Zenon Environmental Inc. v. Canada, 2005 FC 210

                                                                                                                                  Date: 20050210

                                                                                                                               Docket: T-610-04

                                                                                                                        Citation: 2005 FC 210

BETWEEN:

                                                ZENON ENVIRONMENTAL INC.

                                                                                                                                               Plaintiff

                                                                           and

                                                    HER MAJESTY THE QUEEN

                                                                                                                                           Defendant

                                                        REASONS FOR ORDER

STRAYER D.J.

Introduction

[1]                This is a motion for an interlocutory injunction against the defendant, Her Majesty the Queen, to prevent the defendant from providing "access to any proprietary confidential information of the Plaintiff, including the Technical Data Package relating to the Reverse Osmosis Water Purification Units" to the Plaintiff's competitor, Seprotech Inc. ("Seprotech") The plaintiff asks that such injunction shall also prevent Seprotech from photocopying such information of the plaintiff and directing the defendant to advise of any disclosure of such information to Seprotech.

[2]                While this relief was initially sought and substantially obtained in a motion for an interim injunction, the plaintiff now seeks an interlocutory injunction to this effect pending trial of the action.

[3]                The amended statement of claim in this action names Her Majesty as sole defendant but claims against the defendant, as well as the Minister of Public Works and Government Services Canada and the Minister of National Defence, the defendant's employees, agents or officials and other persons having notice of the order, an interlocutory injunction to prevent them from awarding a contract to Seprotech in respect of the repair and overhaul of Reverse Osmosis Water Purification Units (ROWPU's), as well as from disclosing the plaintiff's intellectual property to any persons other than the plaintiff and to retrieve any such property from any person to whom it has been disclosed.

Facts

[4]                In the late 1980's the Department of National Defence was seeking some kind of movable water purification units to provide potable water for use in military operations and in disaster relief.

[5]                Contracts were entered into through the Department of Public Works and Government Services Canada (PWGSC) with the plaintiff on June 3, 1988 and February 20, 1990 for the development of prototype ROWPU's. In each case while it was implicit that the plaintiff would own such intellectual property, if any, which was "conceived or made" in the course of carrying out the contract, it granted to the defendant:

a non-exclusive irrevocable, royalty free licence to make, have made and use for military purposes throughout the world and to sell or otherwise dispose of any article or thing embodying or using any and all such inventions, methods or processes, and a similar licence to practice or cause to be practised any such methods or processes.

It also allowed the defendant to duplicate, use, and disclose for government purposes all or any part of the technical information specified to be delivered by the contractor to the defendant under the contract. Pursuant to these contracts two units were developed, respectively ROWPU Mark I and ROWPU Mark II.

[6]                The defendant was sufficiently satisfied with this work that on November 19, 1992 it entered into a Production Contract with the plaintiff whereby the plaintiff would produce a series of ROWPU's for use by the Department of National Defence (DND). Usual General Conditions were attached to this contract but with some variations.

[7]                First it may be noted that in the interpretation section of the General Conditions any reference to "Canada" is to mean "Her Majesty the Queen in Right of Canada". In title 9601 of those conditions is section 24 which deals with intellectual property rights. While, as I understand it, the other provisions are standard, a new subsection (5) was included and the usual subsection (7) was deleted. The relevant provisions are as follows:

24(1) In the intellectual property provisions of the Contract:

(a)     "Background Intellectual Property" means all Technical Information that is not Foreground Intellectual Property and that is proprietary to the Contractor, its subcontractors or any other supplier of the Contractor;

(b)    "Foreground Intellectual Property" means any Invention first conceived, developed or reduced to practice as part of the Work under the Contract and all Technical Information collected, developed or produced as part of the Work under the Contract;

(c)     "Invention" means any new and useful art, process, methodology, technique, machine, manufacture or composition of matter or any new and useful improvement of any art, process, methodology, technique, machine, manufacture or composition of matter, whether or not patentable;

(d)    "Other Contractor" means any contractor to which Canada sub-licenses the use of Foreground Intellectual Property for purposes of carrying out a contract with Canada; and

(e)     "Technical Information" means all information of a scientific or technical nature relating to the Work, whether oral or recorded in any form or medium and whether or not copyrightable, including but not limited to Inventions, designs, methods, processes, techniques, know-how, reports, drawings, plans, specifications, photographs, models, prototypes, patterns, samples, schematics, experimental or test data, and computer software, data files, and documentation.

    (2) The Contractor shall promptly report and fully disclose to the Minister the conception, development, or reduction to practice of any Invention that could be Foreground Intellectual Property, and shall report and fully disclose to the Minister all other Technical Information at the completion of the Work or at such other time as the Minister or the Contract may require.

                                                          * * * * * * * * * *

    (4) Notwithstanding the Contractor's ownership of the Foreground Intellectual Property in any prototype or any custom machinery, device, system or equipment delivered under the Contract, the Crown shall have unrestricted rights of ownership in the thing delivered, including the right to sell it and to make it available for public use whether for a fee or otherwise.

    (5) The Contractor hereby grants to Canada a non-exclusive, irrevocable, world-wide, fully-paid and royalty-free license to use any Foreground Intellectual Property and such of the Background Intellectual Property incorporated into the Work or necessary for the performance of the Work as may be required solely for the following purposes:

(a)     for the operation, maintenance, repair or overhaul of the Work;

(b)    for the purpose of manufacturing spare parts for maintenance, repair or overhaul of the Work by Canada if those parts are not reasonably available to enable timely maintenance, repair or overhaul, or

(c)     for the further development of or alteration of work, including the right to the use of the Foreground or such incorporated Background Intellectual Property by another Contractor to be used solely in the carrying out of a contract let by Canada for a purpose set out in paragraph (a) or (b). Any such right given by Canada to another Contractor shall require the other Contractor to maintain the confidentiality of the Foreground or incorporated Background Intellectual Property and not use such Intellectual Property for commercial sale in competition with the Contractor.

[8]                The plaintiff produced several units pursuant to the production contract and for some ten years the defendant issued sole-source contracts to the plaintiff for servicing these units. The defendant did this on the assumption that it could not hire other contractors to service the units because it could not, consistently with the plaintiff's intellectual property rights, provide the drawings and other necessary information to contractors other than ZENON to service the units. In 2002 after it had issued through its contract website MERX an Advance Contract Award Notice that it was going to issue a sole source contract to the plaintiff for such servicing, the sole source process was challenged by Seprotech, a competitor of the plaintiff. As a result the defendant reviewed its legal position and was advised by its lawyers that while the plaintiff is the owner of the intellectual property rights associated with the ROWPU's, it had granted the defendant a license to use, and to have used by a third party, the Foreground Intellectual Property and associated Background Property for the operation, maintenance, repair or overhaul of the units. The defendants so advised the plaintiff on November 7, 2002. In March, 2004 the defendant issued a competitive Request For Proposals for the servicing of a ROWPU and Seprotech was the successful bidder. A contract was issued to it on March 23, 2004. The plaintiff issued its statement of claim on March 25, 2004. As I understand it, nothing was done under the contract for some months: indeed the ROWPU in question was not delivered to Seprotech for servicing until late 2004. In the light of the plaintiff's pending action and its objections, the defendant entered into a Confidentiality Agreement with Seprotech on December 6, 2004. That agreement defined the "Technical Data Package or TDP" as containing all the existing drawings, specifications, lists, instruction sheets, designs, computer software, patents and methods related to the ROWPU, which TDP may include technical data information which is proprietary to the plaintiff. Seprotech agreed to use the TDP "for the sole purpose of performing its obligations and duties under the contract for the repair and overhaul of ROWPU's, and not to use the TDP in its own business except as necessary for the fulfilment of its rights and obligations under this agreement and contract . . . .". Seprotech also agreed to notify its employees and all authorized sub-contractors of the confidentiality of the TDP and of the care required to keep it confidential. Further, on November 10, 2004 counsel for the defendant wrote to counsel for the plaintiff and, as far as I can see, gave an unqualified undertaking that the defendant would take further steps to address the plaintiff's concerns about confidentiality as follows: Seprotech would be provided copies of DND's own technical manuals for operation and maintenance of the ROWPU's; the defendant would however only give Seprotech limited and controlled access to the TDP provided by the plaintiff by only allowing Seprotech access to what it needs to know in order to service the ROWPU's, by maintaining the TDP in a secure room at DND facilities granting only limited access to it, and preventing photocopying of the TDP and keeping a detailed log book on any part of the TDP which may have been shared with Seprotech. This undertaking has in no way modified the plaintiff's position.

[9]                The plaintiff seeks the injunction on the basis that: (1) under the production contract it had first refusal of any servicing contract and (2) the work Seprotech will be doing on the ROWPU's will exceed the licence given in title 9601, subsection 24(5) of the contract for the defendant to share the intellectual property in the ROWPU with a contractor for the purposes of operation, maintenance, repair or overhaul of the work or for the purpose of manufacturing spare parts for such maintenance, repair or overhaul. The plaintiff insists that what Seprotech has been hired to do will not only involve it having access to the plaintiff's intellectual property going well beyond what is permitted by the contract, but will result in changes in components of the ROWPU's with the result that the plaintiff's engineering drawings will no longer correspond to the ROWPU's so modified.

Analysis

[10]            I am satisfied that a serious issue has been raised by the plaintiff. I believe that there are difficult questions of interpretation of the contracts required to determine whether or not the defendant does have a licence to use the intellectual property in the production units as it claims.

[11]            I am not satisfied however that a failure to grant an interlocutory injunction will result in irreparable harm to the plaintiff that cannot be remedied by damages. Firstly, is the salient fact of which I believe I can take judicial notice, that the defendant is solvent, permanently fixed within the jurisdiction of the Court, and easy to find at all times. Secondly, the plaintiff's evidence does not clearly demonstrate to me how, assuming that Seprotech observes, and the defendant enforces, the confidentiality agreement between them whereby Seprotech undertakes to use the TDP only for the purpose of the service contract and not for its own business, and that the defendant complies with the undertaking, given by its lawyer, of November 10, 2004, precisely how the plaintiff will suffer unlawful harm. (I note in passing that the use of such a confidentiality agreement was expressly contemplated in the production contract, in Title 9601, subsection 24(5)). I find no basis in the evidence for assuming that this contract will not be respected nor that the undertaking given by the defendant on November 10, 2004 will be ignored. As for the plaintiff's claim that it had first refusal of any service contract, I am satisfied that if the plaintiff can so prove, it can be readily compensated by damages for breach of contract.

[12]            Having so concluded I need not deal with the other criterion for an interlocutory injunction, namely the balance of convenience.

[13]            Even if I had found a justification for issuing an interlocutory injunction in this case I would have had grave doubts that I was in a position to do so, given the identity of the defendant.

[14]            The defendant relies on section 22 of the Crown Liability and Proceedings Act (R.S.C. 1985, c.C-50) which provides as follows:

This section was added in 1990 (SC 1990, c.8, s.28). While this kind of immunity from general law on the part of the Crown must these days be viewed as an anomaly, I find it difficult to escape the conclusion that the section applies, and was intended to apply, in a situation such as the present. I conclude this for several reasons. This is an action brought in the Federal Court under, it appears to me, section 17 of the Federal Court Act (RSC 1985, c. F-7) as a proceeding against the Crown. It is Her Majesty named as the defendant. The notice of motion seeks only interim and interlocutory injunctions against Her Majesty. The statement of claim claims against Her Majesty, inter alia, interlocutory injunctions restraining Her, the two ministers, and other employees from awarding a contract for the service of ROWPU's and from disclosing the plaintiff's intellectual property. In my view this brings the injunction sought clearly within section 22 of the Crown Liability and Proceedings Act, both subsections (1) and (2). Such an injunction would have the effect of preventing Her Majesty, as defendant, from exercising her rights under Her contract with the plaintiff and from having these rights exercised by Her Majesty's ministers and servants. To enjoin those ministers and servants would be to make an order against them that could not be made against the Crown. Nor does the provision in subsection 22(1) for the issue of a declaration against the Crown enable me to give a remedy here. What is sought here is interlocutory relief. Even if the plaintiff pressed for an interlocutory declaration, there are leading authorities against the grant of an interim declaration. The very concept has been seen as a contradiction in terms. (See Sharpe, Injunctions and Specific Performances, 1983 Canada Law Books Limited at 357 and cases cited therein).

[15]            This does not mean however that the plaintiff is without remedy. It has all the usual remedies in contract, including an action for damages.

[16]            This situation must be distinguished from those multitudinous situations where an injunction is issued against a minister or other officer of the Crown to restrain him or her from acting outside the scope of their authority under statutes or the constitution. At common law it was well established that injunctions could issue against public officials in such circumstances. (See e.g. Sharpe, supra at 349-55; Hogg and Monahan, Liability of the Crown, 3^rd ed. Carswell 2000 at 31-34; Pacific Salmon Industries Inc. et al v. The Queen, [1985] 1 F.C. 504 at 512 (T.D.)) Further, in the Federal Court Act, sections 18 and 18.1 it is specifically provided that by judicial review one may seek an injunction against any public official exercising authority under an Act of Parliament where, inter alia, it is alleged that such officer is exceeding his or her jurisdiction.

[17]            The many cases cited to me by the plaintiff in support of the issue of an injunction notwithstanding section 22 of the Crown Liability and Proceedings Act are all, in my view, distinguishable. They either involved complaints of an excess of statutory or constitutional authority, were not as far as I can ascertain framed as actions against the Crown, or were decided prior to the adoption of section 22 in 1990. If that section does not apply to an action against the Crown for breach of a contract to which the Crown is a party, I am at a loss to know where it would apply.

[18]            In short I am unable to find any justification for ignoring the clear words of section 22.

Disposition

[19]            In the light of the above, I am dismissing the motion for an interlocutory injunction, with costs.

                                                                                                                                 (s) "B.L. Strayer"          

Deputy Judge

                                                 FEDERAL COURT OF CANADA

                            NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                           T-610-04

STYLE OF CAUSE:               ZENON ENVIRONMENTAL INC. v. HER MAJESTY THE QUEEN

PLACE OF HEARING:                     Ottawa, Ontario

DATE OF HEARING:                       January 27, 2005

REASONS FOR ORDER:                Strayer, D.J.

DATED:                                              February 10, 2005

APPEARANCES:

Mr. Ron Lunau                                                                                                 FOR THE PLAINTIFF

Mr. Alexander Gay                                                                                       FOR THE DEFENDANT

SOLICITORS OF RECORD:

Mr. Ron Lunau

Ottawa, Ontario                                                                                                FOR THE PLAINTIFF

Mr. John H. Sims Q.C.

Deputy Attorney General of Canada

Ottawa, Ontario                                                                                            FOR THE DEFENDANT