2017 QCCA 358, 2017 QCCA 358

Moose International Inc. c. Moose Knuckles Canada Inc. 2017 QCCA 358 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026639-179 , 500-09-026640-177 (500-11-049168-152) DATE: March 6, 2017 PRESIDING: THE HONOURABLE MARK SCHRAGER, J.A. No: 500-09-026639-179 MOOSE INTERNATIONAL INC. NOAH STERN PETITIONERS - Plaintiffs v. MOOSE KNUCKLES CANADA INC. WILLIAM POHORESKY TEXTILE CUTTING INC. RESPONDENTS – Defendants _________________________________________________________________ No: 500-09-026640-177 MOOSE INTERNATIONAL INC. NOAH STERN PETITIONERS – Plaintiffs v. MOOSE KNUCKLES CANADA INC.

WILLIAM POHORESKY TEXTILE CUTTING INC. ELEVENTH FLOOR APPAREL LTD. RESPONDENTS – Defendants JUDGMENT [ 1 ] The Petitioners seek leave to appeal two judgments of the Superior Court, District of Montreal (the Honourable Mr. Justice David Collier), both rendered on February 16, 2017, in the same file. One judgment adjudicates a number of objections raised during the discovery process. Leave is sought with regard to some but not all of the orders to furnish documents and will be dealt with below. The other judgment in first instance adjudicates a motion pursuant to

Section 247

Canada Business Corporations Act , [1] presented by Respondents Pohoresky and Moose Knuckles Canada Inc. (“MKCI”) and as paraphrased by Petitioners in their leave application, the judge orders Petitioners to: … provide Poho [William Pohoresky] and MKCI [Moose Knuckles Canada Inc.] with a paper copy of Moose’s [Moose International Inc.] financial statements for the years 2010 to 2016, rather than ordering that the financial statements be provided to the attorney for Poho and MKCI and that Poho and MKCI be permitted to consult same without receiving a copy, as proposed by the Petitioners; and authorizes : … Poho to disclose a paper copy of Moose’s financial statements and unanimous shareholders’ agreement to a prospective purchaser and to an expert business valuator of MKCI’s shares, without the prior knowledge, consent or approval of Moose [corporate Respondent] and its shareholders and without Moose being a party to the confidentiality and non-disclosure agreement ordered to be signed. [ 2 ] The parties are involved in litigation which commenced in July of 2015 whereby Petitioners seek injunctive relief, damages and surrender of shares against Respondents alleging that the latter have counterfeited designs of clothing produced by corporate Petitioner and breached obligations of non-competition, non-solicitation and confidentiality under a unanimous shareholder’s agreement.

[ 3 ] Respondent Pohoresky is the founder of corporate Petitioner and his wholly owned company (“MKCI”) is a shareholder. [ 4 ] Pohoresky and MKCI have, by cross-application, sought their own relief from alleged oppression arising from Petitioners’ efforts to force the redemption or surrender of the shares held by MKCI and to block the sale thereof. [ 5 ] Respondent, Textile Cutting Inc., is a company controlled by Pohoresky and alleged to be involved in the counterfeiting. [ 6 ] Respondent, Eleventh Floor Apparel Ltd., is controlled by persons other than Pohoresky.

This company was involved in the production of the offending garments and is also sued in damages and for injunctive relief. [ 7 ] The judgment under

Section 247 CBCA was rendered in the course of the proceedings between the parties.

Section 249 CBCA foresees an appeal with leave “of the court of appeal in accordance with the rules applicable to that court”. The applicable rule is

Article 31 C.C.P. whereby leave may be granted by a judge of the court of appeal if the judgment “determines part of the dispute or causes irremediable prejudice to a party, including if it allows an objection to evidence.” [ 8 ] Generally and in the present context, it is only where a lower court refuses to issue orders to protect the confidentiality of documents that it will be considered that the effects of the decision cannot be remedied on final judgment. [2] In this case, the judge did order protective measures. Petitioners think he should have gone further and that leave to appeal should be granted.

For the reasons which follow, I disagree. [ 9 ] Turning first to the 247 CBCA judgment, the relevant conclusions of the judge read as follows: [22] ORDERS the plaintiffs to communicate to Mr Pohoresky, within ten days of the present judgment: 1) a copy of the parties’ May 2013 unanimous shareholder agreement and, 2) copies of Moose’s financial statements for the years 2010 to 2015, as well as copy of the 2016 statement as soon as it is completed in March 2017; [23] ORDERS Mr Pohoresky not to disclose the documents mentioned above, or the information contained therein, to any person, except his attorney, an expert business evaluator or a prospective purchaser of MKCI’s shares; [24] ORDERS Mr Pohoresky not to disclose the documents mentioned above, or the information contained therein, to the evaluator or prospective purchaser until they have undertaken in writing to keep the said documents and information confidential and not to disclose it to any other person; [25] ORDERS Mr Poheresky, upon the request of the Court, or the plaintiffs, to identify to the Court the persons to whom he has communicated the documents or information mentioned above, and to provide the Court with a copy of their signed confidentiality agreement; [26] RESERVES the plaintiffs’ right to request a copy of the documents and information provided to the Court; [27] ORDERS Mr Pohoresky not to make use of the information contained in the financial statements or the shareholder’s agreement except for the purpose of valuing MCKI’s shares or soliciting an offer to purchase; [ 10 ] If not obvious from the foregoing, the judge sought a balance to respect the rights of both Petitioners and Respondents: [11] In view of the present situation, the Court intends to grant the defendant’s motion under s. 247 of the CBCA , subject to a confidentiality order and conditions that are intended to protect Moose’s business information. [ 11 ] As a shareholder, Mr.

Pohoresky has a right to the financial statements (Section 157 CBCA ). Petitioner invokes art. 1591 C.C.Q. to argue that the right to receive financial statements under the shareholders agreement has been forfeited given Pohoresky’s failure to respect his non-compete obligations under that agreement. In my view, even if correct, this does not affect the statutory right to the statements in virtue of

Section 157 CBCA . The judge was however mindful of the concerns of Petitioners and while not going so far as to bar access of Mr. Pohoresky to the financial statements under Section 157(3) CBCA , put measures in place to protect Petitioners’ desires for confidentiality. The judge was also mindful of Mr.

Pohoresky’s position that Petitioners were seeking to impede a sale of his shares by blocking information required by potential purchasers: [13] At the request of the Court, or the plaintiffs, Mr Pohoresky will disclose to the Court the identity of the persons to whom the documents or information have been communicated, and he will provide a copy of their signed confidentiality agreements.

Since Mr Pohoresky has expressed a concern that the plaintiffs may attempt to dissuade eventual purchasers of MKCI’s shares, the information provided by Mr Pohoresky to the Court will only be communicated to the plaintiffs if the Court is satisfied, after hearing the parties, that it is reasonable to do so. [14] Mr Pohoresky shall not make use of the information contained in the financial statements or the shareholder’s agreement except for the purpose of valuing MKCI’s shares or soliciting an offer to purchase.

Since Mr Pohoresky is presently subject to a safeguard order compelling him not to compete with Moose, the Court considers there to be little risk he will misuse the information communicated to him for this purpose. Again, these reasons translated into the above orders negate the argument that Petitioners suffer irreparable prejudice giving rise to leave to appeal. [ 12 ] Petitioners add that :

i) Mr. Pohoresky does not require a copy of the financial statements; knowledge is enough; ii) That given the “unlawful conduct” of copying Petitioners clothing design, Mr. Pohoresky will in all likelihood use or cause to be used the financial statements to inflict irreparable harm on Petitioners’ business; and

iii) The judgment is inconsistent with a prior safeguard order issued at the outset of the file whereby Mr. Pohoresky agreed, by consent, to return certain documents to Petitioners. [ 13 ] It is true that there is no going back once possession of the financial statements is given. As such, both items [12] (

i) and (iii) above cannot be remedied by final judgment. However, given the safeguards put in place by the judge, I do not agree that Petitioners will suffer a prejudice that would justify the granting of leave. Moreover, there is no manifest error in the judgment. The judge exercised his discretion in a reasonable and judicious fashion to balance the respective rights of the parties – i.e.

Respondent’s right as a shareholder to have the financial statements and Petitioner’s right to avoid prejudice to its business. [ 14 ] Petitioners’ position in point [12] ii) above assumes that the misuse of design and manufacturing information necessarily implies that financial information will be misused despite the safeguards in the judgment.

I find this speculative, particularly since the judge has the management of the file and is well aware of the balancing of the parties’ respective rights and the history of the matter which is demonstrated in the judgment. [ 15 ] As indicated above, the judge justified that corporate Respondent is not a party to confidentiality agreements entered into or to be entered into with third party prospective purchasers of Mr. Pohoresky’s shares – i.e. Petitioners might seek to dissuade potential purchasers.

Moreover, not being a party does not preclude remedies available to Petitioners given that privity of contract is not a bar to a recourse in civil law. [ 16 ] No mention was made before me regarding confidentiality of documents received in the discovery process in virtue of the decision of the Supreme Court in Lac d'Amiante du Québec Ltée v. 2858-0702 Québec Inc. [3] This is another safeguard available to Petitioners with regard to their concerns for confidentiality. [ 17 ] Given the judge’s order and particularly the condition attached to the communication of the financial statements, I am not convinced that there is here irremediable prejudice to qualify for leave under

Article 31 C.C.P. Moreover, seeing the mass of materials filed by Petitioners and reviewing the judgment under

Section 247 CBCA by the judge with the management of the case, I am convinced that the administration of justice and proportionality [4] militate against the granting of leave. [ 18 ] Petitioners also seek suspension of the order of provisional execution regarding the

Section 247 CBCA judgment. Given that leave will not be granted, it is not necessary to deal with such motion. [ 19 ] The judgment disposing of objections orders communication of the following on discovery:

i) All documents, contracts or reports reflecting Moose’s [Corporate Petitioner] contractual commitments for the fall/winter 2015 season for an amount of approximately three (3) to four (4) million dollars, as alleged at paragraph 184 of the Application; ii) Petitioners company’s financial statements for the years 2010 to 2016. “Unless otherwise agreed to by the parties, the communication of the financial statements will be limited to Petitioners Moose Knuckles Canada Inc. and Mr. Pohoresky, their experts, and to the defendant’s attorneys and experts.

Copies of the financial statements shall not be communicated to representatives of Eleventh Floor Apparel Ltd. or to Mr. Tassoni, who are alleged to be competitors of the Petitioners, unless the Court, on motion, authorizes such disclosure”. iii) Any and all documents proving that the JKKD-NC-Oxford Special PU fabric has been used by MOOSE in 85% of its products sold since 2011, as alleged in paragraph 65 of Mr. Stern’s Reply Affidavit dated November 11, 2015. [ 20 ] Item [19] ii) is subsumed in the discussion of the

Section 247 application. Leave is not warranted. [ 21 ] Items [19]

i) and iii) arise directly from the allegations in Petitioners proceedings. I am not convinced that the prejudice, if any, in providing these documents would be irreparable. Any confidential aspect regarding fabrics has, on my reading of Petitioners’ proceedings, been breached some time ago. The volume of documents involved is not in the circumstances a reason not to permit discovery arising from an allegation where substantial damages are claimed. [ 22 ] Given the foregoing, leave to appeal under

Article 31 C.C.P. will not be granted. FOR THE FOREGOING REASONS, THE UNDERSIGNED: [ 23 ] DISMISSES Petitioners’ application for leave to appeal in record 500-09-026639-179, with legal costs; [ 24 ] DISMISSES the application to suspend provisional execution in record 500-09-026639-179, without legal costs; [ 25 ] DISMISSES the application for leave to appeal in record 500-09-026640-177, with legal costs. MARK SCHRAGER, J.A. Mtre Gary Steven Rosen Mtre Adam Barza DE GRANDPRÉ CHAIT For Petitioners Mtre Antoine Motulsky Falardeau

Mtre Thomas Dougherty MOTULSKY AVOCATS For Respondents Moose Knuckles Canada Inc., William Pohoresky and Textile Cutting Inc. Mtre Gerald N. Apostolatos LANGLOIS AVOCATS For Respondent Eleventh Floor Apparel Ltd. Date of hearing: March 1 st , 2017