All About Information

On May 9th, the Alberta Court of Appeal issued a split judgement that touches on the scope of confidentiality that is waived by the act of filing an expert report in court. The majority held the filing of a report only waives confidentiality as between the litigant and its expert in the content of the report itself. The minority held that a person filing an expert report waives confidentiality in all information in the custody of the expert that is relevant and material to the dispute in which the report is filed.

This was a case about an expert report written by accounting firm for a woman engaged in a child support and custody dispute (the “complainant”). The firm traced her husband’s assets and drafted a preliminary report, which the complainant filed in court in support of her position in two proceedings. This action, which the firm claimed she did not have authorization to take, led to a series of events that culminated in complaint by the woman to the Institute of Chartered Accountants of Alberta.

After viewing the report, the husband (also an accountant and familiar to the firm) then called the author of the report to complain about its quality. The author wrote an e-mail to the managing partner which stated, “If Danny feels we have slighted his reputation, we have not.” Soon after, the firm decided to withdraw the report. It took the position that withdrawal was justified because the report was filed without its authorization and the complainant’s account was unpaid. It told the husband around the same time it sent a letter to the wife, who heard about the withdrawal through the husband’s counsel before she received the letter. Later, in response to a summons issued by the husband, an accountant from the firm swore an affidavit to confirm the withdrawal.

In an award written by Picard J.A., the majority of the Court of Appeal affirmed the Institute’s findings of professional misconduct on a “reasonableness” standard of review. She first affirmed a finding that the author’s e-mail, despite being sent internally, was “false and misleading” and constituted a breach of the professional rule against making such statements. Picard J.A. read the rule broadly; since it didn’t exclude internal communications, she held that it applied to them.

Picard J.A. also affirmed breach of confidence findings that were based on the firm’s direct communications with the husband and its affidavit. She rejected the firm’s reliance on the rule governing litigation privilege that deems privilege to be waived for all information relevant and material to an expert report filed in court. She held this was a rule about litigation privilege and was not incorporated into the Institute’s confidentiality standard, so upheld the Institute’s finding that the firm acted improperly by disclosing information about the terms and reasons for the report’s withdrawal, the state of the complainant’s account and its relationship with the complainant.

Slatter J.A. wrote a very strong dissent.

He first took issue with the internal e-mail finding. He held that the Institute’s interpretation of its “false and misleading” communications standard would create a form of absolute liability for bad opinions and would also prevent firms from discussing the resolution of complaints. His reasoning speaks to a form of privilege:

The decision of the Appeal Tribunal would have a chilling effect on the ability of any firm of accountants to conduct open and frank inquiries about the conduct of its members, and the quality of the work that had been completed for any client. Any partner (like Mr. Nelson) who attempted to defend his work could be found guilty of professional misconduct if it turned out later that he was mistaken. Any partners who shared and repeated the opinion that the work had been properly done would likewise potentially be subject to discipline…

The Complaints Inquiry Committee, the Discipline Tribunal and the Appeal Tribunal all play a key role in maintaining the standards of the accounting profession. However, the first line of defence of the standards of the profession must be with the professionals themselves and with their firms. Accounting firms must be free to make inquiries about the quality of their work and the conduct of their partners, without fear that if they make statements, or express opinions, subsequently found to be inaccurate they would be subject to discipline. Penalizing a firm for such statements is counter-productive.

Slatter J.A. also objected to the confidentiality findings. He held that the Institute’s rules should not be read in conflict with an expert’s duty to the court. He held that the fact that the report had been withdrawn, the terms of the retainer, the fact that there was an alleged breach of the retainer, that the firm had ceased to act for the complainant, that it was prepared by an articling student, its belief in the suitability of the report as evidence and even the status of the complainant’s account were all material and relevant facts in the legal dispute, and therefore were the subject of an implicit waiver of confidentiality. On the timing of the disclosure to the husband, he said:

It is true that Mr. Preston disclosed this information to Mr. Dalla-Longa on the telephone prior to advising the complainant. Mr. Dalla-Longa undoubtedly caught Mr. Preston by surprise when he telephoned to inquire about the report four years after it was prepared. But when Mr. Dalla-Longa advised Mr. Preston that the report had been filed in court, the latter was entitled to proceed on the basis that confidentiality had been waived. Experts should be encouraged to make timely disclosure of the information that underlies their reports, to avoid surprise and adjournments, and to promote settlement discussions. The rules should not be construed to require a court order before an expert discloses his or her working papers, or to require or encourage experts to avoid producing information until they are actually in court, on the stand, and under cross-examination. Providing the limited information involved to Mr. Dalla-Longa was at most a breach of business etiquette that does not warrant discipline.

Also of interest, the majority and minority concluded that a different standard of review applied based on the standard of review analysis recently endorsed by the Supreme Court of Canada in its landmark Dunsmuir decision. The majority supported a reasonableness standard and the minority one of correctness.

Deloitte & Touche LLP v. Institute of Chartered Accountants of Alberta (Complaints Inquiry Committee), 2008 ABCA 162.

On January 31, the Alberta Court of Appeal quashed a procedural appeal brought by a non-party to a longstanding commercial litigation dispute and, in doing so, made some comments on the use of information gathered in the discovery process.

The non-party appealed from an order which granted the plaintiffs partial relief from the implied undertaking and a confidentiality order. The non-party claimed the order caused it prejudice in a second related action, presumably in which it was a defendant. The Court rejected the prejudice argument (emphasis in original):

Since counsel for the appellant argued that he would be prejudiced if his client could not appeal, we went beyond mere status and inquired into the nature of the prejudice or injustice suggested. He seemed to think that the order under appeal put into evidence in the second suit against him, information gathered largely without his participation, even his knowledge, in the first suit.

That suggestion of ex parte injustice is not correct. Both the implied undertaking restricting the use of information got through discovery, and confidentiality orders, merely add an extra impediment to attempts to use evidence for purposes outside the original lawsuit. If those impediments are removed, then the information in question simply has the same status as all other information lying about in the great wide world.

The first rule of the law of evidence is that courts will not receive all information as evidence. Much of it is inadmissible: most hearsay, for example, and all irrelevant information. Therefore, waiving the implied undertaking rule, or lifting a confidentiality order, has no effect on such inadmissibility. What is inadmissible as evidence for other reasons other than confidentiality or implied undertakings remains inadmissible. To lift a confidentiality order or the implied undertaking merely allows the parties to another action to tender the information as evidence. It has no influence whatever on the judge or master’s decision about whether to accept it as evidence. The usual common-law rules of evidence (as modified by statute or Rules of Court) still apply.

The Court also noted that the order appealed from gave the non-party an express right to raise the matter of fairness in the second action.

Dreco Energy Services v. Wenzel Downhole Tools, 2008 ABCA 36 (CanLII).

Yesterday, the British Columbia Court of Appeal held that it ought not relieve B.C. Ferries from a confidentiality agreement it had entered into with the Canadian Transportation Investigation and Safety Board as a condition of receiving data from its own hard drive that had been recovered from its sunken vessel and seized by the Board.  So it could respond to the Board’s draft investigation report on the sinking, B.C. Ferries agreed to the following confidentiality covenant:

The [data] will be kept in confidence by BC Ferries and is to be used only for the purposes of responding to the draft report subject to the parties’ agreement to permitted uses prior to the release of [the Board's] final report or order of the court.

B.C. Ferries argued that the Board did not exercise its discretion to grant relief from the confidentiality covenant in good faith.  The majority, in a fact-specific judgement written by Mr. Justice Lowry, held that the clause did not grant a discretion subject to an implicit good faith requirement, but rather, was simply an agreement “subject to further agreement.”  Mr. Justice Hall adopted the majority’s reasons and added that the public interest in the safety of the traveling public might have otherwise justified an order of relief, but that there was insufficient evidence of such an interest on the record.

British Columbia Ferry Services Inc. v. Canadian Transportation Accident Investigation and Safety Board, 2008 BCCA 40.
 
 

What happens when someone puts his or her electronic documents on another’s computer system, gets locked out and then wants the documents back?

This is a common problem today, and often arises in the context of departing employee disputes. It also engages one of the more interesting developing legal issues within this blog’s domain: do the traditional property torts - trespass, detinue and conversion - protect rights associated with intangible property?

While this could be the subject of a good paper, I’d simply like to point out a couple of developments South and North of the border.

In the United States, the New York Court of Appeals recently issued an opinion in Thyroff v. Nationwide Mutual Assurance Company in which it held that the tort of conversion should apply to intangible property - an insurance agent’s customer list in the circumstances in dispute.

There’s no judgement of equivalent strength in Canada yet, but the Prince Edward Island Supreme Court - Trial Division issued a decision in July called HZPC Americas Corp. that is consistent with the direction endorsed in Thyroff. (HZPC has not yet been published on CanLII.) In rejecting the defendant’s motion to strike a conversion claim, the Court challenged the traditional idea that an owner’s ability to control intangible property (including confidential business information) is not sufficient to justify application of the tort. It said:

The Defendants refer to infringement of intellectual property while the Plaintiff refers to conversion of commercial property interests. The Plaintiff’s claim is not based on infringement of a statutory right in intellectual property; but rather is classified by it as a proprietary right in commercial property. It is not necessary for the Plaintiff to plead or rely upon legislative provisions to pursue its claim based on a common law tort. The federal legislation can be viewed as providing additional benefits, and not exhausting a person’s civil remedies.

The Court quoted Professor David Vaver, who says that the traditional view is “pettifoggery” - a sure signal that there will be more on this issue to come.

In this United Kingdom departing employee case from this June, the High Court held that an employer had exclusive ownership of a contact list alleged by an employee to be his personal contact list because it was maintained on its computer system.

The defendant was a journalist who worked in trade publication and conference buisnesses for a number of years before joining the claimant, who operated a similar business. He gave evidence that he maintaned a personal contact list, updated it from time to time, and had over eight years of editorial and industry contacts amassed when he commenced employment with the claimant. Nine years later, and after transferring the list to an MS Outlook database maintained by the claimant and adding work-related contacts, the defendant left with two other employees to start a competing business. In addition to suing to recover damages for the defendant’s pre-departure breach of loyalty and fidelity, the claimant disputed his ownership of the list.

Although it held that the company had not effectively incorporated its computer use policy into the defendant’s contract of employment, the court nonetheless found it had exclusive ownership of the list. It made the following broad statement:

I am satisfied that where an address list is contained on Outlook or some similar program which is part of the employer’s e-mail system and backed up by the employer or by arrangement made with the employer, the database or list of information (depending whether one is applying the Database Regulations or the general law) will belong to the employer…

In all those circumstances, I find that such lists will be the property of the employer and may not be copied or removed in their entirety by employees for use outside their employment or after their employment comes to an end.

Because this is not likely to be appreciated by many employees, it is in my judgment highly desirable that employers should devise and publish an e-mail policy…

In the absence of such a laid down policy, I next have to consider the status of contact details which have been put on to an employer’s system by an employee for their own use outside their employment, in ignorance of the fact that they would thereby become part of the Claimant’s property…

In my judgment it is reasonable to imply in the absence of any laid down guidance a term that an employee will at the end of their employment be entitled to take copies of their own personal information and, where the information is person [sic.] and confidential to them, such as details of their doctor, banker or legal adviser, to remove them from the employer’s system.

Most forms of e-mail system will permit the creation of compartmentalised address books, so that ordinarily an employee will be able to put their own personal contact details of friends, relations, and the like into a personal address book. In those circumstances, in the absence of clear evidence of an e-mail policy, I would be inclined to the view that ownership of that part of the database resided with the employee…

In assessing the facts, the Court held that the defendant copied the entire mixed list for the purpose of competing with the defendant and that it would not be appropriate for it to parse the list. It ordered the sequestered database to be delivered up to the claimant and enjoined the defendant from using it except for contact information “known by other means.”

Pennwell Publishing (UK) Ltd v. Ornstien, [2007] EWHC 1570 (QB).

On August 31, the Alberta Court of Queen’s Bench declared that the plaintiff in a departing employee case was entitled to enforce a default order that allowed it direct access to a number of hard drives it had seized earlier in executing an Anton Piller order.

The plaintiff was granted an Anton Piller order at the outset of litigation. It seized hard drives but did not inspect them.

As the litigation proceeded, a case management judge ordered the defendants to serve and file an affidavit of records by a certain date, failing which the plaintiffs would have direct access to the hard drives (subject to confidentiality terms to be agreed upon or ordered). The parties subsequently consented to a joint confidentiality order.

The Court held that the defendants did not provide an adequate affidavit of records because they did not disclose a number of records related to their involvement in a consortium that had bid successfully for a contract formerly held by the plaintiff and did not disclose all relevant e-mails and deleted files. It also held that the defendants should have produced the passwords, systems files and software necessary to access files in their native format and should have processed the electronic records for export into a litigation support software program.

The Court also rejected the defendants’ justifications. It held that the records pertaining to the consortium would be adequately protected by the implied undertaking rule and the joint confidentiality order. It also held that the defendants had not shown that electronic production (as ordered) would be unduly burdensome. On this point, the Court said:

The unusually high level of disclosure imposed in this case is justified by: the underlying fact that the defendants were employees of the plaintiff when they began working in competition with the plaintiff, the judicial determination that this was an appropriate case in which to issue an Anton Piller order, the size of the claim, which exceeds $50 million, and the great IT expertise of the parties which presupposes that at least some of the work required to provide the required level of disclosure can be done in-house.

Spar Aerospace Limited v. Aerowerks Engineering Inc., 2007 ABQB 543 (CanLII).

On August 27th, the Federal Court of Appeal held that information provided by the Canadian Imperial Bank of Commerce to the Canadian Human Rights Commission as part of an employment equity audit was exempt from public access as “information supplied in confidence.”

The request, made under the Access to Information Act, was for a final employment equity report that primarily contained information provided by the bank to the Commission in the course of an employment equity audit. In arguing against disclosure, the bank relied heavily on section 34(1) of the Employment Equity Act, which creates a statutory privilege for all information obtained by the Commission under the Act. This provision is not listed in Schedule II to the ATIA, which lists nineteen other statutory privilege provisions. Information that is protected by a Schedule II provision is expressly exempt from public access by section 24 of the ATIA.

The Commission decided to disclose the report and the Federal Court dismissed the bank’s application for judicial review. On appeal, the bank argued that the report was not subject to public access because it was not under the Commission’s control, that the report was not subject to public access because the information it contained was privileged and, alternatively, that the record was exempt from public access under a number of specific provisions of the ATIA. The Canadian Bankers Association intervened in the appeal, expressing a broader interest in the confidentiality of bank disclosures to a number of federal regulators under similar statutory privilege provisions.

In the end, the Court dismissed the bank’s broader arguments and held the report was exempt from disclosure based on section 20(1)(b) of the ATIA as information provided in confidence and treated consistently in a confidential manner. It held that the application judge erred on a number of bases in finding this exemption did not apply. Most significantly, it held the application judge erred in finding that the bank had no reasonable expectation of confidentiality because the right of public access in the ATIA expressly applies “notwithstanding any other Act of Parliament” and because the Commission had warned the bank that its information could be subject to public access. Rather, the Court held that the statutory privilege in section 34(1) of the Employment Equity Act provided a reasonable basis for the bank’s belief that the information in question would be held in confidence and held that the bank had also met the other requirements of the section 20(1)(b) exemption.

While the Federal Court of Appeal judgement offers strong support for the application of the section 20(1)(b) to records of information provided to federal regulators and protected by a statutory privilege, the Court did note the requirement to bring the record within the scope of the exemption in every case: “A statutory guarantee of confidentiality is not, in and of itself, a sufficient basis for a claim of exemption under paragraph 20(1)(b) of the ATIA.”

Canadian Imperial Bank of Commerce v. Canada (Human Rights Commission), 2007 FCA 272 (CanLII).

Here is a good law.com article that raises the question, “Just when should an employer have access to a departed employee’s home computer or personal e-mail account?”

Consider a disability claim where an employer (as disability benefits insurer and defendant) seeks information about the time a departed employee who is claiming he has a total disability spends surfing the internet. Assume that seeking production of the employee’s home computer is a rational request because the employee has given evidence in discovery that he lives alone and is the sole user of his home computer. Is production of the home computer for forensic analysis justified or is this a just fishing expedition?

In Canada, there is a trio of British Columbia cases with facts not unlike this scenario: see Park v. Mullin, 2005 BCSC 1813, Ireland v. Low, 2006 BCSC 383 and Desgane v. Yuen, 2006 BCSC 955. In all three cases the British Columbia Supreme Court declined to order production of hardware after weighing the evidentiary value of the proposed production against the plaintiffs’ privacy rights.

It’s one thing, however, to fish for an employee’s personal information because it might be assistive. It’s another to seek production of evidence that’s not particularly personal or sensitive and that is central to the claim.

Now consider an employer who sues a departing employee for breach of confidence. An employee who takes business records needs to put them somewhere. The most obvious receptacle is his or her home computer.

Assuming the claim has merit, should the employer be entitled to know for sure whether the employee has (or has ever had) custody of its records? Is the probative value of the proposed production not very high given the difficulty in proving misuse of confidential information? In the context, is production of the actual computer warranted despite all the personal information it is likely to contain? I’m not aware off-hand of any Canadian breach of confidence cases in which production of a departed employee’s home computer has been ordered, but in the Ameriwood case cited in the law.com article a Missouri court answered these questions in the affirmative.

The Ontario Court of Appeal issued a short endorsement in Crystal Tile and Marble Ltd. v. Dixie Marble & Granite Inc. on August 20th, upholding a judgment that dismissed a claim against a high-performing ex-salesperson. Presumably the salesperson was not bound by a restrictive covenant because the claim was based on an alleged breach of fiduciary duty and breach of confidence. The Court endorsed the following passage from the trial judgment:

The fact that the business decision to rely so heavily on Mr. Miskiewicz may have turned out to be a less than prudent one is not sufficient to brand Mr. Miskiewcz as a as a fiduciary when the other hallmarks of a fiduciary relationship, such as the power to make or influence management decisions or set corporate policy, are absent. To find otherwise would mean that every salesperson, regardless of his or her position or authority in the business, would have a fiduciary duty simply because of his or her success in sales.

This comment is reminiscent of those made recently in Imperial Sheet Metal Ltd. v. Landry and Gray Metal Products, a decision of the New Brunswick Court of Appeal. The Court held that cases (including some leading Ontario cases) that find salespeople to be fiduciaries based on a vulnerability arising from exposure to customers are wrong: “too many employees of ‘humble origin’ are being swept into fiduciary net.” It also held that knowledge of customer needs and preferences generally does not have the quality of confidence necessary to found an action for breach of confidence.

These cases are significant for their denouncement of the case commonly made against departing salespersons who are not bound by restrictive covenants. They’re reason for employers to carefully consider bargaining reasonable restrictive covenants at the outset of the employment relationship.

On July 3rd the Ontario Superior Court of Justice dismissed a motion for an interlocutory injunction in a departing employee case where the plaintiff claimed breach of fiduciary duty, breach of contract (notice of resignation and non-solicitation provisions) and breach of confidence.  The claim and motion were brought after a senior investment advisor and his two subordinates joined a competitor.The award is most notable for its clear statement on the standard to be applied on the first part of the RJR-MacDonald test.