manulife’s customers, brokers, and agents that have access to the web portal;
The number of Manulife’s customers, brokers, and agents that have accessed the web portal;
The number of times that the web portal has been accessed by Manulife’s customers, brokers, and agents;

xvii. use of ASG’s products by Manulife, its customers, brokers or agents in an outsourced environment including as part of a cloud service;

xviii. use by Manulife, its customers, brokers or agents of ASG’s products after July 25, 2017 and July 25, 2018; and

xix. any other use of ASG’s products by Manulife, its customers, brokers or agents;

Dates for Exchange of Affidavits of Documents and Examinations for Discovery

[82] ASG submits in its factum that sworn affidavits of documents and Schedule A productions should be exchanged 60 days and 45 days, respectively, prior to the date of the first examination for discovery. No submissions were made by either party regarding that proposal or by when examinations for discovery should be completed.

[83] In my view, given the anticipated volume of productions, exchanging Schedule A productions 45 days prior to examinations will not permit the parties sufficient time to properly conduct necessary review and preparation for examinations, even with assistance from e-discovery software and methods. Exchange of sworn affidavits of documents 75 days prior to the date of the first examination for discovery and exchange of Schedule A productions 60 days prior to such date are more realistic deadlines. A deadline to complete examinations for discovery by December 31, 2020 should also allow time for the parties to complete document collection, perform relevance and privilege reviews, and prepare their affidavits of documents and Schedule A production sets.

Order

[84] For the foregoing reasons, I accordingly order as follows:

(a) The parties shall adhere to ASG’s form of discovery plan with the following amendments:

(i) Paragraph 8 shall be substituted with the following: “The Parties shall each serve their respective sworn affidavit of documents by no later than 75 days prior to the date of the first scheduled examination for discovery and shall thereafter exchange their respective Schedule A productions by no later than 60 days prior to the date of the first scheduled examination for discovery.”

(ii) Paragraph 10 shall be substituted with the following: “The Parties shall complete their respective examinations for discovery by December 31, 2020, subject to further examinations as may be agreed or ordered by the court arising from refused questions or answers to undertakings.”

(iii) Subparagraph 12(e) shall be substituted with the language outlined in para. 81 above.

(b) This order is effective without further formality.

Costs

[85] Costs outlines were filed at the conclusion of oral argument. The parties are encouraged to settle costs of this motion. However, if the parties are unable to resolve costs themselves, then ASG shall deliver written costs submissions by June 10, 2020. Manulife shall deliver responding submissions by June 24, 2020. ASG shall be entitled to deliver brief reply submissions, if any, by June 30, 2020. Costs submissions shall not exceed five pages for primary submissions and two pages for reply submissions, excluding any offers to settle or case law.

[86] Service of all costs submissions by email is hereby authorized. All costs submissions shall be submitted by email directly to me or my Assistant Trial Coordinator with a scanned copy of proof of service. Hard copies shall not be required since the parties should not be attending the courthouse at this time. Original proof of service need only be filed if the court so directs.

[87] In the absence of receiving written submissions as directed above, the parties shall be deemed to have agreed on costs.

Impact of COVID-19

[88] As set out in the Consolidated Notice to the Profession, Litigants, Accused Persons, Public and the Media released by the Chief Justice of the Superior Court of Justice dated May 13, 2020, regular operations of the Superior Court of Justice remain suspended to protect the health and safety of all court users and to help contain the spread of the 2019 novel coronavirus (COVID-19). Currently, the only matters being heard in Toronto are outlined in the Notice to Profession – Toronto released by the Regional Senior Judge effective May 19, 2020.

[89] I am unaware of the current circumstances of the parties or their counsel. If the above ordered deadlines for exchange of affidavits of documents, production of documents, or completion of examinations for discovery cannot be met as a result of the ongoing pandemic, then the parties may amend those deadlines themselves pursuant to Rule 3.04(1) of the Rules of Civil Procedure or, if necessary, may arrange a case conference with me to make submissions on varying the deadlines without the need for a further motion. If the timetable for costs submissions cannot be met, then the parties must confer on how they wish to proceed. The parties may write to me jointly via my Assistant Trial Coordinator regarding any agreed proposed change to the costs submissions timetable. If agreement cannot be reached, then the parties shall prepare a joint letter briefly setting out their respective positions on the production deadline and/or timing of cost submissions.

[90] Counsel and the parties are reminded and encouraged to consider the call for cooperation in Section C.1 of the Consolidated Notice, which provides, “The Court also calls upon the cooperation of counsel and parties to engage in every effort to resolve matters.”

The Manufacturers Life Insurance Company v. ASG Technologies Group, Inc., 2020 ONSC 3286

Case Summary