Husky v. Schad, 2015 ONSC 460
COURT FILE NO.: CV-14-10482-00CL
DATE: 20150220
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Husky Injection Molding Systems Ltd., Plaintiff/Respondent
AND:
Robert Schad, Athena Automation Limited, 1297607 Alberta ULC, Stephen Mason and SIPA SpA, Defendants/Moving Parties
BEFORE: L. A. Pattillo J.
COUNSEL: Stuart Svonkin, for the Plaintiff/Respondent
James Bunting, for the Defendants/Moving Parties, Robert Schad, Athena Automation and 1297607 Alberta ULC
HEARD: November 5, 2014
ENDORSEMENT
Introduction
[1] The defendants Robert Schad (“Schad”), Athena Automation Limited (“Athena”) and 1297607 Alberta ULC (collectively the “Schad Defendants”) seek an order that the information they provide in further response to the plaintiff Husky Injection Molding Systems Ltd.’s (“Husky”) demand for particulars “be subject to an undertaking from all parties and their lawyers not to use the evidence or information obtained from the evidence for any purpose other than those of this proceeding.”
[2] For the reasons that follow, I dismiss the motion. The required particulars are subject to the “open court” principle and the Schad Defendants have not established that an exception to the principle should be applied. Nor do any of the other submissions relied upon by the Schad Defendants support the granting of the relief requested.
Background
[3] Husky is in the business of designing and manufacturing injection molding equipment. Schad is Husky’s founder. He was its CEO, President, director and majority shareholder until 2007 when he sold his interest in and ceased all involvement with Husky. In 2008, Schad founded Athena which is involved in the injection molding business.
[4] In this action, Husky alleges that Schad and Athena, acting in concert with the other defendants developed and are marketing an injection molding machine that is based on Husky’s confidential information and that is competitive with Husky’s machines. Husky’s claim against the Schad Defendants is based in part on breach of confidential information and inducing breach of confidential information.
[5] The Schad Defendants filed a statement of defence, among other things, denying any misuse of confidential information. In addition, they counterclaimed against Husky claiming damages for injurious falsehood, breach of s. 52 of the Competition Act, breach of s. 7(a) of the Trade Marks Act and abuse of process. The claims in the counterclaim are based on the allegation that Husky made false and misleading statements regarding Schad and Athena to its customers, potential customers and other members of the injection molding industry in order to deter them from doing business with Athena.
[6] Husky demanded particulars of the false and misleading statements alleged in support of the Schad Defendants counterclaim. Specifically, it demanded particulars of (a) who made the alleged statements; (b) to whom the alleged statements were made; (c) when the alleged statements were made; (d) what specifically was communicated in those statements; and (e) the manner in which the alleged statements were made, orally or in writing and if in writing, to produce a copy of the writing.
[7] In their response to Husky’s demand for particulars, the Schad Defendants provided general information concerning the alleged statements but did not identify the Husky employees who were alleged to have made the statements, did not identify the individuals to whom the statements were made, did not specify when the statements were made, did not identify the words alleged to have been used and did not specify how the alleged statements were communicated.
[8] The Schad Defendants response contained the following statement:
Further particulars of this conduct cannot be provided at this time, as doing so would reveal the identities of such industry participants to Husky. The industry participants to whom such statements were made have legitimate concerns that Husky will use its dominant position in the market to retaliate if Husky becomes aware of their identities, including for example by refusing to provide service or spare parts for Husky equipment used by those industry participants.
[9] The Schad Defendants subsequently provided an amended response to Husky’s demand for particulars in a sealed envelope that was provided under seal and on a strictly counsel’s eyes only basis and no other use could be made of the response pending resolution by the court of whether the further information should be subject to protection. Husky declined to agree to the terms and conditions and returned the sealed envelope unopened.
[10] Husky responded by threatening to bring a motion to strike. In an effort to address the pleading issues in an efficient manner, the parties reached an agreement whereby Husky agreed not to proceed with its motion to strike and the Schad Defendants provided an Amended Response to the Demand for Particulars providing further particulars of three separate instances where Husky employees are alleged to have made statements to a former employee and two customers respectively concerning the Schad Defendants. The dates, what was said, by whom and to whom was provided. It was also agreed, solely for the purposes of this motion, that the Amended Response comprises material facts that must be pleaded and filed.
Analysis
[11] The Schad Defendants acknowledge that they are unaware of any direct precedent for the relief they are requesting. In support of their motion, they make three submissions:
Although not directly applicable, the principles underlying the deemed undertaking rule, Rule 30.1.01, should be applied by the Court by analogy utilizing Rule 1.04(2);
The public interest privilege doctrine used in the competition law area should be applied by analogy; and
Alternatively, the inherent jurisdiction of the Court to control its own process should be exercised to close a gap in the Rules.
[12] There are two well established principles that frame this issue. The first is found in the pleading rules which apply to claims of defamation and injurious falsehood. The second is the principle of openness in courts.
[13] It is well settled that where a pleading asserts a claim for defamation and injurious falsehood, the alleged statements must be pleaded with particularity. That is, they must plead material facts such as who made the statement, when it was made, to whom it was made and the words that were used. See: Lysko v. Braley (2006), 2006 11846 (ON CA), 79 O.R. (3d) 721 (C.A.) at paras. 87 – 114.
[14] The “open court” principle, permitting public access to information about the courts and its proceedings, is deeply rooted in the Canadian justice system and fundamental to a free and democratic society: R. v. Canadian Broadcasting Corp., 2010 ONCA 726; 102 O.R. (3d) 673 (C.A.) at paras. 20 – 22.
[15] The “open court” principle applies to court pleadings (which include statements of particulars) just as it applies to all documents filed with the courts. See: Edmonton Journal v. Alberta (Attorney General), 1989 20 (SCC), [1989 2 S.C.R 1326 at para. 11; Singer v. Canada (Attorney General), 2011 FCA 3 (Fed. C.A.) at para. 6.
[16] Finally, the “open court” principle can only be restricted where it is necessary to prevent a serious risk to the proper administration of justice because reasonably alternative measures will not prevent the risk; and the salutary effects of the restriction outweigh the deleterious effects on the rights and interest of the parties and the public, including the effects on the right to free expression, the right of the accused to a fair and public trial, and the efficacy of the administration of justice: Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522 at paras. 53 to 57.
[17] Turning to the issue presented on this motion, the Schad Defendants have admitted, for the purposes of this motion only, that the information at issue in this motion (the particulars of the counterclaim demanded by Husky) constitutes material facts that must be pleaded and filed with the Court. Accordingly, such facts are subject to the “open court” principle.
[18] While the deemed undertaking rule is analogous to the relief requested, it is not applicable. The deemed undertaking rule, Rule 30.1.01, applies only to evidence obtained under specific discovery rules and to information derived from evidence. Of note, it does not apply to evidence or information obtained otherwise than as noted in the rule (Rule 30.1.01(2)); to evidence filed with the court (Rule 30.1.01(5)(a)); to evidence that is given or referred to during a hearing (Rule 30.1.01(5)(b)); or to information obtained from any such evidence (Rule 30.1.01(5)(c)).
[19] In Juman v. Ducette, 2008 SCC 8, [2008] 1 S.C.R. 157, at para. 21, in discussing the scope of the common law implied undertaking rule, Binnie J., writing for the Court, noted that the rule reflects that pre-trial discovery takes place outside of court, and thus the fruits of discovery are not subject to the “open court” principle until or unless they are filed with the court of referred to in a hearing or at a trial.
[20] The deemed undertaking rule was never intended to apply, and does not apply, to pleadings, including material facts that must be pleaded in support of a party’s claim. Applying the deemed undertaking rule by analogy to a pleading would run afoul of the “open court” principle.
[21] Nor does the principle of public interest privilege assist the Schad Defendants. Public interest privilege arises in the completion area to protect sources in an investigation by the Commissioner of Competition. There is no question that the principle exists, not only in the area of enforcement of competition laws but also in criminal law in the form of informer privilege. The rationale behind such privileges is to enable the government to more effectively enforce its laws by protecting sources or informants from reprisals in order to encourage them to come forward to government officials. But the privilege arises only where the source or informant talks to a government official. It does not extend to protect the sources of private litigants. The Schad Defendants have not cited any authority where public interest privilege has been applied in the context of civil litigation between private parties.
[22] Finally, the Schad Defendants rely on the Court’s inherent jurisdiction for the relief they request. They submit that the failure to protect third party sources in actions represents a gap in the Rules which the court must fill utilizing its inherent jurisdiction. There is no question that the Court has inherent jurisdiction to control its own process. For the reasons already discussed, I do not consider that there is a “gap” in the Rules as submitted by the Schad Defendants. In my view, there is no basis upon which to exercise the court’s inherent jurisdiction. The issue raised is governed by the “open court” principle.
[23] As noted, the test to obtain an order restricting the “open court” principle is strict. There has been no attempt by the Schad Defendants to meet that test in the materials filed. Although there is reference to “concern” by the third parties providing the information that they could be subject to reprisals by Husky, there is no affidavit from one or more of the third party sources establishing that reprisals are in fact likely or even a concern.
[24] For the above reasons, therefore, the motion is dismissed. Counsel agreed that the costs of the motion should be assessed at $5,000. Having regard to the issues on the motion, I consider that amount to be a fair and reasonable amount for costs. Costs of $5,000 payable to Husky.
L. A. Pattillo J.
Released: February 20, 2015