ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-13-472517
DATE: 20150730
BETWEEN:
ORBIXA TECHNOLOGIES INC.
Plaintiff
– and –
OSCAR RIBEIRO, KAMAL MANSOURI, EIDOLON SYSTEMS LTD., and JITNEYTRADE INC.
Defendants
Morris Cooper, for the Plaintiff
Caitlin R. Sainsbury, for the Respondent Jitney Inc.
Barry L. Yellin, for the Non-Parties Steven Pang and Oasis World Trading Inc.
HEARD: July 22, 2015
M. D. FAIETA, j
REASONS FOR DECISION
INTRODUCTION
[1] In a motion before Master Graham on May 20, 2015, Orbixa Technologies Inc. sought relief from the deemed undertaking rule in order to permit it to: (1) provide the evidence obtained through documentary discovery to the regulatory authorities who govern the actions of the defendant Jitney Inc.; and (2) disclose the transcripts and documentary evidence obtained in these proceedings to the Hamilton Police (or the Toronto Police, if appropriate) and the Crown Attorney’s Office in order to report the alleged perjury of Steven Pang, who is a defendant in a related action brought by Orbixa.
[2] Master Graham dismissed this motion on May 20, 2015.
[3] This appeal raises the following issues:
(1) Did the Court err in ruling that on a motion to obtain relief from the deemed undertaking ruling in order to use discovery documents for regulatory or criminal purposes the moving party must show that the documents substantiate, on their face, a regulatory or criminal violation?
(2) Did the Court err in ruling that there was no admissible evidence to support the allegation that Steven Pang committed perjury?
[4] For the reasons described below, I have dismissed this appeal.
BACKGROUND
[5] This action is one of three related actions commenced by Orbixa. In this action, commenced on January 23, 2013, Orbixa makes the following allegations. Orbixa operates a business that develops licenses and supports stock trading software. Ribeiro is a former employee. Mansouri provided consulting services to Orbixa through his company Eidolon Systems Inc. Jitney has its head office in Montreal and is a direct access broker that specializes in active traders of equities. Orbixa supplied its proprietary trading technology, other confidential information and support services to Calm Oceans LLP which engaged in day trading using thousands of traders at over two hundred locations.[^1] Calm Oceans became Jitney’s largest client and Jitney ranked amongst the top eight brokers in Canada by traded volume. Calm Oceans terminated its brokerage relationship with Jitney in November 2012. Orbixa alleges that commencing in late 2012 Ribeiro, Mansouri and Eidolon with the assistance of Jitney have established a trading group to steal business from Orbixa. Orbixa alleges that Mansouri and Ribeiro have breached their duty of confidentiality owed to Orbixa. Orbixa alleges that Jitney conspired with Ribeiro and Mansouri to Orbixa’s confidential information to set up a competitive business using the same traders, software and business models which they had developed while they were with Orbixa. Orbixa alleges that Jitney breached its own contractual and common law statutory duties of confidentiality as a licensed broker and as a member of the Investment Industry Regulatory Organization of Canada (“IIROC”). Orbixa alleges that Jitney’s actions contravene the professional obligations under Canadian law of a brokerage firm licensed by the Ontario Securities Commission and the rules governing the conduct of member of IIROC. Orbixa claims damages in the amount of $38,400,000 for breach of duty of confidentiality, breach of fiduciary duty and conspiracy to damage its economic and contractual interests, as well as punitive damages, damages for conversion and injunctive relief.
[6] The defendants deny these allegations of wrongdoing.
[7] The affidavit of Peter Sousaris, Chief Compliance Officer and Chief Risk Officer for Jitney, sworn May 6, 2014, makes three points: (1) On examination for discovery, Peter Beck, who was examined on behalf of Orbixa, admitted that his belief that Jitney provided confidential information to the other defendants was speculation; (2) Orbixa has not filed a complaint with IIROC with respect to this matter, however Jitney, by letter dated April 22, 2014, confirmed that it had provided the Statement of Claim to IIROC and advised it of the substance of this motion. Jitney also advised IIROC that it would deliver to IIROC a copy of any of the documents produced by Jitney in the litigation if requested by IIROC; and (3) Orbixa’s motion is an attempt to pressure Jitney’s position in the litigation with threats of a complaint to IIROC. Ms. Krajewska’s letter dated April 22, 2014 states:
…Frankly, your motion is not only unnecessary but is clearly an attempt on behalf of your clients to extort our client by attempting to pressure Jitney with the threat of a complaint to its regulator. To be crystal clear – Jitney has nothing to hide and will defend its conduct both in this litigation and before IIROC if necessary. Jitney complied with its regulatory obligations at all times. At no time did Jitney misuse confidential information provided to it by its clients. In that regard, your client’s admission that his allegations against Jitney in that regard are nothing more than speculation on his part are germane and provide insight into his true motivation in connection with this motion.
[emphasis added]
[8] A second action was commenced by True North Vantage Inc. against Jitney and Ribeiro on March 1, 2013 (Court File No. CV-13-472950). All of the assets and undertakings of Calm Oceans were sold in December 2011. True North acquired Calm Oceans’ trading locations in Canada. In this second action True North generally makes the same allegations against Ribeiro and Jitney in this action as were made in this action. Again, these allegations are denied.
[9] A third action was commenced by True North against Steven Pang and Oasis World Trading Inc. on June 7, 2013. In this third action True North alleges that Steven Pang is a former day trade manager for the True North and that through his company Oasis World Trading he is now competing with True North contrary to the terms of his employment contract. True North also alleges that the defendants’ business is using software that was misappropriated from True North. These allegations are denied.
[10] By Order dated July 9, 2014, the three actions were joined to be tried together. The parties in all actions were ordered to exchange: 1) their Affidavit of Documents including the documents referred to therein, and 2) the transcripts of the examinations for discovery.
ANALYSIS
Standard of Review
[11] A Master’s decision will be upheld unless the Master: (1) made an error of law or (2) exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error.[^2]
Deemed Undertaking Rule
[12] The deemed undertaking rule “ …imposes on the parties to civil litigation an undertaking to the Court not to use the documents or answers for any purposes other than securing justice in the civil proceedings in which the answers were compelled (whether or not such documents or answers were in their origin confidential or incriminatory in nature).”[^3]
[13] In Ontario the deemed undertaking rule is codified. Subrules 31.1.01(1), (3) and (8) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, state:
(1) This Rule applies to (a) evidence obtained under, (i) Rule 30 (documentary discovery), (ii) Rule 31 (examination for discovery), Rule 32 (inspection of property), Rule 33 (medical examination), Rule 35 (examination for discovery by written questions, and (b) information obtained from evidence referred to in clause (a).
(2) 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.
(3) 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. [emphasis added]
Relief from the Deemed Undertaking Rule
[14] The leading case on the circumstances in which relief from the deemed undertaking rule should be granted is the Supreme Court of Canada’s decision in Juman. In that case, the Court stated at paragraph 38 that the deemed undertaking rule will only be set aside in exceptional circumstances in order to encourage open and generous discovery.
[15] At paragraph 30 the Court described the application process as follows:
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]
[16] The Court described the balancing of interests in the following terms at paragraph 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. [emphasis added]
[17] The Court further described the test to be applied at paragraph 38 as follows:
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. …. 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 too readily set aside. [emphasis added]
[18] The Court noted that there were evidentiary difficulties associated with granting relief from the deemed undertaking rule for purposes of reporting a crime. The Court, at paragraph 43, stated:
The chambers judge put his finger on one of the serious difficulties with such an exception. He wrote:
…it should be understood that evidence relating to a crime may vary from mere suspicion to blatant admissions, from peripheral clues to direct evidence, from minor offences to the most heinous…
This difficulty is compounded by the fact that parties to civil litigation are often quick to see the supposed criminality in what their opponents are up to, or at least to appreciate the tactical advantage that threats to go to the police might achieve, and to pose questions to the examinee to lay the basis for such an approach: see 755568 Ontario, at p. 656. The rules of discovery were not intended to constitute litigants as private attorney generals. [emphasis added]
[19] In Juman, at para. 44, the Supreme Court of Canada stated that on an application for relief from the deemed undertaking rule to permit the discovery documents to be disclosed for criminal enforcement purposes:
(1) The Court should have access to the documents or transcripts at issue;[^4]
(2) The Court should weigh the examinee’s privacy interest against the following factors:
(a) the seriousness of the offence alleged;
(b) the “evidence” or admission said to be revealed in the discovery process;
(c) the use to which the applicant or police may put this material;
(d) any evidence of malice or spite on the part of the applicant;
(e) the potential adverse effects if the protection of the implied undertaking rule is seen to be diluted or diminished;
(f) any other factor that appears relevant to the Court.[^5]
[20] As the following two cases illustrate, other Courts have not required that they be provided with the documents to be disclosed and have refused to weigh the evidence or otherwise undertaken any assessment of whether the documentary evidence discloses a contravention of the law.
[21] In 755568 Ontario Ltd. v. Linchris Homes Ltd.[^6] the Court dismissed an appeal from a Master’s refusal to provide copies of the transcripts of the examinations for discovery of the defendants to the police. The Court stated, at paras. 7 and 15:
In my view I need not, nor should I, determine if there are reasonable and probable grounds to believe the defendants have committed a criminal offence. The sole issue is whether the request is a bona fide request or made for a collateral purpose.
In this case the plaintiff has not by affidavit set out its reasons, if any, for wishing to have the police conduct an investigation. In my view a reasonable inference emerges that the plaintiff hopes the police will find additional information which will assist its action or that the police investigation will force the defendants to offer to settle this matter. Neither of these reasons support the plaintiff’s request to be released from its undertaking and both are clearly improper motives.
[emphasis added]
[22] An equivalent to the “bona fide” test used by the Court in Linchris was used in Bowman v. Zibotics.[^7]. In weighing the interests of justice against any prejudice in releasing the documents, the Court’s decision turned on whether the disclosure would be an abuse of process. In Bowman the plaintiffs had recovered judgment against the defendant. The Court permitted the defendant to use the transcripts from the plaintiffs’ examination for discovery in his private prosecution of the plaintiffs for perjury. In response to the plaintiffs’ submission that the allegations of perjury were meritless the Court stated, at paragraphs 18-21:
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.
That said, where it is clear on a motion that the evidence is being sought for a collateral purpose such that it amounts to an abuse of process, the court can and should exercise its discretion to grant relief from the rule.
The plaintiffs allege that what is really going on here is that Mr. Zibotics is seeking to avoid the civil judgment against him and his actions are, therefore, an abuse of process.
I am not satisfied on the evidence that the actions of Mr. Zibotics are an abuse of process. He has the right to bring a private prosecution if he so chooses and there is nothing in the evidence which establishes that his actions are motivated by a desire to avoid the consequences of the civil judgment or any other improper purpose. [emphasis added]
[23] In my view, what I characterize as the “improper motive” test advanced by Bowman and Linchris is inconsistent with the broader analysis dictated in Juman. I prefer Juman and, more importantly, I am also bound by it. Further, as noted earlier, by granting the appeal, the Supreme Court of Canada in Juman confirmed that whether the deemed undertaking rule applied did not turn on whether the motive for the disclosure was bona fide.[^8] Evidence of improper motive is only one factor to be considered. Finally, it is my view that Juman applies not only to documents to be disclosed for criminal investigation but also for regulatory investigation.
ISSUE #1: DID THE COURT ERR IN RULING THAT ON A MOTION TO OBTAIN RELIEF FROM THE DEEMED UNDERTAKING RULE IN ORDER TO DELIVER DISCOVERY DOCUMENTS TO A REGULATOR THE EVIDENCE SHOULD SUPPORT A PRIMA FACIE CASE OF REGULATORY VIOLATION?
[24] Orbixa relied on the affidavit of Peter Beck, sworn January 30, 2014, and particularly paragraph 4, as justification for relief from the deemed undertaking rule in respect of the Jitney records:
In the course of reviewing the defendants’ documentary productions and examining their witnesses under oath, Orbixa has uncovered evidence of serious infractions committed by Jitney and certain of its registered persons under Canadian securities laws and self-regulatory organization rules. In particular, Jitney 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 scheduled that allowed them to launch a competing business to that of Orbixa and COLP [Calm Ocean]. Had Jitney Trade honoured all its regulatory requirements in full, such conspiracy would not have happened. [emphasis added]
[25] Master Graham summarized the arguments and his decision to dismiss the motion in respect of Jitney’s records as follows, at paragraphs 17-19:
Jitney 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, Jitney 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, Jitney 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.
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. Jitney submits that the allegation of wrongdoing is based on mere speculation by the plaintiff by 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.
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 Jitney of Canadian securities laws and regulations. The only more specific statement is that Jitney 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 [rule] 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.
[26] The Appellant submits that Master Graham erred in holding that the moving party must provide evidence that would, on its face, substantiate regulatory violations. It submits that this approach would require a lengthy exposition of the documents and the testimony to explain why the complainant wishes to deliver the discovery documents to the regulator. The Appellant relies on Bowman for the proposition that a Court need not weigh the evidence to determine whether there is any plausible basis to find that it discloses a contravention of law and thus should be disclosed to the appropriate authorities for their investigation.
[27] With respect, as I have stated earlier, it is my view that the Bowman decision does not reflect the approach required by Juman.
[28] On the other hand, I do not read Juman as requiring a Court to find, as a pre-condition to granting relief from the deemed undertaking rule, that the documentary discovery evidence to be disclosed on its face substantiates a regulatory or criminal law violation.
[29] Instead, Juman requires that a Court be: (1) given the documentary evidence to be revealed; and (2) advised of the alleged regulatory or criminal offence revealed by the documentary evidence so that the Court may weigh the “evidence” (for instance, as noted in Juman at para. 43, is the evidence mere suspicion or blatant admission, peripheral clues or direct evidence?), and weigh the seriousness of the alleged offence (for instance, consider whether there is any apparent use to which the police may put this material or, in other words, is there any basis for the assertion that the documentary evidence discloses a contravention of the law). Once these assessments are made, the Court can then weigh other considerations identified by the parties in order to determine whether the interests of justice, as reflected by the reasons given to justify the disclosure of the documents, outweigh on a balance of probabilities any resulting prejudice in accordance with subrule 31.1.01(8) of the Rules of Civil Procedure.
[30] Although I would have articulated the test differently, I agree with Master Graham’s dismissal of this motion. The evidence adduced by the Appellant did not provide the Court with a sufficient evidentiary basis to justify granting its motion. The Appellant did not provide the Court with the documentary evidence to be revealed nor did it identify the alleged regulatory offence. The Appellant’s allegations of Jitney’s regulatory contravention were only speculative. On cross-examination Peter Beck admitted that he had no evidence that Jitney supplied Ribeiro or Mansouri with confidential information to assist them in setting up their competing business and this alleged wrongdoing was based on speculation. The fact that Jitney has volunteered to provide these documents to the IIROC, if requested to do so by IIROC, is another factor to be considered. In my view, the interests of justice are not served by the disclosure of discovery documents in these circumstances. In any event, in light of these circumstances, including the lack of any evidence before this Court that describes the specific regulatory provision allegedly breached for which the documents are to be disclosed to the regulator, supports the view that this conclusion would have been justified even if the “improper motive” test used in Bowman and Linchris was applied.
ISSUE #2: DID THE COURT ERR IN RULING THAT THERE WAS NO ADMISSIBLE EVIDENCE TO SUPPORT THE ALLEGATION THAT STEVEN PANG COMMITTED PERJURY?
[31] Master Graham dismissed the motion on the basis that :
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.
[32] The affidavit of Peter Beck, sworn September 4, 2014, asserts that Steven Pang, a defendant in one of the three related actions, committed perjury. At paragraphs 11 and 12, he states:
…I have 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 Jitney and the other defendants. Evidence of his perjuries is found in the testimonies of the other defendants and documents and emails produced by those other defendants.
Some examples of Mr. Pang’s perjuries are as follows:
(a) He denies having met with any Jitney representative in person until after he executed a December 7, 2012 agreement with Jitney, when he in fact visited Jitney’s head office in August, 2012.
(b) He states that his first meeting with a Jitney representative involved his wife and denies it involves Mr. Mansouri, when in fact Mr. Mansouri was present at Mr. Pang’s first meeting with Jitney;
(c) He denies the purpose of his visit to China in January,2 013 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 telecommunication links to Jitney to enable the firm to trade.
[33] The Master did not err in law in dismissing the motion for the above reasons. The affidavit failed to comply with the Rule 4.06(2) and Rule 39.01(4) of the Rules of Civil Procedure. The Court cannot admit affidavit evidence that is beyond the deponent’s personal knowledge if it does not disclose the source of the information.[^9]
[34] Orbixa took the position that even if such evidence was not admissible, it was not required, as the Court in Bowman allowed documentary discovery to be used in a private prosecution for perjury without an analysis of the allegations. For the reasons given, more than the absence of improper motives must be demonstrated in order for Orbixa to be relieved from the deemed undertaking rule.
[35] It is my view that the documentary evidence that is sought to be released must be placed before the Court along with any other “evidence” of perjury in order to allow the Court to weigh the various factors required by Juman. I find that the Court did not err in ruling that there was no basis on which the Court could conclude that the exceptional circumstances required to relieve Orbixa from the deemed undertaking rule were present.
CONCLUSION
[36] The appeal is dismissed.
[37] The Respondents may deliver their costs submissions within two weeks of today’s date. The Appellant may deliver its costs submissions within four weeks of today’s date. Submissions shall be no more than two pages exclusive of an outline of costs.
Mr. Justice M. D. Faieta
Released: July 30, 2015
COURT FILE NO.: CV-13-472517
DATE: 20150729
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
ORBIXA TECHNOLOGIES INC.
Plaintiff
– and –
OSCAR RIBEIRO, KAMAL MANSOURI, EIDOLON SYSTEMS LTD., and JITNEYTRADE INC.
Defendants
REASONS FOR JUDGMENT
Mr. Justice M. D. Faieta
Released: July 30, 2015
[^1]: Peter Beck is the President of Orbixa and also the Vice-President, and the discretionary beneficiary of the trust that owned the general partner of Calm Oceans.
[^2]: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 3-6, 10-12; Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131, para. 38-41, aff’d (2009), 2009 ONCA 415, 96 O.R. (3d) 639, at para 1.
[^3]: Juman v. Doucette [2008] 1 S.C.R. 157, 2008 SCC 8, at para 27.
[^4]: 2008 SCC 8, [2008] 1 S.C.R. 157, 2008 S.C.C. 8, at para. 30.
[^5]: Paragraph 44.
[^6]: (1990), 1990 6665 (ON SC), 1 O.R. (3d) 649 (Gen. Div.). Also see Secure Energy Services Inc. v. CCS Corp., 2014 ABQB 107, [2014] A.J. No. 185.
[^7]: 2010 ONSC 4422, [2010] O.J. No. 3393.
[^8]: The British Columbia Court of Appeal found that “the implied undertaking rule does not extend to bona fide disclosure of criminal conduct.” See Juman, para. 3.
[^9]: See Chopik v. Mitsubishi Paper Mills Ltd., [2002] O.J. No. 2780, at para. 26; PSB Equity Inc. v. Kutner, [2009] O.J. No. 2385, at paras. 20-21.