Court File and Parties

COURT FILE NO.: CV-19-633450 DATE: 20200730 SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

BEHOLD CONTROL EQUIPMENT INC., Plaintiff

AND:

RACE MECHANICAL SYSTEMS INC. and 2700009 ONTARIO INC. (C.O.B. as AQUIRE FACILITIES MANAGEMENT SERVICES), Defendants

AND BETWEEN:

RACE MECHANICAL SYSTEMS INC. and 2700009 ONTARIO INC. (C.O.B. as AQUIRE FACILITIES MANAGEMENT SERVICES), Plaintiffs by Counterclaim

AND:

BEHOLD CONTROL EQUIPMENT INC. and TREVOR STRAUSS, Defendants by Counterclaim

BEFORE: Sanfilippo J.

COUNSEL: Derek Ricci and Maureen Littlejohn, for the Plaintiff/ Defendants by Counterclaim Marvin J. Huberman, for the Defendants/ Plaintiffs by Counterclaim

HEARD: July 30, 2020

2nd Case Management Endorsement

[1] The second case management conference in this action initiated on July 23, 2020, and addressed issues pertaining to a timetable for the delivery of expert reports and trial management. However, the parties required more time to consider and develop a Motion, on consent, for the issuance of a protective order. Accordingly, the case management conference was adjourned to July 30, 2020 to address this issue ahead of the parties’ deadline of July 31, 2020 for completion of documentary production. [1]

[2] In this case management endorsement, I will direct the timetable for the trial management steps required to advance this action to a state of trial readiness, and I will also explain the reasons on which I have decided to grant the protective order that the parties jointly requested.

A. The Protective Order

(a) Background

[3] At the first case management conference, the parties jointly presented a form of proposed order, referred to by them as a “Confidentiality Order”, and jointly requested its issuance. I declined to do so because, in my assessment, the form of order presented by the parties constituted a sealing order, as follows:

I declined the parties’ joint request to issue the Confidentiality Order, without substantive determination, because it constituted a sealing order and therefore can only be issued on motion following the process set out in Part V, Section F, sections 105-113 of the Consolidated Provincial Practice Direction of the Ontario Superior Court of Justice (effective July 1, 2014). Although this Practice Direction refers to “publication bans”, it applies equally to any discretionary order limiting public access to the Court, including sealing orders.

The parties must satisfy the test set out by the Supreme Court for restriction in access to the Court: Dagenais v. Canadian Broadcasting Corp., [1994] 3 S.C.R. 835; R. v. Mentuck, 2001 SCC 76, 3 S.C.R. 442; Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2 S.C.R. 522. The Supreme Court and the Ontario Court of Appeal have held that these principles apply equally to sealing orders, including those sought under section 137 of the Courts of Justice Act, R.S.O. 1990, c. 43: Sierra Club, at para. 53; M.E.H. v. Williams, 2012 ONCA 35, 108 O.R. (3d) 321, at para. 34. [2]

[4] The elements of the form of draft order presented by the parties that caused it to be a sealing order included the following: the restriction of public access to documents filed with the Court; the segregation of documents filed with the Court into sealed envelopes or containers unavailable to the public; the requirement that any such filed documents not be listed as part of the public record but rather available only to the Judge.

[5] I encouraged the parties to consider further the nature and extent of confidentiality that they required regarding the documentary productions in this action, and whether this necessitated a sealing order. [3]

(b) The Motion for a Protective Order

[6] The parties did not bring a Motion for a sealing order or a publication ban. Rather, they jointly advanced a Motion for an order limiting the disclosure by the parties of confidential documents produced in this action in documentary and oral discovery: namely, a “protective order”. [4]

[7] The purpose of the protective order is to govern the protection and the continued maintenance of confidentiality between the parties in documents that may be disclosed or compelled in documentary and oral examination discovery in this action. The parties do not currently seek an order limiting the public access to documents should they decide to file them in Court, and do not seek an order restricting any publication of any evidence filed in Court.

[8] The request for the protective order is based on the nature of the allegations pleaded. The Plaintiff alleged that the Defendants have appropriated a corporate opportunity and have made improper use of the Plaintiff’s confidential information. Amongst other things, the Plaintiff alleged that the Defendants have “procured, misused and disclosed Behold’s confidential technical and business information in order to develop technology and equipment to compete with Behold’s business. [5] The Plaintiff alleged that the Defendants obtained access to the Plaintiff’s confidential technology and information through a series of agreements that are said to have recognized the proprietary nature of the technology and mandated its confidential preservation, and reverse engineered the technology with the objective of creating derivative technology that could be used in competition with the Plaintiff. [6]

[9] The Defendants deny the Plaintiff’s allegations, deny any liability to the Plaintiff, and have advanced a counterclaim against the Plaintiff and its director and officer. The Defendants plead that the corporate Plaintiff has breached the contractual agreements between the parties, causing harm. [7] The Defendants seek damages, including punitive damages, and injunctive relief against the Plaintiff/ Defendants by Counterclaim, just as the Plaintiff does against the Defendants.

[10] The Discovery Plan implemented pursuant to Rule 29.1 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, on consent, shows that the parties will produce, as part of their documentary productions, materials that have been treated by the parties as confidential and proprietary, including hardware designs, plans or schematics, software designs, code or algorithm.

[11] The parties’ joint request is to implement a Protective Order that provides for the handling and protection of confidential documents and information produced, exchanged and examined upon as between the parties during the discovery process. The parties do not currently seek any protection for the filing of these productions and evidence in Court, although they may later once they assess the scope and nature of evidence that will be material to the trial of this action.

(c) Analysis

[12] Rule 30.02(1) requires that all parties to an action must serve an affidavit of documents on every other party that discloses “every document relevant to any matter in issue in an action that is or has been in the possession, control or power of a party to the action.” Rule 30.02(2) mandates that every such document shall be “produced for inspection”, if requested, by a party to the action. The rights and duties set out by these production obligations are mandatory and specific to the parties to the action.

[13] Rule 31 provides a party with a right of examination for discovery, oral or written but not both, of an adverse party. The right to examine is not mandatory but rather an optional step, albeit routinely acted upon in civil litigation. Like the Rules pertaining to documentary production, the oral examination rights provided by Rule 31 are specific to the parties.

[14] Rule 30.1.01 imposes a deemed undertaking on the evidence obtained under Rules 30 and 31: also, Rule 32 (inspection of property); Rule 33 (medical examination); and Rule 35 (examination for discovery by written questions). All parties and their counsel are “deemed to undertake not to use evidence or information to which these Rules apply for any purposes other than those of the proceeding in which the evidence was obtained”.

[15] For most cases, unencumbered by sensitive documentary or examination evidence of a confidential or proprietary nature, the deemed undertaking rule is sufficient to ensure that the evidence is used only for the purposes of the pending action. However, the parties jointly submitted that where the very essence of the litigation is a dispute concerning the appropriation and use of confidential proprietary information, making necessary the production and examination on technically sensitive evidence, additional protection ought to be made through a protective order.

[16] Further, the parties were concerned that the deemed undertaking rule does not prevent a party from filing another party’s confidential information in Court. It does not require notification to the opposing party before doing so. [8] Rule 30.1.01(5)(a) provides that once filed in Court, the confidential information can be used “for any purpose”. These parties seek an order requiring advance notice of a party’s intention to file protected information in Court so that they can consider whether to bring a motion for a sealing order or publication ban. They also seek to identify the persons involved in the litigation who may receive the protected information.

[17] The Supreme Court established a two-step test for a protective order, as follows:

Pelletier J. noted that the order sought in this case was similar in nature to an application for a protective order which arises in the context of patent litigation. Such an order requires the applicant to demonstrate that the information in question has been treated at all relevant times as confidential and that on a balance of probabilities its proprietary, commercial and scientific interests could reasonably be harmed by the disclosure of the information.” [9]

[18] The criteria for granting a protective order is different than the two-part test for granting a sealing order or publication ban. [10] This recognizes the difference in these orders. The protective order does not limit public access to evidence filed in Court. A document will not be filed confidentially in Court just because it was classified as confidential in a protective order. [11] The protective order pertains to the documents and evidence gathered by the parties further to their exercise of their pre-trial documentary and oral examination rights.

[19] Through their consent, the parties have agreed that the information and evidence in question has been treated by them as confidential, and they have agreed that their proprietary, commercial and scientific interests could reasonably be harmed by the disclosure of the information. The allegations in the pleadings and the issues identified by the Discovery Plan support these positions. I am satisfied that the parties have established a basis for the issuance of a protective order.

(d) Form of Protective Order

[20] The parties agreed on a form of protective order that imposes confidentiality on the parties’ exchange and handling of evidence through the documentary and oral examination phase of this action. The proposed order requires that a party must notify the other of any intention to file any such evidence or material in Court, including for the purposes of Rule 31.11, to allow for consideration of the consequences in doing so and an opportunity to seek a sealing order or publication ban on the filing of such evidence. The form of proposed order allows the parties the ability to share the confidential information with those whose input is required for the purposes of this action, while maintaining the document in confidence so long as it is not filed in Court.

[21] I have reviewed the draft form of order and I am satisfied that its terms are consistent with a protective order. Further, I have noted it does not act as a sealing order or publication ban because it has no application to materials and evidence filed in Court. In particular:

(a) nothing contained in the form of protective order, filed, allows for the sealing of evidence filed in Court or imposes any restriction on its publication.

(b) the categorization of a document as confidential under the protective order does not automatically permit the document to be treated as confidential or filed under seal with the Court. Rather, a further Order is required, and could only be issued on motion following the process set out in Part V, Section F, sections 105-113 of the Consolidated Provincial Practice Direction of the Ontario Superior Court of Justice (effective July 1, 2014).

[22] I will grant the Plaintiff’s motion, brought on consent, for the issuance of a protective order, substantively in the form agreed upon by the parties and filed as Schedule “A” to the Plaintiff’s Notice of Motion, as modified in discussion during the case management conference, with the amendment of paragraph 25 and addition of paragraph 35, as set out below.

B. Specific Case Management Directions

[23] Further to the matters addressed at the second case management conference, and based on my reasons for the granting of the motion for the issuance of a protective order, I order as follows:

(a) a protective order shall issue substantively in the form of protective order filed as Schedule “A” to the Plaintiff’s Notice of Motion, as modified during the second case management conference, with the amendment of paragraph 25 and the addition of paragraph 35, as follows:

“25. For greater certainty, nothing in this Order constitutes an Order sealing any Protected Information, including Documents and Transcripts, filed in Court in the Action or restricting their publication. Nothing in this Order shall affect or derogate from the public nature of any Protected Information, including Documents and Transcripts, filed in Court in the Action or the Court’s ability to deal with any such evidence, including in accordance with its ordinary processes, its inherent jurisdiction and/or the Rules of Civil Procedure.

35. In the circumstances of the COVID-19 emergency and the resultant restrictions on regular Court operations, notwithstanding Rule 59.05, this Order is effective from the date it is made and is enforceable without the need for entry and filing. In accordance with Rules 77.07(6) and 1.04, no formal order need be entered and filed unless an appeal or a motion for leave to appeal is brought to an appellate court. Any party may nonetheless submit a formal order for original signing, entry and filing when the Court returns to regular operations, should the party wish to do so.”

(b) The parties shall complete the mandatory mediation by January 29, 2021;

(c) The Plaintiff shall serve any expert report(s) by March 31, 2021;

(d) The Defendants shall serve any responding expert report(s) by April 30, 2021;

(e) The Plaintiff shall serve any reply expert report(s) by May 31, 2021;

(f) The next Case Management Conference will be conducted on November 26, 2020 at 9:15 am, a time convenient to the parties and made available by the Court. The Case Management Conference shall take place by videoconference, using connection coordinates that will be provided by the Court;

(g) The parties may bring forward, to the next case management conference, any issues that arise from the completion of the documentary and oral examination phases of this action.

(h) The parties shall deliver, by November 24, 2020 at 12:00 noon, a memorandum of no more than three pages in length, setting out their positions on any issues to be addressed at the next case management conference. The parties may file a joint memorandum, should they agree on the issues to be addressed.

C. General Case Management Directions

[24] Any party who seeks to address an issue identified in this action between now and the next scheduled case conference of November 26, 2020 at 9:15 am, and who considers that a case conference would assist in expeditious and efficient handling of any such issue, may request the scheduling of a further case conference using the following process: first, canvas with all counsel their availability for a case management conference at 9:15 am, and concurrence to its scheduling, assembling a list of three such dates; then, with copy to all counsel, forward an email to my judicial assistant providing the list of the three available dates, together with a memorandum of not more than 2 pages explaining the issues to be addressed.

[25] Broad application of Rule 50.13 will be used to address and resolve matters raised at case conference, in circumstances where this is possible. Counsel ought to expect that procedural orders and directions will be made at case conferences, in accordance with Rule 50.13(6), on informal notice of the issue to be addressed.

[26] The requirement of preparation, issuance and entry of a formal order is hereby dispensed with, in accordance with Rule 77.07(6).

Sanfilippo J.

Date: July 30, 2020

References

[1] Behold Control Equipment Inc. v. Race Mechanical Systems Inc., 2020 ONSC 3289 (“1st CM Endorsement”), at para. 10(a)(i).

[2] 1st CM Endorsement, paras. 7-8.

[3] 1st CM Endorsement, para. 9.

[4] Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2 S.C.R. 522, at para. 14.

[5] Statement of Claim, at para. 2.

[6] Statement of Claim, at paras. 66-70.

[7] Statement of Defence and Counterclaim, at paras. 48-56, 62-63.

[8] dTechs EPM Ltd. v. British Columbia Hydro & Power Authority, 2019 FC 539, 2019 CarswellNat 1480, at para. 47.

[9] Sierra Club of Canada, at para. 60.

[10] Sierra Club of Canada, at para. 53.

[11] dTechs EPM Ltd., at para. 32.