COURT FILE AND PARTIES

COURT FILE NO.: 04-CV-264018CM2
DATE: 2012-09-27
SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)

RE: SYCOR TECHNOLOGY INCORPORATED, Plaintiff

AND:

JOHN KIAER, DUANE ASTRAUSKAS, PHOENIX/EDT INC. AND PHOENIX/EDT, A SOLE PROPRIETORSHIP CARRIED ON BY DUANE ASTRAUSKAS AND PHOENIX/PMA INC., Defendants

BEFORE: MORAWETZ J.

COUNSEL:

C. F. Scott and A. Winton, for the Plaintiff

C. E. Willson, for the Defendant, John Kiaer

G. Borean, for the Defendants, D. Astrauskas and Phoenix/EDT Inc.

HEARD: JUNE 13 AND JULY 20, 2012

WRITTEN SUBMISSIONS: JUNE 27, JULY 11 AND AUGUST 28, 2012

ENDORSEMENT

[ 1 ] The defendants brought a motion relating to productions as well as previously ordered disclosure by the plaintiff of Specified Assigned Accounts.

[ 2 ] The defendants also sought an order that this action be tried together with the action in Court File No. CV-11-434371 or, alternatively, that the matters be tried one after the other.

[ 3 ] The plaintiff brought a motion for an order granting leave to file a Fresh as Amended Statement of Claim.

[ 4 ] In addition, the plaintiff requested a last-chance order compelling the defendants to serve a further and better affidavits of documents; a last-chance order compelling the defendant, Phoenix/PMA Inc., to answer all questions from its examination-for-discovery that it had undertaken to answer prior to the motion heard October 29, 2008; an order that, following the delivery of answers to the questions by Phoenix/PMA Inc., Mr. Astrauskas, the representative of Phoenix/PMA Inc. re-attend for a further examination for discovery; and an order that the affiants of the further and better affidavits of documents attend a cross-examination on the affidavits of documents.

[ 5 ] This litigation was commenced in 1999 in Brampton. It originally had Court File No. 99-BN-5942. The file was subsequently transferred to Toronto in 2004 and the current court file number was issued.

[ 6 ] Unfortunately, after 13 years, the combatants are still lodged in a dispute over production and discovery.

[ 7 ] A detailed review of the 56-tab Orders and Endorsements Brief will convince any reader that this has been hard-fought litigation and, further, that there has been an absence of cooperation between the parties. Although there has been considerable work product created, one should not confuse observable activity with meaningful action. There has been plenty of the former with little of the latter.

[ 8 ] It is time for the parties to re-assess their positions and tactics. It is time for the parties to take a fresh look at Rule 1.04(1) and (1.1), which read as follows:

1.04 General Principle – (1) These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

(1.1) Proportionality – In applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.

[ 9 ] With respect to Rule 1.04(1), the focus is on achieving the least expensive determination of every civil proceeding on its merits. Put another way, the outcome of the motions currently before the court should provide guidance to the parties on how they can move forward in a constructive manner such that they can get on to the next stage of the litigation and, ultimately, schedule a trial of the matters at issue.

[ 10 ] The first issue that was considered was the motion of the plaintiff to amend its pleading. Rule 26.01 reads as follows:

26.01 On motion at any stage of an action, the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[ 11 ] Given that the parties are still arguing over production and discovery, it is difficult to imagine that the defendants could be prejudiced to such a degree that the amendment would not be permitted, provided there was appropriate compensation for costs thrown away.

[ 12 ] Ultimately, this issue was resolved and the Fresh as Amended Statement of Claim has now been issued.

Defendants’ Motion

[ 13 ] Sycor now seeks disgorgement of the defendants’ profits to remedy a claim for, among other things, breach of confidence and fiduciary obligations.

[ 14 ] Sycor alleges that Mr. Astrauskas and Mr. Kiaer removed its confidential information and used that confidential information to set up one or more competing businesses and to solicit Sycor’s customers and suppliers. The confidential information Mr. Astrauskas and Mr. Kiaer allegedly removed includes information regarding Sycor’s customers and suppliers that Sycor alleges has been used by the defendants to unfairly compete with Sycor since 1998.

[ 15 ] In its original claim, Sycor sought either damages or disgorgement of the defendants’ profits. It is now clear that Sycor has elected to only seek a disgorgement of the defendants’ profits.

[ 16 ] I have reviewed this amended pleading and, in my view, it represents a significant step forward in these proceedings. The claim as set out in this amended pleading is such that it should enable all parties to focus on the real issues.

[ 17 ] The amended pleading has a significant impact, in my view, on the defendants’ motion for production. The defendants take the position that, as a result of the order of September 14, 2010, the plaintiff is required to deliver certain productions. The plaintiff counters that, in view of the amended pleading, many of the production requests are no longer relevant. Further, the plaintiff takes the position that it is inconsistent for the defendants to insist on continued compliance with the September 14, 2010 order, yet at the same time, request an award of costs to compensate them for costs thrown away as a result of the amended pleading.

[ 18 ] It seems to me that, taking into account Rule 1.04, practicality must triumph. The Order of September 14, 2010 was made based on the pleading as it existed at that time. The situation has now changed. The scope of production should now, in my view, relate to the fresh as amended pleading. There is little to be gained, at this point, by requiring the plaintiff to produce documents that are no longer relevant to the action. To do so would not achieve the objective of Rule 1.04. It would only result in additional time and expense being incurred by the plaintiff to produce documents and additional expense being incurred by the defendants in reviewing such documents.

[ 19 ] In making this determination, I am mindful of the integrity of the order of September 14, 2010. I am also mindful that the defendants have incurred significant expense in chasing the plaintiff to produce these documents.

[ 20 ] However, on balance, it seems to me that it is more appropriate to, in effect, vary the September 14, 2010 order so that it is more consistent with the current state of the action. The parties should focus on producing documents that are relevant to the action as it is now constituted.

[ 21 ] Schedule “A” to the defendants’ Notice of Motion sets out a chart relating to the plaintiff’s productions. The responding factum of the plaintiff dated August 28, 2012 sets out the plaintiff’s position.

[ 22 ] Rule 30 sets out straightforward rules regarding the discovery of documents:

Rule 30.02 Disclosure - (1) Every document relevant to any matter in issue in an action that is or has been in the possession, control or power of a party to the action shall be disclosed as provided in rules 30.03 to 30.10, whether or not privilege is claimed in respect of the document.

[ 23 ] Relevance is determined by reference to the pleadings. A document is “relevant” if it is logically connected to and tending to prove or disprove a matter in issue.

[ 24 ] Counsel submits that relevance is not the only issue to consider, and the court must also consider the principle of proportionality to determine if a document of marginal relevance should be produced. Rule 29.2.03 requires the court to consider whether an order to produce one or more documents would result in an excessive volume of documents required to be produced by the party.

[ 25 ] In my view, the purpose of both Rule 30.02 and Rule 29.2.03 can be achieved by requiring the plaintiff to produce documents that are relevant in the context of the amended pleading – not the original pleading.

Category A.1: Years 1990 - 2002

[ 26 ] Counsel to the plaintiff submits that the defendants have acknowledged that they have received all of the sales information relevant to the initial list of 27 common customers they have identified to the plaintiff and what the defendants are now seeking is the same information for Sycor customers, for whom Sycor does not seek to have profits disgorged by the defendants (the “Sycor Non-Common Customers”).

[ 27 ] The full position of the plaintiff is set out at paragraphs 26 – 39 of the Responding Factum. In particular, paragraph 36, which reads as follows:

The parties have spent many years arguing over the scope of commonality, and it has been determined that only those Sycor customers to whom the defendants have made sales can be considered “common customers” for the purpose of disgorging profits. It is submitted that this same principle must apply to Sycor’s customers and data. Sycor’s data for customers who are not “common” to the defendants are not logically connected to the issue of the defendants’ alleged fiduciary obligation as it applies to their misuse of common customer data.

[ 28 ] I accept the submission that the Sycor information that what is relevant to the amended claim is information pertaining to common customers only. Information pertaining to Sycor Non-Common Customers is not relevant and need not be produced.

Category A.2: Years 1990 – 2002 – Information About all Sycor Vendors

[ 29 ] In its Responding Factum, Sycor repeats and relies on the same submissions set out at paragraph 27 – 39 which I have commented on above. For the same reasons as set out above, I am of the view that as with Sycor Non-Common Customers, information pertaining to non-common vendors for the years 1990 – 2002 is not logically connected to matters at issue in the action and is not relevant and therefore need not be produced.

Category A.3 Information Displaying Yearly Sales (Gross Sales and Gross Profits) and Sales With Customer Products for Each Year

[ 30 ] The parties advised that this category is no longer in issue and can be compensated with “costs thrown away”.

Category A.4 Common Customers

[ 31 ] The plaintiff has agreed to produce this category of documents.

Category A.5

[ 32 ] The plaintiff has agreed to produce this category of documents, although further clarification of “goods sold” may need to be clarified. If such clarification is required, it can be requested at a 9:30 a.m. appointment.

Category A.6: Assigned Accounts

[ 33 ] Sycor’s position with respect to this request is set out at paragraphs 41 – 44 of its Responding Factum. I have not been persuaded by these submissions. To the extent that the three accounts at issue (E. S. Fox, Electro Wind Supply and Televec) are common customers, the information is relevant and is to be produced.

Category B.1 and B.4: Information Regarding Common Customer and Common Vendors for 2002 - 2009

[ 34 ] In view of the amended pleading, I fail to see why or how the product sold by Sycor during the 2002 – 2009 period is relevant to whether the defendants misused Sycor’s confidential information during that period. I agree with the position set forth by the plaintiff that what is at issue in the fresh pleading is whether the defendants took and misused confidential information from Sycor while they were employed at Sycor ( i.e. up to September 1999).

[ 35 ] I am satisfied that this category is not relevant and need not be produced.

Miscellaneous

[ 36 ] It goes without saying that, if the defendants identify any additional common customers or common vendors, Sycor should produce the same data for the same time period (1990 – 2002) for any additional common customers and common vendors.

[ 37 ] The defendants have spent years in attempting to obtain production of the documents referenced in their motion. Many of the requested documents would be considered relevant, but for the amended pleading. The defendants are entitled to costs thrown away in respect of this lengthy chase for documents. The issue of costs will be addressed later in this endorsement.

Plaintiff’s Motion

[ 38 ] The next issue to consider is the documents requested by the plaintiff. They are set out in Schedule “C”.

[ 39 ] Sycor claims that the defendants, since their departure from employment at Sycor, have wrongfully used Sycor’s confidential information to solicit Sycor’s customers. The customers solicited by the defendants which Sycor alleges were its customers prior to the defendants’ departure from employment at Sycor are known as the “common customers”.

[ 40 ] Sycor also claims that the defendants have wrongfully used Sycor’s confidential information with respect to Sycor’s vendors. Sycor alleges that the vendors the defendants have dealt with were its vendors prior to the defendants’ departure from employment at Sycor and are known as the “common vendors”.

[ 41 ] Sycor takes the position that it provided the defendants with a list of 727 alleged common customers (the “Sycor Customers”) and 276 alleged common vendors (the “Sycor Vendors”). Further, Sycor takes the position that in 2003, the defendants filled out questionnaires in which they disclosed their efforts to sell to the Sycor Customers and purchase from the Sycor Vendors, as of December 31, 2002 (the “Questionnaires”). The defendants have identified 27 Sycor Customers to whom the defendants sold product and 62 Sycor Vendors from whom the defendants purchased product as of that date.

[ 42 ] Sycor takes the position that since 2003, the defendants have not updated the Questionnaires and have refused to disclose documents related to any sales to or purchases from additional common customers or common vendors for which Sycor claims a right to disgorgement of profits.

[ 43 ] In considering this issue, I have reviewed the decisions of McKenzie J. dating back to 2002 and, in particular, his endorsement of August 16, 2002, where he held:

The defendants concede for the purpose of this motion that a duty of disclosure (production and discovery) does exist but only for a period of one year following the dates of their termination of employment by the plaintiff, on the basis that the non-competition agreements provided for a non-competition period of one year.

There is significant difficulty with the defendants’ position. To give effect to the contention that the relevant period for disclosure is one year following the termination dates is, in effect, to prejudge the issue of whether or not there existed between the plaintiff and Mr. Astrauskas and Mr. Kiaer out of which fiduciary duties of the nature alleged by the plaintiff could arise. […]

[ 44 ] Justice McKenzie ordered the defendants to serve a further and better affidavit of documents.

[ 45 ] On a further ruling, McKenzie J. reiterated that such disclosure shall be of an ongoing nature and not time limited.

[ 46 ] In my endorsement of July 9, 2007, I noted that “the defendants have acknowledged that they have a continuing disclosure obligation with respect to common customers”.

[ 47 ] In my view, my endorsement is consistent with the comments previously stated by McKenzie J.

[ 48 ] It seems to me that the defendants continuous disclosure obligation should not be controversial. The issue is further set out at paragraph 53 of the Supplementary Factum of the plaintiff dated June 27, 2012: “In 2003, the defendants sought, and failed, to set a time limit on their obligations to Sycor.” Since then, the case law on the equitable remedy of disclosure of profits has developed to the point where it is now indisputable that the equitable remedy is a discretionary one which can only be determined by the trial judge on a full-evidentiary record. As the Court of Appeal for Ontario determined in GasTOPS v. Forsyth, 2012 ONCA 134, “whether a remedy is balanced and proportional depends entirely on the facts of the case”.

[ 49 ] In GasTOPS, the defendants, former employees of the plaintiff, were found to have breached their obligations to the plaintiff by terminating their employment with the plaintiff on short notice and starting up a competing business. After finding the defendants liable for breach of fiduciary duty, breach of confidence and breach of the defendants’ contracts of employment, the trial judge ordered the corporate plaintiff to disgorge profits of over $12 million, which the trial judge determined was the value of the corporate defendants profits over its first 10 years of operation.

[ 50 ] The Court of Appeal upheld the decision of the trial judge noting that the determination of whether a remedy is measured and proportional is a question of fact that is best decided by the trial judge.

[ 51 ] In the circumstances of this case, it is not appropriate, in my view, for a decision to be made at this juncture, as to what is the appropriate timeframe. There is a continuous disclosure obligation with which the defendants must comply. The defendants are accordingly required to provide the updated information requested by the plaintiff.

[ 52 ] With respect to the issue as to whether the two actions ought to be heard together or one after the other, this issue is set out in the defendants’ factum of March 8, 2012 at paragraphs 16 – 22. The main action or first action dates back to 1999. The second action was commenced 12 years later in 2011. I have difficulty, based on this timeline, to accept that there is such a close relationship in the actions so as to require that they be tried together or one after the other.

[ 53 ] I am reluctant to complicate matters by intertwining the first action with the second action. For now, the two actions are to proceed separately. However, in the course of ongoing trial management, this issue may be revisited at some point in the future.

[ 54 ] With respect to the plaintiff’s request for the re-attendance of Mr. Astrauskas for a further examination after delivery of a further and better affidavit of documents, it seems to me that the overall objective of preparing this matter for trial will be best served if there were a limited right of discovery. The appropriate limitations can be the subject of review at a further 9:30 appointment.

[ 55 ] Turning now to the issue of costs thrown away, in consideration for granting for leave to amend the pleading, the plaintiff should be compensated for by costs thrown away.

[ 56 ] This issue has been canvassed at paragraphs 33 – 40 of the March 8, 2012 factum of the defendants and further commented on at paragraphs 16 – 25 of their Supplementary Factum dated July 11, 2012.

[ 57 ] The defendants take the position that they have addressed all of the plaintiff’s stated inquiries regarding the defendants’ costs and that the only evidence before the court in this regard the evidence of the defendants in its request for $137,875 in costs thrown away.

[ 58 ] In my view, it is impossible at this point in time to determine how much of the work claimed in the preparation for the trial has been truly wasted. It is more appropriate to estimate a minimum amount to be ordered for costs thrown away. The quantification of costs thrown away can be revisited by the trial judge when it becomes more apparent how much of the work claimed was truly wasted. This was the approach that was taken in both Mountell Investments Limited (Re), 2008 39958 (Ont. S.C.) and Hagos v. ING Insurance Company of Canada, 2009 9468 (Ont. S.C.). In both cases, the parties argued costs thrown away at an interim stage in the proceedings and C. Campbell J. concluded that at least some of what might be the total costs thrown away should be awarded “on account” and he awarded $125,000 in Mountell Investments and $75,000 in Hagos.

[ 59 ] In this case, I also have to take into account that there has been ongoing squabbling for 13 years in this matter. It is not appropriate, in my view, at this time to allocate blame to one side or the other. However, I can only offer the observation that, having case managed this matter for a number of years, there has been a decided lack of cooperation and communication between the parties which has adversely affected progress. At this point in time, the sum of $35,000 is awarded to the defendants “on account” for costs thrown away. This matter can be revisited by the trial judge in due course.

[ 60 ] With respect to costs on the within motions, there has been divided success and, in my view, it is not appropriate to award costs.

[ 61 ] Finally, the parties are directed to arrange a one-hour case conference with me within 30 days of the release of this decision. The purpose of the case conference is to schedule future steps in this action.

MORAWETZ J.
Date: September 27, 2012