COURT FILE AND PARTIES

COURT FILE NO.: CV-13-49377

DATE: 20140725

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: REMEDY DRUG STORE CO. INC., Plaintiff

AND:

JANE FARNHAM, Defendant

AND BETWEEN:

JANE FARNHAM, Plaintiff by Counterclaim

AND:

REMEDY DRUG STORE CO. INC. and BRUCE MOODY Defendants by Counterclaim

BEFORE: Mr. Justice Mew

COUNSEL:
David Chernos, for the Plaintiff/Defendants to the counterclaim

Matthew P. Sammon and Paul-Erik Veel, for the Defendant/Plaintiff by counterclaim

HEARD: 21 July 2014

ENDORSEMENT

(Motion to enforce settlement pursuant to Rule 49.09(a))

[1] Jane Farnham’s last day at work as the General Manager and Executive Vice President, Pharmacy Services of the plaintiff company was 28 October 2013. That morning she deleted 13,844 emails from her email inbox and 35,632 emails from her sent messages. She also printed a large number of documents at the plaintiff’s office and took them with her.

[2] It subsequently came to light that between 26 and 28 October Ms. Farnham had remotely accessed the plaintiff’s server on a number of occasions and forwarded 526 emails (with a large number of attachments) to her home email account.

[3] For the purposes of this motion it matters not whether Ms. Farnham was dismissed or pre-emptively resigned from her employment with the plaintiff.

[4] An action was commenced by Remedy Drug Store Co. Inc. (“Remedy”) on 25 November 2013 for, among other things, damages and declaratory relief that 1) Ms. Farnham had breached her employment agreement; 2) Ms. Farnham had breached her fiduciary duties owed to Remedy; and 3) Ms. Farnham had engaged in a breach of confidence. Concurrently with issuing the claim, Remedy brought a motion for an interim and interlocutory injunction in respect of confidential information which, Remedy alleged, Ms. Farnham had acquired. That motion was originally returnable on 10 February 2014 but was subsequently adjourned at the request of the plaintiff (unopposed by the defendant) to 14 April 2014.

[5] In the meantime efforts were made to settle the dispute between the parties.

[6] The issues raised on this motion are, essentially, as follows:

(a) Did the parties settle their action;

(b) If so, what were the terms of the settlement agreement; and

(c) Was the settlement agreement terminated by reason of being repudiated by the defendant and such repudiation being accepted by the plaintiff?

[7] A subsidiary, evidentiary, issue is to what extent, if at all, evidence of the parties’ negotiations prior to the disputed settlement and of their subjective intentions is admissible for the purposes of interpreting the settlement agreement.

[8] Although lawyers were involved from early on, the evidence indicates that the parties thought they had reached an agreement, the terms of which were contained in a series of emails between Ms. Farnham and Remedy’s president, Bruce Moody, culminating on 9 January 2014 at which point Ms. Farnham declared that “we have an agreement”.

[9] What has subsequently emerged as a contentious issue is whether or not in particular, the parties reached an agreement on dealing with an appropriate method to capture and destroy the electronic information obtained by Ms. Farnham prior to her departure from the company.

[10] The issue of electronic information was raised, not for the first time, in an email from Ms. Farnham to Mr. Moody dated 6 January 2014 in which Ms. Farnham made the following proposal:

Regarding the e-mails, I will engage a third party IT consultant who has been recommended by my lawyer to wipe, purge and certify my devices (laptop and iPad) as well as my Yahoo account clean of all Remedy documents. I will then swear an affidavit stating that I have returned all documents and e-mails and that I have never and will never do anything to harm you or your business. The IT consultant can swear an affidavit confirming these steps have been completed. I will do this at my expense. I am suggesting that we use the IT consultant recommended by my lawyer as his quote is less than a quarter of the quote provided by Remedy’s lawyers’ IT consultant.

Mr. Moody’s response to this particular proposal was contained in an email dated 7 January 2014 in which his only comment on the above quoted passage was:

The IT firm selected by my law firm will do the work at your cost.

[11] In a further email from Ms. Farnham to Mr. Moody on 8 January 2014, she said, in respect of the IT issue:

I will pay $2,500 toward the work performed by your IT consultant.

[12] Mr. Moody responded the same day. He did not specifically address the IT issue further but said:

You have my position on the other items as per my previous email.

[13] It was in response to Mr. Moody’s 8 January 2014 email that Ms. Farnham, having regard to all that had preceded, pronounced that “we have an agreement”. She added:

My lawyer has custody of the laptop and the iPad and arrangements can be made with him to have the IT professionals clean those drives and my Yahoo account.

Bruce, I am glad we have been able to satisfactorily resolve this between ourselves.

[14] So far, so good (or so one would think).

[15] After these exchanges between the parties, the lawyer for the plaintiff (not counsel appearing on this motion) told the lawyer then representing Ms. Farnham that he was going to put together formal minutes of settlement and mutual releases along with a draft of the letter to the IT consultant regarding instructions for wiping Ms. Farnham’s laptop and iPad as well as her Yahoo account.

[16] The position taken by Ms. Farnham’s then lawyer was that he was not certain that formal minutes of settlement were required because the terms of the agreement were set out in the emails between the parties. Nevertheless, he said that he was prepared to consider recommending formal minutes to Ms. Farnham provided that the draft was fully consistent with the agreement already reached between the clients. He added, somewhat prophetically as it turns out, that he did not want to complicate the simple agreement that had been reached.

[17] As it turned out there was a concern that the draft minutes of settlement did not reflect the parties’ agreement. Paragraph 7 provided as follows:

Confidential Information

Ms. Farnham’s laptop and iPad will be delivered to Joe Coltson at Duff & Phelps on or before January 17, 2014. Ms. Farnham will also provide the password for her yahoo email account. Mr. Coltson will take the necessary steps to search and permanently delete all of Remedy’s information from these devices and the yahoo email account by taking the following steps: (1) forensic collection; (2) keyword searching; (3) keyword hit reviews; (4) preparing native file data; and (5) wiping devices. The costs of Mr. Coltson’s work will be paid for by Ms. Farnham. Remedy will hold back $10,000 from the lump sum payable to Ms. Farnham….for this purpose. In the event that the cost of Mr. Coltson’s work is less than $10,000, Remedy will pay the difference to Ms. Farnham within 7 days of receipt of Mr. Coltson’s invoice. In the event that the cost of Mr. Coltson’s work is more than $10,000, Remedy will deduct that amount from the first bi-weekly installment payment to Ms. Farnham in November 2014 referred to in paragraph 1.

Ms. Farnham will swear an affidavit, in a form acceptable to Remedy, confirming that (1) she has not kept electronic or hard copies of any of Remedy’s documents or confidential information and no longer has any of Remedy’s documents or confidential information in her possession, power or control; and (2) she has not used or disseminated these documents or confidential information in any manner whatsoever.

[18] Ms. Farnham, through her lawyer, took particular exception to the third sentence in the first paragraph, quoted above, under the heading “Confidential Information”. She characterized the language used by the plaintiff in its draft minutes of settlement as providing for a full “data sweep”. Her suggestion was that this sentence should be modified so that it read:

“Mr. Coltson will take the necessary steps to certify the devices and the Yahoo account clean of all Remedy documents.”

[19] In her email of 6 January, Ms. Farnham had made reference to “the quote” provided by Remedy’s lawyers IT consultant. It will be recalled that Mr. Moody’s comment, the following date, was that the IT firm selected by his lawyers “will do the work” at Ms. Farnham’s cost.

[20] The plaintiff takes the position that what was meant by “the work” was a detailed description, essentially a “clean sweep”, that had first been sent to Ms. Farnham’s lawyers by the plaintiff’s lawyers under cover of a letter dated 11 November 2013.

[21] Ms. Farnham, by contrast, asserts that “the work” was a reference to the process set out in her email of 6 January 2014 and excerpted in paragraph 10 (above).

[22] With the lawyers seemingly at an impasse over the draft minutes of settlement, the following exchange of email messages took place between Ms. Farnham and Mr. Moody on 20 January 2014. First, Ms. Farnham wrote:

I understood from our e-mail exchange that concluded on January 9 that we had reached a clear agreement to settle. Subsequent to that, it would appear that our respective lawyers have been investing more time documenting what we agreed to.

I am prepared to settle this thing today in accordance with the clear and simple terms we concluded on. Please advise if you are willing to do the same.

In his response, Mr. Moody suggested that he had also understood that there had been a settlement until Ms. Farnham “decided to make more changes”. He continued:

So, no more games. I will not budge on the sweep of your systems being conducted in the manner detailed by my lawyers in previous communications. Again, you started this process when you stole the highly confidential and highly damaging information. I will maintain my rights to gain as much peace of mind as possible through an IT sweep process defined by my lawyers and paid by you. If you wish to leave lawyers out, stop going to yours and settle. Your lawyer has all the information required for you to settle. At this point, I am happy to continue and press forward with an injunction and any other legal avenues available to me.

[23] The next day, Mr. Moody sent a further email saying:

So, I now understand from your lawyer last evening that 1) he has decided not to allow an [sic] proper sweep of your systems. While I have no desire/interest to have knowledge of your private exchanges with your lawyers, I do have the right to learn if you have forwarded company information to any other party. The method my lawyers have detailed is the only way that this can be accomplished…

And further on:

I will not accept an agreement that restricts me in any fashion as stated above. In the final analysis, if you are indeed sincere in your words “peace” and “moving on”; you will accept my position on these two items which are very reasonable and appropriate given your actions. Alternatively, we will have to go through the courts as it will become clear, based on your unwillingness to move that you do in fact have something to hide. You are providing with no alternative other than taking the necessary action to protect my business.

[24] On 3 February 2014, new lawyers acting for Ms. Farnham wrote to the plaintiff’s lawyers stating:

…to the extent that the parties have arrived at a binding settlement, your client has repudiated that settlement, through its words and actions.

Our client hereby elects to treat such settlement as at an end, and to proceed with the defence of the litigation and her intended counterclaim….

[25] As already noted, the injunction motion scheduled for 10 February 2014 was adjourned to 14 April 2014.

[26] On 10 April 2014, the parties agreed terms to resolve the pending injunction motion which, essentially, committed Ms. Farnham to:

(a) Returning certain hard copy documents to Remedy without retaining copies;

(b) Providing her laptop computer and iPad to an independent third party to be held pending further agreement or order of the court; and

(c) Providing the same third party with access to her Yahoo email account, the third party to then copy any emails forwarded to that account from Ms. Farnham’s Remedy email address between 26 and 28 October as well as subsequent emails in her Yahoo email account containing any portion of the forwarded emails and that once such copies have been taken, the subject emails will be deleted from the Yahoo account and the copies taken by the third party will be securely maintained.

The parties also agreed that the injunction motion would be withdrawn. The costs of the motion would be deferred to the trial judge.

Discussion and Analysis

[27] The preliminary issue raised by Ms. Farnham is that while, in considering the agreement reached by the parties, the court can have regard to the general context and background of the settlement agreement, it is not permissible to admit evidence of the subjective intentions of Remedy, or of prior negotiations which did not form part of the agreement. The rationale for this rule was set out by Lord Wilberforce in Prenn v. Simmonds, [1971] 1 W.L.R. 1381 (H.L.) on the basis that such evidence is unhelpful:

By the nature of things, where negotiations are difficult, the party’s positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back: indeed, something may be lost since the relevant surrounding circumstances may be different.

[28] However, the House of Lords has subsequently recognized that a rule that prior negotiations are always inadmissible could prevent the court from giving effect to what a reasonable person in the position of the parties would have taken them to have meant by the language which they finally adopted to express their agreement: Chartbrook Limited v. Persimmon Homes Limited, [2009] U.K. H.L. 38 at para. 33; see also Magill v. Expedia Inc. 2014 ONSC 642 at para. 12.

[29] A complicating factor in the present case is that the settlement agreement is not contained in a single communication. Rather, it flows from a string of email correspondence resulting in an apparent agreement. Although the email string principally referred to and relied upon by the parties starts on 25 December 2013, there is reference (by Ms. Farnham) to an earlier quote provided by Remedy’s lawyers’ IT consultant and (by Mr. Moody) to “[a] process for dealing with appropriate capture and destruction of the information” that “has been clearly communicated” to Ms. Farnham’s lawyer.

[30] The plaintiff’s inclusion in its motion record of communications between the parties (or their respective lawyers) prior to 25 December 2013 was, potentially, of assistance. While, ultimately, with the exception of the statement of work prepared by Duff & Phelps and sent to Ms. Farnham’s lawyers under cover of correspondence dated 11 November 2013, the earlier correspondence has been of marginal if any assistance to me, its admissibility would appear to be consistent with the authorities that I was referred to, as well as with the views expressed by the learned authors of the Law of Evidence in Canada (3rd) edition at para. §14.340.

Did the parties reach an agreement?

[31] The short answer to this question is, in my view, yes.

[32] The parties, seemingly without the assistance of lawyers, reached an agreement. When an attempt was made by the parties’ lawyers to memorialize that agreement in more formal language, the parties (or their lawyers) were unable to reach an agreement upon what had been agreed.

[33] Despite the failure to agree on a more formal document, the terms of the agreement can, in my view, be distilled from the email traffic between the parties which commenced on 25 December 2013 and culminated with Ms. Farnham’s “we have an agreement” email of 9 January 2014.

What were the terms of the agreement?

[34] The only serious issue in contention is the extent of the work to be done by the IT professionals. The parties had agreed that Ms. Farnham would not retain confidential information. They had agreed that the confidential information that she had held should be destroyed. They had agreed that this should be done by Remedy’s preferred consultant and that Ms. Farnham should pay for it. The only disagreement appears to be whether the work to be done by the IT consultant extended to a review by the consultant of what Ms. Farnham had done with the confidential information which she received.

[35] Mr. Chernos, on behalf of Remedy, argued that the “full sweep” proposed by Remedy would enable the consultant to learn what had happened to the information obtained by Ms. Farnham and, through that process, enable Remedy to know what, if any, information might have been given to its competitors and, armed with such knowledge, to take appropriate steps to protect itself in the market place. Doing this would be of no consequence to the plaintiff because she would, in any event, receive a full and final release as well as the various financial provisions contained in the settlement.

[36] What was meant by Mr. Moody in his 7 January email when he said that the IT firm selected by his law firm “will do the work”? Mr. Chernos contends that the defendant was well aware of the scope of work that had been proposed by Remedy’s IT consultant and that Mr. Moody’s response that the plaintiff’s IT firm would “do the work” must necessarily be interpreted to incorporate the scope of work proposed by those consultants. Mr. Sammon, on the other hand, on behalf of Ms. Farnham, takes the position that “the work” must be interpreted by reference to the proposal contained in Ms. Farnham’s 6 January 2014 email.

[37] It is not unusual, after the parties have entered into a settlement agreement, for there to be disagreement as to what they have agreed to. In Fieguth v. Acklands Limited (1989), 1989 2744 (BC CA), 37 B.C.L.R. (2d) 62, 59 D.L.R. (4th) 114 (C.A.), McEachern C.J.B.C. noted that settlements are often concluded before the documentation (such as releases or formal minutes of settlement) can be completed. In such cases, “the settlement will be binding if there is agreement on the essential terms” (at para. 49). Subject to the question of whether a dispute arising in connection with the settlement gives rise to a repudiation of the settlement agreement (discussed below), parties who reach a settlement should usually be held to their bargains:

Subsequent disputes should be resolved by application to the court or common sense within the framework of the settlement which the parties have agreed and in accordance with the common practices which prevail amongst members of the bar.

[38] As Lord Wilberforce noted in Prenn v. Simmonds, during the course of negotiations the positions taken by parties change with its passing communication. In viewing the email string between the parties, it would appear that as late as 2 January 2014, Mr. Moody was taking the position that the process for appropriate capture and destruction of the information taken by Ms. Farnham should be that previously communicated by the plaintiff’s lawyers by Ms. Farnham’s lawyers. Subsequently, however, Ms. Farnham put forward the proposal recited above in paragraph 10. One of the elements of that proposal was that Ms. Farnham would engage a third party consultant to do the work that she proposed. Mr. Moody’s response to that proposal was that it should be the IT firm selected by his law firm which would “do the work” at Ms. Farnham’s cost. He does not say that the work should be that set out by his preferred IT consultant. An objective reading of this exchange between the parties supports the conclusion that there had been a compromise – with the process as set out by Ms. Farnham but, as a result of a concession subsequently made by Ms. Farnham, with such process being undertaken by the plaintiff’s preferred IT consultant rather than Ms. Farnham’s.

[39] That, in my view, is what the parties had agreed to.

Did the plaintiff repudiate the settlement agreement?

[40] According to Mr. Chernos, what happened after 9 January 2014 amounted to an interpretive dispute. The fact that in the context of papering their agreement, Remedy took the position that the words in the email exchange between the parties included the “full sweep” proposal put forward by Duff & Phelps does not amount to repudiation. Absent agreement between the parties as to what they had agreed to, the issue could and should be resolved by way of a motion under rule 49.09(a) which provides that:

Where a party to an accepted offer fails to comply with the terms of the offer, the other party may, (a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly….

[41] While the plaintiff maintained its position on the motion that the terms of the settlement agreement between the parties included the “full sweep”, it was conceded by the plaintiff that it was open to the court, based upon the email exchanges between the parties, to arrive at the conclusion which I have, in fact, reached as to the scope of the work to be done by the IP consultant.

[42] The plaintiff emphasizes that, in its communications on and following 20 January 2014 it was not saying “the deal’s off” or “we refuse to perform the settlement agreement” (notwithstanding the evident frustrations that both of the parties were expressing in their email communications with each other).

[43] By contrast, Ms. Farnham takes the position that the communications on and after 20 January 2014 went well beyond an interpretive dispute. She argues that the plaintiff presented an ultimatum: Ms. Farnham could either accede to the plaintiff’s interpretation of what had been agreed to concerning the “full sweep” or Remedy would proceed with its pursuit of an injunction and other relief.

[44] The frustration experienced by both parties in their communications on and following 20 January 2014 is evident. Their communications with each other are not written in lawyerly language. It is clear that both of them thought that they had had a deal. Each essentially accuses the other of then seeking to change that deal.

[45] In Fieguth v. Acklands, the British Columbia Court of Appeal held, in the context of a dispute following a settlement in a wrongful dismissal action concerning the form and content of a release as well as the withholding of a tax deduction by a settling employer, that:

One can tender whatever documents he thinks appropriate without rescinding the settlement agreement. If such documents are accepted and executed and returned then the contract, which has been executory, becomes executed. If the documents are not accepted, then there must be further discussion but neither party is released or discharged unless the other party has demonstrated an unwillingness to be bound by the agreement by insisting upon terms or conditions which have not been agreed upon or are not reasonably implied in these circumstances.

[46] While the plaintiff undoubtedly took a hard line in discussions subsequent to the settlement agreement that was concluded on 9 January 2014, I would not go as far as Ms. Farnham suggests I should and find that the plaintiff was unwilling to abide by the settlement agreement. Although I have ultimately disagreed with the position taken by the plaintiff with respect to the terms of the settlement agreement, it cannot be said that the plaintiff’s position was so patently unreasonable as to evidence an insistence upon terms and conditions which could not possibly have been reasonably implied in the circumstances.

[47] Neither am I persuaded that the fact that the motion for an injunction proceeded to the steps of the courthouse, ultimately being resolved by agreement four days before the return date of the motion, is evidence of the plaintiff’s repudiation of the settlement. Notice of the motion had already been given when the parties started their settlement negotiations in earnest on or about 25 December 2013. It is not unusual for the parties to negotiate while continuing to advance their litigation.

Conclusion

[48] The parties concluded a settlement through their email exchanges between 25 December 2013 and 9 January 2014. With respect to the issue of the electronic information obtained by Ms. Farnham, the parties in their settlement agreed to the proposal put forward by Ms. Farnham in her 6 January 2014 email, with the modification that the IT consultant would be the plaintiff’s consultant rather than a consultant selected by Ms. Farnham.

[49] The subsequent disagreement over the terms of the settlement and, in particular, the IT issue, did not result in a repudiation of the settlement agreement by the plaintiff.

[50] Until the dispute over the terms of an offer had been resolved, a determination cannot be made under rule 49.09 of whether there has been a failure to comply with an accepted offer.

[51] Having now determined that there was a settlement agreement, and having ruled upon what appears to be the only disputed term of that settlement agreement, I grant judgment accordingly.

[52] For the avoidance of doubt, I would ask that counsel prepare and agree upon a draft order. If there are any further difficulties distilling the terms of the settlement agreement from the email exchanges between the parties, I may be spoken to for further directions.

[53] I am provisionally of the view that the plaintiff should have its costs of this motion on a partial indemnity scale.

[54] I note from the draft minutes of settlement that it was proposed that the action should be dismissed without costs. Subject to any submissions which counsel wish to make to the contrary, I am provisionally of the view that the balance of the action (including the counterclaim) should be resolved on a without costs basis.

[55] Counsel indicated that they would endeavour to agree the quantum of costs. I would encourage them to do so. Absent such agreement, however, the plaintiff should submit a bill of costs and no more than 3 additional pages of submissions relating to costs by 8 August 2014. The defendant should deliver no more than 3 pages of responding submissions by 22 August 2014.

Mew J.

Date: 25 July 2014