May 27, 2022
In Del Ridge Homes Inc. v. Ledgemark Homes Inc., 2022 FC 566, the Federal Court considered an appeal from an order dismissing Ledgemark Homes Inc.'s (“Ledgemark”) motion for a protective order containing “counsel’s eyes only” provisions.
The action underlying the original motion concerned alleged trademark infringement.
Del Ridge Homes Inc. (“Del Ridge”) sought to restrain Ledgemark from using Del Ridge’s “GREENLIFE” marks and any other allegedly confusingly similar marks. Mr. George Le Donne and Mr. David De Sylva were the two principals of Del Ridge and had been in business together for over twenty years but the business relationship disintegrated. Mr. Le Donne was also the principal of Ledgemark and the two entities became embroiled in litigation, with Mr. Le Donne seeking various oppression remedies against Mr. De Sylva in Ontario.
Ledgemark put forth this appeal, which was unrelated to the oppression remedies, on the basis that the Prothonotary erred in law by applying the wrong standard for the grant of a counsel’s eyes only provision.
I. THE PROTHONOTARY’S ORDER
In dismissing Ledgemark’s motion, the Prothonotary noted that a prohibition on the disclosure of relevant documents to a litigant is an extraordinary measure. It interferes with the ability of a party to conduct litigation and the test for obtaining a counsel’s eyes only order is high.
The Prothonotary stated that this specific motion was unusual for two reasons.
First, the litigation had been ongoing for 18 months and, at this stage of the litigation, Ledgemark knew precisely what documents it wanted to keep from Del Ridge.
Second, the motion combined the issue of whether the exceptional imposition of a counsel’s eyes only restriction was necessary as a provision in a protective order, and in the face of Del Ridge’s challenge to the actual documents designated, whether what Ledgemark sought to protect in that manner was appropriate.
The Prothonotary concluded that she was not satisfied that the disclosure to Del Ridge created a serious threat or risk of harm to Ledgemark’s commercial interests. In addition, Ledgemark had not established that the information over which it sought counsel’s eyes only protection was “of such extremely sensitive character that its disclosure will be highly prejudicial”.
II. THE COURT’S DECISION: THE PROTHONOTARY DID NOT APPLY THE WRONG TEST
The Court stated that the test for protective orders is: i) that the information at issue has been treated at the relevant times as confidential; ii) that the information is confidential in nature; and iii) that there is a reasonable probability that the disclosure of information could cause harm to proprietary, commercial and scientific interests.
With respect to the far more restrictive counsel’s eyes only protective order, the Court held that the jurisprudence is clear that such orders should only be granted in “unusual circumstances”. These unusual circumstance must be decided in each case on its own merits. In the context of harm to a commercial business interest, a counsel’s eyes only order is warranted only where the disclosure of the confidential information at issue presents a “serious threat” that is “real, substantial, and grounded in the evidence.”
Ledgemark argued that the Prothonotary failed to make all of the considerations required and that review of her decision on the correctness standard was warranted. Ledgemark referred to the factors as described in Bard Peripheral Vascular Inc. v. WL Gore & Associates, Inc., 2017 FC 58 (“Bard”), which are: i) the terms reflect the terms of protective orders granted upon consent in parallel litigation in the US, in which the parties are directly or indirectly involved; ii) the terms of the order provide opportunity to a receiving party to object to the classification of certain documents as confidential; and iii) the party requesting the counsel’s eyes only order believes in good faith that its commercial business or scientific interests may be seriously harmed by disclosure.
The Court ruled that the Bard factors are not the test to be met under a “counsel’s eyes order”. Rather, they form a non-exhaustive list of criteria which have been held not to be a series of criteria to be examined in every instance. The consideration of “unusual circumstances” is a contextual and flexible analysis and the Court may see fit to consider and apply other relevant factors.
With regard to the third Bard factor, Ledgemark submitted that the Prothonotary erred in law by requiring more than a good faith belief of harm. The Court agreed that one of the “unusual circumstances” factors that will have to be established to obtain a counsel’s eyes only designation is whether the party requesting the order believes in good faith that its commercial or business interests may be seriously harmed by disclosure. However, the Court went on to state that:
establishing this factor alone will not meet the test for a protective order containing that designation. Rather, the harm caused by the disclosure must also be a real threat to the interest in question and must be real, substantial and grounded in the evidence. The test requires not only a good faith subjective believe that harm will result, but also “confidentiality on an objective basis- a harms test.” [citations omitted]
The Court held that the Prothonotary did not err in law by requiring more than a good faith belief of harm. Ledgemark also had to establish a real and substantial threat of harm, grounded in the evidence, which it failed to do.
With regard to Ledgemark’s submission that the Prothonotary considered other factors that have no basis in law, the Court stated that no error of law arises by considering other relevant factors. It went on to state that, with this argument, what Ledgemark was really doing was submitting that it disagrees with the Prothonotary’ s application of the facts to the law and her resultant decision. This does not give rise to an error of law.
The Court concluded that the Prothonotary identified the correct legal test, she considered the three “unusual circumstances” frequently employed in this regard and she did not err in law by considering other factors. The Court ruled that there was no error on an extricable question of law in this case because Ledgemark had not established that the legal test was altered by the Prothonotary in the course of the application of the test.
Accordingly, the Court dismissed Ledgemark’s appeal.
Authors: Erik Axell and Mark Leonard