Weatherford Canada Partnership v. Addie, 2011 ABQB 562

Court of Queen ’ s Bench of Alberta Citation: Weatherford Canada Partnership v. Addie, 2011 ABQB 562 Date: 20110914 Docket: 0603 04628 Registry: Edmonton Between: Weatherford Canada Partnership Plaintiff - and - Dave Addie, David Anderson, Glen Kinnee, Ted Harland, Dan Endersby, Midfield Supply ULC, Midfield Supply International Ltd., Dale Denney, Douglas Golledge, John Letwinetz, Rick Endersby, Jakob Ambrosius, Artemis Kautschuk und Kunstoff-Technik GmbH, Wilhelm Kaechele GmbH, West Met Tools & Machinery Ltd., John Doe 1 to 10, and Europump Systems Inc.

Defendants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice D.L. Shelley _______________________________________________________ Background [ 1 ] In Weatherford Canada Partnership v. Addie , 2010 ABQB 477 (“Earlier Judgment”), I set out some of the background of this action from the time I became case manager in March of 2007. There have been many days of Questioning already conducted and many more days anticipated before Questioning is complete.

Throughout the years of document production and Questioning, there have been several contested applications related to issues of production and Questioning. This Judgment will address further applications which have been made, by the Plaintiff (“Weatherford”) and by two of the Defendants, Artemis Kautschuk und Kunstoff-Technik GmbH (“Artemis”) and Wilhelm Kaechele GmbH (“Kaechele”).

[ 2 ] Weatherford’s applications address further issues that have arisen as a result of its Questioning of representatives of Artemis and Kaechele. Specifically, Weatherford seeks Orders:

a) compelling Artemis, and its representatives, Jeffery Gillis and Ben Eisfeld, to answer questions and produce records requested between November 16 and 19, 2010, which Artemis has refused, as well as to provide responses to outstanding undertakings given on those dates; and

b) compelling Kaechele, and its representatives, Bruno Kaechele and Thomas Teichert, to answer questions and produce records requested at Examinations for Discovery held between July 7 and 9, 2010. [ 3 ] Artemis and Kaechele apply for

summary judgment with respect to the claim of “exclusive use” referred to in paragraph 110 (“Para 110") of the Amended Amended Amended Statement of Claim (the “Current SC”) and in paragraph 8 (“Para 8") of the Reply to Demand for Particulars, to the extent these refer to an exclusive use agreement with Artemis and/or Kaechele. In the alternative, they seek to strike the claim of “exclusive use” as referred to in the previously reference documents. The Issues [ 4 ] In relation to Weatherford’s applications:

a) I must determine whether Artemis and/or Kaechele have refused to answer relevant and material questions or refused requests made for relevant and materials records; and

b) In determining the above, I must determine whether the answers to some or all such questions and records so requested could reasonably be expected to significantly help determine one or more of the issues raised in the pleadings or to ascertain evidence that could reasonably be expected to significantly help determine one or more of those issues. [ 5 ] In relation to the applications of Artemis and Kaechele, I must determine:

a) what is meant by the expression “exclusive use” as used by Weatherford in the Current SC; and

b) whether there is any merit to the claim of “exclusive use” as against Artemis, or whether such claim is scandalous, frivolous or vexatious or may prejudice, embarrass or delay the fair trial of this action or otherwise constitute an abuse of process.

Applicable Legislation and Authorities [ 6 ] Weatherford relies on a number of Rules, including 1.2, 1.4, 4.11, 4.14, 5.1, 5.2, 5.25, 5.3, 5.31, 5.32, 6.1 and 6.37 of the current Rules of Court of Alberta, as well as Rules 186, 186.1, 187, 187.1, 196, 200, 205, 207, 208, 209, 213, 214, 216.1 and Practice Note 1 of the Rules of Court which were in effect prior to enactment of the current Rules . [ 7 ] Artemis and Kaechele rely on Rules 5.2, 5.25, 5.35, 7.2, 7.3, and 3.68.

[ 8 ] Weatherford, Artemis and Kaechele agree on the test to be applied in relation to Weatherford’s applications for answers to questions and production of additional records. The test is set out in Rule 5.2(1) and is summarized in paragraph 4 above (developed or clarified, in part, in the authorities referred to in the Earlier Judgment). They also agree that what is relevant and material is determined by the pleadings, since it is the pleadings which define the issues, and therefore determine what is relevant. [ 9 ] The parties similarly do not dispute the legal principles that apply to the applications for

summary judgment and striking of a portion of pleadings. [ 10 ] The test for granting

summary judgment is whether there is a genuine issue for trial.

Summary judgment is not appropriate for determining contested facts or issues of credibility. The court must be satisfied beyond reasonable doubt that no such contested facts or issues (or points of law) exist in order to grant

summary judgment. [ 11 ] Once an applicant has adduced evidence that there is no genuine issue, it falls to the respondent to adduce evidence to show that there is a genuine issue to be tried. A defendant who seeks

summary dismissal has the evidentiary burden of proving that there is no genuine issue or material fact requiring trial. It cannot rely on mere allegations or the pleadings.

Summary judgment based on a party’s admission should only be granted when there is only one way the admissions can be understood. [ 12 ] In relation to the application to strike, to avoid having Para 110 and Para 8 struck, Weatherford must establish that the claim of an exclusive arrangement is not frivolous and vexatious. The test to strike a pleading requires that it must be “plain and obvious or beyond doubt that the action cannot succeed”. [ 13 ] Individual paragraphs of a pleading need not disclose an independent cause of action.

Where the paragraphs of a pleading do not have clearly distinct causes of action, they should not be summarily dismissed if they could be relevant to other paragraphs in a pleading which arguably do disclose a cause of action.

Weatherford’s Applications Weatherford’s Position [ 14 ] Weatherford submits that the specific questions and record requests identified in its application materials relate to relevant and material information requested from Artemis and Kaechele, in that they can reasonably be expected to significantly help determine one or more of the issues raised in the pleadings or to ascertain evidence that could do so. [ 15 ] Weatherford submits that the past relationships between it and the various Defendants, as well as the relationships among the Defendants, is relevant and material and has been dealt with in the pleadings, primarily in paragraphs 10, 17, 21, 38, 41, 42, 78 and 87 of the Current SC.

In addition, Weatherford submits that the pleadings raise (primarily in paragraphs 18, 88 and 89) issues concerning ownership of certain intellectual property and information related to the design, manufacture and supply of PC pumps by Artemis and Kaechele. The pleadings further set out the details of specific allegations against Artemis, Kaechele and other Defendants and their participation in the alleged scheme (in particular, as detailed in paragraphs 95, 99 and 111 of the Current SC).

Other paragraphs of the Current SC provide specific allegations concerning the use of Weatherford’s confidential and proprietary information by various Defendants in furtherance of that alleged scheme (in particular as set out in subparagraphs 104(

b) and (c), and paragraphs 112, 114 and 115). Weatherford points to Para 110 as providing additional specifics of the Defendants’ improper use of Weatherford’s confidential and proprietary information, including its allegations that such information was to be used only for the purpose of making stators exclusively for Weatherford.

Weatherford has also pled that Artemis and Kaechele were intended to be accomplices who would have a financial interest in the scheme (as evidenced by them having been offered ownership interests in the new venture as well as other inducements). [ 16 ] Weatherford also refers to a number of remedies that it has pled in the Current SC. These include: a request for return of

confidential and proprietary information belonging to Weatherford; an accounting of the profits made by the Defendants as a result ofbreaches by them of their obligations to Weatherford; and judgment for the greater of any such profits or the losses suffered byWeatherford as a result of the wrongful acts of the Defendants. [17] Weatherford further argues that the general denials made by Artemis and Kaechele broadened the scope of what was alreadyrelevant and material.

For example, Artemis has denied that the specific pump models referred to by Weatherford in its pleadings containany confidential and proprietary information of Weatherford’s. Both deny that they manufactured stators using anything confidential andproprietary to Weatherford or that it had any obligation to limit its use of information obtained from Weatherford for the purpose ofmaking stators exclusively for Weatherford’s pump models.

Furthermore, Artemis and Kaechele deny that Weatherford has suffered anydamages attributable to their actions and Kaechele denies that it has been unjustly enriched at Weatherford’s expense. Artemis’ Position [18] Artemis divides the undertakings at issue into four groups. The majority relate to requests by Weatherford for informationregarding stator sales made to third parties. The second group relates to a company affiliated with Artemis which has had no dealingswith the parties in this action. The third group relates to requests for price lists supplied to third parties.

The last group relate to pricingbetween Artemis and the defendant Europump. [19] In relation to the first group, Artemis takes the position the requested information is not relevant and material becauseWeatherford has never made allegations that Artemis has made any improper sales to third parties, or even that Artemis has made salesto parties other than the defendants. [20] Artemis submits that the issue in the litigation is the stators or rotors that Artemis manufactured for Weatherford and thedefendants Europump and Midfield Supply.

Accordingly, Artemis argues that information relating to the manufacture of stators or rotorsfor anyone else is irrelevant to the issues raised in the pleadings. [21] Artemis suggests that Weatherford has now alleged an exclusive supply arrangement in order to go on a “fishing expedition”. [22] In relation to the second category of undertakings, Artemis argues that the information is not relevant and material since theaffiliated company is not a party to the action, has never made sales of rotors to any of the defendants (or to Weatherford) and was actingonly as an internal supply source to Artemis.

Artemis rejects the suggestion that this information is relevant to the issue of damages. [23] In relation to the third category of undertakings, Artemis argues that prices offered to Europump and Midfield are irrelevant tothe issues raised in the pleadings. First of all, Artemis is not under a contractual obligation to charge Weatherford the same prices as itcharges any other customer (including any of the defendants). Furthermore, the current SC does not advance this allegation, nor would itsupport a cause of action if alleged.

Secondly, Weatherford has already received information concerning and knows the profit which theEuropump and Midfield defendants have made on concluded PC pump sales. Artemis asserts that this is an attempt by Weatherford touse the litigation as a means of obtaining a commercial advantage and to exert commercial leverage over Artemis. [24] In relation to the fourth category of undertakings, Artemis rejects Weatherford’s argument that it is entitled to an accountingof profits on the basis that Artemis is an accomplice of a fiduciary.

It argues that the case relied on by Weatherford (MooreInternational (Canada) Ltd. v. Carter et al (1984) (BC CA), 56 BCLR 207) is confined to cases in which theaccomplice of a fiduciary has diverted profits. Artemis argues that Weatherford has not made a claim for disgorgement against Artemis,nor has it shown that Artemis has received diverted profits as an accomplice from an opportunity wrongfully taken by a Weatherfordfiduciary. Rather, Artemis maintains that Weatherford’s claim is for lost sales.

While Europump and Midfield might be required todisgorge improperly earned profits if it is established that they are fiduciaries and or liable for breaching their duties as such, the failureto plead that Artemis was a fiduciary or that it has received improperly diverted profits as an accomplice, precluded Weatherford’sentitlement to the requested information.

[ 25 ] Artemis argues that it has been a legitimate supplier to both Weatherford and the alleged fiduciaries but has not received diverted profits. Instead, Artemis’s profits are included in the costs of the sales of the alleged fiduciaries and at law would have to be deducted from any disgorgement of profit calculation. The information necessary to calculate the cost of sales which would have to be deducted has already been produced by Europump and Midfield. Disgorgement of Artemis’s profits would result in double recovery by Weatherford if it is successful against the alleged fiduciaries.

Kaechele’s Position [ 26 ] Although there are some similarities between Kaechele’s position and that of Artemis, there are some differences. Kaechele also divides the requested undertakings into four categories. Like Artemis, the majority of the questions relate to information on stator sales made by Kaechele to third parties. Included in the requests made of Kaechele are also questions related to costs and revenue from stator sales made to third parties. The other two categories are different than those requested of Artemis.

The third category requested of Kaechele relates to information on Kaechele’s proprietary elastomer specifications. The last category relates to information on the experience of Kaechele’s employees in PC pump design. [ 27 ] In relation to the first category of undertakings, Kaechele’s position is similar to that of Artemis’s in relation to this type of information. In short, since Weatherford has not alleged any wrongful conduct in relation to sales to third parties, nor has it pled the existence of an exclusive supply agreement, information concerning sales to third parties is not relevant.

Furthermore, Kaechele’s business is highly competitive and Weatherford would gain a considerable commercial advantage by obtaining information on Kaechele’s business dealings with third parties. [ 28 ] In relation to the second category, Kaechele takes the same position as Artemis. Specifically, it interprets the Moore International case the same way and argues that Weatherford would not be entitled to an accounting of Kaechele’s profits unless the pleadings and the evidence support that other defendants have diverted profits from a breach of fiduciary duty directly to Kaechele.

Kaechele argues that Weatherford has not advanced such a claim in its pleadings and therefore the information is irrelevant. [ 29 ] In relation to Weatherford’s request for specifications of elastomers which it produces, Kaechele argues that this information is not relevant since the pleadings do not mention or refer to elastomers. Kaechele argues that whether any elastomers that may have been provided to Weatherford bear any relation to those that may have provided to other defendants is not raised by the pleadings.

Kaechele further argues that even if Weatherford’s pleadings can be construed so as to include elastomers, the codes used and the similarity of the products would be facts of only tertiary relevance and would not meet the threshold of materiality required before they are producible. [ 30 ] In relation to the last category, Kaechele argues that the experience of its employees in designing PC pump models is not an issue raised in the proceedings.

Kaechele further argues that it has already provided documents which include the names of individual employees involved in the design of the models which are at issue in this action and that the names of other employees would not significantly help to determine any issue raised in the pleadings. Analysis and Reasons [ 31 ] In its decision rendered in relation to an appeal of an earlier application involving Artemis and Kaechele, Weatherford Canada Partnership v.

Addie , 2009 ABCA 195 , the Alberta Court of Appeal summarized Weatherford’s allegations against these defendants as follows: [2] The action involves a claim by Weatherford against former senior employees who left Weatherford to begin a competing PC Pump business through a new company formed called Europump Systems Inc. (“Europump”).

Weatherford claims that these employees breached their fiduciary duties and duties of confidence to Weatherford by, among other things, inducing over 35 Weatherford employees to join them, and making use of proprietary and confidential information with the complicity of Weatherford’s key parts suppliers, Artemis and Kaechele. Weatherford says that the defendants targeted Weatherford customers.

[3] Weatherford claims specifically that Artemis and Kaechele manufactured stators for Weatherford based on confidential and proprietary design specifications provided by Weatherford. Weatherford further claims that Artemis and Kaechele supplied Europump with stators which have identical specifications to those supplied for Weatherford.

Europump’s business plan indicates that Artemis and Kaechele will be minor partners in Europump. [4] Weatherford’s claim against Artemis and Kaechele is based on breach of confidence/unauthorized use of confidential and proprietary information, interference with economic interests, inducing breach of contract, and conspiracy. As the Court of Appeal observed, Weatherford’s allegations against Artemis and Kaechele arise in a larger context and must be considered in that context.

Similarly, it is in that larger context, and having regard to the information already obtained in relation to the alleged scheme, that I should consider the specific document requests and questions at issue in this application. [ 32 ] I agree with the submission of Artemis and Kaechele that Weatherford has not alleged any improper sales to third parties. However, I disagree that the absence of such an allegation makes this line of questioning irrelevant.

Artemis and Kaechele deny that the specifications and other design particulars provided by Weatherford to them in connection with the manufacture of stators for Weatherford was provided on a confidential and proprietary basis. If Artemis and Kaechele are correct in their assertion that such information was not confidential and proprietary and that they were free to provide it to anyone else, then the issue of whether they in fact provided it to anyone else prior to the time when they began supplying stators and rotors to other defendants becomes relevant.

I agree with Weatherford that how its suppliers treated the specification and design information prior to the commencement of the relationship with Europump and Midfield is relevant and material to the issue of whether or not that information was (and was considered to be) confidential and proprietary. [ 33 ] With respect to information related to payments made by Artemis to affiliated corporations in relation to rotors provided to Europump, I have concluded that this is also relevant given the nature of the allegations made by Weatherford against Artemis.

Weatherford has alleged a conspiracy that includes Artemis and Kaechele. It has received information, which is in evidence before me, that Artemis and Kaechele were approached early on by other defendants with offers of shares as partial compensation for their involvement in producing rotors and stators for those defendants. It appears that Artemis and Kaechele may have declined to receive shares but Weatherford alleges that shares or other inducements may be involved in the relationship between these various defendants.

In an earlier application I ordered disclosure of information and records related to various payments that were made by Europump to a corporation whose shareholders and directors were some of the individual defendants. Just as it is possible that profits in Europump might be reduced by these types of payments (the basis of which is questioned by Weatherford) it is possible that Artemis might receive an inducement or other compensation through the use of another corporate vehicle which is controlled or related to it.

I consider these questions to be relevant to the issue of the inducements alleged to have been offered to Artemis and Kaechele to secure their supply of rotors and stators to the other defendants. [ 34 ] In relation to information concerning pricing and rebates, if Weatherford establishes that Artemis and/or Kaechele manufactured PC pump components for other defendants using confidential and proprietary information belonging to Weatherford and that Artemis and/or Kaechele were the source of that information and provided it as part of a larger conspiracy involving some or all of the other defendants, this information is relevant and material to both the issue of inducements and profits.

The issue of profits can only be determined having regard to payments made or received by co-conspirators which affect the apparent cost of production or which might tend to mislead or to disguise profits realized by the various participants. [ 35 ] In relation to the two categories of information that was specific to Kaechele, information on Kaechele’s proprietary elastomer specifications is relevant to the issue of whether the stators produced for other defendants is the same as that produced for Weatherford and is relevant to the dispute over whether specifications provided by Weatherford were confidential and proprietary information when provided to Kaechele.

This information is related to information requested concerning the supply of identical stators to entities other than Weatherford either before or after the establishment of Europump. The source of the information used to produce the rotors and stators for Europump is very much in issue in this action.

Earlier applications have raised the issue of whether these items could have been reverse engineered as suggested by some of the defendants. [ 36 ] The experience of Kaechele’s employees in PC pump design is also relevant to the issues referred to in the preceding paragraph, particularly whether this equipment could have been manufactured without having reference to the specifications and design requirements provided by Weatherford. Accordingly, I conclude that it too is relevant and material to matters in issue in this action.

[ 37 ] I conclude, therefore, that the documents and information requested by Weatherford and refused by Artemis and Kaechele respectively is relevant and material as it can be reasonably expected to significantly help determine one or more of the issues in this action. As such, it ought to be produced by them. However , it is only records and information related to the nine specific pump models that Weatherford is asserting confidential and proprietary rights over that need be produced.

Artemis and Kaechele are not required to produce information concerning any other items that they may be manufacturing and supplying, either to the defendants or to anyone else. Applications by Artemis and Kaechele Artemis’ Position [ 38 ] Artemis submits that Weatherford’s officer (Lonnie Dunn) acknowledged that an exclusive supply agreement does not exist. Since there was no exclusive distribution agreement, there is no merit to the claim contained in Para 110.

Furthermore, Weatherford has acknowledged that there was no written exclusive supply agreement. [ 39 ] Artemis further submits that Weatherford has two problems in establishing the existence of an oral agreement:

a) Weatherford’s own records show that no agreement, oral or otherwise, was entered into with Artemis.

b) Weatherford failed to lead any evidence as to the constituent elements of a contract. Specifically, it has led no evidence as to the consideration for the alleged oral exclusive supply agreement or the key terms of the alleged oral agreement such as term, commencement date, parties, pricing). Furthermore, the presence of three inconsistent versions of the exclusive supply arrangement in Mr. Dunn’s Affidavit highlights the lack of certainty of terms. [ 40 ] Artemis points out that the affidavit of Weatherford’s representative Jeffry Gillis states that Mr.

Dunn’s Affidavit did not claim Weatherford had an exclusive distribution agreement. Rather, Artemis was referred to as a “key supplier” of stators to Weatherford. Further, Mr. Dunn’s Affidavit acknowledged that:

a) there was no written agreement that restricted Artemis’ ability to sell products to anybody other than Weatherford;

b) the issue of exclusivity only arose after defendants Addie and Anderson terminated their employment with Weatherford; and

c) Artemis told Weatherford there was no exclusive supply agreement, but said it was willing to enter into one if it were appropriately compensated. Weatherford refused to compensate Artemis. [ 41 ] In addition, Weatherford acknowledged that there was no exclusive use arrangement between Artemis and Weatherford in its Reply to the Demand for Particulars. [ 42 ] Artemis argues that, since there was no exclusive distribution agreement, there is no merit to the claim of “exclusive use” at Para 110.

Kaechele’s Position [ 43 ] Kaechele submits that there is no merit to any allegations or references to exclusivity or an exclusive supply agreement. Therefore, this aspect of Weatherford’s action fulfils both the test for

summary dismissal and the test for striking pleadings as improper and vexatious. [ 44 ] Kaechele did not agree to an exclusive agreement with Weatherford. Kaechele understood an “exclusive” supply agreement to imply mutual exclusivity. Since Weatherford made it clear that it would not be willing to purchase only from Kaechele, there was no exclusivity. [ 45 ] Kaechele acknowledged that there were negotiations about exclusivity in February of 2006.

However, Weatherford was not prepared to provide the minimum guarantees with respect to turnover and volume of business that Kaechele required to enter into an exclusivity agreement. There was no communication from Kaechele agreeing to an exclusive supply agreement. [ 46 ] Like Artemis, Kaechele points out that there was no written agreement and also takes the position that there was no verbal agreement or “understanding” of any kind that could be interpreted as an agreement. Like Artemis, Kaechele points out that Mr.

Dunn’s Affidavit admits that there is no written contract and submits that it sets out three different and conflicting versions of the alleged exclusive supply agreements. [ 47 ] Kaechele points to Weatherford’s corporate communications which refer to Kaechele as a “strategic supplier”, not an “exclusive supplier”. [ 48 ] Weatherford’s allegation that it held exclusive agreements with several suppliers is inconsistent with the very concept of an exclusive agreement. Further, the parties’ industry is highly competitive. Weatherford deals with multiple suppliers and is also making its own product.

Kaechele submits that it strains credulity to suggest that any supplier would agree to exclusivity for one customer without receiving assurances with respect to volume of product to be ordered. [ 49 ] Kaechele questions why, if there was an agreement before 2006, Weatherford would arrange to meet with Kaechele in early 2006 to establish the terms of an exclusive agreement? Similarly, if there was an exclusive agreement already in place, why would Weatherford ask for written assurances of supply? [ 50 ] Like Artemis, Kaechele points out that Mr. Dunn’s Affidavit does not provide the basic elements of an agreement.

It does not specify when or how or between whom it was made; the products, quantities or prices of the items to be supplied under it; the territory covered by it; or any other contractual terms such as the consideration for it. [ 51 ] Kaechele submits that Weatherford’s communications to Kaechele are at best a mere suggestion to start negotiations, an invitation to treat, and that they disclose no identifiable offer. And that, even if they do constitute offers, there is no evidence of acceptance.

Rather, Kaechele rejected all exclusivity suggestions. [ 52 ] Kaechele also submits that Weatherford’s allegations and Mr. Dunn’s Affidavit contain so little information that the Court cannot supply the terms either. [ 53 ] Kaechele refers to the Midfield Supply Agreement. Kaechele submits that, although it is irrelevant to Weatherford’s application, it provides an illustration of a contract which Weatherford considered appropriate to enter into to achieve exclusivity.

It points out that Weatherford did not enter into a similar contract with Kaechele. [ 54 ] Weatherford’s allegations of an exclusive agreement consist entirely of a series of assertions, supposed understandings, and conflicting sets of restrictions upon Kaechele, none of which have terms that are certain or ascertainable, and none of which meet the most basic requirements of contract law. Weatherford’s evidence provided in Mr. Dunn’s Affidavit sets out an agreement Weatherford

would like to have. Kaechele submits that it is clear that no such agreement exists. Weatherford’s Position [ 55 ] Weatherford submits that there is a dispute about material facts and that the Affidavits are contradictory.

This, it argues, requires a full trial. [ 56 ] Weatherford further submits that Artemis and Kaechele have not substantiated their assertions that Weatherford’s pleadings are vexatious.Striking portions of the Statement of Claim creates the risk that full context will not be available for the trial judge. [ 57 ] Artemis and Kaechele have misconstrued the nature of Weatherford’s allegations relating to the issue of exclusivity.

Weatherford’s position is that the stators which Artemis and Kaechele supplied to Weatherford’s competitors were made using Weatherford’s confidential and proprietary specifications, and that stators based on those specifications could only be supplied to Weatherford, and to no one else. Weatherford has not raised “an exclusive supply agreement” in its pleadings.

Rather, Weatherford’s allegations pertain only to nine specific stator models that are based on Weatherford’s confidential and proprietary specifications. [ 58 ] Weatherford submits that the parties dispute the existence of additional obligations and terms of their relationship, including whether:

a) the specifications Weatherford provided to Artemis and Kaechele were confidential and treated as such;

b) the specifications were proprietary to Weatherford and treated as such; and

c) Artemis and Kaechele could make, for others, the same products as were requested by Weatherford. Therefore, the issue of exclusivity is clearly in dispute. Mr. Dunn’s Affidavit states that “there was indeed an exclusivity agreement between Weatherford and Kaechele and between Weatherford and Artemis”. Furthermore, Weatherford states that the business plan of another defendant (Europump) suggests that their plan to sell replica Weatherford PC pumps would not have been possible without the support of Artemis and Kaechele.

Artemis and Kaechele had discussions about acquiring a stake in Europump’s plan at around the same time that they denied the exclusive nature of their supply arrangement with Weatherford. [ 59 ] Weatherford argues that the disputed facts are ones which would help the trial judge determine the issues. The parties are diametrically opposed on the nature of their past relationship and the purported agreement. The evidence is contradictory and a trial is needed to weigh and balance it.

For example: Artemis and Kaechele deny in their pleadings that the specifications are confidential, but neither swears to this in their affidavits; Weatherford asserts Artemis and Kaechele were to make stators in accordance with Weatherford’s specifications only for Weatherford and no one else but Artemis and Kaechele deny this; Mr.

Dunn deposes that the business arrangements between Weatherford and each of Artemis and Kaechele were such that they would not provide stators to anyone other than Weatherford but Artemis and Kaechele do not acknowledge this historical pattern of operations. [ 60 ] Weatherford argues that the existence of a written agreement is not determinative of whether Artemis and Kaechele may use Weatherford’s confidential and proprietary information to make stators for anyone other than Weatherford. This is the real issue in dispute.

The claim that Weatherford’s pleadings with respect to this issue are vexatious is without merit. Artemis and Kaechele have, submits Weatherford, focused on Para 110 and Para 8, giving rise to a distorted view of what the issues in dispute are really about. These two paragraphs are clearly relevant to other paragraphs in Weatherford’s pleadings.

[ 61 ] Weatherford submits that the evidence relating to the historical relationship between Weatherford and each of Artemis and Kaechele would significantly help determine the issue of confidentiality and is partially described in Para 110.The trial judge will require evidence about the historical dealings between the parties regarding the named nine stator models and ought not to be deprived of this evidence. [ 62 ] Weatherford further submits that the answers to Weatherford’s question about how Artemis and Kaechele conducted themselves before the Defendants conspired to compete with Weatherford will significantly help determine the confidentiality issue.

It argues that Artemis and Kaechele want to avoid acknowledging how the parties historically conducted themselves so that they can avoid providing evidence that would show that they were not actually supplying the stators to anyone else until they became accomplices with the defendant fiduciaries. [ 63 ] Given the complexity of the issues, Weatherford submits that it would be fraught with risk and impracticality to try to address a few excerpts from the pleadings without consideration of the context of the balance.

Para 110 and Para 8 are relevant to other claims and issues. [ 64 ] Weatherford argues that no written agreement was necessary as it relied on the obviousness of the commercially reasonable proposition that stators based on confidential specifications will not be sold to anyone else, as well as on the representations of Defendant Anderson that written covenants from Artemis and Kaechele were not necessary. [ 65 ] However, Weatherford argues that the defendants’ suggestion that there was no contract is incorrect.

The parties have for years operated under a contractual relationship with basic and undisputed terms, including:

a) Artemis and Kaechele received orders from Weatherford;

b) the orders were for specific products to be made in accordance with specific design parameters and using specific materials;

c) Artemis and Kaechele manufactured the products and shipped them to Weatherford; and

d) Weatherford paid for the products. [ 66 ] Furthermore, Weatherford argues that Artemis’ supporting affidavit provided only limited excerpts from an email exchange. The full email exchange between Weatherford and Defendant Anderson reveals that Weatherford actually suggested to Defendant Anderson that he formalize the sourcing relationship with Artemis. Based on Defendant Anderson’s representations, it was determined that Weatherford would continue working with Artemis “in the same manner as in the past”.

Weatherford interpreted this to mean that Artemis and Kaechele would not supply the stators based on confidential specifications to anyone else. [ 67 ] Weatherford disputes that Mr. Dunn asserted three separate “versions” of the exclusive agreement. Rather, all versions are referable to one simple and commercially reasonably proposition. Weatherford understood that Artemis and Kaechele would not supply Weatherford’s competitors with products based on Weatherford’s confidential and proprietary information. This is what Weatherford asserts in its pleadings.

Analysis and Reasons [ 68 ] There is not only a disagreement about whether there was an exclusive use agreement in effect between Weatherford and Artemis and Kaechele, there is also a clear disagreement over what that expression means. It is clear that some of this dispute is tied to the differing understandings of the parties concerning the meaning of that expression.

[ 69 ] Weatherford has not asserted that it has a written exclusive supply or distribution agreement with either of these defendants. Weatherford does not allege an exclusive supply agreement in the Current SC.

Similarly, Para 8 does not refer to an exclusive supply agreement but rather to an exclusive use arrangement, which Weatherford described as the defendants not manufacturing and supplying stators and rotors to anyone else that were the same (which I take to mean using the same specifications and design details) as they were manufacturing at Weatherford’s request and to its specifications. [ 70 ] I understand Weatherford to allege that it provided specifications and design information to Artemis and Kaechele on the understanding (which it asserts was necessarily a mutual understanding in the circumstances of their relationship) that such information would be used exclusively (in the sense of solely) in connection with the manufacture of stators and rotors for Weatherford and for no other purpose.

That is very much a live issue in this action. [ 71 ] I conclude that, given the meaning of “exclusive use” in the context of the Current SC and Para 8, this allegation is not scandalous, frivolous or vexatious, nor may it prejudice, embarrass or delay the trial of the action or otherwise constitute an abuse of process. To the contrary, the allegation that Artemis and Kaechele were to use the specifications and design details provided by Weatherford solely for the purposes of producing these items for Weatherford is the very essence of the allegations against Artemis and Kaechele.

Whether or not there was an exclusive use agreement or arrangement between Weatherford and Artemis and Kaechele, of the type alleged by Weatherford, is a genuine issue for trial. Conclusions [ 72 ] Accordingly, Artemis and Kaechele are directed: 1. to produce the records and provide answers to the questions detailed in Weatherford’s materials filed in connection with this application, to the extent that they relate to the nine specific PC pump models over which Weatherford has asserted confidential and proprietary rights; and 2. Artemis and Kaechele are denied

summary judgment with respect to the claim of exclusive use as such term is used in the Current SC and Para 8. Heard on the 10 th and 23 rd days of March, 2011. Dated at the City of Edmonton, Alberta this 14 th day of September, 2011. D.L. Shelley J.C.Q.B.A. Appearances:

Fausto Franceschi, Joe Rosselli, Shayna J. Staniloff and Allison Murray Fraser Milner Casgrain LLP for the Plaintiff Weatherford Kenneth W. Fitz McLennan Ross LLP for the Defendant Artemis W. Paul Sharek, Q.C. Emery Jamieson LLP for the Defendant Kaechele