CITATION: Beckerman et al v. Synthion Energy Inc. et al, 2015 ONSC 2891
COURT FILE NO.: CV-14-10751-00CL
DATE: 20150504
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: ARNOLD BECKERMAN and WAYNE BERRY,
Applicants
AND:
SYNTHION ENERGY INC., NORTON ROSE FULBRIGHT CANADA LLP JULIAN DeVANTE and ARJUN CHAHAL,
Respondents
BEFORE: Newbould J.
COUNSEL: Alan B. Dryer, for the Applicants
Jonathan Burshtein, for the Respondents Julian DeVante and Arjun Chahal
HEARD: May 1, 2015
ENDORSEMENT
[1] The applicants have brought oppression proceedings against the respondents DeVante and Chahal regarding intellectual property that they say they invested in through Synthion Energy Inc. and that they say has been improperly taken from Synthion. Oppression and fraud are alleged. The application has been converted into an action and a two day summary trial is fixed for June 22 and 23, 2015.
[2] The applicants have moved for an order that a patent that has now been filed in the U.S. Patent Office and related files be produced by the respondent Norton Rose Fulbright Canada LLP. Norton Rose was retained in this matter from the outset of the dealings between the parties and has acted on the patent filing.
[3] The respondents Devante and Chahal have contended that the material sought is privileged and that Norton Rose cannot disclose the information sought without the consent of Devante, which he is not prepared to grant. DeVante argues that as he is the inventor, the privilege is his. Norton Rose takes no position on the motion for production.
[4] In my view, the position of Devante and Chahal is without merit and the information must be disclosed to the applicants forthwith. My reasons follow. In light of the urgency, this endorsement is relatively short without a discussion of all of the background facts.
[5] DeVante was the inventor of the alleged technology, being a printable battery and energy storing device. He incorporated Synthion. DeVante had 93% of the shares and Chahal had 7%. After DeVante and Berry had discussions about the technology, they came to an agreement. Berry approached Mr. Amirault of Norton Rose to draw up an agreement. The agreement dated January 10, 2014 named FOUNDERS AGREEMENT was signed by DeVante, Chahal, Berry and Beckerman personally and by DeVante on behalf of Synthion.
[6] The Agreement provided, amongst other things:
DeVante, Chahal, Berry and Berry will be the directors of Synthion.
Berry and Beckerman were each granted 2% of the shares of Synthion. They had rights to a further 4% each if certain milestones were reached.
Each of DeVante and Chahal had assigned and/or will assign to Synthion all right to the intellectual property rights which DeVante had developed.
No shares of Synthion could be granted without the consent of DeVante, Chahal, Berry and Beckerman.
Each of DeVante, Chahal, Beckerman and Berry shall faithfully serve Synthion and act at all times in the best interests of Synthion.
[7] On June 10, 2014 DeVante e-mailed Berry and Beckerman and stated:
By vote and executive order of the board; you are now terminated from Synthion Energy effective June 4, 2014.
[8] Shortly thereafter, DeVante caused Synthion to be dissolved. On June 15, 2015 the applicants filed articles of revival for Synthion. Norton Rose did that on their instructions.
[9] DeVante contends that because there were no shares issued to Berry or Beckerman and because the shareholders took no formal steps to elect them as directors, they were never directors and had no rights. I do not agree. Equity considers done what ought to be done. This maxim has its most frequent application in the case of contracts. Equity treats a contract to do a thing as if the thing were already done. See Snell’s Equity, 32 ed. (Sweet & Maxwell, 2010) at para. 5-030. Mr. Amirault of Norton Rose, who filed an affidavit and was cross-examined on it, testified to the same effect. He testified that it was his understanding that as of the execution of the Founders Agreement, Beckerman and Berry were directors of Synthion.
[10] I find that upon the signing of the Founders Agreement, Beckerman and Berry each became 2% shareholders of Synthion and became directors of Synthion. DeVante had no right to purport to terminate them as shareholders or directors. If there was a board meeting held by DeVante and Chahal before the purported termination, it was invalid as neither Beckerman nor Berry were given notice of it and they had a right to attend.
[11] Norton Rose was engaged to act for Synthion. They were not acting for DeVante personally. The engagement letter was between Norton Rose and Synthion and was signed by DeVante on behalf of Synthion. As well, DeVante had Norton Rose sign a confidentiality agreement made between Norton Rose and Synthion in which it stated that the information provided by Synthion to Norton Rose to permit Norton Rose to submit a patent application was to remain the exclusive property of Synthion. There is no question but that it is Synthion and not to DeVante personally that has a right to the documentation in the possession of Norton Rose relating to the patent applications filed by Norton Rose.
[12] The provisional patent application made on April 11, 2014, and the later final patent application filed by Norton Rose named DeVante as the inventor and applicant. Mr. Amirault testified on cross-examination that that was the standard procedure to file a patent application. He understood that the patent applications were assigned by the Founders Agreement by virtue of the provision in it that DeVante had or would assign to Synthion all intellectual property. DeVante and Chahal contend that because there was no separate assignment made by DeVante, the patent rights were not assigned to Synthion. Mr. Amirault’s understanding is clearly correct, again as per the maxim equity considers done what ought to be done. The provision in the Founders Agreement was an effective assignment. I find that the patent applications were made by DeVante on behalf of Synthion.
[13] DeVante and Chahal rely on certain authority for the contention that as shareholders, Berry and Beckerman do not have rights to the Norton Rose material. Whether that is the case or not, it ignores the rights of Berry and Beckerman as directors of Synthion. I was provided with no authority that as directors, they would not have access to the files of Norton Rose who have acted as solicitors for Synthion and who have been involved in the patent applications for Synthion.
[14] Directors have a duty to manage, or supervise the management of, the business and affairs of the corporation and they are to exercise care, diligence and skill in so doing. See sections 102 and 122 of the Canada Business Corporations Act. In this case, the business and affairs of Synthion is entirely the technology that is the subject of the patent applications made by Norton Rose on behalf of Synthion. To deny the directors the information held by Norton Rose on behalf of Synthion would be to render those directors unable to fulfill their obligations as directors. This applies from the minute that Berry and Beckerman became directors of Synthion. The fact that they are now in litigation regarding the patents cannot change that. If the applicants are successful in restoring the situation, they will have continuing obligations as directors to see that the business is properly run.
[15] In one case I was referred to, Harvey Estate v. 5505 Yukon Ltd. (2011), 75 E.T.R. (3d) 219, Veale J. (as he then was), ordered privileged corporate documents in the hands of the corporation’s lawyer to be produced to a former shareholder’s estate. In the course of his reasons, Veale J. stated that the shareholders were also directors of the corporation and as directors they would be entitled to all documents and communications of the company. This statement cannot be doubted. In FCMI Financial Corp. v. Curtis International Ltd. [2003] O.J. No.J. No. 4713, Swinton J., in distinguishing between rights of a shareholder and the directors of a corporation to privileged information, stated:
A corporation and its directors have an interest in obtaining confidential legal advice to assist in the operation of the corporation. A shareholder has no … general right to have access to legal advice provided to the corporation.
[16] The final signed engagement letter stated that “We [Norton Rose] are authorized to act for Synthion in this engagement on the instructions of Julian DeVante”. The previous draft had referred to instructions of DeVante or Berry. Berry says he was not made aware of the change in the final engagement letter. Be that as it may, the fact that the engagement letter said Norton Rose was authorized to act on the instructions of DeVante does not, and cannot, change the fact that Norton Rose was acting for Synthion and not for DeVante personally.
[17] By e-mail of February 21, 2014 Mr. Amirault referred to the instructions in the engagement letter and asked “Does this mean that I need authorization to talk to Wayne [Berry] about corporate matters?” DeVante replied the same day and stated “Please feel free to fully engage Wayne Berry or Arnold Beckerman as needed on any matters not related to Patents”. Mr. Amirault may have acted on those instructions, but in my view it is clear that DeVante had no right to limit the information that Norton Rose could give to other directors of Synthion and Norton Rose had no right to accept that limitation.[^1] The rights of directors to information from the corporation’s solicitors cannot be limited by the say-so of one director. It is trite that a lawyer’s duty is to advise all directors of a client corporation, not just one. See Mottershead v. Burdwood Bay Settlement Co., 1991 2284 (BC SC), [1991] B.C.J. No. 2554 at para. 7.
[18] It is appropriate that the Norton Rose information, including the patent applications, be disclosed now as the summary trial is to be heard next month, and the applicants are entitled to the information that they seek as part of their case. Trial fairness requires it and the applicants have established a right to the information.
[19] In the circumstances, I order that Norton Rose forthwith disclose to the applicants and allow the applicants to have full access to, and copies as requested, of:
(i) The contents of all patent applications made by Norton Rose on behalf of Synthion and related documents.
(ii) The contents of all of its files for Synthion.
[20] Mr. Burshtein asked that in the event that I order the patent applications to be produced, the order should provide that the “recipe” in the applications be whited out as otherwise publication at this stage could be harmful to the interests of the patent holder. Mr. Dryer submits that the patent applications in their entirety should be produced as one of the allegations is that the technology may be the same as publicly available on a Youtube video of several years ago and that what was proposed by DeVante to Berry may have been a fraud from the beginning to induce Berry to advance funds to DeVante.
[21] In these circumstances I think the entire contents of the patent applications should now be produced. However, the applicants are not to publish the material in any way, but rather are to use it for the time being only for purposes of the litigation. I understand they intend to have an expert look at the material for litigation purposes. A non-disclosure agreement must be signed by the expert before any material or information is given to him or her.
[22] If there is any issue about the information becoming public during the trial, the parties should attempt to agree on provisions that would prevent that. If they are unable to agree, or they require court direction, a 9:30 appointment can be made to discuss that.
[23] The applicants are entitled to their costs of this motion. If costs cannot be agreed, brief written submissions along with a proper cost outline may be made within 10 days and brief written reply submissions may be made within a further 10 days.
Newbould J.
Date: May 4, 2015
[^1]: On August 27, 2014 Norton Rose told Mr. Dryer that part of their non-disclosure obligations was that they were not allowed to disclose anything about the patent obligations to anyone other than Julian DeVante. This was not a tenable position that could be taken by Norton Rose.