Docket: CACV 2309 Dawgs Canada Distribution Ltd. (formerly known as Dawgs World Distribution Ltd.,), Double Diamond Distribution Ltd. v. Steven Mann, 2012 SKCA 90

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2012 SKCA 90 Date: 2012-09-10 Between: Docket: CACV 2309 Dawgs Canada Distribution Ltd. (formerly known as Dawgs World Distribution Ltd.,), Double Diamond Distribution Ltd. and Steven Mann Prospective Appellants - and - Lee Smith Prospective Respondent Before: Klebuc C.J.S. (in Chambers) Counsel: Bruce Wirth for the Prospective Appellants Andrew Mason for the Prospective Respondent

Application: From: 2012 SKQB 305 Heard: September 10, 2012 Disposition: Application allowed (orally) Written Reasons: October 5, 2012 By: The Honourable Chief Justice Klebuc Klebuc C.J.S. I. Introduction [ 1 ] The prospective appellants, Dawgs Canada Distribution Ltd., Double Diamond Distribution Ltd. and Steven Mann, have applied for leave to appeal from the order of Justice M.D. Acton in Chambers dated July 30, 2012. The order states: 1.

The defendants are required to produce the Financial Statements for Double Diamond Distribution Ltd. for the years 2005 to the present and the Financial Statements for Dawgs Canada Distribution Ltd. for the years 2005 to the present. 2. The following safeguards on financial information of the defendants is hereby ordered, namely: (

a) The plaintiff’s solicitors and expert witnesses who may be employed by the plaintiff to testify as to the

interpretation of the said financial statements and to the issue of financial gain of the defendants may inspect the documents ordered to be produced. (

b) No person who inspects the documents shall disclose the content of those documents to any person to whom a right of inspection is not so given save with leave of the court. (

c) No person who inspects the documents shall make any use of the information obtained therefrom save for the purposes of this action; (

d) No part of the documents shall be reproduced (save for a copy for an expert witness of the plaintiff), stored in a retrieval system or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without further order of this court. (

e) In the event that a document disclosed pursuant to this fiat should appear on the court file in this cause or should an affidavit, submission or argument related to any such document be filed it shall be sealed by the local registrar and not disclosed to any member of the public or press except to counsel for the litigants in this action without leave of the court. 3. There shall be no order as to costs. I grant the requested leave at the hearing with written reasons to follow. These are my reasons. II.

Background [ 2 ] The events of particular relevance to the application before the Court are set out in the fiat of Gabrielson J. dated May 20, 2008 [2008 SKQB 219]. At paras. 1-10, he said: [1] There are three related applications before the court as follows: 1. A notice of motion filed March 18, 2008 by Lee Smith (“Smith”) for an order for interim relief pursuant to s. 234 of The Business Corporations Act , R.S.S. 1978, c.

B-10 (“the BCA”), in respect to alleged oppression or alternatively, for an order for interlocutory relief pursuant to Rule 387A of The Queen's Bench Rules to preserve the status quo pending a trial of the issues in this action; . . . [2] This action and the applications herein arise out of a business venture concerning the importation from China and distribution worldwide of a form of shoes referred to by the parties as “Dawgs Clogs”. Dawgs Clogs are a form of resin molded shoe with an alleged unique design created by one or more of the parties.

There is also an allegedly unique logo consisting of the word “Dawgs” and a paw print, the trademark for which has been applied for and/or received in a number of jurisdictions including Canada, United States, Europe and several other countries.

[3] The statement of claim alleges that in the summer of 2005, Smith and the defendant Steven Mann (“Mann”) discussed a business venture for the sale of Dawgs Clogs. Smith alleges that the original founders and partners of the venture were to be Mann, his spouse Angie Friesen (“Friesen”) and Smith. Smith alleges that a corporation was to be established to own the Dawgs Clogs’ brand and trademark, which corporation would be responsible for the global distribution of Dawgs Clogs' products.

Smith alleges that the equity interest of the founding partners in this corporation was to be proportional to the initial capital contributed by each partner. Smith alleges that he contributed $23,000 Canadian to the venture in anticipation that Mann would establish a corporate structure and that once established, shares would be issued to Smith. Smith alleges that although the corporate structure was established and the Dawgs Clogs’ business venture was commenced at some time in 2005, no shares were ever issued to Smith.

Smith therefore issued a statement of claim on January 10, 2008 claiming a failure to act in good faith, breach of fiduciary duty and oppression by the named defendants or alternatively, breach of contract and unjust enrichment. [4] In a statement of defence filed March 27, 2008, the named defendants suggest that the Dawgs Clogs’ venture was founded by Mann and Friesen in early 2005. The statement of defence alleges that when Smith was told of the new business venture, he asked if he could be involved in it, and discussions between Smith and Mann ensued.

The defendants acknowledge that Smith contributed $23,000 Canadian to the corporation, but suggest that this money was recorded as a loan to the company rather than any equity purchase. The defendants also allege that while there were discussions concerning Smith becoming a shareholder, it was a condition of the issuance of any shares to Smith that he develop the business in Europe which the defendants allege Smith failed to do. The defendants allege there was never any legal partnership or contract such as to give rise to a cause of action against them by Smith.

The defendants deny that Smith is entitled to the relief claimed in the statement of claim and ask that Smith's claim be dismissed with costs. [5] The defendant Double Diamond also issued a counterclaim against Smith alleging that Smith has been carrying on a business in Sweden in which he is passing off his products as Dawgs Clogs, thereby passing off the products as those of Double Diamond, causing serious damage and irreparable harm to Double Diamond.

Double Diamond therefore claims an interlocutory and permanent injunction preventing Smith from such passing off and damages. . . . [8] Smith applies for relief pursuant to s. 234 of the BCA [ The Business Corporations Act , R.S.S. 1978, c. B-10] . . . [9] In his oppression motion, Smith requests the following interim relief: (

a) An order for production of financial statements and the minute book of Dawgs Clogs; and (

b) An order preserving the status quo pending a determination of the issues between the parties. [10] Smith suggests that he needs the financial and corporate records of the business venture so as to be in a position to make informed decisions at the mandatory mediation stage of the litigation. Smith suggests that there was an agreement that he would be provided shares in the company set up to operate the Dawgs Clogs’ venture proportionate to his capital investment, but that he has never been provided with any shares nor any information concerning the operations of the venture.

Smith also expresses concern that his equity in the Dawgs Clogs’ venture will be diluted by the granting of shares to third parties or alternatively, a disposition of the assets of the venture. [ 3 ] Justice Gabrielson dismissed the prospective respondent’s application and provided the following reasons: [31] In my opinion, if Smith is successful in his action, shares in the company can be issued to him at the time he proves his entitlement to them. There is no suggestion that the venture is being run improperly or that its assets are in any way in jeopardy.

Furthermore, even if successful, Smith’s remedy may be in the nature of damages, which is often the remedy given to a minority shareholder such as it appears Smith would be in, given the circumstances of this case. If he is found to be entitled to shares, an order for an accounting and determination as to value of the shares could be made at that time.

The fact that Smith may want or need information so as to be in a position to assess the possibility of a settlement at the mandatory mediation stage of his action is not the type of irreparable harm that gives rise to the interim injunctive relief sought. [32] Furthermore, delay in making an application is also a factor which a court will consider in determining whether irreparable harm will result if an interim injunction is not granted: Big Quill Resources Inc. v. Potassium Sulphate Company Alsask Inc., 2000 SKQB 366 , 200 Sask. R. 28 at para. 17 .

In this case, the statement of claim alleges that the parties reached an understanding or agreement in the summer of 2005 that Smith would be an equity owner in the Dawgs Clogs’ business to be incorporated by Mann. It further alleges that sales of the Dawgs Clogs’ products began in November 2005 and that from early 2006 Smith was “consistently” inquiring as to the progress of the corporate structure of the venture. In his affidavit Smith says that he has been aware since January 2006 that Barry Mann and possibly other investors were being brought into the business without his knowledge or consent.

However, it was not until two years later, on January 11, 2008, that Smith commenced an action in which he claimed, inter alia , the interim injunctive relief. In my opinion a

delay of over two years in commencing this action and making this application, is very significant in assessing whether Smith will sufferirreparable harm if an interlocutory injunction is not granted. [33] I am not satisfied that Smith will suffer irreparable harm if the interlocutory injunction is not granted or that damages would notbe an appropriate remedy. [4] The prospective respondent applied pursuant Rules 215 and 235 of The Queen's Bench Rules for an order requiring theprospective appellants, Double Diamond Distribution Ltd. and Dawgs Canada Distribution Ltd. to produce, inter alia, their financialstatements and other financial information for 2005 and all subsequent years.

He further sought an order pursuant to Queen's Bench Rule232 requiring the proper officer for the prospective appellant corporations to answer questions relating, inter alia, to the financialstatements for Double Diamond Distribution Ltd. and Dawgs Canada Distribution Ltd. [5] The prospective appellants opposed the application before Acton J. on the grounds that a broad disclosure of their financialinformation is not appropriate given the nature of the prospective respondent’s claim and the jurisprudence applicable thereto.

Theyfurther submitted that res judicata applied to the prospective respondent's application by virtue of the decision of Gabrielson J. [6] Justice Acton granted the relief sought by the prospective respondent based on “the broad relevance test” articulated in Steierv.

University Hospital, (SK CA), [1988] 4 W.W.R. 303 and the provisions of Rule 215 of The Queen’s Bench Rules.With respect to whether res judicata applied, Acton J. stated: [4] The defendant's' counsel argues res judicata based upon the statement of Gabrielson J. in his Fiat of May 20, 2008 (2008 SKQB 219)wherein he states at para. 22: [22] Similarly here, unless and until Smith can demonstrate his entitlement to shares in the corporation, his application for theinformation sought is in my opinion premature.

The alleged conduct of the defendants is not oppressive unless and until it is determinedthat Smith is entitled to be a shareholder of the Dawgs Clogs’ venture. The application for interim relief pursuant to the BCA is thereforedismissed. . . . [6] The fact that the interim application was dismissed does not prevent the plaintiff from obtaining this information in theexamination for discovery as it relates to his claim for damages. [7] Therefore the plea of res judicata must fail. The plaintiff is entitled to the financial statements as requested in this application. III.

Analysis [7] In Rothmans, Benson & Hedges Inc. v. Saskatchewan, 2002 SKCA 119, 227 Sask. R. 121, Cameron J. succinctly articulatedthe criteria to be considered in leave to appeal applications. At para. 6 he said: [6] The power to grant leave has been taken to be a discretionary power exercisable upon a set of criteria which, on balance, must beshown by the applicant to weigh decisively in favour of leave being granted: Steier et al v. University Hospital Board et al, (SK CA), [1988] 4 W.W.R. 303 (Sask. C.A., per Tallis J.A., in Chambers).

The governing criteria may be reduced to two—each ofwhich features a subset of considerations—provided it be understood that they constitute conventional considerations rather than fixedrules, that they are case-sensitive, and that their point by point reduction is not exhaustive.

Generally, leave is granted or withheld onconsideration of merit and importance, as follows: First: Is a proposed appeal of sufficient merit to warrant the attention of the Court of Appeal? - Is it prima facie frivolous or vexatious? - Is it prima facie destined to fail in any event, having regard to the nature of the issue and the scope of the right of appeal, for instance,or the nature of the adjudicative framework, such as that pertaining to the exercise of discretionary power? - Is it apt to unduly delay the proceedings or be overcome by them and rendered moot? - Is it apt to add unduly or disproportionately to the cost of the proceedings?

Second: Is the proposed appeal of sufficient importance to the proceedings before the court, or to the field of practice or the state of thelaw, or to the administration of justice generally, to warrant determination by the Court of Appeal? - does the decision bear heavily and potentially prejudicially upon the course or outcome of the particular proceedings? - does it raise a new or controversial or unusual issue of practice? - does it raise a new or uncertain or unsettled point of law?

- does it transcend the particular in its implications? [Emphasis in original] [8] The prospective appellants maintain leave to appeal is warranted on the following grounds:

(1) The relief sought by the prospective respondent in the application before Acton J. was previously considered and refused byGabrielson J. Consequently, the order granted by Acton J. is inconsistent with the doctrine of res judicata and should be set aside. Insupport of this submission they relied on a series of cases, including the decision in Ward v. Dana G. Colson Management (1994), 24C.P.C. (3d) 211, aff’d [1994] O.J.

No. 2792 (C.A.) (QL), where the court stated: [12] I am satisfied the issue estoppel is not eliminated as an issue because O'Brien J.'s order was made in the context of aninterlocutory application. A decision in an interlocutory application is binding on the parties, at least with respect to other proceedings inthe same action. I agree with the submission that the general principle is that it is not open for the court, in a case of the same questionarising between the same parties, to review a previous decision not open to appeal.

If the decision was wrong, it ought to have beenappealed within the appropriate time-frames. This principle is not affected by the fact that the first decision was pronounced in thecourse of the same action. See Diamond v. Western Realty Co., (SCC), [1924] S.C.R. 308.

(2) Based on the cause of action pled by the prospective respondent, he is not entitled to disclosure of the prospective appellants’financial statements or other financial information unless the trial court holds he is a shareholder. Several decisions were filed in supportof this submission, including Singh v. Singh (1927), 39 B.C.R. 485 (QL) and Wahpeton Canvas Co. Inc. v. Inland Plastics Ltd., (SK KB), [1991] 5 W.W.R. 107 (Sask. Q.B.). In Wahpeton, the plaintiff sued the defendant for infringement of its patentsand for consequential damages.

Its application for an order requiring the defendant to release information concerning the defendant’ssales and profits was rejected by Wright J. for the following reasons at para. 17: [17] … I need not deal with the injunctive claim. The plaintiff's other claims are for damages for loss of profits and general damages.I understand the latter claim to be for diminution in the value of the patent and trademark as a result of the alleged infringement. Thatcannot be determined until infringement has been established and infringement is certainly very much an issue.

The loss of profits in (b)is tied to the accounting in (d). An accounting would be needed to determine the loss, if any, that has been sustained whether it ischaracterized as money payable by Inland to Wahpeton, whatever form that may take, or damages for loss of profit sustained because ofnot getting royalties or compensation. Whatever approach one takes, it is two-step procedure.

(3) The broad disclosure imposed by Acton J. requires the prospective appellants to provide the prospective respondent withinformation far beyond what he reasonably requires for the purpose of pursuing his claim that he is a shareholder. [9] The prospective respondent made the following submissions in response to the arguments advanced by the prospectiveappellants:

(1) The doctrine of res judicata does not apply to interlocutory applications and the decision of Gabrielson J. related to an interlocutoryapplication. In support of this submission, he cited Cominco Ltd. v. Phillips Cables Ltd., (SK CA), [1987] 3 W.W.R.562 (Sask. C.A).

(2) He requires broad disclosure of the prospective appellants' financial status for the purpose of calculating damages he is entitled towithout undergoing a two-step trial.

(3) Without some information regarding the value of the proposed appellant corporations, it would be difficult to conduct a meaningfulpre-trial settlement conference in accordance with The Queen’s Bench Rules. [10] In my view, resolution of the issues raised by the parties is necessary for the purposes of an orderly trial in the instant case, andalso to clarify what degree of financial disclosure is warranted in other similar actions. Furthermore, clarification of whether the doctrineof res judicata applies in circumstances similar to those before the Court is important to the administration of justice.

I would add that noparty to the leave application referred to the comprehensive review of res judicata in The Law of Evidence in Canada, 3rd ed.(Markham, Ont.: LexisNexis Canada, 2009). [11] In sum, I confirm the prospective appellants have been given leave to appeal from the said fiat of Acton J. Costs of theapplication are to be determined by the panel hearing the appeal.