Subway Franchise Systems v. CBC, 2019 ONSC 2584

Court File and Parties

COURT FILE NO.: CV-17-571237 DATE: 20190426 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SUBWAY FRANCHISE SYSTEMS OF CANADA, INC., SUBWAY IP INC., and DOCTORS ASSOCIATES INC., Plaintiffs – and – CANADIAN BROADCASTING CORPORATION, CHARLSIE AGRO, KATHLEEN COUGHLIN, ERIC SZETO and TRENT UNIVERSITY, Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Paul-Erik Veel, Sana Halwani, and Kaitlin Soye, for the Plaintiffs Christine Lonsdale and William Main, for the Defendants, Canadian Broadcasting Corporation, Carlsie Agro, Kathleen Coughlin, and Eric Szeto Joyce Tam, for the Defendant, Trent University

HEARD: April 25, 2019

MOTION FOR SEALING ORDER

[1]

Introduction

The Plaintiffs (collectively “Subway”) seek an Order sealing and keeping confidential a number of documents that they are obliged to produce in this case. The motion is a narrow one in the sense that Subway seeks to seal only 10 of the 1,045 documents it has produced thus far. That said, a request for a sealing Order bumps up against the principle of open courts which, as the Supreme Court of Canada has said, “is not to be lightly interfered with”: Re Vancouver Sun, 2004 SCC 43, [2004] 2 SCR 332, at para 26.

2The documents are of two general types: a) six financial documents that contain economically sensitive information about Subway’s business; and b) four private contracts that convey information about Subway’s internal workings and corporate structure. The Defendant, Canadian Broadcasting Corporation (“CBC”), opposes Subway’s motion, although it takes no issue with the fact that Subway considers the information contained in all of these documents to be confidential in the usual business sense; rather, it is CBC’s position that regardless of their business sensitivity, the 10 documents in issue do not meet the test for a sealing Order as set out by the Supreme Court of Canada.

3Counsel for CBC explains that his client opposes this motion in the public interest. It seeks no strategic advantage in the litigation, and acts here as a media company with a longstanding interest in freedom of the press and the open courts principle.

4The underlying case is a defamation action concerning coverage by CBC of a controversy surrounding the ingredients that Subway uses in its chicken sandwiches. As counsel for Subway points out, none of the 10 documents are central to that issue. They are documents that are producible and relevant in the discovery sense to Subway’s claim of loss, but none of them pertain in any direct way to the ingredients used in Subway’s sandwiches or to CBC’s coverage of the issue.

[5]

The Legal Test

The test of confidentiality for the purposes of obtaining a sealing Order is set out in Sierra Club of Canada v Canada (Minister of Finance), 2002 SCC 41, [2002] 2 SCR 522, at para 53. A sealing order should only be granted when:

(a) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest in the context of litigation because reasonably alternative measures will not prevent the risk; and

(b) the salutary effects of the confidentiality order, including the effects on the rights of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which in this context includes the public interest in open and accessible court proceedings.

6In other words, exposing the information to the public must raise a serious private concern for the moving party along with some form of public interest concern. In addition, the benefit of the Order must be of a magnitude that is proportionate to or that outweighs the detriment to the societal interest in open court proceedings.

7Subway’s counsel advises that in U.S. litigation in which it is involved these same documents have been protected by confidentiality and sealing Orders. Of course, that does not mean that a Canadian court must follow the U.S. as a role model; but it is interesting to note that the documents have been ordered sealed in the face of very strong freedom of the press and freedom of speech protections under the First Amendment.

8To meet its onus under the Sierra Club test, the moving party must adduce a more ample evidentiary record than merely a bald assertion that a competitive market interest is at play and that widely circulating the confidential information could redound to its detriment. This evidentiary burden was made clear in Out-of-Home Marketing Association v Toronto (City), 2012 ONCA 212, where the Court of Appeal held that there was insufficient evidence for a sealing Order over allegedly confidential financial information whose public disclosure could potentially harm the moving party and a third party. Epstein JA indicated, at para 57, that, “The only evidence in support of this assertion is a statement…that the information under seal is ‘highly sensitive and confidential’ and can be used by Pattison Outdoor’s competitors, advertisers and land owners to Pattison Outdoor’s disadvantage.”

[9]

Analysis of Financial Documents

The record before me contains evidence from Subway’s affiant, Frank Mottola, describing the industry’s competitive nature and the very narrow profit margins that characterize this market. The affidavit evidence demonstrates that the 6 financial documents at issue contain detailed information about Subway’s sales and average unit volume, and that this data, when read by a knowledgeable industry player, effectively signals which regional markets are profitable and which are less profitable.

10Mr. Mottola explains that the financial evidence in these 6 documents would, if widely disseminated, give Subway’s competitors an unearned advantage in the market. They would be in a position to benefit from Subway’s extensive experience and its tracking of sales data. Mr. Mottola’s evidence also describes how the impact of disseminating this information would fall squarely on franchisees and their ability to sell Subway’s products at a fair price.

11The financial documents contain detailed, granular data about Subway’s sales by region going back to 2012 and as current as the end of 2018. Subway expects to make further disclosure in the near future which will update this data to the first quarter of 2019. Mr. Mottola has provided a fulsome explanation of why these documents are so commercially sensitive. He was not cross-examined and so there is nothing in the record that casts any doubt on the veracity of his evidence in this regard.

12CBC’s counsel submits that in Fairview Donut Inc. v TDL Group Corp., 2010 ONSC 789, Strathy J. (as he then was) refused a confidentiality Order with respect to similar types of business information. There, however, the very issue that was central to the action entailed the commercial information in the confidential documents. In addition, the defendant was a public company whose financial information and internal corporate structure were already available in public disclosure documentation.

13In the present case, the documents in question are not concerned with Subway’s chicken recipe, or CBC’s story about the chicken, or any other issue of liability. If they were concerned with that kind of issue – i.e. one that, as in Fairview Donut, was front and centre in the litigation, it would be out of the question to seal the information. In that case, any court tasked with writing reasons for judgment would find it practically impossible to do so without referring to the impugned information. The deleterious effects of sealing would outweigh the salutary effects of publication: Commissioner of Competition v Catr Wireless Inc., 2011 ONSC 3387, at para 74.

14At issue here (at least in the 6 financial documents) is the back-up financial data that goes to the quantification of damages, not to liability. Subway has no concern about the CBC seeing this and providing a copy to its damages experts, but it does not want this information disseminated to other players in the food service industry. As counsel for Subway points out, Subway is a private company, not a publically traded company, and the exposure of confidential financial information is more damaging to a private company than it is to a public company that in any case has its audited financial statements and other information circulated in the market.

15It is Subway’s desire to adhere as closely as it can to the standard discovery process without allowing documentary disclosure of financial records and the public filing of all such documents in open court to undermine its market position. It has a strong private interest in protecting itself in this way, and there is equally strong public interest in finding the line that preserves due process for all parties without threatening to ruin one of them for reasons other than the merits of their case.

[16]

Analysis of Private Agreements

The 4 private Agreements (as opposed to the 6 financial documents) are in a different situation. The Agreements between Subway and its third party supplier, Grand River Foods, contain a confidentiality clause. One is a Food Supplier Agreement and the other is a Product Specification Agreement. Subway has brought the present motion at least partially to protect Grand River Foods’ interest as it is required to do under the two Agreements.

17It is, of course, in the public interest for parties to be able to rely on specific confidentiality clauses. Other than that somewhat diffuse public interest, there is no further public interest in these Agreements – they do not contain the formula to the “secret sauce”, as Subway’s counsel says. Keeping them confidential does not preclude the public from learning about the core issue in the litigation.

18The other two private Agreements are the System License Agreements between Subway and Subway-related entities. They explain the internal corporate structure of the Subway enterprise, and are important evidence on which Subway relies to prove how the losses claimed in the action flow internally between the Subway subsidiaries. Subway’s counsel describes them as being highly confidential but strictly internal and of no public concern. The only import of these documents is with respect to the Subway corporate structure and the corporate group’s flow of funds.

19The fact that there is no request for a sealing Order for documents that deal with the core issue of the litigation – the contents of the chicken product – makes the deleterious effects of the sealing Order rather minimal. Of course, there is some harm to the general principle of open courts, but there is nothing specific here to amplify that type of general harm.

20Counsel for CBC stresses that any interpretation of the test for a sealing Order must be informed by the open courts principle. In MEH v Williams, 2012 ONCA 35, at para 33, the Court of Appeal said that “in approaching the necessity branch of the inquiry, the high constitutional stakes must be placed at the forefront of the analysis.” The Court went on to say, at para 34, that “…the centrality of freedom of expression…demands that the party seeking to limit freedom of expression and the openness of the courts carry a significant legal and evidentiary burden.”

21CBC does not deny that maintaining a free market among commercial competitors is a legitimate public interest, but rather says that this public interest has not been made out. Counsel for CBC cites Fairview Donuts, at para 65, for the proposition that one cannot obtain a sealing Order based on “evidence of harm that is speculative, general and lacking in specifics”. CBC goes on to specify that Subway’s evidence is speculative about the use to which a competitor might put to the information at issue. More specifically, CBC contends that Subway’s request is analogous to that made in Re Chemtura Canada, 2008 NSSC 14, at para 23, where “[t]he Evidence in support of sealing the documents provides limited information about the Applicant’s industry and does not indicate that any competitor or customer is seeking the information.”

22In my view, this reasoning is not applicable to the 6 financial documents in issue. Of course Subway’s affiant cannot describe an existing advantage that its industry competitors have achieved due to their access to the confidential information, as this information has not yet been made public. It stands to reason, however, that detailed sales volumes and other financial data, broken down by region across North America, will assist its competitors in a tight market with low profit margins. It is a type of internal data that is more precise and detailed than any disclosed audited statements would be for a public company; the commercial damage inflicted by the public circulation of this internal data is not what I would call highly speculative. It is virtually certain that breaching the confidentiality of this data will bring considerable advantage to Subway’s competitors and consequent harm to Subway.

23The third party Agreements with Grand River and the internal Agreements among the Subway Defendants are not as sensitive to Subway’s business – at least, the evidence in the Record does not establish them as being so potentially damaging. As the Supreme Court emphasized in Sierra Club, at paras 60-61, the moving party must demonstrate that there is a serious risk to its commercial interest. While one can foresee the embarrassment of having its internal corporate structure and arrangements with a third party supplier revealed to the market at large, the losses that could flow from this kind of revelation are more difficult to predict.

24Where the damage inflicted by public disclosure of documents sought to be sealed is unpredictable, it falls into the speculative category that Justice Strathy described in Fairview Donuts. The salutary effect for Subway of sealing the private Agreements is minimal, while the deleterious effect of maintaining confidentiality in the face of the deeply ingrained principal of open courts is substantial.

[25]

Disposition

Accordingly, the 6 financial documents that Subway seeks to maintain as confidential are hereby ordered sealed. The Defendants, their counsel, and their expert witnesses shall have access to them as necessary for the litigation, but they are not to be further circulated and are to remain sealed in the court record.

26The 4 private Agreements that Subway seeks to maintain as confidential are not to be sealed. They are to be treated as any other document disclosed in the ordinary course in this litigation.

[27]

Costs

The results of this motion are mixed. Subway was obliged by the existing case law to bring it given what it perceived as the importance of the documents to its interests, while CBC responded to it in the public interest and not out of an attempt to achieve a private advantage. Both sides’ counsel did an efficient job with an interesting and potentially complicated area of law. Under the circumstances, I am inclined not to award costs of this motion for or against any party.

Morgan J.