SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 07-CV-40325
MOTION HEARD: 2012/06/27

RE: THE DESCARTES SYSTEMS GROUP INC., Plaintiff

AND:
TRADEMERIT CORP. et. al., Defendants

BEFORE: Master MacLeod

COUNSEL:
Peter N. Mantas, for the Defendants, and the Plaintiffs by Counterclaim
Joel Richler, for the Counsel, for the Plaintiff, Defendant by Counterclaim

HEARD: June 29, 2012

REASONS FOR DECISION

[ 1 ] The matter before the court (a motion and cross motion) is in simplest terms a motion for directions in relation to certain files located on an external hard drive. The immediate question is how these files should be dealt with and who should be responsible for the work? Counsel are deadlocked over this issue and the litigation has ground to a halt as a result. Under these circumstances it is appropriate for the court to make an order imposing or amending a discovery plan.

[ 2 ] This is a fairly straightforward issue. When the parties are unable to reach agreement regarding the handling of electronic information, the court may give necessary directions. It is important to identify principles which should govern the court’s exercise of discretion, but also to observe that there is not necessarily only one correct answer. Indeed the direction given to the parties may have to be adjusted in light of further technical, factual or legal issues that may arise in future. Consequently should the parties jointly agree to a plan different from that set out in the order, it should remain open to them to do so. Such a decision cannot be a unilateral one but should emerge from the ongoing obligation to update discovery plans set out in Rule 29.1.04.

Background

Nature of the Action

[ 3 ] The background facts are as follows. The action is in relation to a share purchase which took place in April of 2006. At that time, the plaintiff Descartes acquired all of the outstanding shares of a corporation named ViaSafe Inc. Descartes paid $9.5 million for the shares and as part of the agreement, certain of the former shareholders became employees of Descartes. They entered into agreements whereby they agreed not to compete with Descartes and not to misuse confidential information.

[ 4 ] In this litigation it is alleged that the individual defendants, Aggan, Gillani and Al-Hussieni breached these agreements by misappropriating confidential and proprietary information, setting up a competing business and recruiting Descartes employees. The corporate defendant TradeMerit is a company incorporated by Mr. Aggan shortly after he left his employment at Descartes. It is alleged that he and the other defendants engaged in a secretive and calculated scheme to unfairly and unlawfully compete with the plaintiff using the proprietary information and misappropriated corporate opportunities.

[ 5 ] Descartes seeks long term injunctive relief, a full return of salary, bonuses and severance payments from the individual defendants and disgorgement of profits earned by TradeMerit as well as punitive and exemplary damages of $2 million. Subsumed in these damages is $1.5 million which was part of the original purchase price and remains in an escrow fund.

The hard drive

[ 6 ] During cross examination preparatory to a motion for summary judgment Mr. Aggan was asked about information on his personal laptop. He conceded that he used it for work purposes while working for Descartes and it would have contained confidential and proprietary information at various points in time. He also advised that the laptop was no longer available as it had been reformatted and given to a relative overseas but he advised that he routinely backed up all of the information on his laptop onto an external hard drive from which he had never deleted any information. The hard drive should therefore contain Descartes documents, may contain a record of what was downloaded when and does contain archives of Mr. Aggan’s e-mails.

[ 7 ] At a case conference on October 8 th , 2010 at which amongst other things the plaintiff indicated its intention to bring a motion for production and forensic examination of the hard drive, the defendant undertook to provide the drive to his counsel for safekeeping. A preservation order was made requiring him to do just that.

[ 8 ] Subsequently, rather than submit to a motion and rather than incurring the expense to review backups on the hard drive, counsel for the defendants agreed to turn over the drive to counsel for the plaintiff for forensic review. Attached to that agreement were two specific conditions. Firstly counsel for the plaintiff was to ensure protection of irrelevant personal information relating to Mr. Aggan and was to ensure any such information was not misused. Secondly, the plaintiff was to produce to the defendants any documents that were retrieved from the hard drive as a result of the review.

[ 9 ] On that basis two exact mirror copies of the drive were created and released to counsel for each of the parties. The original drive is now held in a secure vault at H&A eDiscovery Inc. Counsel for the plaintiff has been working with the duplicate copy.

The McLean Rulings

[ 10 ] In refusing summary judgment to the defendant, McLean J. made two findings which the plaintiff argues I ought to take into account. The first of these was an adverse comment on the credibility of Mr. Aggan. In his reasons the judge stated that “it is clear … that Aggan is not a forthright and truthful witness”. The plaintiff argues that this finding based on the cross examination should make the court extremely cautious about relying on any representations made by Mr. Aggan concerning compliance with discovery obligations.

[ 11 ] Mr. Aggan originally stated to Descartes that he did not have any Descartes confidential information when he left except for “information on an old PC” which he said he would return. On the affidavit in support of the summary judgment motion he swore that he did not have access to highly confidential information about critical aspects of Descartes operations. Under cross examination he admitted that he used his personal laptop for business and routinely downloaded all e-mails and other documents received while he worked for Descartes. It is this laptop that is no longer available but was apparently backed up onto the hard drive. The drive had not been reviewed by the plaintiff in making his production.

[ 12 ] Consequently there is more than adequate reason to preserve the hard drive and to permit forensic examination. By its very nature this is an action that puts the defendant’s honesty and integrity in issue and the circumstances surrounding the hard drive by themselves justify forensic caution concerning its contents. There is no reason for me to decide whether or not the finding by McLean J. concerning the veracity of the summary judgment affidavit should continue to resonate in subsequent motions. I do not need to give that any weight at all in order to conclude that statements regarding the hard drive need not be taken at face value. In any event the defendant has already consented to forensic examination of the disk.

[ 13 ] The second ruling by McLean J. is of greater significance. That is his finding that privilege has been partially waived over certain legal advice. During the cross examination, Mr. Aggan testified that he had not believed the undertaking not to compete was enforceable. He testified that he had received this advice from Paul LaBarge. Accordingly McLean J. ruled that any privilege in relation to advice about the “undertaking” had been waived. This is significant because it means that the defendant is obliged to disclose communication between himself and his then lawyers (Weinstein LaBarge) in relation to this issue.

The current situation

[ 14 ] Several issues have now arisen in respect of the drive. Firstly there has been a lack of clarity about what was meant by a forensic analysis and who would be accessing the contents of the drive. Specifically it transpires that counsel for the plaintiff has been conducting a review of the documents on the drive using in house resources at Blakes and this is not what Mr. Mantas anticipated would be involved in a forensic analysis.

[ 15 ] Although an outside consultant, H&A has possession of the original drive and had been retained as a forensic examiner, it appears Blakes did not use the consultant to perform document identification and recovery. Rather this has been done “in-house” in two stages. The first was to identify and collect documents that appeared to be relevant. This “batch process” was done by paralegal staff employed by Blakes using Clearwell software. As I understand it this process did not include actual review of the documents by lawyers or staff. It did involve key word searches and other steps carried out by the law clerks using the software to extract e-mails and other documents from the drive that might meet the criteria for relevance. The second stage of analysis was to import the potentially relevant documents into Summation and the documents were then manually reviewed for relevance and de-duplication by the law clerks and an associate lawyer at Blakes.

[ 16 ] Counsel for the plaintiff advises that the result of this process was identification of 635 potentially relevant documents. After review and de-duplication, this resulted in 66 documents which were felt to be relevant. These documents recovered from the hard drive are now in the possession of both parties. They have been included in a supplementary affidavit of documents. This is not the process envisioned by counsel for the defendant and it has perhaps inevitably led to the other two issues – privilege and backup files.

[ 17 ] Both Blakes and H&A were clearly alert to questions of privilege. During the review of the drive a number of e-mails were identified that appear to be documents originating with LaBarge Weinstein LLP, the solicitors for ViaSafe at the time it was purchased by Descartes. Weinstein LaBarge was also Mr. Aggan’s lawyer. These documents have not been reviewed by in house personnel at Blakes and counsel for the plaintiff takes the view that they must now be reviewed by the defendant for privilege. The defendant refuses to do so but also refuses to allow Blakes to do so.

[ 18 ] The third issue concerns backup files as opposed to the e-mail “pst” files which have been reviewed to date. In addition to containing e-mail “pst” archive files and copies of other documents, the hard drive contains 448 Zip files. These appear to be files created by Microsoft or other backup software and presumably contain copies of the information that was on the laptop at different times. Those zip files have not been opened or reviewed. The defendant was asked to do so and refused. The plaintiff then announced that it would do so but was warned by Mr. Mantas that if this was done and Blakes obtained access to privileged documents, the defendant would take the view that Blakes role as counsel for the plaintiff was compromised. In his view recourse to backup files is not within the normal scope of documentary production

Analysis

[ 19 ] With the benefit of hindsight it is clear that counsel were not sufficiently specific when it was agreed to turn over the drive for forensic analysis. Mr. Mantas might be forgiven for believing the analysis was to be done by a forensic expert. In an e-mail dated May 25, 2011 Ms. Brooks made reference to the “third party that is carrying out the forensic examination”. This was repeated in the June 1 st letter. On the other hand it is clear that documents might be recovered as a result of this process as the letter states “we will also produce documents and files that are retrieved from the hard drive as a result of the examination”. But there is nothing in that correspondence that suggests staff or lawyers at Blakes would be the principle agents involved in reviewing documents to determine if they were relevant or not. To the contrary, the impression in the letter is that the task of analyzing the drive and locating potentially relevant documents would be given to an outside expert.

[ 20 ] Secondly, the phrase forensic analysis is capable of several different meanings. Ordinarily a forensic analysis suggests a review of a hard drive to determine when information was written to the drive, who authored documents, what documents were deleted, whether or not electronic files have been altered as opposed to simply accessing and reviewing the documents themselves. The latter would more generally be described as a content review or a document review. While I do not suggest these are watertight categories, I agree that intentionally or not the phrase forensic analysis and the reference to third party review and I.T. consultants was misleading.

[ 21 ] I also agree with Mr. Mantas that it is appropriate there be full transparency. The plaintiff should on request disclose exactly what processes were run on the drive, what was determined and who was given access to the data. On the other hand there is nothing to suggest that Blakes did anything improper. To the contrary, as soon as there was any possibility that the drive contained privileged information, Blakes disclosed this fact to counsel for the defendant and ensured that the potentially privileged documents were not accessed.

[ 22 ] Where does this leave us however? It appears that the plan to have the plaintiff conduct an analysis of the disk may not be workable without further order or agreement and specific safeguards. Though I agree that conducting the document review in house without specific agreement or disclosure was less than prudent, it does not appear there has been any exposure to privileged documents. Moreover counsel for the defendant cannot have it both ways. He cannot on the one hand turn over the drive and insist that the plaintiff incur the expense of the forensic review and then on the other hand raise objections about potential disclosure of privileged documents. Inadvertent disclosure of privileged documents is not a waiver but the court has previously refused to condone wholesale transfer of the responsibility for safeguarding privilege to the other party. [^1]

[ 23 ] In my view it is unreasonable for the defendant to take the view that he is not obliged to review the Weinstein LaBarge e-mails for relevance and privilege. It is doubly unreasonable to refuse to do so and then prohibit the plaintiff from accessing the documents on pain of a motion to remove counsel from the record. Thus I will direct the defendant to review those documents and to produce any dealing with advice about the enforceability of the undertaking. The alternative would be to waive privilege entirely and permit the plaintiff to conduct the review.

[ 24 ] In this regard it will be necessary to think clearly about who owns the privilege. Weinstein LaBarge may have advised Mr. Aggan regarding matters other than the advice over which he has waived privilege. There may also have been advice given to other of the defendants either jointly or individually. Perhaps some of that advice remains privileged and perhaps the privilege does not belong to Mr. Aggan. On the other hand the same lawyers advised ViaSafe. ViaSafe and all of its associated rights including its privileges were acquired by the plaintiff. Accordingly there may be no privilege over the Weinstein LaBarge documents at all depending on their nature. [^2]

[ 25 ] With respect to the backup files, it is true that the Sedona Canada Principles indicate that electronically stored information should be produced only if it is reasonably accessible and that absent agreement or a court order based on demonstrated need a party should not ordinarily be required to search or produce deleted or residual electronic information. [^3] Ordinarily therefore a party need not search backup files looking for deleted documents but this will depend on the needs of the case and the ease of doing so. Moreover a forensic analysis of the backup files might accomplish purposes other than recovery of deleted documents.

[ 26 ] In assessing the needs of the case, one must start with the pleadings as they define the scope of relevance. In the statement of claim the plaintiff asserts that Aggan was the senior employee in the Ottawa office with unlimited access to highly confidential information about critical aspects of Descartes operations. It is alleged that Aggan started TradeMerit and then worked with the other defendants to establish it in competition with the plaintiff while those employees were still employed with Descartes. It is also alleged that Aggan took confidential information and made use of that information for the benefit of the new business. For his part Aggan denies that he had access to confidential information other than that relating to ViaSafe. He denies that he made use of confidential Descartes information after he left Descartes.

[ 27 ] It seems to me that there are at least two critical questions which may be answered by information on the hard drive. The first is what steps the defendant took to establish the new business, particularly the recruitment of staff and clients, and the timing of those steps. This question might be answered by e-mails or documents which show such plans and are dated prior to Aggan leaving Descartes. Of course we now also know there is communication on the drive from his lawyers and if any of that communication is advice concerning the enforceability of the restrictive undertaking, that is also relevant and no longer privileged.

[ 28 ] The second question that may be answered is what proprietary information the defendant had possession of and whether or not he ever used or accessed that information. That question might be answered by determining what Descartes information resides on the hard drive and when it was downloaded. At a more forensic level, it may be possible, once the Descartes information has been isolated, to determine if the information was accessed by Aggan after the date he left Descartes or whether, contrary to his evidence on this point, he has deleted information from the drive that might be relevant information.

[ 29 ] These backup files then may be critical. To restore them using the same software as was used to backup the laptop in the first place and then to review each of the 448 restored images of the laptop hard drive would be laborious and runs the risk of providing access to privileged information. There are however undoubtedly forensic tools using software or other techniques which can be used to narrow the number of files to something more manageable.

[ 30 ] In the first place it should be possible to determine the dates when the files were created. This may eliminate some of them from consideration. Secondly it should be possible to determine what kind of files are contained in the backups and whether or not that information appears significantly different from the files already reviewed. To the extent that Descartes data bears any identifying markers it may be possible to determine how much Descartes data was on the laptop on the date of each backup. In my view this kind of analysis is best conducted by an arm’s length expert for two reasons. The first is that the data ostensibly belongs to the opposing party and will contain irrelevant confidential information (as anticipated) and apparently privileged information (which does not appear to have been anticipated by the defendant at least). The second reason is that the personnel conducting the analysis may have to be witnesses at trial and that militates against the use of in house I.T. or paralegal staff.

[ 31 ] It is appropriate that the plaintiff decide how much of this work it wishes to have done and that it be funded by the plaintiff since it is evidence required by the plaintiff and it was the plaintiff which originally asked for a forensic analysis of the disk. Of course if the plaintiff proves its case against the defendants these costs should be recoverable. [^4]

[ 32 ] Accordingly, and subject to the parties themselves coming up with a better plan, I will direct the plaintiff to disclose particulars of the searches done to date, I will require the defendant to review the Weinstein LaBarge documents and I will authorize the plaintiff to continue with forensic analysis of the backup files using an outside consultant to do so.

Summary and Conclusion

[ 33 ] For the reasons enunciated above, the court orders and directs as follows:

a. The original hard drive shall continue to be preserved in its original form. At the option of counsel for the plaintiff the original drive may continue in safekeeping with the third party consultant or shall be returned to counsel for the defendant. In the latter case the original drive shall be retained by counsel in its original form and shall be made available to the plaintiff’s expert if required for further forensic analysis or to compare with the duplicate drives.

b. Counsel for the plaintiff shall cease all further in house review of the hard drive and shall place the copy of the drive in his possession with the third party expert for safekeeping and further analysis as required. Counsel for the plaintiff shall disclose fully what tests, searches and reviews have taken place with regard to the contents of the disk.

c. Counsel for the defendant shall immediately cause the LaBarge Weinstein e-mails to be catalogued and reviewed. Any e-mails or other documents relating to advice about the enforceability of the undertaking shall be produced and any other e-mail that is relevant and not privileged shall also be produced.

d. Counsel for the plaintiff may instruct his expert to conduct a forensic analysis of the hard drive and the backup files which may include the following:

i. The dates on which the backup “.zip” files were created and what software is required to analyze or access the contents.

ii. What data resides on the hard drive that appears to have originated with Descartes, whether there was Descartes data on the drive that was deleted after the defendant left Descartes, when it was deleted and what was deleted.

iii. Whether the content of the backup files created during the relevant date range is different from the other information stored on the drive that is not in the backup files.

iv. With respect to those zip files created during the relevant date ranges, to catalogue the contents and specifically to identify files that appear to be .pst files or Descartes documents that were not already subjected to the review by means of Clearwell.

v. Should the expert encounter further files on the drive that appear to be privileged those files are to be flagged and further direction sought from the court.

e. The cost of the forensic inspection and review shall be borne by the plaintiff but shall be recoverable in the cause.

f. The parties shall continue good faith efforts to negotiate and update a discovery plan. As part of that exercise they may agree to amend the terms of this order if it is done by agreement in writing.

g. All outstanding production and forensic analysis is to be completed by the end of the year.

h. The time under Rule 48.14 is extended to the end of July, 2013. The pre-trial scheduled for September 19 th , 2012 (contingent on the matter being set down earlier this year) is adjourned to a date to be set by the Registrar in accordance with the rules and the local scheduling directives in force in Ottawa.

i. The action continues in case management and counsel may arrange a case conference at any point if that would be of assistance.

Costs

[ 34 ] I will not rule on costs at this point as I did not hear submissions and there may have been offers to settle or other factors I am not aware of. I may be spoken to as to costs should that be necessary. I would however direct the attention of counsel to the following factors.

[ 35 ] Firstly the lack of a discovery plan or updated discovery plan permits the court to deny costs to the parties. [^5] The court does not expect that full agreement will always be possible in an adversarial system. What the court should be insisting upon however is that counsel use their very best efforts to collaborate and there should be little tolerance for overly rigid, technical or petty squabbles that threaten to bog down the litigation in motions.

[ 36 ] Secondly, there is a policy reason to encourage creativity in the discovery process and the court should be slow to criticize parties for mistakes that may be made while exploring the relatively uncharted territory of how to manage e-discovery issues efficiently. Indeed it is inherent in the nature of e-discovery itself that there may have to be trial and error and will likely be false starts. Often the results of electronic searches are not what is expected and it is often necessary to try different search strategies to key in on the required information.

[ 37 ] Finally, there is nothing in the requirement for a discovery plan nor in the mandate to adopt proportional focused processes of production and discovery which is intended to relieve a party from the responsibility of producing documents (using the expanded definition in the rules) that it knows are relevant to the issues in dispute. In particular a party must produce documents it intends to use at trial or which it should know will be important elements of the proof required by the opposing party.

[ 38 ] I thank counsel for their able arguments and regret that these reasons were not forthcoming sooner.

Master MacLeod

Date: September 19, 2012

[^1]: See Air Canada v. Westjet Airlines Ltd. (2006) 82 O.R. (3d) 48 (S.C.J.) @ paras. 10 - 21
[^2]: See my decision in L’Abbé v. Allen-Vanguard Corp. 2011 ONSC 7575 (S.C.J. – Master)
[^3]: See principles no. 5 & 6 and commentaries
[^4]: See Principle no. 12 and see for example Gamble v. MGI Securities Inc. 2011 ONSC 2705 (S.C.J. – Master)
[^5]: Rule 29.1.05 and see Mansfield v. City of Ottawa 2012 ONSC 5208 (S.C.J. – Master)