Defining the scope of a breach of confidentiality claim can be a minefield. Procedural disputes regarding just what trade secret or confidential information is at stake risks the lawsuit falling down a rabbit hole. Conversely, if a plaintiff’s pleadings are left open-ended, speculative lawsuits can strangle the legitimate activities of the named defendants, and, not unrelatedly, the discovery stage may be transformed into an unresolvable quagmire.
In Steelhead LNG Limited Partnership v. Arc Resources Ltd., 2022 BCCA 128, the British Columbian Court of Appeal took the opportunity to restate the fundamental principles and competing purposes behind the framing of a breach of confidence claim. Steelhead involves a pre-discovery particulars dispute over the level of detail that the plaintiff needs to provide in the claim the defendants must respond to. Its reasoning, however, provides guidance regarding the initial investigation and drafting of claims related to secret or confidential information, as well as adjacent procedural disputes such as a motion to strike a pleading.
Before proceeding, beware – these types of procedural skirmishes are very much inside baseball for civil litigators. In general, defining “the case to be met” affects the scope of the proceedings, and therefore the exchange and probing of evidence at different phases of a lawsuit. It can engage whether a legal claim can proceed as described or at all, although, despite the costly optimism of many defence counsel, this result is rare.
The Facts in Steelhead
The parties in Steelhead were involved in developing a natural gas liquefaction (“LNG”) and export facility project during a four-year commercial relationship. This included the execution and extension of a non-disclosure agreement. During this relationship, the Plaintiffs exchanged a large volume of information with the Defendant regarding (1) the design of the proposed facility, and (2) its potential customers. The Defendants, however, became involved with a consortium that was promoting a competing LNG terminal project. The Plaintiffs sued on the basis that similarities between the LNG project it had developed, and the competing LNG project, constituted a breach of the non-disclosure agreement by the Defendant.
The Defendant brought a motion seeking to compel the Plaintiffs to particularize precisely what information was allegedly unique or confidential. It also initially sought to compel particulars of not only what specific documents were allegedly confidential, but also the full spectrum of by whom, when, where and how it allegedly misused any such information. At the chambers hearing, however, the Defendant conceded that the particulars of such alleged misuses would (if true) lie with them rather than the Plaintiffs.
The chambers judge reviewed the law in this area and determined that the level of particulars required for a breach of confidence claim is “high.” Nonetheless, the judge held that the Plaintiffs had met this threshold in this case, and further particulars were not required for the pre-discovery and trial phase of the proceedings. The British Columbian Court of Appeal upheld this chambers ruling, albeit by way of emphasizing the importance of context and appellate deference for this type of procedural dispute.
Tensions in Delineating Breach of Confidence Claims
The British Columbian Court of Appeal reasoning in Steelhead set out to restate the fundamental principles regarding the purposes and lines of argument involving the scope of a breach of confidence claim. The Court observed that:
(a) An Order for Particulars is Context Specific
There are intrinsic “tensions” among the procedural purposes identified in the case law respecting the scope of pleadings. When a chambers level judge hands out procedural directions regarding (among other things) particulars, they are inherently making choices regarding how much weight a range of procedural issues should be given considering the specific nature of the case.
In Steelhead the British Columbian Court of Appeal traced the legal reasoning at play by stating that particulars (1) serve multiple purposes, (2) the context of the claim is essential for determining the right balance between these purposes, (3) assessing the circumstances of the claim at bar is a fact-driven exercise, and (4) ordering particulars is, accordingly, an exercise in judicial discretion. These points are interrelated, and, in my view, are facets of one another.
The reasoning in Steelhead canvassed leading statements on the purposes of particulars and various risks associated with breach of confidence claims. While the Court restated some principles, it expressly avoided reconciling different lines of argument that had been pursued in the courts below or “lay[ing] down hard and fast rules.” One is left with the impression that one should treat as merely an open-ended indicia of factors and emphatically not a legal test to be met.
(b) Procedural Purposes Need to be Balanced
Nonetheless, to help rev up one’s engines before a chambers skirmish, Steelhead did cite with approval the following list of purposes that courts often consider when deciding the degree of particulars to require in a given case:
(1) to inform the other side of the nature of the case they have to meet as distinguished from the mode in which that case is to be proved;
(2) to prevent the other side from being taken by surprise at the trial;
(3) to enable the other side to know what evidence they ought to be prepared with and to prepare for trial
(4) to limit the generality of the pleadings;
(5) to limit and decide the issues to be tried, and as to which discovery is required, and
(6) to tie the hands of the party so that he cannot without leave go into any matters not included.
To foreshadow the two sections to follow, Steelhead’s reasoning emphasized how claims involving allegations of the misuse of secret or confidential information results in acute tension between:
(7) limiting speculative or aspirational breach of confidence claims from embarking on the “fishing expedition” form of discovery; but conversely
(8) enabling the plaintiff to explore its claim on the merits through discovery without unduly tying its hands regarding specifics only the defendants can reasonably know.
(c) Speculative Fishing Expeditions are Unacceptable
On the facts of Steelhead, the Court accepted the chamber judge’s finding that an expansive discovery process was unavoidable considering the lengthy relationship, the complexity of the LGN project information exchanged, and the potential value of the claim. Steelhead nonetheless extensively reviewed warnings in the case law against aspirational or speculative breach of confidence claims seeking to embark on the “fishing expedition” form of discovery.
In my view, this line of authorities responding to the danger that a broadly framed breach of confidence claim can, on its face, implicate virtually every act or communication engaged in by the named defendants over a large swathe of time. Judges have shown concern that this type of lawsuit may be used to fetter departing employees or business partners, or chill legitimate competitive activity (see Napier Environmental Technologies Inc. v. Vitomir, 2001 BCSC 1704, which extensively cites English authorities on this point). In short, courts are concerned that the tactical purpose for a witch hunt is not to find the witch by winning at trial, but to deter or punish individuals departing a firm and competitors who might do business with them by the mere prospect or act of launching a lawsuit.
One way to deter this type of misuse of the legal process is to require plaintiffs to articulate at the outset who allegedly misappropriated what type(s) of secret or confidential information, and how this misuse harmed the plaintiff’s interests. For a recent Ontario example of a court requiring a high level of detail to proceed with a breach of confidence claim on a defendant-by-defendant basis, see Evertz Technologies Limited v. Lawo AG, 2019 ONSC 1355, and, following an amended pleading that withstood a further challenge, 2020 ONSC 413.
An underlying point here is that speculative or thinly tactical lawsuits should face some form of roadblock before receiving an opportunity to legally compel answers from individuals they have named as defendants. If, for example, a plaintiff’s thinking does not rise much beyond “A left our firm and formed a start-up or otherwise went to work with B, and well golly A certainly came in contact with our proprietary data, and so perhaps they are now misappropriating our secrets,” this sort of plaintiff may struggle to define its claim in more granular terms.
(d) Focusing Discovery Does Not Overshadow Probing the Merits
In Steelhead, however, the excessive level of detail sought by the Defendant led the British Columbian Court of Appeal to emphasize the other side of the equation. The reality of the competing LNG projects likely made it difficult for the Defendant to argue that the Plaintiffs were merely pursing a speculative claim. Rather, as the Court noted, the Defendant was in effect pursuing a streamlining and avoiding expenses line of argument orientating on the scale of prospective discovery obligations.
The British Columbian Court of Appeal confirmed that focusing discovery is a legitimate purpose of particulars. Efficiency, however, “must be weighed against the interest in allowing the plaintiff to make out its claim on its merits.”
In terms of finding the balance, Steelhead’s reasoning confirms that chambers judges should be amenable to requiring breach of confidence plaintiffs to provide a fair amount of detail respecting the whys and wherefores of their claim. Yet narrowing the scope of the claim does inherently restrict the plaintiff’s ability to probe into the defendants activities. Instead of a witch hunt, cleaving to far in this direction can lead to a catch me if you can mentality wherein the defendants seek to force the plaintiffs to define what they are going to ask in advance with pinpoint precision. The Court responded to this maneuver by observing that, judicial discretion aside, it is sufficient for the defendants to be able to file a responsive defence. In the result, Steelhead illustrates that the guise of efficiency does not extend to tying the plaintiff to a narrow version of events at the pleadings stage, nor can it be used to cut off reasonable lines of inquiry at discovery.
(e) Nor Compel the Plaintiff to Particularize Facts they Cannot Reasonably Know
One of the useful nuances Steelhead draws out is the distinction between what the plaintiff to a breach of confidence can and cannot reasonably know, and therefore what they can and cannot particularize in the pleadings. The Defendant appear to have initially angled to compel the Plaintiffs to provide a granular description of the Defendant’s use of specific items of information for the competing LNG project. When pressed at the chambers hearing on how, precisely, the Plaintiffs could provide this level of detail regarding the conduct of its competitors, the Defendant seems to have beaten a wise retreat.
One difficulty here is that a plaintiff’s knowledge of the (alleged) wrongdoing is often indirect because of how many breaches of confidentiality obligations are detected. After all, the classic factual backdrop for a breach of confidence claim is that an employee or business partner departs or winds down the relationship, but then takes up an opportunity or brings a competing product or service to market in a suspiciously short timeframe.
As a caution, a bare “we need discoveries to figure it out” answer is not a legitimate response to a demand for particulars. Nonetheless, within this context, Steelhead usefully stands for the proposition that a plaintiff cannot be asked to specify precisely what misuses of confidential information a defendant made when drafting their claim.
“Bald” or speculative breach of confidence claims tend to proceed via undifferentiated and sweeping claims of confidentiality or or trade secrecy. Hallmarks include treating multiple defendants en bloc, and failing to articulate just what use of the confidential information results in the harm or deprivation alleged by the plaintiff. I tend to recommend against engaging in procedural battles for particulars or motions to strike without a compelling reason. Nonetheless, when confronted with this type of strident yet vague claims to proprietary control over information, it is often preferable to challenge it out of the gate rather than slide into a quagmire of a discovery process.
Conversely, if a breach of confidence claimant is wisely seeking to head off this type of procedural wrangling, as a general rule, I recommend adopting a pleading style containing an overarching factual narrative as well as clearly defined classes of confidential information. One issue encountered is that non-disclosure clauses or terms specifying the proprietary status of information are drafted as catch-all clauses that use blanket “all information during the course of” language. If matters are left at that during litigation proceedings, defendants can legitimately say they do not know the boundaries of the real world case they are to meet. To counter this, it is prudent to flesh out an overarching narrative engaging the legal elements of the breach of confidence claim.
The specifics will need to tailor this to fit the situation. Further, a claim drafted in this manner need not be lengthy. For example, a classic employee departing into the arms of a competitor situation could check off most of these details in a sentence or two. But, for example, a typical narrative arc might include spelling out (i) the nature of the plaintiff’s business or activities, (ii) the nature and duration of the plaintiff’s relationship with each defendant, (iii) how the plaintiff developed or came to control the type(s) of secret or confidential information at issue, (iv) specifics regarding the type or types of confidential information at issue, which, for claims involving recurring contact with a range of records, should include defining distinct subcategories of confidential information, (v) why and how each defendant acquired knowledge of this information, including, where known, acts of surreptitious transmittal or copying, (vi) how the relationship ended, (vii) any known details of where the defendants went or what activities they have been engaging in since, (viii) any unlawful disclosure made to a distinct defendant as a third party recipient, (ix) what activity or events led the plaintiff to learn of or detect the misuse of its confidential information, and (x) why this misuse is harmful to the plaintiff.