Sunday, May 5, 2019

Much Ado About Protective Orders

dTechs EPM Ltd v British Columbia Hydro & Power Authority 2019 FC 539 Lafrenière J

Paid Search Engine Tools, LLC v. Google Canada Corporation 2019 FC 559 Phelan J

Canadian National Railway Company v. BNSF Railway Company 2019 FC 281 Locke J

The law relating to protective orders has been developing rapidly. Until recently, the Court would grant protective orders more or less routinely, particularly on consent or when unopposed. A recent series of decisions has indicated a more restrictive approach: see Live Face on Web 2017 FC 858 Tabib J; Seedlings Life Science 2018 FC 443 Tabib J rev’d 2018 FC 956 Ahmed J (blogged here and here); and CNR 2019 FC 281 Locke J. The even more recent decisions of Lafrenière J in dTechs and Phelan J in Paid Search, in contrast, seek to turn the wheel back, holding that protective orders should normally be granted when sought on consent or when unopposed. Thus there is presently a split in the FC case law, which will no doubt be resolved by the FCA in CNR, which has been appealed [539-39]. No matter the outcome, the journey will not have been in vain, as a number of issues relating to protective orders will have been clarified.

A confidentiality order governs the filing of confidential documents and information on the court record. A “protective order” governs the way parties designate and treat confidential information that they exchange between themselves in the pre-trial phase of the action [559-19], [539-32]. The two are distinct — “The designation of a document as confidential under a protective order does not permit the document to be filed confidentially with the Court” [539-32] — but the distinction between the two has not always been as clear as it is now, in part because the terminology was used loosely until quite recently and in part because of hybrid orders which combine features of both [443-8], [539-23], [559-27], [539-35], [281-10].

It is clear that the issuance of a confidentiality order is governed by Rule 151(1) [539-25, 26], [559-20] as interpreted by the SCC in Sierra Club 2002 SCC 41. The primary test is set out in Sierra Club at para 53:

A confidentiality order under Rule 151 should only be granted when:
(a) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and
(b) the salutary effects of the confidentiality order, including the effects on the right of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which in this context includes the public interest in open and accessible court proceedings.

The Court’s jurisdiction to issue protective orders, on the other hand, apparently rests in Rules 3 and 4 which give a general power to provide for procedural matters [559-17]. The traditional test for protective orders, to the extent there was one, was set out in AB Hassle (1998) 83 CPR (3d) 428 (FCTD) aff’d [2000] 3 FC 360 (CA). (See Tabib J in Live Face [14] questioning whether there was a standard test for protective orders, and noting that the orders at issue in AB Hassle, and Apotex v Wellcome (1993) 51 CPR (3d) 305, which it built on, were actually both hybrid orders.) The AB Hassle test (discussed in more detail below), requires only that the information is confidential and its disclosure might harm the applicant’s commercial interests; importantly, there is no consideration of the open court principle, so the test is much less stringent than the Sierra Club test.

As noted, until recently, the Court would grant protective orders more or less routinely. Then, in Live Face on Web 2017 FC 858 and Seedlings Life Science 2018 FC 443, Tabib J held that the Court ought not to grant protective orders routinely, on the view that they are largely unnecessary in light of the implied undertaking rule, and consequently such requests were wasteful of the Court’s time and resources: see here.

In Seedlings, Tabib J also held that the Sierra Club 2002 SCC 41 test applied only to confidentiality orders, and was not applicable to protective orders. Sierra Club was very clearly concerned with a confidentiality order governed by Rule 151 [11], [21], and it stated that a confidentiality order under Rule 151 should only be granted when the two-part test of paragraph 53 was satisfied. However, in Sierra Club at first instance, [2000] 2 FC 400, 1999 CanLII 9383 (FC) [21], Pelletier J had stated that a protective order “is essentially a confidentiality order” and consequently he applied the AB Hassle test, which had been developed for protective orders, to the confidentiality order at issue [559-35]. (While the distinction between the two is now clear, Pelletier J's comment was not so far off the mark, particularly considering AB Hassle was a hybrid order.) When the SCC came to actually apply the two-part test for a confidentiality order which it had set out at para 53, the Court remarked at para 60 that Pelletier J “noted that the order sought in this case was similar in nature to an application for a protective order which arises in the context of patent litigation” citing the AB Hassle test. The SCC then went on to run together the AB Hassle test and the two part test para 53 test that it had just stated [62]-[68]. Consequently, while Sierra Club acknowledged the distinction between confidentiality orders and protective orders, it was very fuzzy as to the relationship between the applicable tests. On appeal in Seedlings 2018 FC 956 Ahmed J held that the Sierra Club test was applicable to both confidentiality orders and protective orders, reversing Tabib J on this point [26]. He then went on to issue the protective order [29]. But even if “the Sierra Club test” applies, which Sierra Club test? The two-part para 53 test, or the AB Hassle test of para 60? In CNR Locke J pointed out this confusion in the way the test was framed in Sierra Club and consequent application of that test by Ahmed J in Seedlings, and he ultimately concluded that “a request for a protective order should be considered using the same criteria as set out in paragraphs 53 and following of Sierra Club for a confidentiality order” [19]. That is, Locke J expressly held that the para 53 Sierra Club test is applicable to protective orders.

dTechs and Paid Search take a wholly different view, both on the issue of whether protective orders should be routinely granted – Tabib J’s initial concern – and on the issue of which test should apply. The decisions were rendered only a couple of days apart, and they do not refer to each other, but the reasoning of Lafrenière J and Phelan J is entirely consistent and the decisions reinforce each other.

The most basic point is that there is a fundamental difference between protective orders and confidentiality orders: the open court principle is implicated in a confidentiality order, but not in a protective order. As Lafrenière J explained:

[539-24] The open court principle is a hallmark of our judicial system. It not only means that members of the public have a right to attend court hearings, but also that the public can get access, within certain limits and under some conditions, to the files and records of the Court.

In contrast

[539-33] There is no presumed right of the public to participate in the discovery process or to have access to the fruits of discovery that are not submitted to the court:

See similarly, [559-18], [559-32, 33].

Given this fundamental difference, it would be quite surprising if the same test were applicable to both. As Phelan J noted:

[559-37] The Sierra Club test was based on common law principles for publication bans in the criminal context and on consideration of the right to freedom of expression. It was focused on the fundamental principle that court proceedings should be as open as possible.

Consequently, both Lafrenière J in dTechs and Phelan J in Paid Search held that the paragraph 53 Sierra Club test is applicable solely to confidentiality orders [539-28], [559-42].

Lafrenière J in dTechs explicitly declined to follow Locke J’s holding in CNR that the paragraph 53 Sierra Club test is applicable to protective orders [539-62]. He held that the proper test for protective orders is that set out by the SCC at paragraph 60 of Sierra Club, which is to say the AB Hassle test [539-62]. Similarly, in Paid Search, Phelan J explained that the SCC reference to the AB Hassle test in Sierra Club was simply by way of establishing whether there was a risk to important commercial interests, which is an issue common to both types of orders, but confidentiality orders are subject to the further and more stringent requirements of showing that “there are no reasonable alternative measures and the confidentiality order is not disproportionately harmful to the public interest in open and accessible court proceedings” [559-38].

I agree with the interpretation of Sierra Club in dTechs and Paid Search, particularly the discussion by Phelan J at [36]-[42]. In broad terms, there is a fundamental difference between confidentiality orders, which engage the open court principle, and protective orders, which do not. Consequently, it doesn’t make sense that the same test would apply to both. In light of this, the muddled reference to AB Hassle in Sierra Club, which was clearly and explicitly focused on confidentiality orders, cannot be taken to have settled the test for protective orders.

Phelan J held that the test for protective orders is “essentially” the AB Hassle test, which he summarized as follows:

[43] The test for protective orders can be summarized as follows:

that the information at issue has been treated at the relevant times as confidential;

that the information is confidential in nature; and

that there is a reasonable probability that disclosure of the information could cause harm to proprietary, commercial and scientific interests.

Compare this articulation of the test with that stated at para 60 of Sierra Club:

Such an order requires the applicant to demonstrate that the information in question has been treated at all relevant times as confidential and that on a balance of probabilities its proprietary, commercial and scientific interests could reasonably be harmed by the disclosure of the information: [AB Hassle]. To this I would add the requirement proposed by Robertson J.A. that the information in question must be of a “confidential nature” in that it has been “accumulated with a reasonable expectation of it being kept confidential” as opposed to “facts which a litigant would like to keep confidential by having the courtroom doors closed”.

Note that Phelan J referred to a “reasonable probability” that the disclosure could cause harm, while Sierra Club, refers to “balance of probabilities” as did AB Hassle itself [29-30]. However, the balance of probabilities point was not at issue in the SCC in Sierra Club. The SCC in para 60 was describing what it took to be the FC approach to protective orders, rather than endorsing a test for protective orders, in obiter, in a case concerning a confidentiality order. In my view, the question of whether the standard is “reasonable probability” or balance of probabilities, remains open. Perhaps the point will be clarified by the FCA in CNR.

Apart from clarifying the test for protective orders, both Lafrenière J and Phelan J disagreed with Tabib J’s suggestion that they should not be granted routinely. Lafrenière J was most explicit:

[539-64] Finally, I wish to add that given the fairly low test that a party has to satisfy to obtain a protective order, parties should be encouraged to apply informally to the Court, particularly in case managed proceedings, when such relief is sought on consent of the parties or is unopposed.

Neither judge disagreed with Tabib J’s analysis of the law relating to the implied undertaking rule, but both indicated that there are, nonetheless, many good reasons why “A protective order is a complement to the implied undertaking. Properly structured, a protective order brings clarity, certainty, structure and enforceability in ways the implied undertaking cannot” [559-53]; and see [559-54-63], [539-53-60].

I won’t go through the whole list, but so far as Tabib J’s concern with wasting judicial resources is concerned, Lafrenière J pointed out that when a protective order is not available, discovery might “grind to a halt” as the parties attempt to negotiate out-of-court agreements [539-50, 51]. In other words, not issuing a protective order might end up wasting more of the courts time than issuing it. That observation does not, however, directly address the administrative costs set out by Tabib J, particularly in Live Face at [5]-[10]. For example, in Live Face [5] Tabib J explained that granting of protective orders had never been entirely routine:

While the Court does not care much about what constraints the parties choose to impose upon themselves, it must ensure that the parties have not included in their proposed order, by inadvertence or by stealth, remedies that require a specific exercise of judicial discretion that cannot be obtained on simple consent. The principle of open and accessible court proceedings is one of the cornerstones of our judicial system. Any order or direction allowing parties to file materials under seal constitutes an exercise of judicial discretion and requires the court to be satisfied that sealing materials, even temporarily, is necessary to prevent serious harm to an important interest and that the salutary effect of the order outweighs the public interest in open and accessible court proceedings. Such a remedy cannot be granted on the sole basis of the parties’ consent. In my experience, proposed protective orders must regularly be returned or modified because they contain provisions allowing the parties to file materials under seal pursuant to Rules 151 and 152 without justification.

This suggests that one source of administrative burden is not issuing the protective orders as such, but rather ensuring that protective orders really are protective orders, and not confidentiality orders in disguise. If the views of Lafrenière J prevail, it will be interesting to see how practice develops to deal with this problem.

Another point worth mentioning is Phelan J’s observation that

[559-55] A protective order is in the public interest by preventing or limiting access to competitive information (as is some of the information at issue here) and in maintaining a proper competitive environment. The protective order, and other orders like it, are frequently issued by the Competition Tribunal to preserve this public interest in proper competition.

Patent litigation is disruptive enough as it is. It is important to avoid generating unfair settlement leverage through the prospect of disclosure of confidential business information. This is all the more true in the era of patent assertion entities.

Finally, I would point out that in Paid Search [67] Phelan J noted that “counsel’s eyes only” [CEO] category in the protective order is a more restrictive type of protective order subject to a more stringent test, requiring the applicant to establish the existence of “unusual circumstances” such that “the disclosure of CEO-designated confidential information presents a ‘serious threat’ that is ‘real, substantial and grounded in the evidence’” [67].

To conclude, at present we have a split in FC authority on the use of protective orders. The decision in CNR has been appealed to the FCA [539-39], and it is reasonable to think that CNR will provide definitive guidance, given that the FCA has the benefit of a thorough exploration of the issues by the series of Federal Court decisions discussed above.

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