Sauve v. Santsar Industries Inc., docket T-1607-96

     T-1607-96

Between:

     DENNIS SAUVE,

     NEWBLOCK CORPORATION and

     SAUVE BUILDERS SUPPLIES LTD.

     Plaintiffs,

     - and -

     SANTSAR INDUSTRIES INC.

     Defendant.

     REASONS FOR ORDER

GIBSON, J.:

     These reasons arise out of appeals, brought by way of motions under Rule 336(5) of the Federal Court Rules¹, from two orders of the associate senior prothonotary, both dated the 26th of May, 1997. In one order (the "first order") the associate senior prothonotary dismissed an application on behalf of the defendant for an order that the issue of damages and profits be dealt with after the issue of liability has been determined in this action. The substance of the associate senior prothonotary's order is as follows:

Because confidentiality is not a good reason for an order under Rule 480 this motion is dismissed.

The other order (the "second order") required the defendant to deliver a further and better affidavit of documents in compliance with Rule 448 and including, among other things, the following:

...

4)      all documents relating to the revenues and profits received by the Defendant from the sale or disposition of the Infringing Blocks, including all invoices for the sales or disposition thereof, invoices for the raw materials and all documents to be sued [sic] by the Defendant in an accounting of its profits to establish any deductions from the revenues received from the sale or disposition of the Infringing Blocks.

     According to the pleadings, the plaintiff, Dennis Sauve, is a businessman and inventor. He is the proprietor of Canadian Industrial Design Registration 70335 for a concrete block the ("Sauve Block") that is the subject of this action. The plaintiff Newblock Corporation is an Ontario corporation the business of which includes the licensing, within Canada, of designs and technology with respect to concrete blocks, including the Sauve Block, for which it has an exclusive licence from Dennis Sauve. The plaintiff Sauve Builders Supplies Ltd. is an Ontario corporation the business of which includes the manufacture, sale and distribution of concrete blocks in the County of Essex in the province of Ontario. It holds a sub-licence for the Sauve Block, from Newblock, for the County of Essex. The defendant Santsar Industries Inc. is an Ontario corporation the business of which includes the manufacture, sale and distribution of concrete blocks with respect to its construction business in Canada. It is alleged to manufacture, sell and distribute blocks ("Infringing Blocks") that infringe Dennis Sauve's Industrial Design.

     According to an affidavit filed before me, Sauve Builders Supplies and Santsar are the largest manufacturers and retailers of concrete block products in Essex County, Ontario and as such are direct competitors, competing for residential and commercial projects in Essex County. It was not alleged before me that this information was not before the Associate Senior Prothonotary.

     With respect to the first order, counsel for the defendant urged that the order of the associate senior prothonotary was a discretionary order that, within the terms of Canada v. Aqua-Gem Investments Ltd.² "... ought ... to be disturbed on appeal ... " because it is "... clearly wrong, in the sense that the exercise of discretion by the associate senior prothonotary was based upon a wrong principle or upon a misapprehension of the facts ...". Counsel urged that "confidentiality" as referred to in the order of the associate senior prothonotary might not of itself be a sufficient reason to split a trial, but here, "confidentiality" was not the sole reason advanced for splitting the trial. The affidavit filed on behalf of the defendant before me reads in part as follows:

5.      Due to the fact that Santsar and Sauve Builders are direct competitors in an industry which sells typically uniform products, the success of a manufacturer and distributor of concrete block products will rest on a companies [sic] ability to secure raw materials at below market prices and implement science and technology whenever possible in order to minimize per units costs.

In the result, it was argued, not only would confidentiality be adversely affected if the two orders of the associate senior prothonotary were allowed to stand, but the defendant would be placed at an immense competitive disadvantage in a geographically limited and relatively closed market for essentially uniform products if it were required to disclose its costs and revenues to its principal competitor in advance of a determination of liability. Further, counsel for the defendant argued that cost and revenue information was essentially relevant only to the question of damages and/or profits and not to the question of liability.

     Both counsel cited before me Upjohn Co. v. Apotex Inc.³ where, after reviewing a number of authorities with respect to appeals from decisions of prothonotaries, I concluded:

Certain principles that are binding on me can be derived from the above cases and may be summarized as follows:

First, the standard of review on appeals from prothonotaries is whether the order of the prothonotary "is clearly wrong" in the sense described by MacGuigan J.A. in Aqua-Gem or the order of the prothonotary raises a question or questions vital to the final issue of the case. If either is the case, the reviewing judge ought to exercise his or her own discretion de novo.

Secondly, assuming the standard of review is met and the reviewing judge is therefore charged with exercising his or her discretion de novo, he or she should be guided by the principle that an order under Rule 480 providing for a reference after trial is an exceptional procedure and that, in the absence of consent or compelling reasons bearing on the conduct of the action as a whole, conventional procedures should be maintained. Protection for as long as possible of confidential information is not, of itself, compelling reasons bearing on the conduct of the action as a whole.

Thirdly, compelling reasons bearing on the conduct of the action as whole are, or include, reasons directed to the minimization of the expense of the action.

[underlining added by me for emphasis]

     I am satisfied that the first principle quoted above applies in favour of the defendant/applicant. The only evidence that we have as to the principle upon which the learned associate senior prothonotary based his decision is that confidentiality "... is not a good reason ..." to divide an action. The sense of "clearly wrong" described by MacGuigan J.A. in Aqua-Gem is that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts. Here, the affidavit material before me makes it clear that confidentiality, of itself, is only one of the concerns, or an element of the concerns, of the defendant. As indicated earlier in these reasons, the defendant is concerned that the disclosure, in the particular market in which it and one of the plaintiffs operate, will have a devastating effect on its competitive position due to the special nature of that market. On that basis, I conclude that the associate senior prothonotary exercised his discretion on the basis of a wrong principle or upon a misapprehension of the facts.

     I find myself therefore charged with the responsibility of exercising my discretion de novo. Once again, in Upjohn Co. v. Apotex Inc., I wrote:

I therefore proceed, in the absence of consent to an order under Rule 480, to determine whether the applicant has established compelling reasons bearing on the conduct of the action as a whole as to why an order under Rule 480 should be granted. I am mindful of the third principles which I have enunciated above that compelling reasons bearing on the conduct of the action as a whole are, or at least include, reasons directed to the minimization of the expense of the action.

This is not an easy task. If forcing the applicant to discovery on issues relating to its profits would facilitate the possibility of settlement, as is alleged by the plaintiff, and if settlement resulted, then there would be no doubt that denial of an order under Rule 480 would work to minimize the expense of the action.

     Counsel for the plaintiffs/respondents urged that forcing the defendant/applicant to discovery on issues relating to its profits and costs, would facilitate the possibility of settlement which would work to minimize the expense of this action. Counsel for the defendant did not deny that this would be the case but urged that such disclosure would not facilitate the possibility of settlement for ordinary reasons, but would facilitate settlement by forcing the defendant to either settle or do itself irreparable competitive harm through disclosure. In effect, counsel for the defendant argued, the orders of the associate senior prothonotary would tend to bludgeon the defendant into settlement based upon the relatively unique features of the market in which the defendant and Sauve Builders operate, those features being the limited number of sources of supply for major raw materials for concrete blocks by reason of the weight and therefor limited economical transportability of those materials, and the limited geographical market for concrete blocks, by reason of the same considerations.

     Thus, based on the arguments on behalf of the defendant, a conclusion might be drawn that, disclosure, as required by the orders of the associate senior prothonotary, would work to minimize the expense of actions, by placing in the hands of plaintiffs such as Sauve Builders Supplies who operate competitively with defendants in relatively closed markets such as that here in question, potentially inordinate economic power. In essence, it is argued, to fail to divide the trial of an action in circumstances such as those before me, would substantially distort the relative positions of the two sides to litigation such as this. Such a consideration is, I conclude, a compelling reason bearing on the conduct of the action as a whole. On the facts before me, I am satisfied that that compelling reason outweighs the competing compelling reason of potential minimization of the expense of the action.

     For the foregoing reasons, I conclude that the learned associate senior prothonotary erred in failing to grant the defendant's motion to split the trial in this matter between the issues of liability and determination of damages and/or profits.

     A corollary to the relief requested by the defendant in its motion relating to the first order was that it not be required to produce, at this stage of the action, "... documents relating to revenue and profits received by the Defendant from the sale or disposition of the Infringing Blocks, including all invoices for the sales or disposition thereof, invoices for the raw materials and all documents to be used by the Defendant in an accounting of its profits to establish any deductions from the revenues received from the sale or disposition of the Infringing Blocks." Such an order would be a logical concomitant of an order dividing the trial of this action. It would be directly in conflict with paragraph 1.4) of the second order of the associate senior prothonotary that is under appeal.

     In the circumstances, and directly as a result of my decision to allow the division of this action, the second motion on behalf of the Defendant will be allowed and paragraph 1.4) of the second order will be struck out.

     The productions ordered in accordance with the second order are required by that order to be made before September 16th, 1997 unless otherwise ordered by the Court. The second order will be further modified to provide that such productions as remain shall take place no later than the 10th day following the date of my orders arising out of these appeals.

     Costs of the motions to which these reasons relate will be in the cause.

    

     Judge

Ottawa, Ontario

September 16, 1997

__________________

     ¹      C.R.C.. 1978, c. 663, as amended.

     ²      [1993] 2 F.C. 425 (F.C.A.)

     ³      (1993), 53 C.P.R. (3d) 507 (F.C.T.D.)