Court File and Parties
COURT FILE NO.: CV-20-224-00 DATE: 2023-11-09
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SEBASTIANO FOGLIA and JACQUELINE MASON, Applicants and GRID LINK CORP., 1928025 ONTARIO LTD., and JODY BERNST, Respondents
HEARD: By Zoom in Thunder Bay, October 19, 2023
BEFORE: Fregeau J.
COUNSEL: N. Wainwright, for the Applicants (responding parties) E. Zablotny, for the Respondents (moving parties)
Endorsement on Motion
The Nature of the Motion
[1] The respondents, Grid Link Corp., 1928025 Ontario Ltd., and Jody Bernst (collectively “Grid Link”) bring this motion pursuant to Rule 63.02(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 seeking an order staying the order of the motions judge dated February 23, 2023 (the “Order”), pending the determination of Grid Link’s appeal of the Order.
Background
[2] This application was commenced on July 9, 2020, and stems from a shareholder dispute between Grid Link and Sebastiano Foglia (“Foglia”), the only remaining applicant. Foglia is a former Grid Link employee and executive with an indirect minority interest in Grid Link.
[3] Foglia held the positions of Chief Operating Officer and Vice-President of Grid Link’s Railway Division prior to his resignation on December 20, 2019. In January 2020, Foglia announced his employment with Staal Irrigation Inc. and/or Staal Utility Inc. (“Staal”).
[4] In very general terms, Grid Link alleges that Foglia siphoned business and clients from Grid Link to the benefit of Staal and that he misappropriated confidential and proprietary information of Grid Link in the course of doing so. Grid Link has brought a parallel action against Foglia claiming substantial damages for this alleged misconduct. Grid Link acknowledges that the parallel action and this application may ultimately be consolidated.
[5] Given the nature of the dispute, in May 2022, Grid Link brought a motion requesting that the application be converted to an action. On February 23, 2023, the motions judge adjourned the motion, ordered Grid Link to purchase Foglia’s shares in the company and created a litigation timetable for the presentation of expert evidence on the value of Foglia’s shares.
[6] The February 23, 2023, Order/timetable of the motions judge included the following directives:
That on or before June 30, 2023, Foglia shall provide to Grid Link a detailed list of all financial documentation required for his experts to prepare expert opinion evidence reports with respect to the value of Foglia’s shares; and
That on or before September 1, 2023, Grid Link shall provide to counsel for Foglia a document brief of the documents required by Foglia.
[7] On March 24, 2023, Grid Link, in error, filed a Notice of Appeal in the Court of Appeal for Ontario. On May 12, 2023, Foglia brought a motion to quash the appeal, which was successful. The Court of Appeal then transferred the matter to the Divisional Court. The Divisional Court directed Grid Link to move for leave for appeal. Grid Link’s leave motion is scheduled to be heard the week of January 22, 2024.
[8] On June 27, 2023, Foglia, having retained his expert valuator, made a formal request of Grid Link for the production of numerous confidential and sensitive business records. Given the pending leave to appeal motion and this motion requesting a stay of the Order, Foglia has agreed not to enforce the timetable imposed by the Order.
The Positions of the Parties
[9] Neither party disputes the jurisdiction of this court to determine the issue of a stay of the Order pending appeal. The parties agree on the test to stay an order pending appeal under Rule 63.02(1):
First, a preliminary assessment must be made of the merits of the appeal to ensure that there is a serious issue to be tried;
Secondly, it must be determined whether the applicant would suffer irreparable harm if the application was refused; and
Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits.
[10] Grid Link submits that these criteria are not watertight compartments. The strength of one may compensate for the weakness of another with the overarching consideration being whether the interests of justice call for a stay, according to Grid Link.
[11] Grid Link contends that the threshold to establish whether there is a serious issue to be tried is low and that the court is only required to determine whether the issues raised on appeal are frivolous or vexatious. Grid Link suggests that “irreparable” refers to the nature of the harm suffered rather than its magnitude. The balance of convenience analysis requires the court to consider which party will suffer greater harm from the granting or refusal of a stay, according to Grid Link.
[12] Grid Link submits that its appeal is neither frivolous nor vexatious. Grid Link submits that the only relief sought on its February 23, 2023, motion was to convert the application to an action. Grid Link contends that the relief granted by the motions judge on their conversion motion, namely that Foglia’s shares be valued and purchased by Grid Link subsequent to expert valuation, was the relief sought on the application and was not directly in issue on the motion. As a result, the Order was made absent a full evidentiary record and is therefore unreliable, justifying appellate intervention, according to Grid Link.
[13] Grid Link contends that it will suffer irreparable harm if the Order is not stayed pending appeal. Grid Link contends that Foglia has already misappropriated confidential and proprietary information to which he was privy during his employment with Grid Link enabling Staal, Foglia’s current employer, to enter direct competition with Grid Link and to solicit many of its former clients.
[14] Grid Link suggests that the damages suffered by the further disclosure of private and sensitive business records to its primary competitor cannot be undone after the fact if its appeal of the Order is successful.
[15] Grid Link submits that the balance of convenience clearly weighs in favour of granting a stay of the Order pending appeal. Grid Link submits that there is no urgency in valuing Foglia’s minority shareholding in Grid Link for the purpose of a share purchase ordered to take place at an undetermined time in the future, likely only after a trial.
[16] Grid Link suggests that if the stay is not granted, Foglia will have obtained a significant competitive advantage over Grid Link because of the Order which cannot be undone even if its appeal is successful. The prejudice potentially suffered by Grid Link if the stay is not granted far exceeds any prejudice suffered by Foglia if the stay is granted, according to Grid Link.
[17] Foglia acknowledges that the threshold to establish a serious issue is low. However, the court must nonetheless embark upon a preliminary assessment of the merits of the case to determine whether the issues raised are frivolous or vexatious, according to Foglia. Foglia contends that when doing so, the court must proceed on the assumption that the Order is correct and that the relief ordered was properly granted.
[18] Foglia submits that evidence of suggested irreparable harm must be clear and not speculative. That Grid Link may or is likely to suffer irreparable harm is insufficient to satisfy the test. Grid Link must establish that they would suffer irreparable harm. In assessing the balance of convenience, Foglia submits that the court is required to balance the harm (or lack thereof) that Grid Link would suffer if the stay were refused against the harm that he would suffer if the stay was granted.
[19] Foglia submits that there are no serious issues raised in Grid Link’s appeal of the Order and that it has little prospect of success. Foglia contends that the motions judge, who had been case managing the application for almost three years prior to the date of the Order, carefully reviewed all evidence on the motion and correctly interpreted the positions of both parties as to the ultimate outcome sought, namely a sale of Foglia’s shares to Grid Link. Foglia submits that the fact that Grid Link did not expect a share purchase to be ordered given the relief sought on the motion does not equate with the motions judge having erred.
[20] Foglia submits that Grid Link has not established that it would suffer irreparable harm if the stay was not granted. Foglia contends that the documentation ordered disclosed by the motions judge is clearly relevant to the issues in dispute on the application and would have to be disclosed in any event at some point in time. Foglia further contends that Grid Link’s position on the irreparable harm issue assumes that he would breach his deemed/implied undertaking based on Grid Link’s unproven allegations that he has already misappropriated confidential information. Such potential consequences are speculative and exist in virtually all shareholder disputes, according to Foglia.
[21] Foglia submits that Grid Link would suffer no harm if the stay were refused because it would be compelled to disclose the same documentation as set out in the Order at some point in the litigation regardless of the outcome of the appeal. However, if the stay is granted, the substantial delay experienced to date will be exacerbated to Foglia’s detriment, given that both parties acknowledge the outcome ultimately sought is the sale of his shares. Foglia further notes that the substantial costs he has incurred in retaining an expert, in compliance with the terms of the Order, will be thrown away if the stay is granted. Foglia submits that the balance of convenience weighs in favour of refusing the request for a stay of the Order.
Discussion
[22] A careful review of the February 23, 2023, Endorsement of the motions judge, who had been case managing this matter for almost three years prior to the hearing of Grid Link’s conversion motion, clearly indicates three things:
The motions judge was frustrated by the lack of progress in moving this shareholders’ dispute toward resolution;
That Grid Link and Foglia both sought the same ultimate outcome, namely a sale of Foglia’s 6% indirect minority shareholding in Grid Link with the real issue being how much, “if anything”, Foglia should be paid for his interest; and
The motions judge’s “clear directions to the parties as to the conduct of this application…have not been sufficiently persuasive…to have them focus their efforts on moving forward in an efficient manner”.
[23] The motions judge expressly recognized that Grid Link’s motion was procedural. He also clearly recognized that “a request for a procedural remedy cannot be properly assessed without regard for how it will move the matter towards an outcome”. The motions judge then observed that both parties were seeking “the same ultimate outcome; a sale of Foglia’s shares”.
[24] It is implicit in the reasons of the motion judge that he was of the very strong view that the narrow remedy sought by Grid Link on the conversion motion would do little, if anything, to move the matter toward the ultimate outcome sought by both of the parties.
[25] The motions judge noted the general principle enunciated by Rule 1.04(1) and the equitable and remedial nature of the OBCA provisions under which the application was brought and fashioned a practical remedy. He adjourned the conversion motion, ordered Grid Link to purchase Foglia’s shares and ordered Grid Link to produce to Foglia all financial documentation necessary for the preparation of an expert opinion as to share value.
[26] Further, the motions judge endeavored, as much as possible, to “dovetail” the valuation process he ordered in the conversion motion with the parallel damages action brought by Grid Link against Foglia, in my view an implicit recognition that consolidation of the application and action is inevitable.
[27] Given the proactive, practical case management by the motions judge, including his resolution of the Grid Link’s conversion motion, I conclude that Grid Link’s appeal of the Order has little prospect of success, assuming Grid Link is granted leave to appeal the Order.
[28] I further conclude that Grid Link has not established that it will suffer irreparable harm if the Order is not stayed pending appeal. I accept the submission of Foglia that Grid Link’s position on this issue is premised on the assumption that he will breach the deemed undertaking imposed by Rule 30.1.01(3) and, if he does, Grid Link will suffer irreparable harm.
[29] Grid Link’s allegations that Foglia has misappropriated confidential information and provided same to Staal, to Staal’s competitive advantage and to the considerable disadvantage of Grid Link are unproven. As noted by Foglia, the risk of a party to commercial litigation misusing confidential and sensitive information produced during the litigation exists in virtually all shareholder disputes. As such and at best, Grid Link’s concerns on this issue are, at this point, speculative. Further, again as noted by Foglia, it is inevitable that the documents ordered produced to Foglia by the motions judge will have to be produced to him at some point in time if this litigation is going to move forward.
[30] In these circumstances, I am not persuaded that Grid Link will suffer irreparable harm if a stay of the Order is not granted.
[31] The balance of convenience analysis weighs the potential harm Grid Link will suffer if the stay is not granted against the potential harm Foglia will suffer if the stay is granted. Grid Link’s position on this third step in the test for a stay pending appeal once again assumes, based on unproven allegations, that Foglia will misuse the information ordered produced to him pursuant to the Order. It also fails to recognize that the records and information ordered produced by the Order must be produced at some point in the litigation.
[32] I accept the motion judge’s observation that both parties, in part, seek the same resolution in this application, namely the sale of Foglia’s shares. The contentious issue is what, if anything, he should be paid for his shares. Dismissing the request for a stay of the Order will allow the valuation of Foglia’s shares to proceed in a timely fashion, as envisaged by the motions judge. Counsel have advised the court that if Grid Link obtains leave for this appeal, it would likely not be heard by the Divisional Court until December 2024. This substantial delay will be to Foglia’s detriment.
[33] In my view, the balance of convenience weighs in favour of dismissing the request for a stay of the Order. Grid Link’s motion is dismissed.
[34] Counsel have argued this motion based on the assumption that the deemed undertaking imposed by Rule 30.1.01(3) applies to the financial documentation ordered produced pursuant to paragraphs 3 and 4 of the Order.
[35] However, Rule 30.1.01(1) states as follows:
This Rule applies to,
(a) Evidence obtained under,
(i) Rule 30 (documentary discovery),
(ii) Rule 31 (examination for discovery),
(iii) Rule 32 (inspection of property),
(iv) Rule 33 (medical examination),
(v) Rule 35 (examination for discovery by written questions).
[36] Rule 30.1.01(2) states that this Rule does not apply to evidence or information obtained otherwise than under the rules referred to in subrule (1). As a result of subrule 30.1.01(2), disclosure obtained outside the listed rules, which would include disclosure compelled by the Order, is not subject to the deemed undertaking.
[37] Therefore, I order that any and all financial information and documentation produced to Foglia by Grid Link in compliance with the terms of the Order shall not be used for any purpose other than those purposes set out in the Order and that this information and documentation is not to be released or disclosed to any party but Foglia, his counsel and any expert(s) he retains for the purposes set out in the Order.
[38] Foglia is presumptively entitled to its reasonable costs of this motion. If costs cannot be resolved, the parties shall file Costs Submissions, not to exceed three pages exclusive of their respective Bills of Costs. Foglia’s Costs Submissions shall be filed within 14 days of the release of this Endorsement; Grid Link’s within seven days thereafter. If Costs Submissions are not filed within this timeframe, costs shall be deemed resolved.
“Original signed by” The Hon. Mr. Justice J.S. Fregeau
DATE: November 9, 2023