Beckerman v. Synthion Energy Inc., 2015 ONSC 3384

COURT FILE NO.: CV-14-10751-00CL

DATE: 20150529

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

APPLICATION UNDER Section 241 of the Canada Business Corporation Act

RE: Arnold Beckerman and Wayne Berry, Applicants

AND:

Synthion Energy Inc., Norton Rose Fulbright Canada LLP, Julian DeVante, and Arjun Chahal, Respondents

BEFORE: L. A. Pattillo J.

COUNSEL: Alan B. Dryer, for the Applicants/Responding Parties

Jonathan Burshtein, for the Respondents/Moving Parties

Saeed Teebi, for the Respondent Norton Rose Fulbright Canada LLP

HEARD: May 26, 2015

ENDORSEMENT

[1] The respondent Julian DeVante (“DeVante”) seeks an order staying the order of the Honourable Justice Newbould dated May 4, 2015 (the “Order”) in which the respondent Norton Rose Fulbright Canada LLP (“Norton Rose”) was ordered to disclose to the applicants the contents of a provisional patent application and related documents and the content of all of its files for the respondent Synthion Energy Inc. (“Synthion”).

[2] In addition, DeVante also seeks an order directing the parties to conduct examinations for discovery and an adjournment of the summary trial of the application scheduled for June 21 and 22, 2015.

[3] DeVante has sought leave to appeal the Order to the Divisional Court. Apart from filing a notice of motion seeking leave, no steps have been taken in the appeal.

[4] Although counsel for Norton Rose appeared at the hearing of the motion before me, I was advised that it took no position and would abide by any order of the court.

[5] The application is an oppression and fraud proceeding against DeVante and the respondent Arjun Chahal regarding intellectual property that the applicants say they invested in through Synthion and which they allege has been improperly taken from Synthion. By agreement of the parties, the action was converted into an action and a two day summary trial is scheduled for the above dates in June.

[6] The motion before Newbould J. was a production motion. The applicants sought production of all of Norton Rose’s files for Synthion including its patent applications as part of their case against DeVante and Chahal.

[7] DeVante and Chahal submitted that the material sought was privileged and that Norton Rose could not disclose it without the consent of DeVante, the inventor of the technology covered by the patent application. DeVante argued that as inventor, the privilege was his and he was not prepared to waive it.

[8] In his reasons granting the order requested (2015 ONSC 2891), Newbould J. rejected the submissions of DeVante and Chahal. He held based on the evidence that Norton Rose was engaged to act for Synthion not DeVante personally and that the patent applications were made by DeVante on behalf of Synthion. It was Synthion and not DeVante personally that had the right to the documentation in the possession of Norton Rose. Newbould J. further held based on an agreement signed by the applicants, DeVante, Chahal and Synthion, that the applicants were shareholders and directors of Synthion and, as directors of Synthion, they were entitled to the information from Norton Rose.

[9] At paragraph 18 of his reasons, Justice Newbould stated:

[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.

[10] As part of his order, in addition to the deemed undertaking rule, Justice Newbould ordered that the applicants are not to publish the material in any way and could only use it for the purposes of the litigation and a non-disclosure agreement must be signed by any expert before any of the material is given to him or her. Further, Justice Newbould encouraged the parties to agree on provisions that would prevent any proprietary information from becoming public during the trial and in the absence of agreement, to seek court assistance.

[11] DeVante seeks a stay pursuant to rule 63.02(1) of the Rules of Civil Procedure. There is no issue that the test for granting a stay is the three part test set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R 311 (S.C.C.) – a serious issue to be decided; irreparable harm to the applicant if the stay is not granted; and the balance of convenience favours granting the stay.

[12] In circumstances where a stay is sought, as in this case, of an interlocutory order pending the disposition of a motion for leave to appeal from that order, the serious issue to be decided test engages rule 62.02(4) which sets out the test which must be met to obtain leave to appeal. See: Bergmanis v. Diamond, 2012 ONSC 6200 (SCJ Div. Ct.) at para. 10; Valeo Sylvania L.L.C. v. Ventra Group Inc., [2001] O.J. No. 5258 (SCJ Div. Ct.) at paras. 5 – 7.

[13] Rule 62.02(4) provides that leave to appeal shall not be granted unless (a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is in the opinion of the judge hearing the motion desirable that leave to appeal be given, or (b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

[14] In the present case and notwithstanding that the notice of motion for leave relies only on the correctness test in rule 62.02(4) (b), before me it was argued that both tests set out in rule 62.02(4) will be relied on in the leave application.

[15] In respect of the conflicting decisions standard, DeVante submitted that Newbould J.’s decision that directors were entitled to production of privileged information belonging to the corporation from its solicitors is contradicted by two decisions: Livent Inc. (Re), [1999] O.J. No. 5981 (SCJ) at para. 4 and Dublin v. Montessori Jewish Day School of Toronto, 2007 CanLII 8923 (ON SC), [2007] O.J. No. 1062 at paras. 61 to 63.

[16] In my view, rather than conflict with Newbould J.’s decision, both Livent and Dublin support it. In each of those decisions, the deciding judges stated that as a general proposition that a director is entitled to full disclosure of information from the corporation save and except where the director is engaged in litigation with the corporation and the information sought is subject to solicitor client or litigation privilege. That is not the case here. Norton Rose did not provide any communications to Synthion concerning the applicants. Further, the fact that the information is in the possession of Norton Rose and not Synthion is a distinction without a difference in my view. The information still belongs to Synthion.

[17] Accordingly, DeVante has failed to satisfy the conflicting decision test for leave.

[18] In respect of the alternative ground for leave, good reason to doubt the correctness of the Order, the notice seeking leave relies on six grounds which challenge the correctness of the Order. Those grounds rely mainly on the factual findings of Newbould J. including that the applicants became directors of Synthion on the signing of the agreement; that Norton Rose acted for Synthion and not DeVante personally on the patent application; that DeVante, as a director of Synthion, had no right to limit who Norton Rose could communicate with concerning technology and that trial fairness requires disclosure of the documents in issue.

[19] In my view, Newbould J.’s factual findings that gave rise to the applicant’s entitlement to production of the information ordered were supported by the evidence. Further, and having regard to the issues in the application and particularly the allegation that DeVante may have been engaged in a fraud upon the applicants from the beginning to induce them to advance funds, production of the requested information was appropriate and correct.

[20] The notice for leave submits that the proposed appeal raises matters of general importance in Ontario, specifically the scope of lawyer-client privilege for a corporate client and the application of equity principals to shareholder disputes.

[21] The Order deals with production issues in the course of an action. In light of Newbould J.’s findings, no lawyer-client privilege issues arise. Further, any final determination of shareholder issues will be for the trial judge. I do not consider that the proposed appeal issues raised by DeVante are of such importance that leave should be granted.

[22] The threshold for establishing a serious issue to be decided is a low one. In my view, however, DeVante has failed to get over it in respect of both tests in rule 62.02(4).

[23] While my finding that DeVante has failed to establish a serious issue to be decided is sufficient to dismiss the stay motion, I will deal briefly with the other two branches of the stay test.

[24] I am not satisfied that DeVante will suffer irreparable harm if the information is produced. DeVante argues that the applicants have previously indicated that they wanted to show the technology to potential investors in Australia and the UK and if that happens there will be no recourse for damages resulting in irreparable harm. That submission is not tenable. It is speculative at best and ignores the conditions which Justice Newbould attached to the Order.

[25] DeVante further argues that if they are successful on appeal and the court holds that the information is subject to solicitor client privilege and should not be disclosed, DeVante and Synthion will suffer irreparable harm in the loss of the privilege. The privilege is not DeVante’s. Further, even if that is the case, the restrictions under which the information is to be disclosed minimizes or eliminates any harm to Synthion.

[26] Finally, I am also of the view that the balance of convenience favours the disclosure of the information. Newbould J. has determined that it is relevant to the issues in the application. The parties have agreed on a summary trial which is fast approaching. As I have noted, any harm caused from the release of the information has been dealt with by the restrictions on use in the Order.

[27] DeVante submits that failure to grant the stay will render his appeal of the Order moot. That may be but it is not sufficient reason to shift the balance of convenience in his favour, particularly given my views concerning the difficulties with his leave to appeal application.

[28] As noted, the notice of motion also seeks an order directing the parties to conduct examinations for discovery and an adjournment of the trial. The parties agreed to proceed by way of an action and to have a summary trial based on affidavits. They agreed to cross-examinations but, as I understand it neither party availed themselves of that right. In light of the agreement to proceed by summary trail, I am not prepared to order discoveries. Nor am I prepared to adjourn the trial.

[29] Devante’s motion is therefore dismissed. The applicants are entitled to their costs on a partial indemnity basis. Both counsel have provided cost outlines. They are very close in amount. The applicants seek partial indemnity costs of $8,819.65 including tax. DeVante’s total costs are $6,473.68. The difference arises mainly from the hourly rates claimed by counsel based on experience. In my view, the amount claimed by the applicants is fair and reasonable given the issues.

[30] Costs to the applicants, payable by DeVante fixed at $8,819.65. Payable forthwith.

L. A. Pattillo J.

Released: May 29, 2015