Sweda Farms Ltd. et al. v. L.H. Gray & Son Limited et al., 2013 ONSC 4195

COURT FILE NO.: CV-08-357570-0000

DATE: 20130722

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sweda Farms Ltd., Best Choice Eggs Ltd. and Tilia Transport Inc.

Plaintiffs

- AND -

L.H. Gray & Son Limited and William Harding Gray

Defendants

BEFORE: Carole J. Brown J.

COUNSEL:
Robert Morrow, Donald R. Good for the Plaintiffs

Allison Webster, for the Defendants

HEARD: May 27, 2013

ENDORSEMENT

[1] The defendants, L.H. Gray & Son Limited and William Harding Gray (“the moving defendants” or “the defendants”), bring this summary judgment motion seeking partial summary judgment as against the plaintiffs regarding allegations of the manipulation of egg grading data, and conspiracy, as set forth at paragraphs 1(a), (b), (d), (g) and (i)-(o), 43, 46-51, 54, 57, 96-100, 103-104, 109-119, 121, 123, 126, 128-130 and 145-148 of the Statement of Claim or, alternatively, striking these allegations pursuant to Rules 21.01(1)(b) and 21.01(3)(d) of the Rules of Civil Procedure.

[2] In addition to the alleged manipulation of egg grading data, the plaintiffs’ allegations involve conspiracy to fix, maintain and stabilize egg prices; conspiracy to lessen competition; intentional interference with economic relations; and alleged exploitation of the defendants’ dominant position by illegally packing cracked and dirty eggs into Grade A packages and supplying them to the plaintiffs.

The Facts

[3] The moving defendant, L.H. Gray, the second-largest operation of its kind in Ontario, produces, grades and markets eggs in Ontario and throughout Canada. It has several large retail customers who purchase its table eggs, including the Weston Group of stores (Loblaws, No-Frills and Real Canadian Superstore), Sobeys, Wal-Mart, Longos, Costco and Metro. It also sells to a number of wholesalers and to breaking plants for further processing. William Harding Gray (“Gray”) is the president of L.H. Gray.

[4] The defendant, Burnbrae Farms Limited (“Burnbrae”), is the largest egg grading and production operation in Ontario. It is not a moving party in this action. Burnbrae is a direct competitor of L.H. Gray.

[5] The plaintiff, Sweda, which operates as Best Choice Eggs Limited, is in the business of producing, grading and marketing eggs. Sweda is also a direct competitor of L.H. Gray. Svante Lind is the principal of Sweda and Best Choice.

[6] The production of eggs in Ontario is regulated under a “supply management” system, involving a quota system which limits the number of eggs produced and the number of egg producers. Where a grader is short of the supplies necessary to meet marketing obligations, eggs may be sourced from other egg graders who have surpluses. The plaintiffs allege that the defendants responded to their short supplies and sold them unmarketable cracked and dirty eggs, such that the plaintiffs were unable to supply eggs to retail and wholesale customers. The grading of eggs is regulated by federal legislation.

Procedural History

[7] On May 4, 2005, Sweda/Best Choice, Lind and Verified Eggs Canada Inc. commenced proceedings against the Ontario Egg Producers, Mark Beaven, and Harry Pelissero, which sought damages of $33 million as against the defendants for interference in the contractual relationships of the plaintiffs. L.H. Gray was not a party to this action.

[8] On June 24, 2008, Sweda/Best Choice, Lind and Verified Eggs Canada Inc., commenced proceedings as against Burnbrae, Burnbrae Holdings Inc., Joseph P. Hudson, Craig Hunter, L.H. Gray, Mr. Gray, Michael Walsh, Maple Leaf Foods Limited, Johannes Klei and John Klei. This action claims damages totalling $16 million as against the defendants for breach of contract, intentional interference with the plaintiffs’ contractual and business relations, conspiracy, slander and defamation.

[9] These actions were consolidated by Court Order in 2010 into the present action. Thereafter, the plaintiffs filed a Fresh Statement of Claim in accordance with the Order and amendments permitted thereby. The defendants all filed Statements of Defence.

[10] The allegations as against the moving parties contained in the Statement of Claim which are relevant to this motion for partial summary judgment are as follows:

1. That L.H. Gray and Gray illegally and deliberately adjusted the crack settings on its grading machine so as to pack cracked, dirty and undergrade eggs into Grade A packs, contrary to various federal regulations, so as to cause the plaintiffs to suffer damages;

2. That L.H. Gray and Gray conspired with the other defendants so as to supply unmarketable eggs; and

3. That the plaintiffs have suffered damages because the defendants’ alleged conduct has unduly lessened competition in the grading, sale and supply of eggs since January 31, 2000.

[11] The defendants allege that the impetus for the allegations made against them was the actions of Norman Bourdeau, a former employee of L.H. Gray, who held the position of Manager of Information Technology through June 26, 2009, and who had designed and created the egg grading application in use at L.H. Gray grading stations. Thereafter, he worked as an independent contractor with L.H. Gray until February of 2010. It is the position of the plaintiffs that Mr. Gray ordered Bourdeau to destroy relevant data in January 2009. Mr. Gray did not swear a supporting affidavit on behalf of L.H. Gray, and therefore, Mr. Gray could not be cross-examined on this.

[12] The defendants further allege that, despite the Confidentiality of Information and Intellectual Property Agreement executed between L.H. Gray and Bourdeau, Bourdeau kept data storage information containing business records of L.H. Gray, and subsequently passed some of this documentation on to the plaintiffs. The plaintiffs submit that some of these documents which are in their possession showed that L.H. Gray manipulated and varied the grading settings on its egg grading systems. The plaintiffs submit that these records were not made available to the associated producers for inspection, that there were internal communications at L.H. Gray showing an intent to hide and/or manipulate grading information, and that there were other e-mails between L.H. Gray and the other defendants which discussed harming the business of the plaintiffs. In cross-examination on his affidavit, Bourdeau stated that he had direct knowledge of these items.

[13] With respect to this disputed information, the plaintiffs obtained an ex parte Order on February 12, 2010, requiring Bourdeau to produce a data storage device and any other evidence or documents with respect to business, computer or electronic records of L.H. Gray in his possession relating to litigation between the parties, and to deliver that data storage device to a supervising solicitor. That data continues to be held by the supervising solicitor.

[14] The plaintiffs have brought a motion for production of the documentation held by the supervising solicitor, which will be heard in December of 2013.

The Issues and Positions of the Parties

[15] The issue before this Court is whether, pursuant to Rule 20, partial summary judgment should be granted, or whether there are genuine issues requiring a trial.

The Position of the Defendants

[16] The moving party defendants argue that, based on all of the evidence before this Court, there is no genuine issue requiring a trial. They argue that a full appreciation of this action as it relates to them and to the allegations in issue can be had on the basis of the evidence before this Court, without the need for a trial or viva voce evidence.

[17] It is the position of the defendants that the plaintiffs have adduced no evidence to substantiate their claim and defend the summary judgment motion, as required by the Rules and the caselaw. They submit that the plaintiffs have not “put their best foot forward” and have not established that there is a genuine issue requiring a trial. They submit that the plaintiffs have failed to set forth, in affidavit or other evidence, specific facts showing that there is a genuine issue requiring a trial. They argue that the plaintiffs have failed to satisfy the onus which shifted to them in this regard.

[18] They argue that, with respect to the evidence before the Court, the plaintiffs have relied upon an affidavit sworn by Stuart Jackson, a former employee who now does contract work with the plaintiffs, who was not involved in the actual factual matrix of this action and has had to obtain his information from those who are directly involved, such as Mr. Lind. They argue that the plaintiffs have failed to provide any firsthand knowledge of the allegations made in the Fresh Statement of Claim.

[19] The defendants submit that the claims alleged as against them are shown to be without merit and amenable to summary judgment. They further submit that the allegations with respect to the manipulation of egg grading data and the allegations of conspiracy disclose no real cause of action and present no genuine issue requiring a trial, and that there is no evidence proffered by the plaintiffs to substantiate these claims.

The Position of the Plaintiffs

[20] The plaintiffs argue that the defendants’ motion for summary judgment is premature. They argue that the defendants’ failure or refusal to produce all documentation in their possession with respect to the issues in play has impeded the plaintiffs’ ability to put their best foot forward.

[21] Moreover, the plaintiffs argue that, at present, there have been no discoveries because the defendants have failed or refused to provide all relevant documentation.

[22] They argue that the legal onus is initially on the defendants to satisfy the court that there is no genuine issue requiring a trial, following which the evidentiary onus shifts to the plaintiffs. They argue that the defendants have not satisfied their burden.

[23] The plaintiffs further argue that the matter involves contested facts, and that most of the claims in issue will involve a mix of documentary evidence and oral evidence. They argue that there are issues of credibility and that expert evidence will be required, all of which can only be tested with the full machinery of a trial.

Summary Judgment and Rule 20

[24] Rule 20 provides for summary judgment where there is no genuine issue requiring a trial with respect to a claim or defence. The Court of Appeal for Ontario provided guidance with respect to the application of Rule 20 in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, [2011] O.J. No. 5431. The Court, at paras. 40-44, identified the following classes of cases which are generally appropriate for application of the summary judgment rule:

a) where the parties agree it is appropriate to determine an action by way of a motion for summary judgment;

b) where a claim or defence is without merit; and

c) where the trial process is not required in the interest of justice.

[25] The Court of Appeal in Combined Air, supra, observed that a judge, faced with a summary judgment motion, must focus on whether the case is one which does not require the trial process in the “interest of justice” or require a trial for a fair and just adjudication of the dispute. The Court observed at paras. 50-52 that:

[T]he motion judge must ask the following question: can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?

We think this “full appreciation test” provides a useful benchmark for deciding whether or not a trial is required in the interest of justice. In cases that call for multiple findings of fact on the basis of conflicting evidence emanating from a number of witnesses and found in a voluminous record, a summary judgment motion cannot serve as an adequate substitute for the trial process. Generally speaking, in those cases, the motion judge simply cannot achieve the full appreciation of the evidence and issues that is required to make dispositive findings. Accordingly, the full appreciation test is not met and the “interest of justice” requires a trial.

In contrast, in document-driven cases with limited testimonial evidence, a motion judge would be able to achieve the full appreciation of the evidence and issues that is required to make dispositive findings.

[26] The judge hearing a motion for summary judgment is required to take a hard look at the evidence adduced by all parties in order to determine whether there is, or is not, a genuine issue requiring a trial. The onus of establishing that there is no genuine issue requiring a trial is on the moving party. Where the moving party establishes that there is no genuine issue requiring a trial, the onus shifts to the responding party to establish that there is a genuine issue requiring a trial.

[27] In order to defeat a motion for summary judgment, the responding party must put forward some evidence to show that there is a genuine issue requiring a trial. A responding party may not rest on mere allegations or denials of the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing there is a genuine issue requiring a trial. The court may, where appropriate, draw an adverse inference from the failure of a party to provide the evidence of any person having personal knowledge of contested facts. The motion judge is entitled to assume that the record contains all the evidence that would be introduced at trial.

[28] A summary judgment motion cannot be defeated by vague references as to what may be adduced in the future, if the matter is allowed to proceed to trial. Such a proposition would undermine the rationale of Rule 20. The motion must be judged on the basis of the pleadings and materials actually before the judge and not on suppositions about what might be pleaded or proved in the future. The responding party to a summary judgment motion must “lead trump or risk losing”. The requirement that the parties put their “best foot forward” goes together with the requirement that the motion judge “take a hard look at the merits of the action at this preliminary stage” to determine whether the moving party has succeeded in establishing that there is no genuine issue requiring a trial (Combined Air, supra, at para. 15).

[29] Pursuant to Rule 20, the motion judge is granted the powers of weighing the evidence, evaluating the credibility of the deponents and drawing any reasonable inference from the evidence, in order to determine whether there is a genuine issue.

Analysis

[30] The plaintiffs adduced evidence in defence of the motion in the form of an affidavit from Stuart Jackson, a former employee, now working on contract with the plaintiff, Sweda Farms. The plaintiffs allege that the defendants manipulated the grading of eggs received from egg farmers, through the deliberate resetting of the Diamond egg grading system, so that cracked and dirty eggs were included in the Grade A packs sold to consumers. In support, the plaintiffs produced an analysis they conducted on a sampling of the grading data provided by Bourdeau. The analysis identifies and quantifies the amount of cracked eggs added to the Grade A packs during the sample. They state that the Canadian Federal Egg Regulations do not allow any cracks in Grade A packs from federally regulated grading stations.

[31] The egg grading data analysis by an expert retained by Mr. Lind involves data from 10 farmers over 10 days. The plaintiffs indicate that this does not give full insight into the egg grading data, as it is a restricted sample. The plaintiffs state that the fact that the analysis is incomplete is due to the failure on the part of the defendants to provide full documentary discovery. They argue that the more significant documentation, which would be necessary for this action, is now in the hands of the supervising solicitor, who holds over 100 gigabytes of data, or 1 million documents.

[32] The defendants adduced affidavit evidence of Scott Brookshaw, Executive Vice President of Processing for L.H. Gray, in which he disputes the allegations of misconduct and fraudulent activity by L.H. Gray. He further disputes the egg grading data analysis presented by Mr. Lind, which was based on the few productions in their possession, and states that the evidence contained therein is incomplete and false.

[33] With respect to the egg grading data, Mr. Brookshaw alleges in his affidavit that the data has been misrepresented or manipulated. Mr. Brookshaw further states in the affidavit that there are no industry standards or regulations for egg grading machines and their settings. He makes reference to egg grading settings in his affidavit and opines that the settings should have been set differently, as a result of which the data obtained by Bourdeau and subsequently the plaintiffs shows a dramatically higher record of cracked eggs. There is no evidence to support these statements, and as pointed out by Mr. Morrow, no Crack Detector Machine Manual has been provided which could shed light on the information regarding the various settings. Mr. Brookshaw, in his affidavit, opines that, given the age of the flock as shown on the analysis prepared by the plaintiffs, one would expect a certain number of cracks or dirty eggs for the age of the flock. Again, there is no evidence to support this statement. He states that “if one understands the process of grading and the nature of the product at various stages, one would understand that it is not possible to have the number of cracks as reported in this age of flock.” Again, there is no evidence to support such a statement. I find that the affidavit, throughout, contains statements that are unsupported by any evidence, and includes opinion and technical information that is more appropriately presented by an independent expert.

[34] Mr. Brookshaw, in his reply affidavit, gives significant evidence, disputing Mr. Jackson’s statements. He refutes or disagrees with statements made by Mr. Jackson regarding the egg grading issues which are seminal to this action. Mr. Brookshaw states that the plaintiffs simply do not understand the process of the crack detector and hand candling, nor the grading processes. In order to establish this, witnesses, preferably experts, would have to be examined. He has made a number of other statements regarding egg grading and egg grading machines which are in the nature of opinion. The defendants acknowledge that neither affiant is an expert. Expert evidence will be required in order to have a full appreciation of the issues involved.

[35] Moreover, Mr. Brookshaw imputes misrepresentation, improper conduct and bad faith to the plaintiffs. He states that the plaintiffs have a questionable reputation in the egg industry. There is no supporting evidence of this bald statement in the affidavit, but rather only his stated belief. This raises issues of disputed material fact and also of credibility with respect to the two affiants which are best determined at trial.

[36] The plaintiffs’ list of potential witnesses for trial, as contained in Mr. Jackson’s affidavit, include witnesses from all of the various components of the egg industry, including egg farmers, retail processors, 17 retail stores, marketers, provincial and federal employees with respect to standards and regulations, and a number of other witnesses. The defendants point out that, to date, there have been no witness statements produced and, in the context of this motion, the plaintiffs have not provided any statements. Again, the plaintiffs state that to do so would be premature until all documentation has been produced and the documentary discovery phase is completed. In the context of this case, which involves complex issues regarding the egg-supplying industry generally, I am not surprised that there may be a significant number of lay and expert witnesses. Indeed, I am of the view that such would be necessary to obtain a full appreciation of the issues involved.

[37] The moving defendants argue that they have satisfied the onus and that the evidentiary burden has shifted to the plaintiffs. They argue that the plaintiffs have failed to satisfy their burden to establish that there is a genuine issue requiring a trial and have failed to put their best foot forward.

[38] However, I find the evidence before the Court establishes that there are genuine issues requiring a trial and that, if there is a deficit of documentation proffered by the plaintiffs, it is due to the fact that not all documentation has, to date, been produced by the defendants, as noted above and, indeed, there is a motion for production of further documentation to be heard before the Case Management Master in December of 2013. The documentation sought includes all documentation held by the supervising solicitor which numbers approximately 1 million documents, as well as the defendants’ egg grading data.

[39] I am of the view that this motion for partial summary judgment is premature. While the defendants argue that this motion had to be brought first, in order that the issues could be defined and the relevance of documents (such as the egg grading data) determined, I do not find their arguments convincing. I am of the view that the defendants’ bringing of a motion for partial summary judgment at this juncture, before the documentary production phase has been completed, and then arguing that the plaintiffs have failed to put their best foot forward, is not justified. Given the incomplete production of documentation and the plaintiffs’ motion to compel the defendants to provide a further and better affidavit of documents and production of documents, I find the defendants’ motion for partial summary judgment to be, to say the least, doubtful practice.

[40] I do not find this to be an appropriate case for the partial summary judgment sought by the defendants. I do not find, based on all of the evidence before me, that the defendants have discharged their burden of establishing that there are no genuine issues requiring a trial. Based on the record before me, there are issues of disputed material fact and of credibility raised. Based on the complex issues involved, the facts in dispute and the issues of credibility, there will be a need to hear from numerous witnesses, including expert witnesses. I am satisfied, based on all of the evidence before me and the submissions of counsel, that a full appreciation of this matter cannot be had without the full machinery of trial. Moreover, as indicated above, I am of the view that this motion is clearly premature in the circumstances.

Order

[41] The moving defendants’ motion is dismissed.

Costs

[42] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown J.

Date: July 22, 2013