Octaform Systems Inc. v Clayworth, 2019 BCSC 711

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: Octaform Systems Inc. v. Clayworth,
  2019 BCSC 711

Date: 20190507

Docket: S188499

Registry: Vancouver

Between:

Octaform Systems Inc. and

Octaform Inc.

Plaintiffs

And

Lisa Clayworth

Defendant

Before: The Honourable Mr. Justice Ball

Reasons for Judgment

Introduction

[1]           This application arises from an employment relationship. The defendant, Ms. Clayworth, is a former employee of the plaintiff Octaform Systems Inc. (“Octaform Systems”). The second plaintiff, Octaform Inc., is a wholly-owned US subsidiary of Octaform Systems (“Octaform US”). The plaintiffs allege that Ms. Clayworth is using and exploiting Octaform’s confidential information or trade secrets in a new business competitive with Octaform Systems. In the underlying action, the plaintiffs seek an injunction against Ms. Clayworth, as well damages and other relief.

[2]           This application is brought by Ms. Clayworth. She seeks the following orders:

  1. a)an order for a stay of proceedings pursuant to  15 of the Arbitration Act, R.S.B.C. 1996, c. 55, with the exception of the order for an injunction;
  2. b)in the alternative, an order against the plaintiffs that paragraphs 2, 3 and 4 of Part 2 of the Notice of Civil Claim filed herein be struck in their entirety, and that all reference to breach of duties, conspiracy and civil conspiracy in Part 1 and Part 3 of the Notice of Civil Claim be struck;
  3. c)in the further alterative, an order against the plaintiffs that the Notice of Civil Claim be amended to remove all references to breach of duties, conspiracy and civil conspiracy and any related relief sought; and
  4. d)an order against the plaintiffs for costs or special costs relating to this application, payable by the plaintiffs forthwith in any event of the cause.

[3]           The plaintiffs dispute the orders sought.

Factual Background

[4]           Octaform Systems Inc. is a company incorporated under the laws of Canada and extra-provincially registered in the Province of British Columbia. Octaform US is a US corporation with an address for service in Vancouver, BC.

[5]           Ms. Clayworth began working for Octaform Systems in the position of “Sales Process Coordinator” pursuant to a written contract of employment dated November 1, 2013 (the “Agreement”). The defendant has no contractual relationship with Octaform US.

[6]           The phrase “Confidential Information” is defined in the Agreement. Paragraph 4(a) of the Agreement provides that Confidential Information should be maintained in strictest confidence and trust during the existence of the Agreement as well as after the termination of the Agreement.

[7]           Paragraph 4(b)(ii) of the Agreement also provides that subsequent to the termination of the Agreement, the defendant would “not use or take advantage of the Confidential Information for creating, maintaining or marketing, or aiding in the creation, maintenance, marketing or selling, of any Products which are competitive with the Products of [Octaform Systems].” The term “Products” is defined in the Agreement.

[8]           Other paragraphs of the Agreement provided: (1) that the defendant was required, upon termination of the Agreement, to return to the plaintiff all documents, in whatever form, which contained Confidential Information; (2) that ownership of all Confidential Information remained held by the plaintiff and did not pass to the defendant; and, (3) that the defendant was permitted to disclose Confidential Information only pursuant to court, administrative or governmental authority upon first giving notice to the plaintiff.

[9]           The defendant resigned from her employment with Octaform Systems on or about June 22, 2016 and ceased working for Octaform Systems on or about July 22, 2016.

[10]        The provisions of the Agreement which apply to remedies for breaches of the Agreement are paragraphs 16 and 17, which read as follows:

  1.   Equitable Remedies

You hereby acknowledge and agree that a breach of your obligations under this Agreement would result in damages to the Company [i.e., Octaform Systems] that could not be adequately compensated for by monetary award. Accordingly, in the event of any such breach by you, in addition to all other remedies available to the Company at law or in equity, the Company will be entitled as a matter of right to apply to a Court of competent jurisdiction for such relief by way of restraining order, injunction, degree or otherwise, as may be appropriate to ensure compliance with the provisions of this Agreement.

  1.   Dispute Resolution

In the event of a dispute arising out of or in connection with this Agreement or the termination thereof, or in respect of any legal relationship associated with it or from it, which does not involve the Company seeking a court injunction or other relief relating to protection or enforcement of the Company’s intellectual property, confidential information or restrictive covenants as provided in the Agreement, that dispute will be resolved confidentially as follows:

(a)         Amicable Negotiation – The Parties agree that, both during and after the performance of their responsibilities under this Agreement, each of them will make bona fide efforts to resolve any disputes arising between them by amicable negotiations;

(b)         Mediation – If the Parties are unable to negotiate resolution of a dispute, either Party may refer the dispute to mediation by providing written notice to the other Party. If the Parties cannot agree on a mediator within thirty (30) days of receipt of the notice to mediate, then either Party may make application to the British Columbia Mediator Roster Society to have one appointed. The mediation will be held in Vancouver, B.C., in accordance with the British Columbia International Commercial Arbitration Centre’s (the “BCICAC”) under its Commercial Mediation Rules, and each Party will bear its won costs, including one-half share of the mediator’s fees.

(c)         Arbitration – If, after mediation, the Parties have been unable to resolve a dispute and the mediator has been inactive for more than 90 days, or such other period agreed to in writing by the Parties, either Party may refer the dispute for final and bindingarbitration by providing written notice to the other Party. If the Parties cannot agree on an arbitrator within thirty (30) days of receipt of the notice to arbitrate, then either Party may make application to the British Columbia Arbitration & Mediation Institute to appoint one. The arbitration will be held in Vancouver, B.C., in accordance with the BCICAC’s Shorter Rules for DomesticCommercial Arbitration, and each Party will bear its own costs, including one-half share of the arbitrator’s fees.

You expressly acknowledge that it is reasonable for any disputes under this dispute resolution paragraph to be mediated and/or arbitrated in Vancouver, British Columbia, given the Company’s agreement to employ you remotely in Ontario.

[Emphasis added.]

[11]        In order to properly interpret and give meaning to the phrase “or other relief relating to the protection or enforcement of the Company’s intellectual property, confidential information or restrictive covenants” an examination of other definitions provided in the Agreement is necessary. Those definitions are as follows:

In this Agreement: …

(d)        “Business” means the business of discovering, developing, selling and commercializing the Products and the processes and technology used to produce the Products.

(g)        “Competitive Business” means any business operation, whether a partnership, proprietorship, joint venture, company or otherwise, that is in the business of discovering, developing, commercializing, and/or marketing products that are substantially similar to any of the Products being developed, licensed, marketed or sold by the Company, or processes or technologies used by the Company to produce the Products being developed, licensed, marketed or sold by the Company.

(i)         “Confidential Information” “Confidential Information” includes any of the following:

(i)         any and all versions of software and related documentation owned or licensed by the Company, as well as the software and documentation owned by the Company’s suppliers and used internally by the Company, including all related algorithms, concepts, data, designs, flowcharts, ideas, programming techniques, specifications and source code listings;

(ii)        all Developments (as defined below);

(iii)      information regarding the Company’s business operations, methods and practices, including marketing strategies and plans, product pricing, margins, pay rates for staff, and information regarding the financial affairs of the Company;

(iv)      the names of the Company’s clients and the names of the Company’s business partners and suppliers of computer services and software to the Company, and the nature of the Company’s relationships with these clients, partners and suppliers;

(v)        technical and business information of or regarding the clients of the Company obtained in order for the Company to provide such clients with training services and software products and services, including information regarding the data processing requirements and the business operations, methods and practices and product and training plan of such clients; and

(vi)      any other trade secrets or confidential or proprietary information in the possession or control of the Company,

but does not include information which is or becomes generally available to the public through no fault of your own or which you can establish, through written records, was in your possession prior to its disclosure to you as a result of your work for the Company.

(j)         “Developments” includes all:

(i)         Products, extrusion information and techniques, software, documentation, research, data, designs, reports, flowcharts, training kits and other training materials, trade-marks, specifications and source code listings, and any related works, including any enhancements, modifications or additions to the Products owned, licensed, sold, marketed or used by the Company;

(ii)        copyrightable works of authorship related to the Business including, without limitation, any technical descriptions for Products, technical or user guides, illustrations and advertising materials; and

(iii)      inventions, devices, integrated circuit topographies, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems, methods, operating capabilities and improvements related to the Business,

whether patentable or not, developed, created, generated or reduced to practice by you, alone or jointly with others, during your employment with the Company or which result from tasks assigned to you by the Company or which result from the use of the premises or property (including equipment, supplies or Confidential Information) owned, leased or licensed by the Company.

(m)      “Products” means (i) software, hardware, specialized equipment, processes, and technologies used in the discovery, development or manufacture of wall forming systems for concrete and other materials; (ii) any intellectual property or assets developed, owned, licensed, sold, marketed or used by the Company in connection with the Business, including enhancements, modifications, additions or other improvements to such intellectual property or assets; and (iii) any other products and services that the Company conceives, markets, owns, discovers, develops or licences during your employment.

[12]        As stated above, the sole exception to the dispute resolution process specified in paragraph 17 of the Agreement is where Octaform Systems seeks “a court injunction or other relief relating to protection or enforcement of the Company’s intellectual property, confidential information or restrictive covenants as provided in the Agreement”.

[13]        The plaintiffs allege that the defendant received Confidential Information during the course of her employment pursuant to the Agreement and that, in conspiracy with other named individuals, “knock-off” products similar to those sold by the plaintiffs are being marketed to the plaintiffs’ customers by the defendant and her co-conspirators.

[14]        The plaintiff has brought proceedings in two forums seeking to stop the defendant from using the Confidential Information.

[15]        Commencing in September 2017, the plaintiffs, represented by legal counsel in Vancouver, BC, pursued claims against the defendant for alleged breaches of the Agreement. The plaintiffs and the defendant at the time of the hearing of this application are in the process of scheduling mediation pursuant to paragraph 17 of the Agreement.

[16]        Initially, the plaintiffs alleged in the dispute resolution process that the defendant was involved in the use of property of the plaintiff including Confidential Information, intellectual property, and the solicitation of the plaintiff’s customers, contrary to paragraphs 3, 4, 5 of the Agreement as well as post-employment obligations of the defendant. The plaintiffs also alleged conspiracy.

[17]        On August 2, 2018, the plaintiffs filed a notice of civil claim (the “Notice of Civil Claim”) in which the plaintiffs claimed against the defendant for breach of duty to keep trade secrets confidential, breach of confidence and civil conspiracy. The relief sought in the Notice of Civil Claim includes: an injunction; an order for delivery of documents relating to Confidential Information or trade secrets; damages; an account of all monies, profits and benefits made and received by the defendant for and on account of the plaintiffs; and an order for payment of the amount found due to the plaintiffs on taking the account aforesaid.

[18]        The defendant, on October 9, 2018, wrote to the plaintiffs requesting that the Notice of Civil Claim be amended to remove all references to conspiracy and civil conspiracy and any related relief. The plaintiffs subsequently refused to amend their pleadings.

Positions of the Parties

[19]        The defendant submits that except for the claim for an injunction and return of Confidential Information, none of the other claims contained in the Notice of Civil Claim fit within the exception for the “protection or enforcement” of the plaintiffs’ intellectual property, confidential information or restrictive covenants as set out in paragraph 17 of the Agreement. The defendant submits that the plaintiff’s claim, except for the injunction, must be pursued by a mediation and arbitration pursuant to paragraph 17 of the Agreement.

[20]        The plaintiff submits that the claims made in this action fall within the exception for the “protection or enforcement” of the plaintiffs’ intellectual property, confidential information or restrictive covenants as set out in paragraph 17 of the Agreement. According to the plaintiffs, the action should proceed uninterrupted.

Legal Principles

[21]        Section 15 of the Arbitration Act provides, in relevant part, as follows:

15   (1) If a party to an arbitration agreement commences legal proceedings in a court against another party to the agreement in respect of a matter agreed to be submitted to arbitration, a party to the legal proceedings may apply, before filing a response to civil claim or a response to family claim or taking any other step in the proceedings, to that court to stay the legal proceedings.

(2) In an application under subsection (1), the court must make an order staying the legal proceedings unless it determines that the arbitration agreement is void, inoperative or incapable of being performed.

[22]        In Prince George (City) v. A.L. Sims & Sons Ltd. and McElhanney Engineering Services (1995), 1995 CanLII 2487 (BC CA), 9 B.C.L.R. (3d) 368 at para. 22 (C.A.), the Court set out the test under s. 15:

(a)         the applicant must show that a party to an arbitration agreement has commenced legal proceedings against another party to the agreement;

(b)         the legal proceedings must be in respect of a matter agreed to be submitted to arbitration; and

(c)         the application must be brought timely, i.e. before the applicant takes a step in the proceeding.

[23]        The main issue in this case is the second prerequisite: whether the claims made in the plaintiffs’ action are matters “agreed to be submitted to arbitration”.

[24]        A preliminary issue is who should decide this question. The general rule is that “in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator”: Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII) at para. 84 [Dell]. See also Seidel v. TELUS Communications, 2011 SCC 15 (CanLII) at para. 29; Fortinet Technologies (Canada) ULC v. Bell Canada, 2018 BCCA 277 (CanLII) at para. 30; Sum Trade Corp. v. Agricom International Inc., 2018 BCCA 379 (CanLII) at paras. 31-35.

[25]        There are exceptions to the general rule. They are where the challenge to the arbitrator’s jurisdiction involves “a pure question of law” (Seidel at para. 29), or one of mixed fact and law that requires for its disposition “only superficial consideration of the documentary evidence in the record” (Dell at para. 85).

[26]        Even if an exception applies, the test for a stay is whether there is an arguable case that the dispute must be arbitrated. As the Court stated in St. Pierre v. Chriscan Enterprises Ltd., 2011 BCCA 97 (CanLII) at para. 25, citing Gulf Canada Resources Ltd. v. Arochem International Ltd.(1992), 1992 CanLII 4033 (BC CA), 66 B.C.L.R. (2d) 113 at para. 40 (C.A.) [Gulf Canada], “[w]here it is arguable that the dispute falls within the terms of the arbitration agreement…the stay should be granted and those matters left to be determined by the arbitral tribunal”. In other words, the court should dismiss an application for a stay only if it is “clear that the dispute is outside the terms of the arbitration agreement”: Gulf Canada at para. 39.

[27]        The inquiry involves contractual interpretation, but is limited. The court must engage in “an analysis of the nature of the disagreement, the words of the arbitration clause, and the terms of the contract as a whole in their factual context”: St. Pierre at para. 21. However, unless the arguable case threshold is not met, it is not for the court “to reach any final determination as to the scope of the arbitration agreement”: Gulf Canada at para. 39.

Issue

[28]        Whether the plaintiffs’ claims fall within the exception to dispute resolution under the Agreement is a question of law. It involves interpreting the pleadings in relation to the Agreement. The issue, therefore, is whether there is an arguable case that the plaintiffs’ claims in this action fall within the matters agreed to be submitted to arbitration. If so, the action must be stayed.

Analysis

[29]        Ms. Clayworth emphasizes the language at the outset of paragraph 17 of the Agreement which states that any dispute “arising out of or in connection with this Agreement or the termination thereof, or in respect of any legal relationship associated with it or from it”, must be resolved by dispute resolution. She argues that the “proper interpretation of sections 16 and 17 of the Agreement, is that with the exception of injunctions or other equitable remedies, all disputes connected to the Agreement are to be resolved via the Dispute Resolution Clause [i.e., paragraph 17 of the Agreement]”.

[30]        This takes too narrow a view of the exception to dispute resolution set out in paragraph 17 of the Agreement. Based on a review of the definitions in the Agreement cited above, it is apparent that the phrase “other relief relating to the protection or enforcement of the Company’s intellectual property, confidential information or restrictive covenants as provided for in this Agreement” was intended by the parties in their Agreement to cover a wide ambit of available relief for the purpose of protecting the business enterprise of the plaintiff.

[31]        Paragraph 16 of the Agreement is consistent with a broad ambit for relief sought other than by dispute resolution. While the heading for paragraph 16 of the Agreement is “Equitable Remedies”, the language of that paragraph is not so limited. The paragraph states that “in addition to all other remedies available at law or in equity, the Company will be entitled as a matter of right to apply to a court of competent jurisdiction for such relief by way of restraining order, injunction, decree or otherwise, as may be appropriate to ensure compliance with the provisions of this Agreement.”  Based on that sentence, the remedies available to the Company are clearly not limited to equitable remedies. The Company may also pursue remedies “at law”. This is consistent with the exception in paragraph 17 for “other relief” not limited to equitable remedies.

[32]        Headings in an agreement are relevant to contractual interpretation, unless the agreement states otherwise, and “provided the wording of the contract is not inconsistent” with the interpretation suggested by the heading: Neely v. MacDonald, 2014 ONCA 874 (CanLII) at para. 11. In the Agreement, there is no specific paragraph which provided for the interpretation of titles or paragraph headings, and the use of such words in the interpretation of the Agreement. The wording of Paragraph 16 of the Agreement is not limited on a plain reading to “Equitable Remedies”. To apply that limitation would deprive the words “all other remedies available at law or in equity” of meaning.

[33]        In the Notice of Civil Claim, the plaintiffs allege breaches of trust and confidence with the use of confidential information. On a review of the language of the definitions contained in the Agreement set forth above, the plaintiff’s claims in the Notice of Civil Claim are not precluded by paragraph 16 nor paragraph 17 of the Agreement. Based on the plain meaning of paragraph 17, I find that plaintiffs’ claims are claims for “other relief relating to the protection or enforcement of the Company’s intellectual property, confidential information or restrictive covenants” as provided for in the Agreement.” They claim damages on the basis of the defendant’s alleged misuse, contrary to her obligations under the Agreement, of Octaform System’s confidential information and intellectual property. The action seeks to enforce the contractual rights of Octaform Systems. The language in the exception in paragraph 17 is broad enough to capture these claims.

[34]        The defendant seeks a stay of proceedings or the striking of certain paragraphs from the Notice of Civil Claim, in particular, paragraphs 2, 3 and 4 of Part 2 of the Notice of Civil Claim. The stay of proceedings sought suggests that the remedies available to the plaintiff are limited to an injunction. That limitation is contrary to a plain reading of the provisions of the Agreement, noted above. On that basis, a stay of proceedings in this action is not available to the defendant.

[35]        With respect to striking out paragraphs 2, 3, and 4 of Part 2 of the Notice of Civil Claim, only in clear and obvious cases should a court consider the striking of pleadings. In the case at bar, the broad nature of the inclusion of remedies provided in the paragraphs 16 and 17 of the Agreement do not appear to limit the Notice of Civil Claim in the manner argued by the defendant, and as a result this is not a clear and obvious case where these parts of the pleading should be struck.

Conclusion

[36]        On a plain reading of the Agreement, the claims made in the plaintiffs’ Notice of Civil Claim are clearly not matters agreed to be submitted to arbitration. Those claims are captured by the exception in paragraph 17 of the Agreement. As a result, the application of the defendant for a stay of proceedings and for the striking of paragraphs 2, 3 and 4 of Part 2 of the Notice of Civil Claim are dismissed. The plaintiffs are entitled to their costs assessed under Appendix B, as a matter of ordinary difficulty, payable forthwith and in any event of the cause.

“Ball J.”