Court File and Parties

COURT FILE NO.: CV-17-579340 MOTION HEARD: 2019 04 01

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: George Scorsis, plaintiff v. Canopy Growth Corporation and Canopy Hemp Corporation, defendants and, Canopy Growth Corporation and Canopy Hemp Corporation, plaintiffs by counterclaim v. George Scorsis, Aphria Inc. and Liberty Health Sciences Inc., defendants by counterclaim

BEFORE: MASTER R. A. MUIR

COUNSEL: Catherine Coulter and James Wishart for Canopy Growth Corporation and Canopy Hemp Corporation Bonnie Roberts Jones for George Scorsis Jacqueline Cole, Eric Block and Patrick Healy for Aphria Inc. Brendan Monahan for Liberty Health Sciences Inc. Jeffrey Haylock for the non-parties Vic Neufeld and John Cervini

REASONS FOR DECISION

[1] This is a motion brought by the defendants/plaintiffs by counterclaim Canopy Growth Corporation and Canopy Hemp Corporation (collectively, “Canopy”) seeking various preliminary relief in relation to pending motions for summary judgment.

[2] The plaintiff has brought a summary judgment motion requesting an order dismissing Canopy’s counterclaim and granting the relief he is seeking in this action. The defendants by counterclaim Aphria Inc. (“Aphria”) and Liberty Health Sciences Inc. (“Liberty”) have also brought motions for summary judgment. They too seek orders dismissing Canopy’s counterclaim.

[3] These three motions for summary judgment are presently scheduled to be heard by a judge on May 15, 2019. It appears that Justice Archibald made an order in civil practice court on January 29, 2019 that this motion be heard on April 1, 2019 before a master.

[4] On this motion, Canopy seeks an order adjourning the motions for summary judgment, establishing a discovery plan for this action, including an order for the service of affidavits of documents, the production of various and specific categories of documents and examinations of non-parties pursuant to Rule 39.03 of the Rules of Civil Procedure, RRO 1990, Reg. 194 (the “Rules”). Canopy also seeks a timetable order for at least some of the remaining steps required in connection with the summary judgment motions. The plaintiff and the defendants by counterclaim are opposed. The non-parties are also opposed.

[5] The written materials filed on this motion were lengthy and detailed. Oral argument required approximately two hours of court time. However, in my view the question to be decided on this motion can be summarized quite easily. To what extent is Canopy entitled to the production of documentary and other evidence in order to respond to the motions for summary judgment? I have considered this question within the context of this action. In my view, Canopy is entitled to some of the relief it is seeking.

BACKGROUND

[6] Canopy Growth Corporation (“Canopy Growth”) is a publically traded Canadian cannabis company. Canopy Hemp Corporation (“Canopy Hemp”) is a subsidiary of Canopy Growth.

[7] The plaintiff was employed as the president of Canopy Hemp from February 2017 to April 2017. The plaintiff resigned as president of Canopy Hemp on April 24, 2017 with an effective date of May 5, 2017. The plaintiff also remained a director of Canopy Hemp until May 5, 2017.

[8] Liberty is a Florida based cannabis company. The plaintiff was employed by Liberty as its chief executive officer from July 2017 to February 2019. The plaintiff was also a director of Liberty during this time period.

[9] Aphria is an Ontario based cannabis producer and at one point was a significant investor in Liberty, owning approximately 37% of Liberty’s issued and outstanding common shares. Aphria is a competitor of Canopy.

[10] The plaintiff brought this action for a declaration that he be permitted to exercise certain share options he holds in Canopy Growth. Canopy has refused to honour the plaintiff’s exercise of his share options. Canopy alleges that the plaintiff breached the terms of his employment agreement and the stock option plan and otherwise breached fiduciary duties he owed to Canopy. Canopy alleges in its counterclaim that Liberty and Aphria induced the plaintiff’s alleged breaches of duties to Canopy and were otherwise involved in and benefited from the plaintiff’s breaches.

[11] For the purposes of this motion, it is important to note that the plaintiff’s contract of employment with Canopy Hemp included a non-competition clause in which the plaintiff agreed that while working at Canopy Hemp, and for nine months following, he would not “work at, engage, or assist in the operation of any organization that provides industrial hemp, medical marijuana, or related services or products to the Canadian Public”.

[12] It appears that significant sums of money are at stake in this action. The plaintiff alleges that if he had been permitted to exercise his share options he would have realized a net gain of approximately $1,300,000.00. Canopy’s alleged damages are not quantified but could possibly be quite significant given the nature and size of these businesses.

ANALYSIS

[13] The decision of the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7 represented a culture shift in the manner in which civil claims are adjudicated in Canada. Summary judgment rules are to be interpreted broadly, favouring proportionality and fair access to affordable, timely and the just determination of claims. Pre-trial procedures must be simplified and tailored to the needs of each particular case. A trial is not necessary if a summary judgment motion can achieve a fair and just adjudication. See Hryniak at paragraphs 1-5.

[14] There is no longer an automatic right to full documentary or oral discovery in advance of a summary judgment motion. See Fehr v. Sun Life Assurance Co. of Canada, 2014 ONSC 2183 at paragraph 35 and 1870553 Ontario Inc. v. Kiwi Kraze Franchise Co., 2015 ONSC 1632 at paragraph 42. As this court recently noted in IML Roofing & Sheet Metal Systems Inc. v. Peel (Regional Municipality), 2019 ONSC 908 at paragraph 52:

The benefit of timely and affordable justice relies upon the exercise of information gathering rights that are proportionate to the issues on the motion and the case itself. To default back to the traditional means of disclosure that are de riguer for the conventional trial process would be contrary to the policy direction mandated by the Supreme Court in Hryniak.

[15] At the same time it is important to emphasize that the policy objectives established by Hryniak must be advanced in a manner that results in a fair and just determination of civil disputes. This must be the central focus of this court when it comes to establishing practices and procedures for the adjudication of civil claims. The Supreme Court of Canada was certainly alert to this concern. At paragraph 57 of Hryniak the court stated “[o]n a summary judgment motion, the evidence need not be equivalent to that at trial, but must be such that the judge is confident that she can fairly resolve the dispute”. The court went on to note that “[w]hat is fair and just turns on the nature of the issues, the nature and strength of the evidence and what is the proportional procedure”. See Hryniak at paragraph 59.

[16] It is clear from post-Hryniak authority that affidavits of documents or other forms of production should not always be required in advance of summary judgment motions. However, there continues to be a sound basis for ordering such production in the appropriate circumstances. See TSI International Inc. v. Formosa, 2018 ONSC 4381 at paragraphs 76-77 and Westboro Mortgage Investment LLP v. Co-Operators General Insurance Co., 2018 ONSC 6635 at paragraph 30.

[17] Finally, it is important to note that the Court of Appeal has recently confirmed the well-established principle that a party responding to a motion for summary judgment is required to put its best foot forward. A motion judge is entitled to assume that the parties have placed before the court all of the evidence that will be available at trial. See Da Silva v. Gomes, 2018 ONCA 610 at paragraph 18.

[18] I have therefore considered Canopy’s requests for production and the taking of other evidence with these principles in mind.

[19] This is obviously a serious and significant proceeding in terms of the amounts in issue. It appears that several million dollars may be at stake. The material filed by the moving parties on the summary judgment motions and by all parties on this motion is substantial and lengthy. Eight lawyers appeared as counsel on this practice motion. Canopy, Aphria and Liberty are large and sophisticated businesses. The plaintiff is an experienced senior executive. The access to justice policy concern of the Supreme Court of Canada in Hryniak is not particularly strong in the circumstances of this action.

[20] The responding parties on this motion argued that the summary judgment motions are simple and straightforward questions of law and contractual interpretation. They submitted that the issues can be fairly and justly determined by the court without any production from the responding parties. They noted that these are public companies and a great deal of information concerning their operations is a matter of public knowledge.

[21] I do not view the summary judgment motions as being that simple. The summary judgment motions seek orders dismissing Canopy’s counterclaim in its entirety and granting the relief sought by the plaintiff in its entirety. Canopy’s position is that the plaintiff, in concert with Aphria and Liberty, breached the terms of his employment agreement and the share option agreement, along with other duties owed to Canopy. Canopy’s central allegations are summarized in its response to a demand for particulars from Aphria where it states as follows:

[A]s the Founding President and a director of Canopy Hemp, [the plaintiff] was a key employee and had fiduciary obligations to act in the best interest of Canopy post-resignation and to not use or misuse any Canopy confidential information in the course of his employment with Liberty Health, whether as a springboard or otherwise. In negotiating employment with Liberty Health (with, at the very least, the knowledge of Canopy’s competitor Aphria) either during his employment with Canopy or thereafter during his contractual and fiduciary non-competition period, and in not being honest with Canopy about where he was going to be employed, [the plaintiff] breached his various contractual, common law and fiduciary obligations to Canopy with the knowledge and/or assistance of Liberty Health and Aphria.

[22] These are not discreet allegations. They are framed in a broad and wide-ranging manner. Canopy is claiming that the plaintiff breached duties owed to Canopy during and after his period of employment in concert with Liberty and Canopy’s competitor Aphria.

[23] I acknowledge that the plaintiff, Aphria and Liberty all deny these allegations. However, they are not simply bald allegations of wrongdoing without any evidentiary basis. It appears that after leaving Canopy the plaintiff became an employee of Liberty and not Aphria but Aphria and Liberty are not unrelated parties. Aphria owned 37% of Liberty at the relevant times and had a right to appoint directors of Liberty. The non-party Vic Neufeld (“Neufeld”) was the former chief executive officer of Aphria. The non-party John Cervini (“Cervini”) was a co-founder of Aphria. Both of these individuals were members of the board of directors of Liberty at relevant times.

[24] Canopy has located an email dated May 4, 2017, on which the plaintiff was copied, which appears to include a proprietary Aphria document. It appears that the plaintiff was still an employee and certainly a director of Canopy Hemp at the time of receiving this email. Canopy has provided other evidence of public statements made by the plaintiff where he uses the pronoun “we” to refer to Aphria and “our facilities in Canada” when Liberty had no facilities in Canada. He stated at one event that “I can speak on Aphria’s behalf”.

[25] It is important to note that none of the responding parties have delivered any evidence on this motion in response to this evidence. Canopy’s witness was not cross-examined. In fact, no responding party has delivered any substantive evidence on this motion. Only the plaintiff has served a supporting affidavit on the summary judgment motions. The responding parties to this motion want the summary judgment motions to proceed with very little production on their behalf.

[26] It is not for this court on this motion to say whether any these allegations are true or false or whether the plaintiff has breached any duties owing to Canopy, with or without the involvement of Aphria or Liberty. What I have concluded from the pleadings and the evidence, however, is that the summary judgment motions are not simple straightforward questions of law and contractual interpretation as suggested by the responding parties.

[27] Moreover, the issues raised and allegations made in relation to the plaintiff’s possible breach of duties to Canopy and the involvement of Aphria and Liberty are not the kind of matters that would be revealed in public filings by a publicly traded corporation.

[28] For these reasons, it is my view that some of the relief requested by Canopy on this motion should be granted. As Justice Emery stated in IML as set out above, the exercise of information gathering rights should be proportionate to the issues on the motion and the action itself. The Supreme Court of Canada also referred to a proportional procedure in Hryniak.

[29] With these principles in mind, I am not prepared to make an order at this time establishing a discovery plan or requiring the service of affidavits of documents. Full pre-trial production and examinations would not be in keeping with the Hryniak “culture shift” in the circumstance of this action. In my view, the specific categories of documents requested by Canopy represent a fair and proportional compromise in the circumstances. I have carefully reviewed the specific document requests outlined in Canopy’s notice of motion. In my view, the requests are measured and tailored to the important matters in issue in this proceeding. This production will allow Canopy to put its best foot forward while respecting the principles mandated in Hryniak.

[30] In my view, it is therefore fair and just for the defendants by counterclaim to produce the documents referenced by Canopy at paragraph (c) of its notice of motion in advance of any cross-examinations or Rule 39.03 examinations in relation to the summary judgment motions. These documents may be redacted to omit any references to matters unrelated to the matters in issue in this action.

[31] In my view, it is also appropriate that Neufeld and Cervini be required to attend to be examined as witnesses on a pending motion pursuant to Rule 39.03 . The test for requiring a person to appear as a witness on a pending motion is well established. The party seeking to examine the witness need only show that the proposed witness has evidence that is possibly relevant to the pending motion, the proposed examination will not be a fishing expedition and the documents requested to be brought to the examination are not overly broad. See Seelster Farms Inc. v. Ontario, 2017 ONSC 4756 at paragraph 40. The court must be careful not to set the relevance threshold too high. See Seelster at paragraph 42. If the examining party meets this test, the onus is on the party opposed to the examination to show that the proposed examination is an abuse of process. See Seelster at paragraph 41.

[32] In my view, it is obvious that Neufeld and Cervini will have evidence that is possibly relevant to the issues on the summary judgment motion given their respective senior positions with Aphria and Liberty at the relevant times. At the very least, they will be able to provide evidence about the nature and extent of the relationship between Aphria and Liberty. I also note that Neufeld and Cervini were parties to the May 4, 2017 email copied to the plaintiff and attaching the internal Aphria document. None of the defendants to the counterclaim or the non-parties have delivered responding evidence on this motion to suggest that they do not have relevant evidence or the proposed examinations are otherwise improper. The documents listed in the draft summonses to witness for each of the non-parties is in essence a duplication of what has been ordered to be produced by the defendants by counterclaim. Neufeld and Cervini need not produce the documents referenced in the draft summonses and shall be provided with copies of the documents produced by the defendants to counterclaim prior to their examinations.

[33] I do not have the jurisdiction to make an order adjourning a judge’s summary judgment motion. If an adjournment is necessary, the parties will have to attend civil practice court. I understand that a partial timetable was set by a judge when the summary judgment motions were scheduled. Any variation to the judge’s timetable order has to be made by a judge and not a master. Any further judge’s timetable order can also include a provision for the time for production of the documents as ordered and any other required steps in advance of the summary judgment motions.

ORDER

[34] I therefore order as follows:

(a) the defendants by counterclaim shall produce the documents referenced by Canopy at paragraph (c) of its notice of motion in advance of any cross-examinations or Rule 39.03 examinations, which may be redacted to omit any references to matters unrelated to the matters in issue in this action;

(b) Neufeld and Cervini shall attend to be examined as witnesses on a pending motion pursuant to Rule 39.03 but shall not be required to produce any of the documents referenced in the draft summonses to witness;

(c) Neufeld and Cervini shall be provided with copies of the documents produced by the defendants to counterclaim prior to their examinations;

(d) the balance of the relief on this motion is dismissed without prejudice to Canopy seeking such relief at a later date or before the appropriate judicial officer; and,

(e) if the parties are unable to agree on the issue of the costs of this motion they shall provide the court with brief submissions in writing by May 21, 2019, which submissions may be sent directly to me by email.

Master R. A. Muir

DATE: 2019 04 04