COURT FILE NO.: 12-CV-00463750
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF an intended Application to appoint an arbitrator pursuant to the Arbitration Act 1991
AND IN THE MATTER OF an agreement effective February 1, 2007 between David Diamond & James Diamond, carrying on business as Diamond & Diamond (of the first part) , and Kurt Bergmanis and Alan Preyra, carrying on business as Bergmanis Preyra LLP (of the second part)
BETWEEN:
KURT BERGMANIS, ALAN PREYRA and BERGMANIS PREYRA LLP Applicants – and – DAVID DIAMOND, JAMES DIAMOND and DIAMOND & DIAMOND Respondents
Alan L. Rachlin, for the Applicants
Linda R. Rothstein and Kris Borg-Olivier, for Jeremy Diamond and Alex Ragozzino
HEARD: October 10, 2012
PERELL, J.
REASONS FOR DECISION
Introduction
1This is a motion to set aside an Anton Piller Order granted by Justice D. Wilson on September 12, 2012 to the Applicants, Kurt Bergmanis, Alan Preyra, and Bergmanis Preyra LLP against the Respondents, David Diamond, James Diamond, and Diamond & Diamond.
2The Anton Piller Order was also granted against certain non-parties; namely, Jeremy Diamond, Alex Ragozzino, and Idigital Internet Inc.
3Although the only persons moving to set aside the Anton Piller Order are the non-parties, Jeremy Diamond and Alex Ragozzino, for the reasons that follow, I am setting aside the order in its entirety, and I order that any material seized or any copies of the materials seized be restored to Jeremy Diamond and Alex Ragozzino. I note for the record that with Jeremy Diamond’s instructions, his lawyers, Paliare Roland LLP, have undertaken to have a copy of Mr. Diamond's hard drive made, at the Applicants' expense, and to retain the copy.
4Before describing the factual and procedural background to this motion, I say at the outset that I will not be deciding this motion on the basis that Justice D. Wilson’s order should be set aside because it did not state that it would expire after ten days. This is a mandatory requirement of rule 40.02 (1) of the Rules of Civil Procedure , R.R.O. Reg. 194, but I do not intend to explore how it came about that the order was deficient.
5I will for the purposes of this motion, regard the omission in the order as a mistake that the court could relieve against, but I wish to emphasize that ex parte motions for interlocutory injunctions, Anton Piller orders, Mareva injunctions, and Norwich Orders, of which I will have more to say below, should comply with rule 40.02(1). I could have set aside the Anton Piller order because of the omission; however, in the circumstances of this case, since I will be setting aside the Anton Piller order on its merits, it is not necessary to discuss or rely on alternative grounds to set aside the order.
6Similarly, I will not be deciding this motion on the grounds that the Applicants did not make full and frank disclosure of all material facts to the court when they obtained the ex parte Anton Piller Order. This was certainly an arguable point, but I prefer to decide this motion on the grounds that: (a) the evidence disclosed on the ex parte motion did not justify the extraordinary remedy of an Anton Piller Order; and (b) that the evidence disclosed on what has became contested a motion also does not justify granting an Anton Piller Order or a Norwich Order, which was an alternative that was discussed for the first time during the argument of this motion.
7I appreciate that this motion is not an appeal from Justice Wilson’s order, but by deciding this motion on the merits differently than she did, simply illustrates the obvious point that ex parte motions do not have the benefit of a contested argument or dialectic out of which a just and proper outcome can emerge. There is an adversarial void on an ex parte motion but I have benefited from Ms. Rothstein’s and Mr. Rachlin’s superbly argued motion.
8I might have come to the same decision as Justice Wilson on an ex parte motion, but I am not now deciding an ex parte motion. The moving parties simply have persuaded me that this is, it and never was, a case for an Anton Piller Order or for a Norwich Order.
Background
9The factual and procedural background to the motion now before the court is that in early 2007, the Respondents David Diamond and James Diamond, were winding up their practice of law, but they wished to maintain the good will of their firm until the practice could be assumed and resumed by their children, who were then in university as law students.
10Apparently in order to bridge the time until their children became lawyers, the Respondents entered into an exclusive professional services contact, effective February 1, 2007 with the Applicants, who had been employed lawyers. Under the agreement, the Respondents agreed to refer files to the Applicants in return for a referral fee of 30 percent of the total fees recovered on each file referred and accepted.
11The Professional Services Contract provides at Article 16:
As further consideration for the provision of the service provided under this Agreement, Diamond & Diamond hereby undertake and agree that, until this Agreement is terminated in accordance with the provisions of paragraph 22 herein, it shall refer to Bergmanis Preyra LLP all enquiries it receives from persons, businesses, corporations and other members of the general public for the provision of legal services related to personal injury law. The parties acknowledge that Diamond & Diamond intend to continue to employ Jeremy Diamond, and that all referrals from Jeremy Diamond shall be referrals from Diamond & Diamond, as contemplated herein.
12What the dispute in this case is ultimately all about is whether or not David Diamond, Jack Diamond, or Diamond & Diamond breached Article 16.
13I note parenthetically that it seems that this ultimate dispute and the quantification of any damages for a breach of Article 16 may eventually be resolved by an arbitrator and not by the court.
14It should also be noted and emphasized that in Article 16, David Diamond and Jack Diamond acknowledge that they intend to continue to employ Jeremy Diamond, and that all referrals from Jeremy Diamond shall be referrals from Diamond & Diamond. What needs to be noted is that Jeremy Diamond is described as an employee of the firm, and there is nothing here that suggests that Jeremy Diamond (who happens to be a nephew of the Diamonds) is a partner of the firm.
15There is evidence that Jeremy Diamond and Alex Ragozzino were involved in the events that I am about to describe, but there is nothing in the evidentiary record that suggests that Jeremy Diamond or Alex Ragozzino had an contractual relationship or duty of care or any legal obligations to the Applicants.
16Put somewhat differently, it may be that ultimately Jeremy or Alex are found to be the means by which David and Jack Diamond and Diamond & Diamond breached Article 16, but it cannot be said that Jeremy or Alex themselves breached a contract to which they are not parties and for which they received no consideration and for which there is no bargain or meeting of the minds whatsoever.
17Jeremy Diamond is clearly not a contracting party. The evidence on this motion is that he was an employee of Diamond & Diamond, and although the point was contested, his evidence on his cross-examination is that he was an independent contractor providing services to the firm.
18What also needs to be noted is that there is nothing in Article 16 or elsewhere about Alex Ragozzino. He is a non-lawyer para-legal assistant that worked with Jeremy Diamond. He has no legal relationship with or duties to the Applicants.
19Returning to the narrative of events, there appears to have been a fall off in referrals from Diamond & Diamond, and the Applicants became suspicious that Jeremy Diamond was sending referrals of personal injury claims to other law firms and breaching Article 16.
20To confirm their suspicions, the Applicants had a friend, Darryl Lucus pose as a potential client. Mr. Lucus spoke by phone with Alex Ragozzino and with Jeremy Diamond. Later, Mr. Lucus received messages from lawyers Jeff Neinstein and Gary Neinstein indicating that Mr. Lucas’ matter had been referred to their law firm.
21The Applicant also had Erin Moore, another friend, pose as a prospective new client. Ms. Moore spoke by phone to Mr. Ragozzino, and later in the day, she received a voice-mail message from Jeff Neinstein and still later a text message from him about the referral.
22The Applicants knew that in the normal course, there would be electronic records at Diamond & Diamond with intake information about client contacts, and with their suspicions confirmed that referrals were being made to other law firms, the Applicants moved ex parte to obtain an Anton Pillar order to gather and preserve evidence of Diamond & Diamond’s breach of contract.
23On September 12, 2012, Justice Wilson granted the Applicants an ex parte order requiring the Respondents and Non-Parties Jeremy Diamond and Alex Ragozzino to permit representatives of the Applicants to enter and remain on their premises for the purpose of identifying, inspecting, copying, and preserving evidence pertaining to the Respondents’ alleged breach of the professional services contract.
24Commendably, the Anton Pillar Order was drafted in a way that was sensitive to the fact that the documents to be seized and examined for evidence might contain sensitive, confidential, and privileged lawyer and client information. The terms of the order provided that: (a) the Independent Supervising Lawyer would seal all copies of documents and keep exclusive possession of copies pending the agreement of the Respondents or upon further order of this Court; (b) the Independent Supervising Lawyer would review the copies obtained and advise the Respondents within 30 days which electronic documents were evidence; (c) upon being advised of the Independent Supervising Lawyer’s determination. the Respondents had 14 days to take a position; and (d) the Independent Supervising Lawyer would report with respect to execution of this order to the Court, at which time the Court would determine the Respondents’ claims of privilege or that the documents were not relevant.
25On September 24, 2012, the Anton Piller Order was executed. The Applicants obtained copies of the records, documents, and data that was at the Respondent’s business premises and at Alex Ragozzino’s home.
26There was also a search at another place, which is a story in and of itself, but for present purposes, it is not necessary to tell that story.
27Jeremy Diamond and Alex Ragozzino then moved to have the Anton Pillar Order set aside and their motion came on before me on October 5, 2012. I adjourned the motion on terms to allow cross-examinations. I made the motion returnable on October 10, 2012 and ordered that in the interim, the Supervising Lawyer shall not review the seized documents and that the Respondents Diamond & Diamond shall not dispose of or tamper with the computer claimed by Jeremy Diamond as his personal computer.
28It is now known that Diamond & Diamond has ended its relationship with Jeremy Diamond and Alex Ragozzino. They have returned the personal computer to Jeremy Diamond.
29The above being the factual and procedural background, I can now consider the motion before the court, which is to set aside the Anton Piller Order on a variety of grounds.
Legal Principles
30An Anton Piller order is a very intrusive and exceptional interlocutory order. The purpose of the order is to prevent property from being lost, destroyed or removed, and to preserve relevant evidence, but it does not authorize access to privileged communications of documents: Celanese Canada Inc. v. Murray Demolition Corp ., 2006 SCC 36 , [2006] 2 S.C.R. 189. An Anton Piller order is at the extremity of the court’s powers and is granted only when there is no alternative way to ensure that justice may be done: Anton Piller KG v. Manufacturing Processes Ltd. , [1976] 1 Ch. 55 (C.A.) ; Cook v. Ovenden , [2004] O.J. No. 641 (S.C.J.) .
31The requirements for an Anton Piller order are: (1) there must be an extremely strong prima facie case; (2) the damage, potential or actual, must be very serious for the plaintiff; (3) there must be convincing evidence that the defendant has in his or her possession incriminating documents or objects; and (4) there is a real possibility that the material may be destroyed or secreted before the parties may put their respective rights before the court. See: Celanese Canada Inc. v. Murray Demolition Corp ., supra ; Bell ExpressVu Limited Partnership v. Rodgers , [2007] O.J. No. 4569 (S.C.J.) ; Adobe Systems Inc. v. KLJ Computer Solutions Inc. ; Ontario Realty Corp. v. P. Gabriele & Sons Ltd. , (2000), 2000 22697 (ON SC) , 50 O.R. (3d) 539 (S.C.J.) .
32To these requirements, it should be noted that an Anton Piller order is also injunctive in its nature, and, therefore, the constituent elements for an interlocutory injunction must also to be satisfied, including providing an undertaking as to damages, which was provided in the case at bar.
33The requirements for an interlocutory injunction are: (1) the plaintiff has presented a serious issue to be tried or, in a narrow band of cases, a strong prima facie case; (2) the plaintiff would suffer irreparable harm if the remedy for the defendant’s misconduct were left to be granted at trial; and (3) the balance of convenience and inconvenience between the parties favours granting rather than refusing to grant an interlocutory injunction. See RJR-MacDonald Inc. v. Canada (Attorney General) , 1994 117 (SCC) , [1994] 1 S.C.R. 311 (S.C.C.) .
Norwich Orders
34It also should be noted that although the Applicants sought an Anton Piller order as against the Respondents Diamond & Diamond, as against Jeremy Diamond and Alex Ragozzino, what was really being sought was a Norwich Order.
35A Norwich Order, which is named after the English case Norwich Pharmacal & Others v. Customs and Excise Commissioners , [1974] A.C. 133 (H.L.) is a form of equitable discovery against third parties before the commencement of proceedings. See: Glaxo Wellcome PLC v. M.N.R. 1998 9071 (FCA) , [1998] F.C.J. No. 874 (Fed. C.A.), leave to appeal refused 165 D.L.R. (4th) vii; BMG Canada Inc. v. John Doe , 2005 FCA 193 , [2005] F.C.J. No. 858 (Fed. C.A.); Alberta (Treasury Branches) v. Leahy , 2000 ABQB 575 , [2000] A.J. No. 993 (Alta. Q.B.); Kenny v. Loewen , [1999] B.C.J. No. 363 (B.C.S.C.) ; GEA Group AG v. Ventra Group Co. , (2009), 2009 ONCA 619 , 96 O.R. (3d) 481 (C.A.); Straka v. Humber River Regional Hospital , (2000), , 2000 16979 (ON CA) , 51 O.R. (3d) 1 (C.A.); Isofoton S.A. v. Toronto Dominion Bank (2007), 2007 14626 (ON SC) , 85 O.R. (3d) 780 (S.C.J.); York University v. Bell Canada Enterprises , [2009] O.J. No. 3685 (Ont. S.C.J.) .
36The fundamental principle underlying the Norwich order is that the person against whom the order is sought has an equitable duty to assist the applicant in pursuing its rights; Isofoton S.A. v. Toronto Dominion Bank , supra . Norwich orders may be granted to identify wrongdoers : P. v. T. , [1997] 4 All E.R. 200 (Ch. D.) ; to evaluate where a cause of action exists: P v. T , supra ; and to trace and preserve property or evidence: Alberta (Treasury Branches) v. Leahy , supra ; Bankers Trust Co. v. Shapira , [1980] 3 All E.R. 353 (C.A.) . Norwich orders may be granted when a potential plaintiff believes it has been defrauded and seeks access to bank records to prove the fraud and to recover the wrongfully obtained property: Isofoton S.A. v. Toronto Dominion Bank , supra .
37The requirements for a Norwich order are: (1) the plaintiff must have a bona fide claim or potential claim against a wrongdoer; (2) the defendant to the Norwich proceeding must have a connection to the wrong beyond being a witness to it; (3) the defendant to the Norwich proceeding must be the only practical source of the needed information; (4) the interests of the party seeking the disclosure must be balanced against the interests of the defendant to the proceeding, including his or her interest in privacy and confidentiality, and any public interest that would justify non-disclosure; and (5) the interests of justice must favour obtaining the information.
Analysis
38With respect to the constituent elements for an Anton Piller Order, for the first element, I accept that there was a strong prima facie case against the Applicants for breach of Article 16, although I do not see it as an extremely strong case. However, there is no case shown as against Jeremy Diamond and Alex Ragozzino who are non-parties to the Professional Services Contract.
39For the second element, I do not see how it can be said that the damage to the Applicants is very serious. The Applicants have a breach of contract claim, but there is nothing in the material that even gives a hint of whether referrals were a significant contributor to the Applicants’ revenues. There is nothing to suggest that there would be irreparable harm or that damages would not be an adequate remedy for the breach of contract.
40The third element of the requirements for an Anton Piller order arguably appears to be have been satisfied at least insofar as there was undoubtedly relevant evidence about a breach of Article 16 at Diamond & Diamond’s office and on Jeremy Diamond’s computer, and I will assume without deciding that this element has been satisfied.
41As for the fourth element, in my opinion, there was no evidence to establish that there was a real possibility that evidence would be destroyed by Jeremy Diamond or by Alex Ragozzino, and there was virtually no evidence that the Respondents might destroy materials before the discovery process can do its work.
42If the case at bar is analyzed as a motion to continue a Norwich Order, in my opinion, only the first and second of the constituent elements have been satisfied.
43The Applicants rely on: Adobe Systems Inc. v. KLJ Computer Solutions Inc ., supra ; Bell Expressvu Ltd. Partnership v. Rodgers, supra ; Capitanescu v. University Weld Overlays Inc. , 1996 7286 (AB KB) , 1996 CarswellAlta 936 (Q.B.) at para. 22 ; Viacom Ha! Holding Co. v. Jane Doe , 2000 CarswellNat 689 (Fed. Court, Trial Div.) at para. 66 ; Canadian Private Copying Collective v. Amico Imaging Services Inc. , 2004 CarswellNat 846 (Fed. Court) at paras. 19 and 20 for the proposition that because it is very difficult for an applicant to produce direct proof that a respondent will destroy evidence courts will focus on evidence of dishonesty, suspicious circumstances, evidence of elaborate deceptions, evidence of theft, evidence of misappropriation of property or knowing violation of the applicant’s rights, as satisfying the requirement that there is a real risk of destruction of evidence.
44I accept that evidence of dishonesty, suspicious circumstances or misappropriation of property, etc. can justify the inference that there is a risk that evidence will be destroyed, but the onus remains on the plaintiff or applicant for an Anton Piller Order to prove that there is a real possibility that the defendant may destroy evidence before the discovery process can do its work: Celanese Canada Inc. v. Murray Demolition Corp. , supra, at para. 35 , but it is not enough that an inference of dishonesty can be drawn from the evidence; rather, the inference of dishonesty must be compelling: Catalyst Partners Inc. v. Meridian Packaging Ltd. , 2007 ABCA 201 , [2007] 10 W.W.R. 436, at para. 34 (Alta. C.A.).
45To obtain an Anton Piller order, opinion, supposition or the plaintiff’s fear or paranoia that documents will be destroyed will not suffice: PricewaterhouseCoopers LLP v. Phelps , 2010, 2010 ONSC 1061, at para. 30 (S.C.J.) ; Agracity Ltd. v. Skinner , 2009 SKQB 362 , [2009] S.J. No. 555 (Sask. Q.B.), 52, 97-102, at paras. 52 and 53.
46In my opinion, no dishonesty or suspicious circumstances or misappropriation of property has been shown in the case at bar. There is no evidence of wrongdoing by Jeremy Diamond or Alex Ragozzino, nor does the evidence establish any grounds for believing that there is any risk that Jeremy Diamond or Alex Ragozzino would destroy any evidence in their possession.
47At best, the evidence on this motion establishes that there has been a breach of contract by the Respondents for which the normal remedy is damages. An interlocutory injunction is an extraordinary remedy and an Anton Piller order is an extraordinary-extraordinary remedy and it is not shelled out simply because the target of the order has relevant information that it has the ability to destroy.
48In his text, R.J. Sharpe, Injunctions and Specific Performance , (Canada Law Book: Aurora, ON, looseleaf, 2009) at ¶ 2.1240 , Justice Sharpe writes:
It is one thing to justify a significant invasion of the defendant’s privacy where there is strong evidence of an intent to flout the ordinary process and effectively deprive the plaintiff of rights but quite another to grant such drastic relief where there is no more than a possibility that the defendant might destroy evidence which might assist the plaintiff in making out his or her case.
49It is not and cannot be the case that courts grant intrusive orders akin to a criminal search warrant with nothing more than evidence that there has been a breach of contract, and it is not and cannot be the case that courts grant intrusive orders akin to a criminal search warrant against a non-party, even a non-party who may be the means by which a contract has been breached, with nothing more than evidence that there has been a breach of contract.
50Anton Pillar orders and Norwich orders are not a dime a dozen remedies; they are rare and precious remedies. With the light of a contested fully argued motion, in my opinion, the Anton Piller Order granted in this case should not be continued, and it should rather be set aside.
51I do not know why the Respondents did not move to have the order set aside, since it besmirches their reputation, and it may be that they have a grievance against Jeremy Diamond and are content to have the order go against him and Mr. Ragozzino. But, be that as it may, an Anton Pillar order or a Norwich order is not justified in the case at bar and the order should be set aside in its entirety.
Costs
52If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Messrs. Diamond and Ragozzino within 20 days of the release of these reasons followed by the Applicants’ submissions within a further 20 days.
53Order accordingly.
Perell, J.
Released: October 11, 2012
COURT FILE NO.: 12-CV-00463750
DATE: October 11, 2012
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KURT BERGMANIS, ALAN PREYRA and BERGMANIS PREYRA LLP
Applicants
‑ and ‑
DAVID DIAMOND, JAMES DIAMOND and DIAMOND & DIAMOND
Respondents
REASONS FOR DECISION
Perell, J.
Released: October 11, 2012