COURT OF QUEEN S BENCH OF MANITOBA

Transcription

1 Date: November 29, 2018 Docket: CI (Winnipeg Centre Indexed as: Biomedical Commercialization Canada Inc. v. Health Media Inc.; Health Media Network Inc. v. Biomedical Commercialization Canada Inc. et al Cited as: 2018 MBQB 188 COURT OF QUEEN S BENCH OF MANITOBA B E T W E E N: BIOMEDICAL COMMERCIALIZATION CANADA INC., -and- HEALTH MEDIA NETWORK INC., AND BETWEEN: plaintiff, defendant. HEALTH MEDIA NETWORK INC., (plaintiff by counterclaim applicant, -and- BIOMEDICAL COMMERCIALIZATION CANADA INC., NATIONAL RESEARCH COUNCIL OF CANADA and IAN SMITH, (defendants by counterclaim respondents. Counsel: Gene Zazelenchuk for Health Media Network Inc., defendant (plaintiff by counterclaim, applicant Dhara Drew for National Research Council of Canada and Ian Smith, (defendants by counterclaim respondents Sharyne Hamm for Biomedical Commercialization Canada Inc., plaintiff (defendant by counterclaim, on watching brief JUDGMENT DELIVERED: NOVEMBER 29, 2018

2 GREENBERG J. [1] This is a motion by Health Media Network Inc. ( HMN to strike the statement of defence of the defendants by counterclaim, National Research Council and Ian Smith, for failing to disclose relevant documents in a timely way. BACKGROUND [2] The original claim in this action was a simple claim for breach of contract. The plaintiff, Biomedical Commercialization Canada Inc. ( BCC, is a not-for-profit corporation created to promote small businesses in the science and technology industry through an "incubation program" which provides mentoring and support services. HMN is in the business of supplying medical offices with television screens that provide health information to patients. In March 2007, BCC and HMN entered into a contract whereby BCC was to provide mentorship, office space and equipment to HMN for a monthly fee. The contract was terminated by BCC in August 2008 and, in October 2010, BCC filed a statement of claim alleging that HMN owed it for services it had provided. [3] HMN filed a defence and counterclaim for damages, alleging that BCC did not provide the services contracted for and that BCC terminated the contract in bad faith. HMN added the National Research Council and Ian Smith (hereinafter collectively NRC, who was the Director General of the National Research Council at the relevant times, as defendants by counterclaim. [4] The National Research Council was a founding member of BCC and continues to be a key funder of BCC. Ian Smith was a director of BCC from its inception until HMN says that Ian Smith was involved in soliciting it as a client of BCC and argues that

3 the National Research Council was a party to the contract and is liable for breach of contract. In addition to the breach of contract claim, the counterclaim raises a number of other causes of action against the defendants by counterclaim, including conspiracy, negligent misrepresentation, intentional interference with contractual relations, defamation and misfeasance. [5] HMN s statement of defence and counterclaim was filed on November 29, 2010, and amended on October 25, NRC filed its statement of defence on November 17, Ian Smith was initially the liaison person who instructed the Department of Justice on this lawsuit and was responsible for locating documents relevant to the lawsuit. When Ian Smith left the National Research Council in 2013, that task was taken over by Vivian Sullivan, the director of the Council s Industrial Research Assistance Program. [6] HMN served its affidavit of documents on NRC in December NRC provided its first list 1 of 1,134 documents to HMN in July 2015, after HMN filed a motion for an order to compel production. Shortly before the examinations for discovery were held, in March 2016, NRC provided HMN with a supplemental list of documents. A second supplemental list of documents was provided in February 2017, along with answers to undertakings from the examinations for discovery. A third supplemental list was provided in November 2017 and a fourth list in March The supplemental lists disclosed 1,340 documents that were not disclosed in the initial list. 1 Under the Crown Liability and Proceedings (Provincial Court Regulations, SOR/91-604, s. 8, federal Crown agencies are allowed to serve a list of documents rather than an affidavit of documents.

4 [7] In argument, counsel for HMN said he took no issue with the timeliness of the first supplemental list of seven documents that was provided shortly before the discovery. He acknowledged that it is not uncommon for a party to locate relevant documents after the initial disclosure. And I note that the Rules specifically allow for supplementary affidavits of documents (Queen s Bench Rule What is of concern, HMN argued, is the large volume of documents that were not disclosed until long after the examinations for discovery - especially when undertakings were made at the examinations that should have triggered a search for these documents. I address the explanation for the delayed disclosure below. [8] Perhaps most notable about NRC s documentary disclosure is their delay in disclosing 17 documents that were attached to the affidavit of Ian Smith, which was filed in support of NRC s motion for summary judgment seeking dismissal of the action against them. (That motion has not yet been heard. Those are documents which the NRC obviously considers to be highly relevant since they are relying on them to seek dismissal of the claim. Yet only two were disclosed before the examination for discovery. Ten of the documents were not disclosed until November 2017, after the NRC had made the decision to seek summary judgment. In cross-examination, Mr. Smith could offer no explanation for the late disclosure. [9] As I said, counsel for NRC admits that their disclosure was faulty. However, she says that there is a reasonable explanation for the delayed disclosure. As I explain below, in my view, NRC has not provided a reasonable explanation for the delay. However, I do not find support in the evidence for HMN s allegation that NRC destroyed

5 relevant documents or that they intentionally withheld documents. In fact, in cross-examination, Ron Grouchy, HMN s operating mind, admits that he has no such evidence and that this allegation was based on innuendo. THE LAW [10] Rule of the Queen s Bench Rules gives the court authority to make such order as is just where a party fails to disclose a document in an affidavit of documents. In my view, this Rule allows the court to grant a remedial order not just where a party fails to disclose but also where a party delays disclosure and NRC did not dispute this. The issue is whether a remedial order or sanction is warranted in this case and, if so, what the nature of the order should be. [11] In Cobbe s Plumbing & Heating Ltd. v. Westfair Properties Ltd., 2004 MBQB 31 (CanLII, I had occasion to consider Rule which provides for sanctions where a party fails to attend an examination for discovery. I found the applicable principles to be: 25 Having regard to the above cases and the wording of the Court of Queen's Bench Rules, I would summarize the applicable principles in determining the appropriate sanction under Rule to be: 1. The application of Rule must be consistent with the general principles of interpretation set out in the Rules, in particular Rule 1.04 which mandates that the Rules be interpreted "to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits." 2. The overarching consideration for the court is to strike an appropriate balance between the right of the respondent to have its action determined on the merits and the right of the applicant to insist on compliance with the Rules and court orders with a view to facilitating the "flow" of the case. 3. Striking a pleading is an exceptional remedy which should be reserved for the most extreme cases of non-compliance with the Rules. A review of the cases suggests that the sanction would rarely be used for an isolated incident of noncompliance but is more likely where there has been a course of conduct which

6 indicates that a court order giving the respondent a "second chance" is unlikely to be complied with. 4. The court should look at the explanation of the respondent for noncompliance. That explanation may indicate not only the seriousness of the default (for example, whether it was deliberate as opposed to inadvertent but also whether the respondent is likely to comply with further court orders. 5. The court should look at the prejudice which the non-compliance has caused the applicant and whether that prejudice can be remedied in some other way, for example, through an award of costs. 6. There is some suggestion in the cases that the merit of the respondent's case is also a relevant factor. Although not relied on as a deciding factor in any case, there is a suggestion in some cases, where the court refused to strike a pleading, that the result might have been different if the respondent's case were completely without merit. [12] While these criteria were set out in a case involving a breach of the rules regarding examination for discovery, they are also relevant where the alleged breach relates to documentary discovery or where there are other abuses of the pre-trial process (see Manitoba Crop Insurance Corporation v. Wiebe et al., 2007 MBQB 158 (CanLII; Zelinski v. Jamz, 2004 MBQB 256 (QL, aff d on appeal 2005 MBCA 54 (QL, applic. for leave to appeal dismissed [2005] S.C.C.A. No. 282 (QL. ANALYSIS [13] NRC admits that their document disclosure was irregular and untimely. However, they say that the faulty disclosure was not deliberate and that the manner in which they disclosed documents was not unreasonable. They argue that they made their best efforts to disclose all relevant documents. [14] NRC says that the delay in disclosure was in part due to the change in 2013 in the liaison person responsible for locating relevant documents. While that change may explain some delay, Ian Smith left the National Research Council almost 18 months after

7 the close of pleadings, by which time one might assume most relevant documents would have been located. And it was another four years, after he left, for disclosure to be complete. It is difficult to understand how a change in personnel would create such significant delays. [15] NRC also explained that delayed disclosure was due to: 1 the evolution of the scope of relevancy; 2 the Government of Canada s centralization of information technology through Shared Services Canada; 3 the normal evolution of IT infrastructure; and 4 the Government of Canada s response to a cyber intrusion at the NRC in [16] I accept that sometimes, as litigation progresses, the nature of an action may evolve somewhat so that documents that might at first appear irrelevant become relevant. But NRC did not point to any specific changes in this case, such as an amendment to pleadings, that would spur further disclosure. And it is hard to imagine that the case would change so much that a further 1,340 documents became relevant. Nor does the evolution of the scope of relevancy explain why NRC did not disclose, until six years after their defence was filed, the documents on which they intend to rely to seek dismissal of HMN s claim. Those are documents which presumably NRC believes to be relevant to the core issues in this case. [17] NRC also did not explain why the fact that Shared Services Canada took over responsibility for NRC s internet technology infrastructure in June 2012 would delay access to documents for years.

8 [18] NRC claims that the evolution of their information technology infrastructure has made older s inaccessible. But, again, that does not explain why it took years for NRC to disclose s that were accessible. [19] This brings me to the cyber intrusion which NRC claims made documents inaccessible. There is no dispute that China hacked into the National Research Council s computer systems in July The uncontradicted evidence led by HMN was that this attack was voyeuristic and would not have destroyed documents. However, there was a period of time, while the Government addressed security issues, when documents could not be accessed. NRC relies on this to explain the delayed disclosure. But, in cross-examination, Vivian Sullivan acknowledged that access to the documents was restored in June Yet a final supplemental list of documents was not disclosed until November In fact, in February 2017, when Ms. Sullivan provided her response to undertakings from her examination for discovery, she continued to maintain that documents were inaccessible due to the cyber intrusion. It is clear from her cross-examination that Ms. Sullivan simply made no effort to locate and retrieve documents even though she knew that there was no longer any obstacle to her doing so. [20] While I do not believe that NRC intentionally withheld documents, their inattention to their obligation to disclose in this case was extreme. [21] What is also concerning about NRC s attitude towards their disclosure obligations is their explanation at the hearing of this motion. For the first time, they raised an issue of national security. There was no evidence to support this claim, simply counsel s assertion that she was told by her client that, as the response to the cyber intrusion was

9 a matter of national security, they could not provide any evidence about it. It is not clear to me why that evidence would be relevant to this motion in any event. How the Government responded to the cyber intrusion would not explain why it took the NRC over two years after access to documents was restored to disclose them to HMN. Raising the national security flag seemed like a last-ditch effort to justify NRC s indifference to their disclosure obligation and undermines the claim that they took reasonable steps. [22] I am satisfied that NRC did not meet their disclosure obligation in this case. While NRC says that they have now disclosed a list of all relevant documents in their possession, the disclosure was not made in a timely way. It is not just a failure to disclose that impacts on the trial process. Delayed disclosure also affects the efficiency and expense of the litigation process. The Queen s Bench Rules stipulate that affidavits of documents are to be exchanged within 10 days of the close of pleadings (Rule 30.03(1. This requirement is modified somewhat by the Crown Liability and Proceedings (Provincial Court Regulations, SOR/91-604, s. 8, which allows federal Crown agencies 60 days for documentary disclosure. While the strict requirement of these rules are often not complied with, counsel should be able to assume when they proceed to examination for discovery that the opposing party has made a diligent search and has disclosed all relevant documents. [23] In oral argument, counsel for HMN noted that his client would not have brought this motion if the disclosure, though late, had been provided before the examinations for discovery. But, he argues that the disclosure in this case was so flawed that NRC s statement of defence should be struck.

10 [24] There is no question that HMN has suffered prejudice by the late disclosure. They had access to less than half of NRC s documents when examinations for discovery were conducted. NRC argues that any prejudice can be met by allowing HMN to re-open discovery. But, the volume of new documents disclosed will likely mean that the examinations that were conducted are of little use. [25] NRC s delayed disclosure has affected the progress of this action and I do not find their explanation for the delay to be reasonable. While the actions of the NRC are deserving of sanction, I do not consider them to be so egregious as to merit the striking of their defence. The prejudice caused to HMN can be remedied by an award of costs. The merits of the counterclaim and defence are not clear in this case and NRC should not be precluded from presenting a defence. The appropriate balance between the rights of these parties can be struck by compensating HMN for any loss occasioned by NRC s late disclosure. [26] NRC argues that any costs award should be nominal. But a nominal costs award would not remedy the prejudice. It would not reimburse HMN for the costs of wasted discoveries or the expense of this motion. Nor would a nominal costs award message the court s disapproval of the delay. [27] The appropriate remedy in this case is to require NRC to pay the throwaway costs attributable to the delayed disclosure. Those costs would be the solicitor and client costs that HMN incurred to conduct discoveries that must be re-opened as well as the solicitor and client costs related to this motion. Those costs are to be paid forthwith. If there is a dispute regarding the bill of costs, the parties can return before me.

11 [28] In its notice of motion, HMN sought, as an alternative to an order striking NRC s defence, an order that HMN be allowed to amend its counterclaim to add allegations of spoliation. HMN did not provide a draft amended counterclaim or give any specifics about the intended amendments other than the request in its motion to amend its pleadings to allege that the NRC intentionally destroyed, or withheld, substantial documents relevant to the issues at bar. I am not prepared to allow the amendment for the following reasons. First, there is no evidence of a deliberate intent to withhold documents and no evidence that documents were destroyed in this case and, even if there was, it would not give rise to a separate cause of action. Second, to the extent that the documents were withheld, my decision today is intended to compensate HMN for any prejudice it has suffered as a result. Third, if evidence regarding the delayed disclosure is relevant to an issue at trial (such as credibility, it would be open to the trial judge to allow the evidence even without amending the pleadings. The delayed disclosure is not a material fact that must be pleaded in order to be relied upon and, in any event, the NRC has been put on notice that this may be an issue at trial (Peguis First Nation et al v. Canada (Attorney General, 2014 MBQB 98 (CanLII, para. 46. J.