Fuller Western Rubber Linings Ltd. v Spence Corrosion Services Ltd., 2012 ABQB 163

Court of Queen ’ s Bench of Alberta Citation: Fuller Western Rubber Linings Ltd. v Spence Corrosion Services Ltd., 2012 ABQB 163 Date: 20120307 Docket: 1103 04968 Registry: Edmonton Between: Fuller Western Rubber Linings Ltd. and Fuller Industrial Corporation Plaintiffs - and - Spence Corrosion Services Ltd. and Norman Spence Defendants And Between: Norman Spence Plaintiff by Counterclaim - and - Fuller Western Rubber Linings Ltd. and Fuller Industrial Corporation Defendants by Counterclaim _______________________________________________________ Reasons for Judgment In the Civil Contempt Application

of the Honourable Mr. Justice Donald Lee _______________________________________________________ Introduction [ 1 ] This matter deals with a former employee who left the Plaintiffs, incorporated his own company and then proceeded to compete, allegedly and improperly, against the Plaintiffs. [ 2 ] The Plaintiffs/Applicants have two Applications before the Court. The first was filed on March 25, 2011 for Injunctive Relief. The second Application was filed June 3, 2011 for Civil Contempt, and deals with Norman Spence (“Spence”) improperly directing the destruction of the documents.

These Reasons deal with the Civil Contempt application. [ 3 ] Key dates in the Plaintiffs’ Application for Contempt November 10, 2008 Fuller Western Rubber Linings Ltd. employed Norman Spence (“Spence”) as its operations manager. February 23, 2010 Fuller Industrial Corporation employed Spence as its technical business development manager. September 15, 2010 Spence leaves the employment with Fuller Industrial Corporation.

October 29, 2010 Jeff Fuller, the principal of the Plaintiffs, informs Spence in an October 29, 2010 email that he had dismissed Taymour Ebrahaim, a senior employee who caused some of the Plaintiffs’ skilled rubber liner employees to leave the employ of the Plaintiffs. December 22, 2010 Spence forwarded to Grant Gamble (“Gamble”) a health and safety manual (“HSE manual”) Spence prepared based almost entirely on the Plaintiffs’ health and safety manual. February 13, 2011 Spence deleted his electronic copy of the HSE manual.

Friday, March 18, 2011 Fuller swears an affidavit to support a forthcoming interlocutory injunction application. Friday, March 25, 2011 Plaintiffs filed a Statement of Claim against the Defendants, a Notice of Motion seeking an Interlocutory Injunction. Monday, March 28, 2011 Plaintiffs served Defendants with their Statement of Claim, Notice of Motion and Fuller Affidavit. Tuesday, March 29, 2011 Spence, in the course of a 5 minute telephone conversation, asked Gamble to delete the HSE manual he emailed to Gamble on December 22, 2010.

Wednesday, April 6, 2011 Justice Yamauchi issued a Document Preservation Order. Friday, April 8, 2011 Gamble and Spence have another telephone conversation. Gamble claims that Spence asked him on April 8, 2011 to delete the HSE manual he emailed to Gamble on December 22, 2010. Spence denies this. Spence at this time was aware of Justice Yamauchi’s order. Spence may have asked Gamble whether he had already deleted the HSE manual. Sunday, April 10, 2011 Spence emails Gamble: “[A] quick reminder to ensure that you have “cleaned the clock”??? Just checking, please confirm. Thanks”.

Spence explains this in his January 10, 2012 affidavit. April 21, 2011 Spence swore an Affidavit in opposition to the Interlocutory Injunction. In ¶ 74 he acknowledges having used the Fuller HSE manual and forwarding a copy to Gamble. April 26, 2011 Defendants filed Spence’s April 21, 2011 Affidavit. May 19, 2011 Plaintiffs questioned Spence on his April 21, 2011 Affidavit. Spence acknowledged that he had requested Gamble to delete the HSE manual before Justice Yamauchi’s order. Spence acknowledged that he spoke with Gamble on April 8, 2011 but denied he asked him to delete records Spence had sent by email.

June 2, 2011 Gamble swore an Affidavit to the contrary. January 10, 2012 Spence swore a Supplemental Affidavit, filed on January 20, 2012. He confirmed that he made a request of Gamble on March 29, 2011 to delete the HSE manual but not April 8, 2011, and he attempted to clarify the intended meaning of his Sunday, April 10, 2011 email. January 11, 2012 Gamble questioned on his June 2, 2011 Affidavit. Analysis [ 4 ] Spence understands that what he did was wrong and that he should not have asked anyone to destroy documents.

Spence states that notwithstanding that he had reservations about using the taken HSE Manual, he sent a copy to Gamble for potential use in Spence’s new business. [ 5 ] Clearly Spence should not have asked Gamble to delete his copy of the modified HSE manual either before or after the issuance of Justice Yamauchi’s Order. However Spence submits that this action does not rise to the level of contempt of court. [ 6 ] In Registrar, Supreme Court v. McPherson , [1980] 1 N.S.W.L.R. 688 (Aust.

C.A.) the Court of Appeal for Australia confirmed that the quasi-criminal nature of contempt order compels an inquiry into the mens rea of the party: In the present case, the mere deliberate destruction of the TM did not constitute contempt. Just as, in Butterworth’s case (2), the committee had a lawful right to dismiss Greenlees, so PPL, by its servant GKM, had a lawful right to destroy its own document. Before a nexus can be made between the act and any interference with the administration of justice, to use the words of Donovan LJ (2c) “further inquiry” has to be made.

The inquiry is whether a material purpose of GKM. in destroying the document. was to prevent it from being

produced to the Court upon the compulsion of a subpoena in proceedings then pending. [ 7 ] It is clear that a party to litigation is prohibited from destroying documents which may be relevant to the issues raised in the claim. However not all acts of destroying documents rise to the level of contempt. For example, in the Federal Court case of Samsonite Canada Inc. v. Enterprises National Dionite Inc. (1995), 59 C.P.R. (3d) 203 (Fed. T.D.) , the Defendant had destroyed a document which contained some relevant information.

On a motion for an Order that a show cause hearing take place, Wetston J. held “that the document was destroyed in good faith and without any apparent intention to frustrate the administration of justice in this matter.” The motion for a show cause hearing was therefore dismissed. Wetston J. did, however, impose a costs sanction in order to emphasize his concern regarding the destruction of documents. [ 8 ] In contrast in Dreco Energy Services Ltd. v Wenzel , 2006 ABQB 356 the Defendants had granted a number of undertakings to produce documents which were of importance to the Plaintiffs’ claim.

They then failed to provide responses to those undertakings, and instead destroyed all of the existing documents by having their computers “scrubbed”. On an interlocutory motion for contempt, my colleague Greckol J. concluded that the Defendants’ conduct was intentional and deliberate. Further, she found it likely that the loss of the records would be an impediment to the Plaintiffs’ ability to complete proof of their case.

She then ordered as follows:– In the result, I direct that the Defendants take all available steps to try to retrieve the information that has been lost, and that they absorb the costs of those efforts. If the computer files cannot be retrieved, pursuant to Rule 704(1)(c), the Defendants are to pay a fine of $75,00 .00, for which they will be jointly and severally liable. [ 9 ] Rule 10.52(3) of the Alberta Rules of Court states that:– [a] judge may declare a person to be in civil contempt of Court if (

a) the person, without reasonable excuse, does not comply with an order, other than an order to pay money, that has been served in accordance with the rules for service of commencement documents or of which the person has actual knowledge. [ 10 ] Rule 10.53 of the Alberta Rules of Court lists the sanctions which a court may impose on a contemner. The sanctions are onerous, including imprisonment for not more than two years. [ 11 ] In Schatz v.

Doust , 2002 SKCA 129 , the Saskatchewan Court of Appeal emphasized the importance of document production in our common law litigation system at page 9:– The integrity of the administration of justice in both civil and criminal matters depends in large part on the honesty of parties and witnesses. Spoiliation of relevant documents is a serious matter .

Our system of disclosure and production of documents in civil actions contemplates that relevant documents will be preserved and produced in accordance with the requirements of the law A party is under a duty to preserve what he knows, or reasonably should know, is relevant to an action.

The process of discovery of documents in a civil action is central to the conduct of a fair trial and the destruction of relevant documents undermines the prospect of a fair trial. (emphasis added) This passage explains why draconian sanctions may be imposed on a contemner. [ 12 ] With respect to the factual issue of whether Spence requested Gamble to delete the Affidavit after the issuance of Justice Yamauchi’s Order, it is submitted that there is the conflicting evidence of Gamble and Spence. There are factual and mental components to a civil contempt of court.

In this case the Plaintiffs allege in their notice of motion that the defendants directed or counseled “a third party to destroy records relevant and material to the within action”. Therefore it is submitted that the Plaintiffs must prove this factual allegation beyond a reasonable doubt, and if they do, they must also prove that Spence’s material purpose in acting was to interfere with the administration of justice: See Registrar of the Supreme Court v. McPherson , 697 (N.S.W. C.A. 1980) and Samsonite Canada Inc. v. Enterprises National Dionite Inc. , paragraph 8 (Fed. T.D. 1995).

[ 13 ] In the present case Spence has admitted that he made errors in judgment, but it is submitted that he did not engage in conduct comparable to that in Dreco . Spence concluded that he ought to rid himself of the document, perhaps not to hide it from the Court, but because it was the Plaintiffs’ property as he says. His purpose may not have been to conceal relevant facts or documents from the Court or the Plaintiffs since the document as modified had already been filed.

Conclusion [ 14 ] When Spence left the Plaintiffs employ he kept a copy of the Fuller Western Health and Safety Manual, known as an HSE Manual, on his memory stick.

He then drafted the Spence Corrosion HSE Manual (the “taken HSE Manual”) by simply taking out the references to Fuller Western and replacing them with Spence Corrosion. [ 15 ] On December 22, 2010 and January 2, 2011 Spence emailed versions of the taken HSE Manual to Gamble. [ 16 ] On February 11, 2011, Spence sent an email to Gamble and the other Spence Corrosion employees regarding a safety meeting at Spence’s house to be conducted on February 15, 2011 to go over the HSE Manual. [ 17 ] Gamble attended the February 15, 2011 safety meeting referred to above for the purpose of going over the HSE Manual with everyone.

The HSE Manual that existed at that point in time was the taken HSE Manual. [ 18 ] On March 28, 2011 Spence was personally served by process server with a copy of the Plaintiffs’ Statement of Claim and the Application to preserve evidence. [ 19 ] The very next day on March 29, 2011 Spence contacted Gamble and asked him to destroy the taken HSE Manual. [ 20 ] The March 29, 2011 conversation between Spence and Gamble was a brief conversation starting at 9:06 p.m., lasting only 5 minutes. [ 21 ] On April 6, 2011 there was a contested Chambers Application, and my colleague Yamauchi J issued a document preservation Order. [ 22 ] Spence found out about the April 6, 2011 Order that same day at about 4:00 p.m. [ 23 ] On Friday, April 8, 2011, there was a lengthy call between Spence and Gamble where Spence allegedly asked Gamble to destroy the taken HSE Manual and to burn the hard copies of anything Spence had sent Gamble.

The April 8, 2011 conversation was 28 minutes long and started at 6:00 p.m. [ 24 ] After the telephone conversation of April 8, 2011, Gamble received a text message on April 10, 2011 from Spence inquiring whether the records had been destroyed. The text message was sent on Sunday, April 10, 2011 at 9:29 a.m. and stated: “Good morning Grant, a quick reminder to ensure that you have ‘Cleaned the Clock???’ Just checking. Please confirm. Thanks” [ 25 ] The above text was put to Spence twice in Questioning on his Affidavit, and twice Spence denied that this text was to

confirm that Gamble had deleted the records that Spence had asked him to delete. Instead Spence’s explanation as to what he was referring to in the above text is that he was sending a text, first thing Sunday morning, to Gamble reminding Gamble to have sex with his fiancé, wanting to check that this had been done and asking Gamble to confirm. [ 26 ] In his second Affidavit sworn eight and a half months later on January 10, 2012, Spence admitted that the sworn evidence that he gave during Questioning regarding the above mentioned text was untrue.

The “Cleaned the Clock” reference was in fact referring to the deletion of the taken HSE Manual. [ 27 ] When Spence was first asked the question about directing anyone to delete documents he stated as follows: Q And, Sir you haven’t directed anyone to delete any records of any kind that may be relevant in material to this law suit; is that right? A No, I haven’t.

However, he later admitted that he did direct Gamble to delete documents, but claims that request was made a few days prior to the Order. [ 28 ] In paragraph 12 of that same January 10, 2012 Affidavit when dealing with the 28 minute April 8, 2011 conversation, Spence indicated that he does not have a specific memory of it but he may have inquired of Gamble as to whether or not he had deleted the taken HSE Manual.

He goes on to claim that he is certain that he did not ask or direct Gamble to delete or destroy anything during this conversation since this was after the date of Justice Yamauchi’s Order. [ 29 ] However in his Affidavit sworn June 2, 2011, Gamble stated:– Spence told me that he needed me to delete all of the electronic records that he had sent me and that he needed me to ensure they were deleted by deleting the deleted copy of the same, In addition Spence said that if there was a hard copy of anything he had sent to me I was to burn it.

Spence then indicated to me that there were only two electronic versions of the Spence Corrosion HSE Manual and that he had one and that I had the other one. Spence advised me that if he went into his lawyer’s office on Monday and swore on a stack of bibles that he did not have the electronic HSE Manual and then if it came out that I had the manual the it would burn him and ten people would be out of work. [ 30 ] In his cross examination on Affidavit held January 11, 2012, Gamble stated:– I remember this conversation vividly. I believe Mr.

Spence’s comment was that it if these documents were discovered that it would burn him I believe was the terminology he used and that it could potentially put his company under and put ten people out of work... [ 31 ] In his second Affidavit, sworn January 10, 2012, Spence evidences his intention to interfere with the administration of justice when he states at paragraph 6:– ....and I asked him to delete the version of the modified HSE manual that I had previously emailed to him. told him that I wanted him to delete the manual so that I could ‘swear on a stack of Bibles’ that I did not have a copy of the manuals flied by Mr.

Fuller in his Affidavit. [ 32 ] When Gamble would not confirm that he had deleted the Manual, Spence had no choice but to now admit in the first Affidavit that he swore on April 21, 2011, that he had a copy of the Pirated HSE Manual referred to by Fuller in Fuller’s Affidavit and that such a Manual had been sent by Spence to Gamble.

[ 33 ] The text message sent from Spence to Gamble on April 21, 2011 is evidence that Spence was upset that Gamble would not delete documents, and was intent on interfering with the administration of justice:– Grant can u call me tonight! I guess this means u are not going to call me? I took u as a man of ur word? Sad to see u helped those who kick u while yr down and the guy that helps u, u sandbag!! Good job! [ 34 ] In addition to the taken HSE Manual, Spence had numerous other documents and electronic records that belonged to Fuller Western which were copied on a memory stick.

This included contacts, sales information, Quality Control information, NACE Standards, certain customers and their information on that customer, a variety of forms and master forms. [ 35 ] In the Dreco my colleague Justice Greckol explained why it is important that parties not attempt to destroy records. She states at paragraph 47 as follows:– “The destruction of records subject to court process is an egregious aspect of this contempt because such conduct strikes at the heart of the legal process. Our legal system is based on the examination of evidence in the pursuit of truth.

Only if all relevant and admissible evidence is available to the parties can there be an authentic pursuit of the truth. This is a cornerstone of our legal system. The destruction of evidence as an aspect of contempt of a court order is a very serious matter. As stated by the Supreme Court of Canada in U.N.A. v.

Alberta (Attorney General) , [1992]1 5CR. 901 at para. 50: ‘The rule of law is directly dependent on the ability of the courts to enforce their process and maintain their dignity nd respect.’ ” [ 36 ] Dreco dealt with a similar type of case where there was a breach of an employment agreement, restrictive covenants, confidentiality agreements and fiduciary duties. In Dreco , the defendants had destroyed or erased computer records.

The Court of Appeal found that the original contempt sanction imposed by Justice Greckol was inadequate and remitted the matter back to her, stating as follows at paragraph 11:– In terms of the sanction for contempt we are of the view that the amount ordered is not adequate for its purpose. Requiring those in contempt to pay a part only of thrown-away costs related directly to the contempt does not bring home to the contemnors the seriousness of their actions and their responsibilities for the consequences attributable to that contempt. There is a public policy aspect to this entire issue.

Generally, in principle, those who are found in civil contempt ought, at a minimum, to be required to accept responsibility for a substantial portion of the costs directly related to that contempt. It may be that a judge would also consider it appropriate to impose further monetary penalties or other sanctions, whether including striking of pleadings, drawing of adverse references etc.” [ 37 ] In Dreco , an interlocutory injunction had been previously granted.

The sanction for the destruction of records was thrown-away costs of $136,146.27 plus GST, and the defendants were required to take steps to retrieve the lost information at their own costs failing which they would have to pay a $75,000 fine. [ 38 ] The law of spoliation in Canada is also set out in the Alberta Court of Appeal case of McDougall v. Black & Decker Canada Inc. , 2008 ABCA 353 in paragraphs 15 -30 . In McDougall , our Court of Appeal goes on to state that the Judge can make any Order they think is just for preservation and inspection of evidence.

The Court refers to the maxim “ omnia praesumuntur contra spoliatorem (all things are presumed against the wrongdoer)”. The Court is entitled to issue a flexible remedy to compensate the Plaintiff for any loss(es) that it may have suffered. [ 39 ] With respect to the Plaintiffs’ request for a computer forensic investigation, the investigation required in Dreco was made necessary by fact that important information had deliberately been “scrubbed” from computers, and all available steps had to be taken in order to retrieve that information.

In the present case no information has been lost, however it is unclear what else may have been deleted given Spence’s credibility problems, and some of his other actions in this matter as described above. [ 40 ] Spence claims that he deleted the taken HSE Manual sometime between February 10 - 13, 2011, however I conclude that it will be necessary to conduct a forensic audit of the computers of Spence and his company to find out when this was actually deleted and

which of the other Fuller Western documents referred to above have been deleted and when.

Disposition [ 41 ] Spence is found in civil contempt for directing the destruction of documents as it has been established beyond a reasonable doubt that Spence directed or counselled a third party to destroy records relevant and material to the within action, and that Spence’s material purpose in acting was to interfere with the administration of justice. [ 42 ] An Order issues forthwith that the Defendant shall forthwith produce any and all computers and electronic media in their possession, power or control, for a forensic review to be conducted by a computer expert retained by the Plaintiffs. [ 43 ] I further direct that the costs of this forensic examination of the computers and electronic media including, but not limited to all expert fees and costs, shall be borne solely and exclusively by the Defendants.

The Defendants shall immediately post the sum of $30,000 with the Clerk of the Court as partial security for the payment of these costs and fees. [ 44 ] Costs of this Contempt Application are granted on a full indemnity basis payable immediately. Heard on the 24 th day of February, 2012. Dated at the City of Edmonton, Alberta this 7 th day of March, 2012. Donald Lee J.C.Q.B.A. Appearances: Robert O’Neill and Rod Wasylyshyn Ogilvie LLP for the Plaintiffs Thomas Wakeling, Q.C. and Nathan J. Whitling Fraser Milner Casgrain LLP

for the Defendants