SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NOS.: CV-13-472517 and CV-14-508596

CITATION: Orbixa Technologies v. JitneyTrade, 2015 ONSC 3132

DATE: 2015/05/20

RE: Orbixa Technologies Inc. v. Oscar Ribeiro, Kamal Mansouri, Eidolon Systems Ltd., and Jitneytrade Inc.

True North Vantage Inc. v. Steven Zheng Pang, also known as Zhen Pang, also known as Zhen Steven Pang, also known as Steven Pang, and Oasis World Trading Inc.

BEFORE: Master Graham

HEARD: May 1, 2015

COUNSEL: M. Cooper for the plaintiff (moving party)

C. Sainsbury for the defendant Jitneytrade

B. Yellin for the defendants Pang and Oasis

REASONS FOR DECISION

(Plaintiff’s motion for relief from deemed undertaking rule)

[1] The plaintiff Orbixa Technologies Inc. operates a business that develops, licenses and supports stock trading software. The defendant JitneyTrade is a direct access broker specializing in active traders of equities; it is registered as an investment dealer with the Ontario Securities Commission (“OSC”) and is a member of the Investment Industry Regulatory Organization of Canada (“IIROC”). Orbixa’s action against JitneyTrade is for damages for the alleged misappropriation of confidential information acquired while JitneyTrade was acting as the registered investment dealer for Orbixa’s principal customer, Calm Ocean Limited Partnership (“COLP”), and for misuse of that information to compete with Orbixa and COLP.

[2] The plaintiff in action no. CV-14-508596, True North Vantage Inc., engages in day-trading on the Toronto Stock Exchange and other stock markets in Canada and around the world. The defendant Steven Pang was a day trade manager and the founder of the defendant Oasis World Trading Inc.. True North alleges that Pang incorporated Oasis to compete with it contrary to his manager agreement with True North. True North further alleges that Pang and his competing business used software misappropriated from Orbixa and proprietary information wrongfully communicated to them by JitneyTrade.

[3] Orbixa now alleges that during the course of production and examinations for discovery, it has obtained evidence of serious infractions of Canadian securities laws committed by Jitneytrade and certain of its employees. Orbixa now wishes to file a formal complaint to the regulatory authorities that govern JitneyTrade and in order to do so, seeks to produce documents and disclose information in discovery transcripts to those authorities.

[4] Orbixa also alleges that, in the action in which he is a defendant, Steven Pang has given testimony by way of oral discovery that constitutes perjury. Orbixa seeks to disclose that information to Toronto Police Services and a Crown Attorney.

[5] Orbixa acknowledges that the evidence that it seeks to disclose to regulatory authorities and to Toronto Police and the Crown falls within the scope of rule 30.1.01(3) of Ontario’s Rules of Civil Procedure:

30.1.01(3) All parties and their lawyers are deemed to undertake not to use evidence or information to which this Rule applies for any purposes other than those of the proceeding in which the evidence was obtained.

[6] It should be noted that Brown J., in his order dated July 9, 2014, ordered that the two actions set out above be tried together with a third action and also ordered that rule 30.1.01 not apply as between the parties to the three actions to the evidence obtained in those actions.

[7] Orbixa now moves for an order that the deemed undertaking rule 30.1.01(3) does not apply to the evidence that it seeks to disclose to regulatory authorities and to the police and Crown Attorney’s office. The applicable rule is 30.1.01(8):

30.1.01(8) If satisfied that the interest of justice outweighs any prejudice that would result to a party who disclosed evidence, the court may order that subrule (3) does not apply to the evidence or to information obtained from it, and may impose such terms and give such directions as are just.

[8] The Supreme Court of Canada addressed the scope of the common law “implied undertaking rule” in Juman v. Doucette, 2008 SCC 8, [2008] 1 SCR 157. The implied undertaking rule with respect to evidence obtained through the documentary and oral discovery process in civil actions is codified in Ontario and various other provinces in the “deemed undertaking” rule set out above. Binnie J., writing for a unanimous Court, stated at paragraph 34 of Juman that the test in the Ontario rule 30.1 for the granting of relief against the deemed undertaking rule “is apt as a reflection of the common law more generally”. Accordingly, the Court’s pronouncements with respect to the implied undertaking rule in Juman are equally applicable to the deemed undertaking rule.

[9] In examining the issue of when a court should order that the implied or deemed undertaking rule should not apply to certain evidence, the Supreme Court in Juman stated (at paragraphs 30 and 32):

Exceptional Circumstances May Trump the Implied Undertaking

30 The undertaking is imposed in recognition of the examinee's privacy interest, and the public interest in the efficient conduct of civil litigation, but those values are not, of course, absolute. They may, in turn, be trumped by a more compelling public interest. Thus, where the party being discovered does not consent, a party bound by the undertaking may apply to the court for leave to use the information or documents otherwise than in the action, as described in Lac d'Amiante, at para. 77:

Before using information, however, the party in question will have to apply for leave, specifying the purposes of using the information and the reasons why it is justified, and both sides will have to be heard on the application.

In such an application the judge would have access to the documents or transcripts at issue. [emphasis added]

[In paragraph 31 of Juman, the Court states that applications for relief from the implied or deemed undertaking rule should be dealt with expeditiously. No issue was raised with respect to the timeliness of the motion before me.]

Criteria on the Application for a Modification or Variance of the Implied Undertaking

32 An application to modify or relieve against an implied undertaking requires an applicant to demonstrate to the court on a balance of probabilities the existence of a public interest of greater weight than the values the implied undertaking is designed to protect, namely privacy and the efficient conduct of civil litigation. In a case like the present, of course, there weighs heavily in the balance the right of a suspect to remain silent in the face of a police investigation, and the right not to be compelled to incriminate herself. The chambers judge took the view (I think correctly) that in this case that factor was decisive. In other cases the mix of competing values may be different. What is important in each case is to recognize that unless an examinee is satisfied that the undertaking will only be modified or varied by the court in exceptional circumstances, the undertaking will not achieve its intended purpose. [emphasis added]

[10] The Court elaborated on this point at paragraph 38:

38 As stated, the onus in each case will be on the applicant to demonstrate a superior public interest in disclosure, and the court will be mindful that an undertaking should only be set aside in exceptional circumstances. In what follows I do not mean to suggest that the categories of superior public interest are fixed. My purpose is illustrative rather than exhaustive. However, to repeat, an undertaking designed in part to encourage open and generous discovery by assuring parties being discovered of confidentiality will not achieve its objective if the confidentiality is seen by reluctant litigants to be too readily set aside. [emphasis added]

[11] Finally, the Court in Juman enumerated some of the factors to be considered in the balancing exercise required on a motion of this nature (at paragraph 44):

44 . . . On such an application the court will be able to weigh against the examinee's privacy interest the seriousness of the offence alleged, the "evidence" or admissions said to be revealed in the discovery process, the use to which the applicant or police may put this material, whether there is evidence of malice or spite on the part of the applicant, and such other factors as appear to the court to be relevant to the exercise of its discretion. This will include recognition of the potential adverse effects if the protection of the implied undertaking is seen to be diluted or diminished. [emphasis added]

[12] Therefore, on this motion, the court must consider whether the moving party has demonstrated sufficiently exceptional circumstances that would favour a broader public interest in disclosure such as would warrant overriding the deemed undertaking. Based on the passages highlighted in paragraphs 30 and 44 of Juman, the court must consider the substance of the evidence on which the moving party relies in support of its request for relief from compliance with the deemed undertaking rule.

Motion with respect to JitneyTrade

[13] JitneyTrade does not dispute that it is subject to regulatory oversight by various authorities including the OSC, IIROC and Quebec’s Autorité des marchés financiers (“AMF”) and it is to these entities that Orbixa wishes to provide evidence obtained through documentary and oral discovery in the litigation. Orbixa relies on paragraph 4 of the supporting affidavit of its president Peter Beck sworn January 30, 2014:

4. In the course of reviewing the defendants’ documentary productions and examining their witnesses under oath, Orbixa has uncovered evidence of serious infractions committed by JitneyTrade and certain of its registered persons under Canadian securities laws and self-regulatory organization rules. In particular, JitneyTrade received from Ribeiro an enormous quantity of confidential trade records generated by Orbixa’s trading technology and used such records to negotiate with Ribeiro and Eidolon Systems a fee schedule that allowed them to launch a competing business to that of Orbixa and COLP. Had Jitneytrade honoured all its regulatory requirements in full, such conspiracy would not have happened.

[14] Orbixa submits that in order to file a complaint with the regulatory authorities that govern JitneyTrade, it must make reference to documents and evidence produced in the litigation which would be covered by the deemed undertaking rule and which are not obtainable by any other means.

[15] In his responding affidavit on behalf of JitneyTrade, Peter Sousaris deposes that JitneyTrade was never in possession of any confidential information belonging to Orbixa and in any event, did not provide any confidential information belonging to the plaintiff to the other defendants. The responding affidavit also sets out a portion of the transcript of the examination of Mr. Beck in which he was asked about documents and discussions that would reflect the communication of confidential information from JitneyTrade to the co-defendants. In response to questions about what documents indicate that representatives of JitneyTrade sent confidential information to co-defendants, Mr. Beck and his counsel do not refer to any specific documents. When asked about discussions in which Orbixa alleges that JitneyTrade disclosed confidential information, Mr. Beck conceded that he was speculating as to the contents of any such discussions.

[16] The evidence of Mr. Sousara on behalf of JitneyTrade is also that to his knowledge, Orbixa had not filed any complaint to IIROC with respect to the allegations of improper disclosure of confidential information by JitneyTrade. JitneyTrade has notified IIROC of this lawsuit and motion and that in the event that Orbixa filed a complaint, JitneyTrade would not object to producing copies of any of the documents produced in the litigation.

[17] JitneyTrade submits first that Orbixa has not met the threshold evidentiary basis to override the deemed undertaking. In addition, despite its compliance with its reporting requirements to IIROC by reporting Orbixa’s action against it, Orbixa has not filed any complaint to IIROC and if such a complaint were filed, JitneyTrade would not object to producing copies of its documents in the litigation upon request by IIROC. Absent any complaint by Orbixa to any regulatory authority, JitneyTrade submits that Orbixa has brought the motion not to make a complaint to IIROC but rather to advance its position in the litigation. Accordingly, there is no clear and convincing evidence of any public interest supporting relief from the deemed undertaking rule.

[18] In summary, Orbixa submits that it requires the evidence protected by the deemed undertaking rule to submit a regulatory complaint that would serve the public interest. JitneyTrade submits that the allegation of wrongdoing is based on mere speculation by the plaintiff but in any event, the plaintiff could still make the complaint without the court overriding the deemed undertaking and the regulatory authorities could then require production of documents in the scope of their investigative powers.

[19] The evidence in paragraph 4 of Orbixa’s affidavit in support of the motion consists of a very general statement that Orbixa has uncovered evidence of infractions by JitneyTrade of Canadian securities laws and regulations. The only more specific statement is that JitneyTrade received confidential trade records generated by Orbixa and used those records to negotiate with co-defendants to allow them to launch a competing business but those records have not been put before the court. In order to persuade the court that the deemed undertaking should not apply to discovery evidence, the moving party must provide evidence to justify the order sought. In the case of evidence that would purportedly substantiate regulatory violations, such evidence should support a prima facie case. The evidence in this case, which is limited to a very general allegation based on what the moving party admits to be speculation and another statement based on documents not put before the court, is insufficient to meet that onus and the motion is dismissed.

Motion with respect to Pang

[20] Orbixa’s evidence in support of its motion against Pang and Oasis is set out in paragraphs 11 and 12 of the supplementary affidavit of Peter Beck sworn September 4, 2014:

11. In reviewing these matters with our counsel, now that these three actions have been ordered to be tried together, I reviewed Mr. Pang’s transcript and have concluded that, in his sworn testimony, he lied and committed perjury regarding a number of serious and material issues involving his dealings with JitneyTrade and the other defendants. Evidence of his perjuries is found in the testimonies of the other defendants and documents and e-mails produced by those other defendants.

12. Some examples of Mr. Pang’s perjuries are as follows:

(A) he denies having met with any JitneyTrade representative in person until after he executed a December 7, 2012 agreement with JitneyTrade, when he in fact visited JitneyTrade’s head office in August, 2012;

(B) he states that his first meeting with a JitneyTrade representative involved his wife and denies it involved Mr. Mansouri, when in fact Mr. Mansouri was present at Mr. Pang’s first meeting with JitneyTrade;

© he denies the purpose of his visit to China in January, 2013 was to solicit new traders and office managers for his business when he in fact did engage in such solicitations during that trip; and

(D) he denies that Oasis World Trading Inc. commenced active business prior to May, 2013, despite evidence that in January, 2013 he was (i) actively fundraising for the firm in China, and (ii) co-ordinating the connection of its telecommunications links to JitneyTrade to enable the firm to trade.

[21] Orbixa submits that there is a compelling public interest in prosecuting perjury that would justify an order that the deemed undertaking rule does not apply to the evidence that it wishes to disclose to non-parties. It relies on Bowman v. Zibotics, 2010 ONSC 4422, [2010] O.J. No. 3393 (S.C.J.), in which Hourigan J. (as he then was) held that the deemed undertaking rule did not apply to discovery transcripts on which a defendant in a civil case wished to rely in commencing a private prosecution of a charge of perjury against the plaintiffs. Hourigan J. commented as follows (at paragraphs 23 and 24):

23 It is a fundamental principle of our civil justice system that witnesses must provide truthful testimony. Civil courts rely upon witnesses to take their oath seriously. It is an obvious truism that the interests of justice cannot be served if the evidence of witnesses is not truthful.

24 A necessary corollary to that principle is that there must be meaningful sanctions when a witness commits perjury. Parliament has recognized the singular importance of truthful testimony in a properly functioning justice system by criminalizing perjury in section 131 of the Criminal Code. That section would be rendered unenforceable in the context of discovery testimony if a witness could invoke the protections provided by the deemed undertaking rule.

[22] In response to the submission of the plaintiffs in Bowman that the defendant’s assertions of perjury were meritless, Hourigan J. stated (at paragraph 19):

19 In my view, at this stage in a proceeding it is not helpful or appropriate for me, sitting as a motions judge, to make determinations as to whether Mr. Zibotics will ultimately be successful in a criminal prosecution for perjury. The determination of the merits of the prosecution will ultimately be made by the criminal court.

[23] Orbixa submits, based on Bowman, that the court hearing the motion need not review the evidence that would support a charge of perjury in detail. It further submits that the court should not be addressing the question of whether or not Pang perjured himself in his discovery testimony but rather, should leave the consideration of that evidence to the police and the Crown who will then decide whether or not it supports a prosecution.

[24] The defendant Pang submits that the evidence provided by the plaintiff on this motion is deficient in that it is based on assertions that are presented as the knowledge of the deponent Beck but which are in fact statements of unattributed and unsupported hearsay which are not properly made in an affidavit. Specifically, in paragraph 11 of his affidavit, Mr. Beck simply makes the bald assertion that after reviewing Mr. Pang’s transcript, he has concluded that Mr. Pang “lied and committed perjury”, and then makes a vague reference to evidence of those perjuries being found in the testimonies of the other defendants and in those defendants’ productions. No transcripts of any such testimony are provided and no documents are produced.

[25] Similarly, in paragraph 12 of his affidavit, Mr. Beck sets out four examples of Mr. Pang’s testimony along with statements contradicting each example, but provides no transcripts or documents to support the apparently contradictory versions of events.

[26] I accept the submission of Pang’s counsel that the statements on which Orbixa relies to support its allegations that Pang has perjured himself are not proper affidavit evidence. Mr. Beck’s statement in paragraph 11 that he has concluded that Pang lied and committed perjury is a conclusion of law for which no foundation is provided other than by way of a general reference to the testimony and documents of “the other defendants”. In paragraph 12, Mr. Beck purports to present evidence that would contradict Mr. Pang’s without stating the source of and particularizing that contradictory evidence, and indicating that he believes the source.

[27] In Juman v. Doucette, supra, the Supreme Court states that a court should order that the deemed undertaking rule not apply only in exceptional circumstances and that on a motion to determine the issue, the court “would have access to the documents or transcripts at issue”. In this case, there are no such documents or transcripts before the court and therefore, there is no basis on which the court could conclude that the exceptional circumstances required to relieve from the deemed undertaking rule are present.

[28] I accept that it is not the function of the court hearing a motion under rule 30.1.01(8) to predict the outcome of a criminal charge that may arise from evidence exempted from the deemed undertaking rule. However, it is still incumbent on a party seeking relief from that rule for the purpose of supporting a criminal prosecution to put the evidence sought to be disclosed before the reviewing court to demonstrate at least a prima facie case. Although the court in Bowman v. Zibotics, supra did conclude that the deemed undertaking rule should not apply to transcripts to be used in a private prosecution for perjury, the judge in that case did not conduct any analysis of the transcripts as contemplated by the Supreme Court in Juman. Bowman did not alter the principles stated in Juman and the judge’s finding in that case is not binding on me. In the absence of any admissible evidence that could support a charge of perjury, the motion for an order that the deemed undertaking rule does not apply to the evidence of Pang is dismissed.

Costs

[29] At the conclusion of argument, counsel provided costs outlines. I informed counsel that if, after receiving my decision, they could not agree on the disposition of costs, they could make written submissions. If the parties cannot agree, the defendants appearing on the motion shall deliver written submissions within 20 days and the plaintiff shall deliver its submissions within 20 days after delivery of the later of the defendants’ submissions. To the extent that it may be helpful to the parties in resolving the issue of costs, I note that the partial indemnity costs in the plaintiff’s outline ($8,240.72) are greater than those in both the outlines of JitneyTrade ($7,433.00) and Pang ($4,671.58).

MASTER GRAHAM

DATE: May 20, 2015