SUPERIOR COURT OF JUSTICE - ONTARIO

RE: I.M.P. Group Limited v. Skyservice Business Aviation Inc.,

2013 ONSC 4956

COURT FILE NO.: CV-10-402638

BEFORE: MASTER R.A. MUIR

COUNSEL: Hannah Arthurs for the defendants Skyservice Business Aviation Inc., Sky Service F.B.O., Inc., Russell Payson, Marshall Myles, Paul Weeks and John O’Brien

Emily Graham for the defendants Gary V. Smith, Christian Brien, Antonio Marchetta, Jean-Philippe Archetto, Marie-Christine Bondu, Muhammad N. Haque, Rafik Melikian, Shaan Habib, Joe Gallant and Marc Beauchemin

Andrew Winton for the plaintiff

HEARD: July 18, 2013

ENDORSEMENT

[1] The defendants bring this motion seeking answers to undertakings and questions refused on the plaintiff’s examination for discovery. A number of the issues on this motion were resolved prior to the hearing date. However, several undertakings and refusals remained in dispute.

[2] In this action, the plaintiff seeks significant damages for breach of contract, breach of fiduciary duty and other related claims. The plaintiff and the defendant Skyservice Business Aviation Inc. (“Skyservice”) are competitors in the business of non-destructive testing (“NDT”) of aviation parts, among other things. This claim arises due to the departure from the plaintiff of several senior and allegedly key employees. The employees in question left the plaintiff in April 2010 to join the defendant Skyservice.

[3] In determining the issues on this motion I have applied the relevance test set out in Rules 31.06 and 30.02. I am also mindful of the principles to be applied on motions of this nature as summarized by Perell J. in Ontario v. Rothmans Inc., 2011 ONSC 2504 at paragraph 129, which reads as follows:

129 The case law has developed the following principles about the scope of the questioning on an examination for discovery:

• The scope of the discovery is defined by the pleadings; discovery questions must be relevant to the issues as defined by the pleadings: Playfair v. Cormack (1913), 1913 599 (ON SC), 4 O.W.N. 817 (H.C.J.).

• The examining party may not go beyond the pleadings in an effort to find a claim or defence that has not been pleaded. Overbroad or speculative discovery is known colloquially as a "fishing expedition" and it is not permitted. See Cominco Ltd. v. Westinghouse Can. Ltd. (1979), 1979 489 (BC CA), 11 B.C.L.R. 142 (C.A.); Allarco Broadcasting Ltd. v. Duke (1981), 1981 723 (BC SC), 26 C.P.C. 13 (B.C.S.C.).

• Under the former case law, where the rules provided for questions "relating to any matter in issue," the scope of discovery was defined with wide latitude and a question would be proper if there is a semblance of relevancy: Kay v. Posluns (1989), 1989 4297 (ON SC), 71 O.R. (2d) 238 (H.C.J.); Air Canada v. McConnell Douglas Corp. (1995), 1995 7147 (ON SC), 22 O.R. (3d) 140 (Master), aff'd (1995), 1995 7189 (ON SC), 23 O.R. (3d) 156 (Gen. Div.). The recently amended rule changes "relating to any matter in issue" to "relevant to any matter in issue," which suggests a modest narrowing of the scope of examinations for discovery.

• The extent of discovery is not unlimited, and in controlling its process and to avoid discovery from being oppressive and uncontrollable, the court may keep discovery within reasonable and efficient bounds: Graydon v. Graydon (1921), 1921 444 (ON SC), 67 D.L.R. 116 (Ont. S.C.) at pp. 118 and 119 per Justice Middleton ("Discovery is intended to be an engine to be prudently used for the extraction of truth, but it must not be made an instrument of torture ..."); Kay v. Posluns (1989), 1989 4297 (ON SC), 71 O.R. (2d) 238 (H.C.J.) at p. 246; Ontario (Attorney General) v. Ballard Estate (1995), 1995 3509 (ON CA), 26 O.R. (3d) 39 (C.A.) at p. 48 ("The discovery process must also be kept within reasonable bounds."); 671122 Ontario Ltd. v. Canadian Tire Corp., [1996] O.J. No. 2539 (Gen. Div.) at paras. 8-9; Caputo v. Imperial Tobacco Ltd., [2003] O.J. No. 2269 (S.C.J.).

• The court has the power to restrict an examination for discovery that is onerous or abusive: Andersen v. St. Jude Medical Inc., [2007] O.J. No. 5383 (Master).

• The witness on an examination for discovery may be questioned for hearsay evidence because an examination for discovery requires the witness to give not only his or her knowledge but his or her information and belief about the matters in issue: Van Horn v. Verrall (1911), 3 O.W.N. 439 (H.C.J.); Rubinoff v. Newton, 1966 198 (ON SC), [1967] 1 O.R. 402 (H.C.J.); Kay v. Posluns (1989), 1989 4297 (ON SC), 71 O.R. (2d) 238 (H.C.J.).

• The witness on an examination for discovery may be questioned about the party's position on questions of law: Six Nations of the Grand River Indian Band v. Canada (Attorney General) (2000), 2000 26988 (ON SCDC), 48 O.R. (3d) 377 (S.C.J.).

[4] The first issue argued related to the undertaking given at question 571 of the plaintiff’s examination. In my view, when read in context, it is clear that the defendants were seeking the underlying documents in Excel format. This is confirmed by the document produced by the plaintiff in partial response to this undertaking found at Tab 7 of the Joint Brief of Additional Documents. This undertaking shall be answered by the plaintiff providing the same documents in Excel format for the other fiscal years between 2007 and 2012.

[5] The next issue argued related to the undertaking at question 1356. In my view, that undertaking is limited to asking the plaintiff whether any employees had to resort to purchasing their own tools while employed with the plaintiff. In my view, the plaintiff has satisfactorily answered that question. The plaintiff is only aware of one such employee (the defendant Christian Brien). It may be that a somewhat broader undertaking was given at question 1351 but the defendants are not moving on that question. No further answer is required.

[6] The next issues argued related to the refusals to questions asked on behalf of the defendants represented by Goodmans LLP (Ms. Arthurs). The first two questions related to a request for financial information for a division of the plaintiff known as Execaire. The plaintiff has produced financial statements for its NDT department, which operates within the plaintiff’s Execaire division. The plaintiff has confirmed that its damages are limited to the NDT department. The defendants were given a full opportunity to ask questions about the NDT financial statements that were produced. In my view, the broader Execaire statements are not relevant to the plaintiff’s damages claim. Questions 313 and 707 need not be answered.

[7] The next questions argued related to whether the plaintiff performed any work on behalf of a business known as Bombardier AMG during the relevant time period. It appears that Bombardier AMG is an operating group within the larger Bombardier corporate structure but may not be a separate legal entity. The documents produced by the plaintiff refer to work performed for various Bombardier divisions or groups (Mexico, Completion Centre, etc.). Bombardier AMG is not referenced anywhere in those documents. However, it is my view that there is some relevance to these questions given the manner in which the various Bombardier entities are referenced in the plaintiff’s documents. Questions 335-343 and 1535 shall be answered.

[8] The next questions argued related to hourly rates charged by the plaintiff for performing NDT work before and after the departure of the defendants who are former employees of the plaintiff. The plaintiff has produced some information in relation to fiscal 2011 but refuses to produce any other similar information for other years. In my view, this information is relevant to the quantum of damages being sought by the plaintiff. Some historical consideration of the hourly rates the plaintiff charged for the NDT work is relevant to the issue of whether and how the rates may have changed after the departure of the subject employees. In my view, the questions asked by the defendants are limited and reasonable in the circumstances. Questions 467 and 468 shall be answered, subject to certain confidentiality requirements discussed below.

[9] The next questions argued seek certain NDT budget preparation information and documents in connection with the plaintiff’s 2012 fiscal year. In my view, these requests are speculative and not relevant. The budget discussions in issue took place well after the subject employees left the employ of the plaintiff. Obviously, at that time there would have been no discussions or projections of what revenues may have been earned had the employees not left. The plaintiff knew the employees had left. In any event, what is important and relevant is how the NDT department actually performed financially and not the plaintiff’s estimates or budgetary projections. Questions 556-557 need not be answered.

[10] The next questions argued related to the issue of an alleged implied contractual term of the employees’ contracts of employment to provide reasonable notice of resignation. It appears that the plaintiff may have been able to replace some of the employees who left to join Skyservice on a relatively quick basis (although the evidence is not entirely clear as to when certain new employees were actually hired and commenced work). The defendants seek information from the plaintiff about these replacement employees. Specifically, they want to know whether these employees were employed elsewhere before joining the plaintiff, whether they gave notice to their former employers and, if so, how much notice. These questions also seek particulars of the plaintiff’s recruitment activities in attempting to replace the departed employees. In my view, none of these questions are relevant. Even assuming that industry practice is a relevant consideration with respect to such an issue, I see no relevance to the question of how much notice a handful of individuals may or may not have provided to their former employers. That information would not contribute to an understanding of the requirement for notoriety or universality. See Scapillati v. A. Potvin Construction Ltd., 1999 1473 (ON CA), 1999 CarswellOnt 1844 (C.A.) at paragraph 42. Moreover, I see no relevance to the questions related to terms and conditions of the employment contracts those new employees may have entered into with the plaintiff. Any determination of the appropriate notice period is specific to the employees in question, the nature of their work and their areas of work. See GasTOPS Ltd. v. Forsyth, 2009 66153 (ON SC), 2009 CarswellOnt 5773 (S.C.J.) at paragraph 90. Questions 182, 183 and 799-802 need not be answered.

[11] The next series of refusals argued arose from the examination of the plaintiff conducted by the defendants represented by Lenczner Slaght (Ms. Graham). The first series of questions all related to reports and information that may have been given to the police by the plaintiff concerning the former employees’ alleged conversion of the plaintiff’s property. In my view, these questions are not relevant to the issues in this action as identified by the moving defendants. There may be many reasons for reporting or not reporting a particular matter to the police. These questions may be relevant to the question of whether or not items were taken by the individual defendants when they left the employ of the plaintiff. However, there is no dispute that items were taken. The question is whether they were improperly taken. In addition, I do not see these questions as relevant to the issue of damages. The plaintiff’s claim is for lost business profits, not for the value of the physical items removed by the former employees. Questions 1403 (at page 517), 1403 (at page 518) and 1600-1601 need not be answered.

[12] The next question argued seeks information about a piece of equipment that a current employee of the plaintiff may have improperly taken from another unrelated company with which he was once involved and may now be located at the plaintiff’s premises. The defendants argue that this question goes to the issue of punitive damages and the plaintiff’s lack of entitlement to such damages based on alleged improper conduct. In my view, this question is entirely speculative. There is simply no evidentiary basis to support the factual underpinning of the question or to indicate the source of the defendants’ information. This is a fishing expedition and not a proper question for discovery. Question 1425 need not be answered.

[13] The next question argued was a request for the complete human resources files the plaintiff kept in connection with the former employees. The plaintiff states that all relevant documents from those files have been produced. The allegations in this action against the former employees are broad and wide ranging. In my view, they touch upon all aspects of their employment relationships with the plaintiff. Under these circumstances, it is my view that the entire files are relevant and should be produced. Question 1623 shall be answered.

[14] The next question argued related to information from the plaintiff’s business and marketing plans concerning its Calgary business expansion initiative apparently led by the plaintiff’s current employee, Fulvio Mini (“Mini”). The defendants argue that these questions are relevant to two issues: the role and responsibilities of the defendant Gary Smith (“Smith”) while he was employed by the plaintiff and mitigation of damages. I do not see how the contents of the marketing and business plans with respect to the proposed Calgary venture are relevant to these issues. The Calgary initiative appears to have been launched after the departure of the subject employees. It is not something Smith was working on. The defendants are free to ask questions about Mini’s role and responsibilities with the plaintiff and they appear to have done so. The nature of Smith’s former position with the plaintiff does not arise from the contents of the Calgary plans. Similarly, the Calgary plans are not relevant to mitigation. If revenue is earned from any Calgary operations, that information may be relevant to the question of damages but I do not see how the details of a mere proposal can be relevant. Questions 1276 and 1278 need not be answered.

[15] The next series of questions argued all related to what the plaintiff alleges is commercially sensitive proprietary information. First, the defendants seek the production of various iterations of NDT procedural manuals. Certain of these manuals were prepared by the plaintiff and submitted to Transport Canada over a series of years, both before and after the departure of the subject employees. Other manuals appear to have been prepared for internal use only. Versions of these manuals were taken by one of more of the former employees when they left the plaintiff. The defendants argue that these manuals are relevant to the issue of how much of the content of the manuals was truly proprietary and how much may have been commonly accessible to all NDT providers. This, they argue, is relevant to the plaintiff’s claims arising from the alleged misuse of proprietary and confidential information.

[16] I do not see the relevance of all versions of the manuals or any changes to the manuals that may have been made by the plaintiff over the years. In my view, the only relevant versions of the manuals are the versions that existed at the time of the employees’ departure and which were taken by them. This is the allegedly proprietary information taken by the employees for which the plaintiff seeks damages. Questions 1641, 1652, 1688, 1689 and 1686 shall be answered by the plaintiff producing the versions of the manuals as they existed at the time of the employees’ departure in April 2010 (subject to the confidentiality restrictions discussed below).

[17] Second, the defendants seek information about certain documents used by employees of the plaintiff and referred to as “cheat sheets”. In my view, the plaintiff has now answered these questions as set out in the plaintiff’s Answers to the Lenczner Slaght Refusals found at Tab 2 of the Joint Brief of Additional Documents. No further answers are required to questions 1709-1711.

[18] Third, the defendants seek a copy of a DVD which apparently contains copies of all of the documents that certain of the defendants removed from the plaintiff’s workshop at the time of their departure in April 2010. These documents were subsequently returned to the plaintiff pursuant to the consent order made by Justice Penny on May 19, 2010. The plaintiff does not object to producing the DVD but only on the basis that the confidentiality of the documents be maintained by the terms of an order or a confidentiality agreement among the parties. The plaintiff also submits that the documents on the DVD should be for “counsel eyes only” and not be provided to any of the defendants. The defendants argue that a confidentiality order is an unusual remedy and that the plaintiff is already protected by the deemed undertaking rule.

[19] I agree that such conditions on the production of documents are unusual. The applicable factors the court should look at when asked to make such an order are set out in Eisses v. CPL Systems Canada Inc., 2008 1946 (ON SC), [2008] O.J. No. 239 (S.C.J. – Master) at paragraph 5. Those factors can be summarized as follows:

• the burden is on the party seeking the confidentiality order;

• a confidentiality order is exceptional in nature;

• the court has jurisdiction under section 137(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43 to make such an order in circumstances where unlimited production will prejudice a party;

• a confidentiality order may be made where a party would risk serious financial harm if information is made available to a competitor;

• the court must strike a balance between the right to disclosure and the right of a party to protect sensitive and confidential information;

• the risk of harm must be real and substantial;

• if the court is satisfied that the information is confidential, that it is commercially sensitive, and that a competitor could obtain an unfair advantage through its release, the moving party will be prima facie entitled to a protective order unless the responding party would be unduly prejudiced by such an order;

• where the information at issue is such that disclosure would allow a competitor to improve its competitive position, it is appropriate that a protective order be issued to guard against such effect;

• where the information that is at issue is such that it would allow a competitor to improve its competitive position, it is not enough to suggest that the parties are protected by the deemed undertaking rule, because this rule would not prevent the use of the information by a competitor so long as it does not use the information to commence a new lawsuit, but simply seeks to improve its competitive position;

• the deemed undertaking rule does not apply to evidence filed in court or referred to in the hearing and the rule only applies to parties, their counsel and experts, but not to third parties that would have access to material filed with the court.

[20] Having considered these principles, it is my view that some further confidentiality protection is appropriate in the circumstances of this action. The plaintiff and Skyservice are competitors. This action involves allegations of conversion and misuse of confidential and proprietary information. The former employee defendants removed documents from their employer’s premises upon their departure. The documents were only returned after the consent order of Justice Penny was made. Justice Penny’s consent order refers to the documents as “confidential information”. The authorities dealing with the deemed undertaking rule appear to suggest that it only applies to commencing a new lawsuit.

[21] These factors militate in favour of some form of an additional protective order or agreement. At a minimum, it appears to me that a confidentiality agreement should reflect the language in the deemed undertaking rule to the effect that the parties are not to use the information for any purpose other than in connection with this proceeding. The agreement should also include a requirement that the information not be disclosed to any other persons. It should also provide that the deemed undertaking rule continue to apply even after the information has been filed with the court or referred to in a hearing.

[22] I do not, however, agree with the plaintiff’s argument that the production of these documents should be on a “counsel eyes only” basis. Such an order would seriously impair the ability of the defendants to instruct counsel and ultimately defend these very serious allegations. Sealing documents from the parties to litigation is extraordinary. It interferes with the lawyer/client relationship and with the adversarial system of adjudication. It should only be granted in very rare circumstances where there is a demonstrated risk of serious injury. See Foss v. Foss, 2013 ONSC 1345 (S.C.J.) at paragraphs 43 and 44. Such extraordinary circumstances are not present in the context of this action.

[23] I am therefore ordering that the plaintiff produce a copy of the DVD to the defendants upon the parties entering into an acceptable confidentiality agreement. This requirement for a confidentiality agreement shall also apply to the manuals ordered to be produced as per my ruling on questions 1641, 1652, 1688, 1689 and 1686 and the hourly rate information as per questions 467 and 468. If the parties are unable to reach an agreement with respect to a confidentiality agreement they are free to contact my office to arrange for an opportunity to speak to the matter.

[24] The plaintiff shall answer its remaining undertakings within 45 days. To the extent that I have ordered the plaintiff to answer questions refused, those questions shall also be answered within 45 days.

[25] The parties agree that a re-attendance is necessary. The defendants seek a further seven hours. The plaintiff suggests that four hours would be sufficient. This is a relatively complex action. The amounts involved are significant. The answers still to be provided by the plaintiff will most likely involve a large number of documents. In my view, a re-attendance on the part of the plaintiff’s representative for a further period of seven hours is reasonable in the circumstances.

[26] Finally, I have been advised by the parties that they have resolved the issue of costs. It is therefore unnecessary for the court make any order in that respect.

Master R.A. Muir

DATE: July 25, 2013