Monday, March 16, 2020

Hearsay Evidence Not Enough to Ground Stay Pending Appeal

Western Oilfield Equipment Rentals Ltd v M-I LLC 2020 FCA 3 Nadon JA refusing to stay 2019 FC 1606 O'Reilly J
            2,664,173 / Shaker and Degasser Combination

In this decision, Nadon JA refused Western Oilfield’s motion for a stay pending appeal of 2019 FC 1606, in which O’Reilly J found that Western infringed the 173 patent and had consequently granted an injunction, as well as awarding damages and costs against Western in the vicinity of $5 million [2]. Western moved for a stay on the basis that its assets, covered by security interests, are insufficient to cover the monetary award and that unless a stay is granted, its creditors will enforce their security interests and it will become insolvent [4].

While being put out of business is normally considered a type of irreparable harm sufficient to establish the second branch of the RJR-MacDonald test, [1994] 1 SCR 311 at 341, Nadon JA emphasized that any such harm must be established on the evidence [11-12]. In this case, the main evidence was provided by Western’s controller [13]. She testified that Western did not itself have adequate funds to satisfy the award [16], but the crucial issue was the position of its financiers. She gave evidence that should Western inform its bank of the decision against the it, the likelihood is that the bank will execute its security interests over Western’s assets [17]. She also gave evidence that Western’s venture capital backers would cease funding Western if Western were prevented from earning revenue as a result of the injunction [21].

The difficulty is that all this evidence as to what Western’s financiers would do, was hearsay [22]. Nadon JA held that Western should have produced “an affidavit from their bank outlining its position following the rendering of the judgment and its position in the event that a stay was not granted” [18] and a similar statement from the managing director of the venture capital companies as to “the impact of the Decision on their funding decisions and whether or not a stay of the Decision would lead to a different position on their part” [19]. This information was crucial to his determination regarding irreparable harm [19], and in its absence he was not satisfied that the irreparable harm branch of the RJR-MacDonald test was satisfied [24].

It seems that as of the time of the hearing, Western had not yet informed its bank of the trial decision, apparently out of a concern that had the bank been informed of the Decision, it might, irrespective of the possibility of obtaining a stay, have called in Western’s advance and exercised its security interests [17]. If that concern is well-founded, then this decision puts Western between a rock and a hard place.

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