COURT FILE NO.: 98-CV-5929-000

ONTARIO

SUPERIOR COURT OF JUSTICE

(ON SC)

B E T W E E N:

GASTOPS LTD.

Plaintiff

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BRADLEY FORSYTH, DOUGLAS BROUSE, JEFFREY CASS, ROBERT VANDENBERG, and MxI TECHNOLOGIES LTD. a.k.a. 1197543 ONTARIO LIMITED

Defendants

A N D B E T W E E N:

BRADLEY FORSYTH, DOUGLAS BROUSE, JEFFREY CASS, ROBERT VANDENBERG, and MxI TECHNOLOGIES LTD. a.k.a. 1197543 ONTARIO LIMITED

Plaintiffs by Counterclaim

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BERNARD MacISAAC, DAVID MUIR, GARY CHIVERS and GASTOPS LTD.

Defendants by Counterclaim

)

)

)James Shields, Esq., John Yach, Esq. and

)Marion Jackson, for the plaintiff

)Stephen Appotive, Esq., Eric Appotive,

)Esq., Andrew Harrison, Esq., for the

)defendants

)Stephen Appotive, Esq., Eric Appotive,

)Esq., Andrew Harrison, Esq., for the

)plaintiff by counterclaim

)James Shields, Esq., John Yach, Esq. and

)Marion Jackson, for the defendants by

)counterclaim

)HEARD: See Appendix I: Dates of Trial and Submissions

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TABLE OF CONTENTS

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I. Introduction

[1]GasTOPS Ltd. (“GasTOPS”) has been involved in the maintenance of gas turbine engines in the marine and aviation fields since its incorporation in 1979. In addition to providing engineering consulting services for the maintenance of such engines, GasTOPS has developed computer software programs to assess their performance.

[2]The individual defendants were all employees of GasTOPS until they resigned in October 1996. On October 7, 1996, Bradley Forsyth (“Forsyth”) and Douglas Brouse (“Brouse”) resigned from GasTOPS effective October 18, 1996. They were told to leave the GasTOPS premises immediately. On October 10, 1996, Jeff Cass and Robert Vandenberg (“Vandenberg”) resigned from GasTOPS effective October 25, 1996, and October 23, 1996, respectively. On October 15, 1996, Forsyth and Brouse incorporated MxI Technologies Limited (“MxI”). On October 22, 1996, Jeff Cass and Vandenberg commenced employment with MxI.

[3]GasTOPS alleges that all of the personal defendants were subject to a fiduciary duty to GasTOPS as a result of their positions there and that Forsyth, Brouse, Jeff Cass and Vandenberg breached their contracts of employment with GasTOPS and, in particular, the implied term therein that required each of them to give reasonable notice of their intention to resign. As a result of their failure to give reasonable notice and actions following their resignations, GasTOPS claims it suffered damages.

[4]GasTOPS’ claims against the defendants can be summarized in general terms as follows:

•Breach of Fiduciary Duty

-Misappropriation and unauthorized or unlawful use of confidential information

-Misappropriation and unauthorized or unlawful use of trade secrets

-Misappropriation of corporate opportunities with

oCanadian Armed Forces (“CAF”) o United States Navy (“U.S. Navy”)

o Volvo Aerospace Corporation (“Volvo”) o General Electric Corporation (“GE”)

o Bombardier

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oKuwait Air Force

oDepartment of Transport (“DOT”)/RCMP

•Breach of contract

•Breach of confidence

GasTOPS seeks:

•Damages and injunctive relief arising from these allegations

•Punitive Damages

[5]MxI’s claims against GasTOPS and the personal defendants by counter-claims are as follows:

•Damages for breach of contract

•General damages for failure to negotiate in good faith

•Punitive damages

•The sum of $18,133.97 as the balance due, inclusive of Goods and Services Tax, for professional services rendered to GasTOPS

Against the individual defendants by counter-claim, MacIsaac, Muir, Chivers and GasTOPS, jointly and severally, the following:

•General damages

•Special damages

•Aggravated, exemplary and punitive damages

•An interlocutory and permanent injunction restraining GasTOPS and the individual defendants by counter-claim from making any false statements to any person concerning the following:

o the circumstances of the departures from GasTOPS of the individual defendants or any other MxI personnel

o any alleged theft of intellectual property from GasTOPS

o the conduct of MxI principals or employees after their resignations from GasTOPS

o any other matter that would be damaging to the reputation of the defendants

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•An interlocutory and permanent injunction restraining GasTOPS and the individual defendants by counter-claim from interfering with the economic relations between MxI and its clients and potential clients

•Such further and other relief as this Court deems just

[6]MxI and the individual defendants deny that they were in competition with GasTOPS and/or that they misappropriated any technology and/or programs developed by GasTOPS. The defendants suggest that:

(1)GasTOPS has always been first and foremost an application engineering service company;

(2)GasTOPS’ focus has always been on condition-based maintenance;

(3)GasTOPS’ modus operandi in terms of technology development was to rely almost exclusively on customer funded research and development; and

(4)By October 1996, GasTOPS’ technology and related software were significantly different from each other and each customized for particular customers.

[7]It is important to keep in mind the following general principles:

(1)Bernard MacIsaac (“MacIsaac”), as GasTOPS’ majority shareholder, was entitled to conduct his business as he saw fit providing he treated his employees in a reasonable manner;

(2)GasTOPS’ employees were entitled to resign providing they gave reasonable notice of their intention to leave their employment; and

(3)GasTOPS’ former employees were entitled to form their own company and carry on business in any field subject to any fiduciary duty that they might owe GasTOPS resulting from their employment at GasTOPS.

[8]GasTOPS does not allege that Forsyth and Brouse and subsequently Jeff Cass and Vandenberg were not entitled to resign from GasTOPS and start MxI. Rather, it alleges that any future endeavours on their part must take into account the fiduciary duties they owed to GasTOPS. GasTOPS alleges that the four personal defendants breached the fiduciary duties they owed to GasTOPS as a result of their employment there by:

(1)Resigning from GasTOPS without giving reasonable notice;

(2)Offering employment to other employees of GasTOPS who they knew

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would give insufficient notice to GasTOPS;

(3)Misappropriating technology which they had helped develop at GasTOPS;

(4)Developing a software program to compete with the products that they had helped develop at GasTOPS;

(5)While they were employed with GasTOPS and working on such potential contracts, competing for and obtaining contracts for MxI with companies to whom GasTOPS was attempting to sell its products;

(6)Attempting to convince, in some cases successfully, GasTOPS’ customers to use MxI products instead of the GasTOPS’ products they had been instrumental in selling to the customer when employed at GasTOPS; and

(7)Providing MxI with confidential business information which it used to usurp business opportunities that GasTOPS was pursuing.

II.GasTOPS’ Products and Projects

[9]MacIsaac incorporated GasTOPS in 1979. At that time, MacIsaac was its only employee. Over the years, GasTOPS has been extremely successful and its number of employees has increased dramatically. MacIsaac has guided and continues to guide GasTOPS as its president. It was apparent from the evidence that MacIsaac is and has always been a very conservative businessman. Over the years, he has attempted to fund research and development at GasTOPS through customer contracts, whereby the customer would fund development of the product.

[10]GasTOPS, whose name is an acronym for “Gas Turbines and Other Propulsion Systems,” has been and continues to be engaged in the design, development and application of computer software products which assess machinery condition for operators of gas turbine engines (commonly referred to as “jet engines”). GasTOPS originally targeted military aviation markets but in the 1990s sought to enter the commercial aviation market. In addition, GasTOPS was working in the commercial industrial market, where turbine engines were used for industrial power plants, ships and pipelines. Over the years, GasTOPS developed software programs for detecting modes of damage to turbine engines based on information recorded during engine operations and/or maintenance. GasTOPS used this data to develop software based products to track the degradation of components of the engine and predict when maintenance was required; to fix or replace a damaged component before corrective maintenance was required; and to monitor component life usage and capture data related to engine condition. The purpose was to develop a complete “condition-based maintenance” system that incorporated prognostic

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(identifying damage to a component prior to failure), diagnostic (determining the nature of existing problems) and scheduled (routine inspection, adjustment, repair or overhaul) maintenance and to use collected data to feed back into the system.

[11]Before going into more detail, a summary of GasTOPS activities is as follows.

[12]In 1983, David Muir (“Muir”) was responsible for the “engine health monitoring group” within GasTOPS. It was focused on research and development relating to modeling and simulation techniques that could form the engineering basis for the design and development of health monitoring systems. GasTOPS had two major customers at that time, the Canadian Navy and the CAF. In 1986, Brouse was hired by GasTOPS to work with the CAF at National Defence Headquarters. In 1987, Forsyth was hired as a project engineer within this group.

[13]In the late 1980s, MacIsaac challenged GasTOPS’ three most senior group leaders (Robert Kind (“Kind”), Richard Dupuis and Muir) to examine their groups’ business and to look at various markets for the technology that GasTOPS was developing and how the technology might be provided to the market place in the form of products. Muir targeted GasTOPS products to the military aircraft, military marine, and general industrial (particularly prognostic capability for oil analysis) markets. Muir was looking to the U.S. Air Force, Army and Navy as possible opportunities for GasTOPS to pursue within North America and to Spain, Australia, Kuwait and Malaysia as possible opportunities to pursue with respect to the F-18 aircraft and via the U.S. Navy. While GasTOPS had little or no competition in Canada, a number of large American defence contractors, such as GE, provided competition in the U.S. market.

[14]Muir felt that GasTOPS could expand beyond the military market place by offering a suite of products for condition-based maintenance. But within the military sector, Muir felt that GasTOPS’ most marketable product was a Mobile Engine Data Interpretation Computer

(“MEDIC”). Also, in the area of oil analysis, he felt that GasTOPS had an opportunity to provide a prognostic product to military and commercial markets with a product called Configuration Management Information System (“CMIS”). The third product idea that the Maintenance Systems Division (“MSD”) had at this time was to provide a more comprehensive

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information management system similar to the one being developed for the CAF but specifically for the marine market place. This program eventually became known as MAINSTAY.

[15]In 1991, Forsyth, Brouse and Matthew Tobin (“Tobin”) became the senior members and managers of the MSD (formerly the engine health monitoring group), as Muir reformed the management team within his group to give them general management responsibilities for specific areas of the MSD. Forsyth was responsible for technology development, including for research and development work under contract with the CAF and Canadian Navy and for MAINSTAY; Brose for the CAF engineering service contract for development and support of the CF-18’s engine parts life tracking system (“EPLTS”); and Tobin for the development of our non-military product basis business (or, as Muir also called it, the “general industrial market”). Forsyth and Brose had a very close working relationship: Forsyth developed the methods and the software and Brose worked closely with the CAF to determine its requirements to introduce the developed products into its day-to-day operations.

[16]From 1985 to 1993, Gas TOPS developed its technology through contracts with the Department of National Defense (“DND”) and the CAF. From 1993 to 1995, Gas TOPS undertook a major design revision of its products to develop a system known as Engine Condition Monitoring System (“ECMS”) v.1, which the CAF used until 1998. During 1994, Gas TOPS commenced a project to incorporate all of the elements of Gas TOPS’ various databases into a single generic product for marine and industrial uses: MAINSTAY. In 1995, Gas TOPS undertook a major design revision of ECMS v.1. The redesigned system incorporated an improved database design and was developed for both aircraft and industrial application.

[17]During 1996, Gas TOPS was developing the next iteration of the ECMS. It was known as ECMS v.2 and incorporated an improved and re-engineered database design. ECMS v.2 integrated of ECMS v.1, Engine Maintenance Reporting System (“EMRS”), FLTS, Take Off Analyst Program, Take Off Trending Program, Engine Test Facility (“ETF”), Troubleshooting Program and Deployable Integrated Ground Station (“DIGS”).

[18]As of October 1996, GasTOPS was an industry leader in the area of engine condition-

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based maintenance, usage and life tracking of engine parts. None of the software programs developed by GasTOPS’ competitors were as sophisticated or covered such a wide spectrum of engine maintenance elements as GasTOPS product line: ECMS; Flight Line Troubleshooting Systems (“FLTS”); Lube Analysis (Oil Prognostic System); and MAINSTAY.

[19]At that time, GasTOPS was developing and pursuing a corporate opportunity for the sale of ECMS v.2 to the CAF, U.S. Navy, Volvo, Bombardier, GE, and DOT/RCMP. It anticipated delivering ECMS v.2 to the CAF in November 1996. GasTOPS had completed a MAINSTAY pilot project with Ontario Hydro and was pursuing the implementation of MAINSTAY at the Pickering Nuclear Station and similar opportunities for the Bruce and Darlington Nuclear Stations. In addition, it was continuing its work with Dofasco, Caidmark, Orenda Engines Ltd. and Nova. GasTOPS had also entered into the “due diligence” phase of its contract negotiations with GE to license its ECMS technology. In partnership with B.F.Goodrich, GasTOPS sought to secure a series of contracts with the U.S. Navy to license and service ECMS v.2 technology for use on the U.S. Navy fleet of F-18 fighter aircraft. GasTOPS was in contract negotiations with Volvo to license its ECMS v.2 technology for use in aircraft engines to be purchased by the Swedish Air Force. Also at that time, GasTOPS was negotiating with Bombardier to provide further enhancements to Bombardier’s software system used by the CAF for the entire aircraft, excluding the engine by incorporating ECMS technology into the Bombardier program.

Development of GasTOPS’ Products and Projects, 1983-1996

[20]GasTOPS developed its technology and software products through a series of contracts with various organizations. It obtained Canadian Research and Development (“CRAD”) contracts, which were funded by the DND, as well as Technical Investigation and Engineering Support (“TIES”) contracts, which were used by the DND to obtain engineering services in support of their operation and maintenance. Under the CRADs, GasTOPS did research and development of a product up to the prototype stage, which given to DND for in-service evaluation. Any further developmental work to finalize or implement the product was performed under a TIES contract.

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[21]By 1983, GasTOPS was researching both the prognostic and diagnostic aspects of maintenance and of damage to jet engines. This early research became an integral part of the design of ECMS v.2 in 1996. GasTOPS was awarded a CRAD to assess the feasibility of using flight recorded data from the CF-18 aircraft for the purpose of engine health monitoring. GasTOPS was also exploring how the information could be used for a parts life tracking system.

[22]In March 1984, GasTOPS delivered a requirements report prepared by Muir and MacIsaac on the use of flight recorded data to support CF-18 engine health monitoring to the DND under a CRAD. The report made recommendations on the feasibility of using flight recorded data and set out a project plan for continuing the development project. GasTOPS stated that the information from a flight data recorder could be used to support all aspects of the F-18 and its F404 engine maintenance. Following the delivery of its report in March 1984, GasTOPS was awarded a second CRAD for the development of three prototypes: steady state performance analysis, event data analysis and take-off (transient) performance data analysis. Also, subject to the confidentiality conditions, GasTOPS was allowed to make use of the results of the engineering work for other related projects.

[23]During the first CRAD, an EPLTS was being developed by Cognos for the CAF. It was delivered in 1985, but it did not work to the CAF’s satisfaction. The CAF contracted with GasTOPS to examine the problems the system and make it operational. GasTOPS provided a database expert to work with the DND for this purpose, to complete the documentation of the system, and to prepare training packages and courses for the CAF technicians. Brouse was hired specifically for this contract work and initially worked at DND Headquarters with Captain Schofield. He identified four problems with the system. GasTOPS was awarded further TIES contracts to examine these problems and to redesign the system to solve the deficiencies. Brouse

prepared a project plan under the TIES contract with Tobin’s assistance in March 1989. It contained a requirement for the correction of the identified deficiencies in the EPLTS system.

[24]Forsyth worked on the National Research Council (“NRCC”) contracts and the second CRAD. On the completion of the second CRAD, GasTOPS prepared a technical report summarizing its development work (Exhibit 13C). The report followed the completion of the two

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prototypes, one for diagnostics and the other for prognostics, using flight data recorded from the F-18. GasTOPS considered all of the development work under this CRAD to be unique in the market place.

[25]The three prototypes were completed in early 1989. The first dealt with a prognostic tool, in which GasTOPS developed parameters that became know as “condition indicators.” This software system processed the recordings, extracted the indicators, put these indicators in the database and produced a graphical display that became known as a “trending program.” The second prototype was an event recording taken at the time of an in-flight event and that information was used for troubleshooting the aircraft in support of corrective maintenance. The software was designed to process and then file the data. The program would then extract the relevant information and display, the time and history of the different engine parameters. The development included creation of a database to store information for subsequent display. The third prototype developed was a software program to be used for prognostics. It compared the dynamic performance of the engine as recorded during the take-off segment of each mission to its expected performance based on GasTOPS’ research. The difference between what was measured and what was expected became the basis for the prognostics. The CAF subsequently awarded GasTOPS another CRAD for the troubleshooting system (second prototype), and the development of the third prototype (take-off performance data analysis) was funded by further research contracts with the National Research Council.

[26]This research, which was conducted in 1989, dealt with the prognostic and diagnostic aspects, particularly as it related to the data from the flight data recorder of the aircraft. GasTOPS defined the research, the development program and the budget to show the CAF the next step in the development process and its cost. Forsyth was responsible for this contract and he dealt with the Captain of the engineering section for the fighter and trainer group and with a contact at the National Research Council. The work plans, budgets and business case were prepared by Forsyth on behalf of GasTOPS.

[27]Under this CRAD, Jeff Cass and Forsyth prepared a report entitled “First Line Engine Snag Handbook” (Exhibit 16C) in November 1990. GasTOPS had been contracted to put field

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research engineers at each of the main operating bases to collate the information coming from the evaluation of the prototypes and to develop a “knowledge base” or logic related to how the diagnostic tool would be used for maintenance support. This document provided instructions on how to use the event plots from the flight data recorder.

[28]In 1990, the MSD developed internally a troubleshooting prototype tool known as MEDIC, drawing on the FLTS prototype that had been developed under the CRAD. It was implemented on a notebook personal computer for demonstration to the U.S. Navy. Both the U.S. Navy and the CAF were looking for a deployable tool that could be used in the field. The U.S. Navy was the first customer interested in the MEDIC prototype. Forsyth was the lead project engineer on the U.S. Navy evaluation of MEDIC and he demonstrated the product to the U.S. Navy.

[29]In 1990, Brouse continued to be responsible for the work to be performed under the TIES contract to complete the improvements to the EPLTS.

[30]In 1991, the CAF awarded GasTOPS a CRAD to continue the development of the MEDIC product as a flight line troubleshooting tool. The CAF requested that the name be changed from MEDIC to FLTS. The development of the technology under this contract continued to be Forsyth’s responsibility. He and Jeff Cass, who had been doing the work on the personal computer version of Lube Analyst and MEDIC, supervised the conversion of FLTS to a personal computer.

[31]In 1992, Brouse authored a technical report which described the high level design for the FLTS software system. The report included the functions of the system and database design for FLTS. This report pre-dated the database design of the ECMS v.2 by approximately 18 months. In addition, Brouse was responsible for the work that was being done to effect the improvements on the EPLTS.

[32]With respect to the oil analysis product, GasTOPS was the successful bidder in a procurement competition from the CAF in 1991. It was contracted to develop an expert system

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(software system capable of interpreting data for the purpose of maintenance). This was a CRAD to develop a prototype system that combined oil analysis information with vibration analysis information into a single diagnostic system which became known as Prototype Integrated Diagnostics and Maintenance System (“PIDMS”).

[33]In 1992, GasTOPS continued to work on the EPLTS system and began the early work on the ECMS for the CAF, which had decided to replace the EPLTS system with ECMS. At that time work continued for the CAF on the PIDMS product which was known internally at GasTOPS as CMIS and which was eventually renamed Lube Analyst.

[34]On the non-military side, GasTOPS continued working with Dofasco on combining oil and vibration data for the purpose of predictive maintenance, as it had since the previous year, and it started to pursue a business opportunity with Ontario Hydro. In 1992, GasTOPS was contracted by Dofasco, through Digital Equipment Corporation (“DEC”), to develop a condition- based maintenance system that came known as the Condition-Based Maintenance - Data Analysis System (“CBM-DAS”). GasTOPS took the Lube Analyst and the data logger software and put all three of the elements, usage tracking, diagnostics and prognostics into demonstration software for Dofasco. As a result of the demonstration, Dofasco contracted GasTOPS to prepare a final specification for the CBM-DAS software system.

[35]At this point in time, the MSD was offering three products in the market place, MEDIC, Lube Analyst and MAINSTAY. The three products shared a common architecture, a software structure implemented using the OS/2 operating system. Underlying the products was a library of modules (“GGPPAS”) for components which performed general purpose functions that GasTOPS had been building since 1989.

[36]In 1992, two new significant business opportunities arose for GasTOPS: one with the U.S. Navy, which was an integrated diagnostics demonstration, and the second with the Canadian Coast Guard for a system referred to as the Performance Analyst Software System (“PASS”). GasTOPS delivered to the U.S. Navy a demonstration diagnostics system based on the Lube Analyst product of the MSD. With respect to the Canadian Coast Guard, GasTOPS

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won a competitive procurement and was contracted to define the requirements for the PASS product for the Coast Guard’s vessels. This was a GasTOPS research and development project for the transportation and development centre, the research and development division of the Canadian Coast Guard. Under the contract, GasTOPS developed an application of MAINSTAY for the Canadian Coast Guard vessels. This work was performed under Tobin’s management, while Forsyth and his group performed the technology development work.

[37]In 1993, the FLTS contract work was finished, the EPLTS system was still operating in the field and work continued with the CAF under the PIDMS project. GasTOPS continued working on the data logger project for the Canadian Navy, the PASS project for the Canadian Coast Guard and the integrated diagnostic demonstration for the U.S. Navy. In its Dofasco work, GasTOPS was to develop a project plan for the development of the CBM-DAS system that would meet the specifications previously produced by GasTOPS. In particular, it was to develop a new software module based on MAINSTAY’s existing design. This contract fell under the management responsibility of Tobin.

[38]In 1992, GasTOPS began the development of ECMS v.1 under a TIES contract. It was to be a re-hosting and re-development of the parts life tracking system EPLTS on a PC computer architecture. GasTOPS proposed to implement the database system on a PC. GasTOPS intended to add new functionality to the system, specifically the user interface using GasTOPS GGPPAS library to create a more intuitive interface for the technician. This work was being done by Brouse. At this time, ECMS v.1 was developed with only the parts life tracking usage monitoring and scheduled maintenance modules. The prognostic and diagnostic systems were being developed at the same time under other contracts. In July 1993, GasTOPS produced the requirement specifications for ECMS v.1. The requirements provided a general description of the new product, including its architecture, interfaces, functionality, performance requirements of the system, preliminary design and the general requirements. Under the CRAD, GasTOPS continued work on the diagnostic knowledge base and the prognostic system throughout 1993. At that time, the TIES contract was renewed for a further three-year period.

[39]In 1994, GasTOPS received a second CRAD to enhance the FLTS by adding the expert

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system underlying the Lube Analyst product to the flight line troubleshooting system. Under the first CRAD, GasTOPS had created a computer based software tool which was to be used with a paper document referred to as a troubleshooting manual, named the Snag Handbook. Using the handbook and the software tool, the technician could isolate specific problems in the aircraft, using the information received from the flight data recorder.

[40]In May 1994, GasTOPS entered into another CRAD for further development of the FLTS. GasTOPS incorporated the logic that was contained in the Snag Handbook, whereby the manual and its logic was put directly into the software system and incorporated into the expert system technology. Under the provisions of this contract, GasTOPS would own the background and foreground IP for the new version of FLTS.

[41]In June 1994, GasTOPS prepared a technical report entitled “FLTS v.3.1 Automated Snag Handbook System Specifications” (Exhibit 30C). The report was prepared by Dekum Cao and Chris Cass and reviewed by Forsyth. The report set out the functions of the software, the functional decomposition and the data model or database design of the system. The advancement in technology under this contract was the incorporation of the troubleshooting logic, which had been previously in a paper manual, into the software system using expert system technology. GasTOPS developed a pattern or feature recognition software that could automatically interpret some of the data traces that were being used for troubleshooting.

[42]GasTOPS continued working on the Dofasco project by implementing the Lube Analyst product into the Dofasco oil lab and beginning the implementation of the overall CBM-DAS system. The contract was supervised by Tobin, who was responsible for the delivery of the software to the client. Both the Lube Analyst and the CBM-DAS system were being developed by Forsyth and his group.

[43]Near the end of 1994, the EPLTS system was replaced by ECMS v.1. The ECMS database technical reference specifications were contained in a report prepared by Linh Nguyen (“Nguyen”) and Andrew Richardson for the DND in January 1995. During January 1995, GasTOPS produced a written user’s manual for ECMS v.1 and it was delivered to the DND

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under the TIES contract. It was a comprehensive overview of the ECMS system and its architecture with instructions to the user of the software. ECMS v.1 dealt with usage and configuration monitoring. The database contained usage and configuration data. The software system is part of the scheduled maintenance process. ECMS v.1 had two unique features. First, to the best of GasTOPS’ knowledge, this was the first time there had been the fielding of a database system of this size and complexity on a PC client server architecture using an Oracle relational database. Second, the use of the graphic user interface (“GUI”), allowing the user to access information through a graphic representation of the equipment, was also unique.

[44]In July 1995, GasTOPS entered into a license agreement with the Crown on behalf of the DND covering the ECMS v.1 software and the FLTS. Pursuant to the license agreement, the DND granted GasTOPS “a sole, non-exclusive license to use the licensed IP and to sell, sub- license or lease the licensed IP to others for use in Canada, the United States, Australia, Spain, Sweden and other such countries as have been previously approved in writing by the licensor…”

[45]GasTOPS continued to work on the PASS project with the Canadian Coast Guard. At the same time, GasTOPS had entered into a partnership with B.F.Goodrich to pursue a business opportunity with the U.S. Navy. In the industrial market place, there was a major opportunity developing with Ontario Hydro, which was interested in developing a condition-based maintenance program similar to the software system GasTOPS was developing for Dofasco. During 1995, GasTOPS was awarded another CRAD to develop a PC-based prognostic tool that would take data recorded from a CF-18 and use that data for the purpose of predictive maintenance. This was to develop a prognostic component for the CF-18 ECMS system. The PC-based prognostic tool was to be a component for the CF-18 ECMS system. The prognostic system was one of the three prototypes that had been developed earlier under the second major CRAD, the take-off data trending prototype. The prototype was to be developed as a PC based software tool with similar architecture to ECMS v.1 and FLTS. The technology development was carried out by Forsyth and his group. The primary person responsible for the development was Jeff Cass. Under this contract, there was to be the development of a common database for all applications for the ECMS v.2 database. In addition, GasTOPS was to own all intellectual

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property. In 1995, GasTOPS was working on the second CRAD whereby the troubleshooting procedures were being automated into FLTS.

[46]In May 1995, GasTOPS prepared a report for the DND entitled “F404 Diagnostic Procedure… Summary Report” (Exhibit 31C) which was authored by C.J. Cass, M.P. Egan and D.L. Kind. The report summarized the “knowledge-based” logic that was implemented in the new version of FLTS. In accordance with the contractual terms, the improvements to the logic which would be the foreground intellectual property, was to be owned by GasTOPS. The report was a summary of the development of the project to enhance the engine health monitoring technology in support of the CAF condition-based monitoring program from approximately October 1989 to December 1994 which concluded with the final version of the FLTS troubleshooting system. The report stated:

1.1Background

The First Line Troubleshooting System was developed by GasTOPS to support the on-condition maintenance approach utilized by the Canadian Air Force for the CF-18 fleet. The FLTS software makes use of the Aircraft Data Files (ADFs) that are recorded by the aircraft’s on-board Maintenance Signal Data Recording System (MSDRS). The MSDRS monitors a basic set of critical parameters and records this data at low frequency, every five seconds, on the Tape Transport Magazine (TTM) as mission data. If the system detects an exceedance of any of these parameters against predefined limits for safe operation, it records a Maintenance Monitoring Panel (MMP) code. Also, when an exceedance is detected, a much broader set of engine performance parameters is recorded as event data at high frequency, every tenth of a second, for 40 seconds (five seconds pre-event, and 35 seconds post-event) for the purpose of troubleshooting the detected engine anomaly. The MSDRS mission profile and engine limit exceedance event data are displayed graphically in FLTS and the embedded diagnostic expert system is used to identify the problem and its source.

Due to the potential danger associated with in-flight events, first time diagnosis is crucial to the prevention of a recurrence of the problem. In support of this goal, GasTOPS Ltd. has conducted evaluations of the consistency and accuracy of the automated

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diagnostic rule sets in the First Line Troubleshooting System.

[47]GasTOPS continued to provide in-service support for ECMS v.1. The Lube Analyst project for the CAF was being completed, and Lube Analyst was being marketed. The data logger and PASS projects were finished in 1995. The initial phase of the CBM-DAS project for Dofasco was completed by the end of 1995. In 1995, GasTOPS was pursuing a sale of the FLTS product to the Royal Australian Air Force (“RAAF”). Brouse had direct contact with the RAAF and did all of the work associated with the development of the contract. In addition, Brouse worked with the DND to complete the license agreement with the Government of Canada for this sale. It was a sub-license of the DND contract that permitted GasTOPS to sell the technology under a sub-license. The sale to the RAAF was an outright sale of the system for a specific amount, including a small amount for engineering services for preparation and delivery of the system. The software product in the contract was a commercial off-the-shelf product accompanied with a license agreement dealing with its use and restrictions. At the same time, GasTOPS obtained a second contract with Ontario Hydro to provide the MAINSTAY product as a pilot project as a condition-based maintenance system. This was a commercial sale with a license agreement between GasTOPS and Ontario Hydro. In addition, Ontario Hydro requested the technology be put in escrow and the parties entered into an escrow agreement.

[48]The FLTS system was unique, with nothing similar in the market place at the time GasTOPS introduced it for the F404 engine and for GE. ECMS v.1 was a parts life tracking system and it was distinct in the market place from other products by its GUI and the features that GasTOPS incorporated into that user interface to make it an intuitive or easy tool for technicians to use.

[49]When Lube Analyst was introduced into the market place, it was unique from other products as it was running on a PC with a GUI running on Oracle. It had an expert system that performed the inferencing on the data in the database. The MAINSTAY product, including the work performed for the Canadian Coast Guard and Dofasco, was also unique. The work that GasTOPS had been doing for the CAF was considerably more advanced than anything Dofasco had seen in the market place.

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[50]The MSD’s 1995/96 business plan, which was prepared and completed by Muir on November 30, 1995, with input from Forsyth and Brouse, described in its the objectives:

SUMMARY OF OBJECTIVES

TECHNOLOGY PLAN

1.The ECMS product will be completed thus providing a general purpose CBM product for military engines.

2.The MAINSTAY product will be converted to a WINDOWS 95 environment.

3.The MAINSTAY product will be further developed with the following specific functions added:

•RCM module

•Damage/Defect Reporting function

•Configuration Management function

In addition, the Maintenance Scheduling function will be improved.

4.The LUBE ANALYST product will be improved in FY 95/96 with the following additional features:

•Statistical Limits Report

•Best Practices Guide

5.The ODM (oil debris monitor) electronics will be adapted to operate as a standalone monitor for airborne applications. At least one sensor adaptation will be completed in this fiscal year for helicopter gearbox applications.

[51]Muir summarized the MSD’s marketing plan for the financial year 1995-1996 as follows:

MARKETING PLAN

1.The MSD will meet an overall revenue target of $4.8M. This target is based on program revenue targets of:

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3.GasTOPS will be positioned to win a major program with CP Rail in the coming year.

4.GasTOPS will be positioned to win a “partnership” contractual arrangement with Canadian Forces whereby the firm will be recognized as the technical development center for Condition Based Maintenance and Equipment Health Monitoring.

5.Marketing Support to BF Goodrich shall be directed to complete:

•one sale of FLTS to USN

•one sale of 0DM to McDonnell Douglas

•one sale of Lube Analyst to US Department of Defense

[52]In preparing the business plan for MSD, Muir, as he had in the past, relied upon a technology plan that he had received from Forsyth on August 13, 1995, entitled “MSD 1995/96 Business Plan Technology Plan Contribution B. Forsyth August 13, 1995.” (Exhibit 7).

[53]In his report, Forsyth stated:

1.MAINSTAY

As presented in my Product Development Plan (GTL-8-35.6- WPA. 1), we are well on our way to having a complete Condition Based Maintenance System (CBMS). In fact, we have two of them: the CF-18 ECMS and the Dofasco CBM-DAS. Between these two systems, most of the desired functionality is provided. The challenge will be to effectively integrate the two.

There are two fundamental differences between the CF- 18 ECMS and the Dofasco CBM-DAS. The first obvious difference is the development environments used: the ECMS was developed in C++ for the OS/2 operating system, whereas the CBM-DAS was developed in Powerbuilder for the Microsoft Windows 3 .x

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operating system. The second difference, and equally as important, is that the ECMS has an equipment fleet focus, whereas the CBM- DAS has a stationary equipment or plant focus. The first results in technological differences and the second in functional differences.

Our technology plan should focus on the CBM-DAS version as I believe (and Doug agrees) that the Airforce will continue to fund development of the ECMS and will address the issue of development environment at the appropriate time.

The following are my suggestions for development efforts for the CBM-DAS based MAINSTAY.

1.1MAINSTAY Development Environment

The selection of the target MAINSTAY development environment is a critical (and ongoing) decision for the company. There are three fundamental components that must be selected and periodically reviewed: the operating system, the database and the development language.

Unfortunately the choice in operating system is not simply between the two we have already developed for. The problem is that both OS/2 and Windows 3.x have a very real likelihood of being obsolete within the next few years. The introduction of Windows ‘95 on August 24 threatens to become the new defacto industry standard.

The choice of databases seems to be safe with Oracle. We have used Oracle for both the ECMS and the CBM-DAS and are very familiar and comfortable with it. Thank goodness Oracle seems to be maintaining its market lead and there is no real pressure to select a different database (other than for the in-expensive, standalone applications such as Lube Analyst and perhaps the RCM tool).

The choice of development language is not as straightforward. The use of C++ provides the most flexibility; however, it requires substantially more effort than the new generation of information system development tools such as Powerbuilder. I don’t think it will be possible to compete with these new tools using conventional C++ programming. At first glance, Powerbuilder seems ideal as it provides insulation from the operating system and the promise of a Windows ‘95 version would hopefully make the conversion of CBM-DAS to Windows ‘95 simple. However;

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Powersoft, the Powerbuilder developer, was purchased by Sybase, an Oracle competitor. Now there are concerns that Oracle and Sybase may not play together and that the Powerbuilder tool may not efficiently interface with the Oracle database in the future.

There are no simple answers to these problems; however, there are two projects we could propose in the technology plan to help address them:

1.Development Tool Selection. We should conduct a thorough and formal reevaluation of the various application development tools available and select the most promising for future software development.

2.Windows 95 Conversion Project. This would be an R&D project to convert one of our applications to Windows ‘95 in order to familiarize ourselves with the product technologically. I propose that we would use the CBM-DAS as the test product.

….

3.ECMS

The ECMS functionality is becoming very extensive and by the time the SLPS (C-6-46) work is done in Mar/96, we should have a complete CBMS for the Airforce. There are a number of development projects we are going to pursue to increase the functionality further, these include:

Work Optimization - this comprises of improved planning and scheduling tools that would allow for optimizing shop visits beyond the current fixed ‘fall out’ window.

Fatigue Monitoring - this would include both crack growth tracking and fatigue lifing for airframe structural members.

Alternate Equipment Configuration - this involves enhancements to the current ECMS configuration management functions to handle alternate assemblies such as the attachment pylons for bombs or fuel tanks.

It is expected that each of these development projects will be funded directly by the Air Force.

4.Lube Analyst

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As you know, we are about to release a market ready version of Lube Analyst and will not want to undertake any software enhancements for at least the next six months. The only concern is that because Lube Analyst is an OS/2 application, our customers may start requesting a Windows 95 version. This would really be an exercise in re-doing functionality for the new operating system; obviously not a value added exercise but one that may be required to sell the product.

I believe our strategy should be to delay the development of the Windows 95 version as long as possible with the hope that we can leverage the Windows 95 version of MAINSTAY as the next major release of Lube Analyst. That is, we would add some of the lube analysis specific functionality to MAINSTAY while utilizing as much of the general purpose CBMS functionality as possible (e.g. limit evaluation, trending, expert system, etc.). We would then package a mini MAINSTAY that would serve as the Lube Analyst, while preserving all of the lab and instrument interface software.

Even if we adopt this strategy, we may want to have a discretionary R&D budget for Windows 95 conversion in our back pocket. If the sales potential proves to be very strong and the only impediment is the OS/2, we are not going to want to wait for the Windows 95 MAINSTAY development.

There are two development efforts we could undertake that are adjuncts to the application and that we will definitely want to undertake at some time, namely:

Statistical Limits Report - this would be a relatively inexpensive little project to use the Reportsmith database reporting software to generate a report of statistical operating limits for each component type in a given Lube Analyst database. This would be of great benefit to customers who do not have operating limits for their equipment (which appears to be most customers).

Operators Guide Development - this project would be a ‘best practices’ guide on how to set up and run an oil program using the Lube Analyst. This guide could really be useful as a marketing and training tool and would go a long way to creating ‘satisfied customers’.

[54] In his draft report, dated June 1995, which is included in his final report to Muir

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(Exhibit 7). Forsyth stated with regard to MAINSTAY product development plan:

1.INTRODUCTION

The Maintenance Systems Division (“MSD”) of GasTOPS Ltd. is evolving from a contracted research and engineering services based business to a product based business. The MSD grew out of the core business of GasTOPS Ltd., the research and development of equipment - primarily gas turbine equipment - ‘health monitoring’ methods based on a novel methodology of fault modelling and equipment computer simulation. The success in health monitoring methods development for the F404 gas turbine engines of the CF-18 fighter aircraft revealed a problem and an opportunity: the lack of an information system product that could adequately implement and support the methods developed. This realization and the experience in software development led to the focus on computerized information system product development as a means of exploiting the novel methods created and for developing and expanding business.

The shift in focus from contracted research to product development was very appealing because of the shrinking business opportunities afforded contracted research. The business difficulty with contracted research is twofold. Once a ‘problem’ has been solved, the customer becomes more knowledgeable in the area of concern and becomes less reliant on the contractor; not a good way to grow a business. Secondly, the customer base and funding source for contracted research is shrinking. The source of most research funding in Canada is the government, with the Department of National Defence by far the largest contributor in the area of equipment design, operation and maintenance research. Government funding of all kinds is expected to decrease, and research and development in particular is expected to suffer.

A product based business that incorporates and funds the methods development promises a more stable long-term business prospect. The technical advantage from the knowledge gained from the previous contracted research can be exploited in products that solve customer’s problems without diminishing, and actually increasing, the reliance on the supplier. Further, the market for an information system product that reduces equipment maintenance costs is large, growing and not limited to the government sector.

This document describes a planned approach to developing the

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MSD product development based business. The product market is identified. The MSD product development organizational structure and processes required to support the product based business are described. The product is defined. Finally, the planned product developed projects and schedules are presented.

2.MARKET IDENTIFICATION

The Maintenance Systems Division has selected Condition Based Maintenance (CBM) products and services as a primary business focus. The MSD objective is to provide customers with products and services that improve the productivity and effectiveness of their maintenance programs through the implementation of condition based maintenance practices.

Because CBM is still in its infancy, there are both opportunities and risks. The lack of maturity in the market will allow for a small, creative and unique company such as GasTOPS Ltd. to establish itself as a credible supplier. However, the education demands of the customers in order for them to understand the technology well enough to discriminate between product suppliers will put a substantial marketing burden on any company endeavouring to enter - or actually create - this market.

The following sections give a brief history of maintenance methods, describe the theory behind condition based maintenance, and discusses the MSD’s potential market CBM based products and services.

2.1History of Equipment Maintenance Methods

To better understand this emerging market, it is worthwhile to review the history of equipment maintenance. There are essentially three generations of maintenance [1]:

pre-1950’s: Fix it when it breaks’ or Corrective Maintenance predominates as the maintenance method;

1950’s to mid-1970’s: Scheduled Preventive Maintenance becomes commonplace; and

post-1970’s: On-Condition and Predictive Maintenance begins to emerge as an effective maintenance methodology.

….

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The limitations of scheduled preventive maintenance were first recognized by the commercial aviation industry as early as 1960

[2].Frustrated with the inability to increase reliability of civil aircraft by any feasible changes in either the content or frequency of scheduled overhauls, the U.S. Federal Aviation Administration (FAA) and the civil airlines formed a task force to investigate the capabilities of preventive maintenance. This task force made two discoveries that at the time were very surprising, namely:

Scheduled overhaul has little effect on the overall reliability of a complex item unless the item has a dominant failure mode; and,

There are many items for which there is no effective form of scheduled maintenance.

This task force eventually led to the formation of a Maintenance Steering Committee (MSG), in 1965, that generated a document known as MSG-l describing a new methodology for defining maintenance called Reliability Centred Maintenance (RCM). The fundamental approach of RCM was to use on-condition maintenance where ever feasible to increase the reliability of equipment to levels that were not being achieved by scheduled restoration and overhaul. This approach to defining maintenance requirements includes a rigorous Failure Modes, Effects and Criticality Analysis (FMECA) to identify failure modes and a logic tree type analysis that defines what to do about each type of failure. The important aspect of the logic used in RCM analysis is that it emphasizes the use and selection of on-condition tasks first, and resorts to scheduled repair and overhaul, failure finding or equipment re-design and modification for those cases where on- condition tasks are not feasible.

The MSG-1 document expressly developed for the maintenance of the then new Boeing 747 aircraft and was unqualified success. For example, United Airlines used RCM to reduce the major structural inspections to 66,000 manhours compared to 4,000,000 called for in the pre-RCM developed maintenance program for the simpler DC-8 aircraft.

Refinement of the RCM procedures in the MSG-2 document were used to develop maintenance programs for the Lockheed LIO11 and the Douglas DC-10. This resulted in the reduction of scheduled overhauls to only 7 of the DC-10 aircraft components compared to the scheduled overhaul to 339 of the DC-S aircraft

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components. The maintenance savings were substantial as the elimination of scheduled overhaul of the engines alone resulted in a 50% reduction in engine spares inventory.

The RCM methodology has been subsequently refined and currently is used in three different but very similar formats. The civil aviation industry uses MSG-3 [3], the US Department of Defence uses a methodology developed by Knowlon and Heap [2], and John Moubray refined a methodology directed towards industrial applications entitled RCM II [1].

Again, it is worth emphasizing that RCM is only a method for defining maintenance; the real ‘benefit’ to practitioners is that it emphasizes the use of on-condition maintenance to prevent failures.

[55]The MSD’s 1995/96 business plan (Exhibit 6) showed a re-organization into a new management structure with program managers now becoming responsible for specific products. Brouse became the program manager for Aero Systems and Forsyth became a program manager for MAINSTAY. Each program manager would have responsibilities for specific matters. Tobin was given the responsibility for marketing and new business development focusing on the MAINSTAY product.

[56]In 1995, GasTOPS commenced the development of ECMS v.2 under two contracts, TIES and CRAD. Under the CRAD, GasTOPS was to develop the Second Line Prognostic System (“SLPS”) software product. At the completion of the development phase, it would be integrated into ECMS v.2. The integration of all component systems would take place under the TIES contract.

[57]By March 1995, GasTOPS had prepared the requirements report for Condition Based Maintenance System (“CBMS”), which was the name given to ECMS v.2. The report was entitled “CF-18 Condition Based Maintenance System (CBMS) Requirements Report” and was prepared for the DND. The report indicated that it was prepared by Tom Kubiseski (“Kubiseski”) and reviewed by Brouse. Its introduction (Exhibit 35) stated:

Several key elements in the creation of the CF-18 CBMS will be:

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ECMS/EMRS Integration. ECMS and EMRS are currently operating on two separate computer systems. EMRS will become a client/server application operating on the ECMS LAN to enable this integration. As part of this integration, context sensitive EMRS Forms will be callable from the ECMS Maintenance Manager’s iconic map.

ECMS/EHM Integration. The Takeoff Analysis, Takeoff Trending and the ETF Troubleshooting Programs currently reside on the VAX 11/785 computing facility at each CF-18 base. These VAX based programs were developed as proof-of-concept applications, and duplicate many of the functions and data storage features of the more fully developed ECMS and EMRS programs. To remove the redundant data requirements and the resulting additional manpower requirements the VAX based programs will be fully integrated into ECMS. This integration phase has been commonly referred to as SLPS (Second Line Prognostic System).

DIGS/FLTS Integration. The DIGS and FLTS programs will be integrated such that the DIGS will perform all processing required by the FLTS and populate the required database tables. The FLTS reporting software will be modified such that aircraft parameters as well as the current engine parameters may be reported and presented graphically.

ECMS Phase II. The ECMS Phase II requirements will be integrated as part of the CF-18 CBMS. This phase of ECMS will see enhancements such as an Equipment Configuration Setup Utility and a Usage Rollback Utility implemented at this time.

[58]As indicated in the introduction, the several systems (ECMS, EMRS, FLTS, Take-Off Analysis Program, Take-Off Trending Program, ETF Troubleshooting Program, EMR and DIGGS) were to be integrated to form a CF-18 CBMS and, upon completion, the program became known as ECMS v.2. Brouse had the primary responsibility for the contract development and Forsyth was responsible for finding the ideas and products to be included in ECMS v.2.

[59]In March 1995 GasTOPS made a presentation to the CAF, whereby a proposal was made to modify the ECMS v.2 development plan. The proposal was prepared by Brouse with assistance from Forsyth, Jeff Cass and Kubiseski. The main feature of the proposal was that GasTOPS now proposed a common database for ECMS v.2 which would be similar to the

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MAINSTAY database. GasTOPS was proposing to develop ECMS v.2 with a generic core design (general functionality within a basic database design, which would be a reusable design). The databases for ECMS, FLTS and CBM-DAS would be integrated into a new data model.

[60]The development work would be performed by GasTOPS’ product development staff and in particular, the defendant Jeff Cass’ product development team, which was developing the MAINSTAY product. The team approach being proposed by GasTOPS for the development work was:

[61]In March 1995 GasTOPS submitted to the DND a report entitled “CF-18 CBMS Functional Specifications Document (draft).” The document was prepared by W.M. Smith, L. Nguyen, A. Richardson and reviewed by D. Brouse. GasTOPS’ plan was to develop a new database for all of the applications to be integrated into ECMS v.2. The database would be similar to GasTOPS’ MAINSTAY. In addition, there were some MAINSTAY features and

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functions that had better design features than those currently being used in ECMS. GasTOPS intended to implement these features into ECMS v.2. There were also a number of ECMS v.2 components that were of a general purpose and could be integrated into MAINSTAY.

[62]The Design documents and design specifications were prepared by Jeff Cass to implement the proposed changes. He prepared a design specification for the prognostic expert system component of ECMS v.2 in order that the design would be reusable as a part of the MAINSTAY product. Similarly, a design document was prepared by Jeff Cass for the data collection component of ECMS v.2 (also referred to as “sample management” component). This component of ECMS v.2 software was integrated into the MAINSTAY product.

[63]By September 1995, GasTOPS had prepared for the DND a report entitled “CF-18 Condition Based Maintenance System – 404 Second Line Prognostic System Preliminary Design” (Exhibit 41c). The report was prepared by Kubiseski and reviewed by Brouse. This was the preliminary design of the SLPS component of ECMS v.2, also known as the prognostic component of ECMS v.2.

[64]In his August 13, 1995, MSD 1995/96 technology plan contribution (Exhibit 7), Forsyth defined MAINSTAY as:

MAINSTAY is the chosen name for maintenance information management systems product to be developed and marketed by the MSD. The MAINSTAY product is to contain the integrated functionality of a number of computer programs developed by the MSD for specific customer needs. By integrating these functions into a single system, it will be possible to develop a condition based maintenance product that meets the market needs identified in the previous section.

[65]When Forsyth prepared his technology plan, the computer programs that had been developed by the MSD consisted of the PASS, Lube Analyst product, and CBM-DAS. It was intended that MAINSTAY would contain the functionalities from FLTS, EMRS, ECMS, PASS, Lube Analyst and CBM-DAS.

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[66]The MSD’s 1996/97 business plan, prepared by Muir on August 30, 1996, contained the objectives for both the technology development and marketing plan. The MSD’s business plan focused on an opportunity with the U.S. Navy. GasTOPS hoped to upgrade ECMS and the FLTS product for use by the Navy. There was also to be a more substantial upgrade to ECMS: it would be converted in a new operating system, Windows NT/95 for the GE opportunity. As in the previous business plans, the technology portion of the plan was based on a separate report prepared by Forsyth. The MSD 1996/97 business plan (Exhibit 8) contains an excellent view of the past work of the MSD and its future objectives:

SUMMARY OF OBJECTIVES

TECHNOLOGY PLAN

1.The F/A-18 ECMS and FLTS products will be upgraded for U.S. Navy use.

2.The ECMS will be converted to the Windows NT/95 operating system, if selected by General Electric for their new Engine Services information services.

3.The Lube Analyst product will be adapted for use by the Joint Oil Analysis Program (JOAP).

4.An ODM system for the Sea King helicopter will be developed.

5.Production engineering and pre-flight qualification testing will be completed for the AH64 ODM system.

6.The CF-18 Solid State TTM development will be completed.

HUMAN RESOURCES PLAN

1.The Aero Program will establish a proper management team.

2.The Division will add 12 new technical staff to meet the level of effort requirements of the FY 96/97 Revenue Plan. This will include 4 field service representatives.

MARKETING PLAN

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1.The MSD will meet an overall revenue target of $6.5M based on the following breakdown of Program revenue targets:

2.The Division will obtain a long term contract from the CAF to provide ECMS field operations support.

3.The Division will win a contract to produce solid state Tape Transport Magazines (TTMs) for the CF-18.

4.The Division will reach a “partnership” agreement with the CAF for “Integrated Health Monitoring (IHM)” support and will obtain a contract for oil analysis systems support.

5.The Division will win a major contract with the U.S. Navy for the F/A-18 ECMS/FLTS.

6.The Division will consolidate and formalize the CBM support services provided to Dofasco, at a level of approximately $500K/year.

7.The Division will continue the implementation of MAINSTAY at Ontario Hydro’s Pickering Nuclear Station in accordance with a Five Year Strategic Plan and will position itself for similar implementation programs at the Bruce and Darlington Nuclear Stations.

8.A single target market sector will be selected for near term MAINSTAY marketing efforts and the Division will position itself to achieve a MAINSTAY sale to a customer within this sector.

9.A “program” sale of Lube Analyst will be made to a U.S. JOAP member organization.

10.Twelve (12) copies of the RCM Analyst software will be

sold.

11.The Division will obtain a contract to develop an ODM system for the Sea King helicopter.

12.We will succeed in getting ODM into the procurement

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specifications for the CAF’s new SAR and Maritime helicopters.

…

2.REVIEW OF BUSINESS PROGRAMS

The MSD functions as an autonomous business unit within GasTOPS and shares the corporate mission of “improving the effectiveness of machinery through the application of computer technology”.

Specifically, the MSD focusses its business activities on the application of Condition Based Maintenance (CBM) technologies to aeronautical and industrial machinery and on the application of oil debris sensor technologies to aircraft propulsion systems.

…

2.1Aero Systems Program

The Aero Program was derived from the Division’s historical core business of providing engineering services to the Canadian Air Force (CAF). The general business development goals of the Program are twofold:

1.to continuously expand the level and scope of CBM system development and support services provided to the CAF.

2.to achieve additional business growth by exploiting the company’s CBM technology/ products within the following markets:

•CAF

•other military aircraft operators

•commercial aircraft operators

•aero-engine and aircraft OEMs

2.1.1Marketing Position

Total revenues for the Program in FY 95/96 were $2590K (estimated); 14% higher than the previous year sales of $2270K. The breakdown in these sales was as follows:

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A significant fraction of Program revenues continue to come from a single CAF directorate, DFTEM. In FY 95/96 the Company significantly strengthened its position with this customer through a number of successful initiatives including:

•renewal of company TIES contract

•development and delivery of the ECMS version 2.0

•provision of new CF-18 ground stations

•development of a prototype solid state TTM for the CF-18

•implementation of a Tutor/J85 ECMS

The company has also positioned itself to win three (3) new programs in FY 95/96:

•contracting out of ECMS operations at CFB Bagotville and Cold Lake procurement of solid state TTMs

•expansion of the ECMS non-engine CF-18 aircraft systems

The Chief of Research and Development (CRAD) continues to be an important source of technology development funding for the Program and the Company. In the previous year CRAD projects included:

•completion of the take-off performance trending methods and software for the CF-18

•completion of the Deployable Filter Debris Analyzer (DFDA) and Oil Screening Device (OSD) prototype developments

•continuation of the Carleton University turbine blade damage studies

In FY 95/96 the company also positioned itself to obtain development funding for helicopter CBM, including a contract to development of an Oil Debris Monitoring (“ODM”) system for the

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Sea King.

In FY 95/96 the GasTOPS was successful in winning a contract from DTHEM to build and install a second F/A-18 engine exhaust augmentor tube at CFB Cold Lake. The general prospects for developing new business with this directorate, however, remain relatively poor.

….

It was an objective of the Program to achieve a follow-on sale of the CF-18 Flight Line Troubleshooting System (FLTS) to the Australian Air Force in FY 95/96; and this objective was not achieved. However, the company has made significant progress towards the sale of our F/A-18 FLTS and ECMS to the U.S. Navy. If achieved, this sale would position GasTOPS for significant future foreign military sales opportunities.

Significant progress was also made in FY 95/96 towards the sale of ECMS to General Electric for use at their major repair and overhaul sites.

2.1.2Technology Position

The Aero Program marketing plan (Section 5.1 of this Plan) focuses heavily on the exploitation of the company’s ECMS and FLTS products and their underlying technologies as a basis for new business development.

The significant short term opportunities for the ECMS include:

•the potential sale to the U.S. Navy F/A-18 program

•the potential sale to General Electric

•the potential application of the ECMS to a CAF helicopter fleet

•the potential application of the ECMS to the CAF Aircraft Structural Integrity Program (ASIP) data management requirement

In order to exploit these opportunities the following ECMS enhancements will be required:

•conversion to Windows 95/NT (GE)

•multiple equipment types/”blueprints” within a common database (GE)

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•damage/defect tracking and reporting (GE, USN, CAF)

•improved fleet management reporting (GE, USN)

•intersystem interfaces for periodic test techniques (CAF)

The major short term opportunity for the FLTS is the potential sale to the USN and F/A-18 FMS customers. This will require the following features to be added to the FLTS:

•diagnostic rules for the F402 engine

•interface to the USN standard aircraft tape reading devices

•automatic generation of work orders based on fault type

2.1.3Human Resource Position

The Aero Program presently includes 9 full-time technical staff members including the following management staff:

The Program is presently under-staffed and relies on resources from other programs to staff its contracts/projects. In particular, as a result of the recent resignation of Tom Kubiseski, the Program lacks an experienced Project Manager capable of handling large projects.

2.2Industrial Systems Program

The Industrial Program has grown out the Company’s efforts to commercialize the maintenance methodologies and systems technology originally developed for the Canadian Air Force. To- date, these efforts have resulted in the creation of three software products:

1.MAINSTAY - a Microsoft Windows 3.1 and Oracle based information system that provides plant-wide Condition Based Maintenance (CBM) functions for industrial applications.

2.Lube Analyst - an OS/2 and Watcom/Oracle information system for managing and interpreting used oil analysis test results.

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3.RCM Analyst - a Microsoft Windows 3.1 and Oracle based information system that supports the Reliability Centred Maintenance methodology for identifying and defining equipment maintenance tasks.

The general business goal of the Program is to establish specific markets for these products and their associated services which will result in continued business growth.

2.2.1Marketing Position

Total revenues of the Program in FY 95/96 were $1,630K (estimated); 14% higher than the previous year sales of $1,430K and 25% higher than the original FY 95/96 plan of $1,300K. The breakdown in these sales was as follows:

…

2.2.2Technology Position

2.2.2.1MAINSTAY

Significant progress was made in FY 95/96 towards the completion of a general purpose CBM software product for industrial plant application. In particular, for the Ontario Hydro and Caidmark projects the Dofasco “CBM-DAS” software was generalized and its functionality was broadened to include:

•a “user defined calculation” module that allows users to define condition indicator calculations in the database

•an Oracle based expert system for diagnosing/prognosing the cause of condition indicator exceedances and automatically generating maintenance work requests

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•an interface to the Entek E-monitor Vibration Analysis (VA) database, including the synchronization of equipment and sample routes as well as the definition and extraction of condition indicators from the recorded FFT vibration spectrum

•an interface to the GasTOPS’ Lube Analyst database

•a Hand Held Data Logger (Telxon) user interface and MAINSTAY data transfer application that includes pen-based handwriting recognition that allows maintenance personnel to ‘write’ the measurement results directly into a local database that is then electronically (via an RS232 cable connection) uploaded to MAINSTAY

A number of short term contractual opportunities exist for further development/enhancement of the MAINSTAY product. These are described in the Technology Plan section of this plan.

2.2.2.2Lube Analyst

…

The Lube Analyst product has not achieved the sales targets anticipated, and it is felt that the OS/2 operating system requirement is a significant barrier to product sales. Conversion to Windows 95/NT will not be undertaken, however, unless a significant market (e.g. the JOAP) can be developed for the product.

2.2.2.3RCM Analyst

As previously noted, the development of a Reliability Centred Maintenance (RCM) software tool was accomplished in the past year. This product allows the user to perform equipment Failure Modes and Effects Criticality Analysis (FMECA), to select the ‘optimal’ maintenance task for each failure mode (re-design, on- condition, restoration, replacement or ‘let it fail’) based on the RCM methodology, and to define the maintenance plan in terms of resources, skills, frequency, etc.

2.2.3Human Resources Position

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The Industrial Program presently includes 17 full-time and 1 part- time technical staff members including the following management team:

2.3ODM Program

The goal of the ODM program is to develop new business opportunities based on the application of the company’s oil debris monitoring (ODM) technology to military and commercial aircraft.

In FY 94/95, GasTOPS entered into a formal partnership agreement with BFGoodrich Aerospace whereby BFGoodrich (BFG) will manufacture and market the ODM in return for a royalty on units sold. As such, the development of the ODM program is predicated largely on the development of GasTOPS’ partnership with BFGoodrich.

2.3.1Marketing Position

Revenues for the ODM program in FY 95/96 were $840K (estimated); an increase of $150K (or 22%) over the previous year sales of $690K. The breakdown in sales for FY 95/96 was as follows:

The ODM program has its origin in the company’s success in winning a major development contract with Pratt and Whitney (Florida) for the F119 engine. This development contract and an associated contract for the production of ODM sensors for the F119 flight qualification program will continue until the

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company’s FY 97/98 business year.

In FY 95/96, GasTOPS was successful in negotiating a license agreement with Hamilton Standard for use of GasTOPS’ F119 ODM signal processing design in F119 Comprehensive Engine Diagnostic Units (CEDUs) to be produced by Hamilton Standard. This agreement includes an upfront payment of U$100K (of which U$50K was received in FY 95/96) and a royalty of U$100 per sensor on each F119 ODM shipped to P&W for the Advanced Tactical Fighter (ATF) and Joint Strike Fighter (JSF) programs. The total anticipated production quantities for the Fl19 sensor are 3500 units over a 20 year period commencing in 1999.

In the past year, the Company was funded by BFGoodrich to develop an application-specific ODM sensor design for the AH64 helicopter engine nose and main gearboxes. Additionally, GasTOPS co-operated with BFG on the development of a general purpose ODM controller suitable for airborne applications of up to 8 sensors. The AH64 ODM system will be flight trialed in late 1996/early 1997 by McDonnell Douglas and the Israeli Air Force, with the expectation that, should the trial be successful, the IAF will procure 45 four-channel ODM systems over a 12 month period commencing in mid-1997.

Additional progress on the marketing of ODM for aircraft application in FY 95/96 included:

•submission of an unsolicited proposal to the CAF for the development of a Sea King helicopter main gearbox ODM system (2 channel)

•provision of an “experimental” ODM systems to Pratt and Whitney East Hartford for gearbox failure progression test programs at NASA Lewis and Miba Bearings

•provision of an experimental ODM system to Allison Gas Turbines for T56 reduction gearbox failure progression testing

….

2.3.3Human Resource Position

At the present time, the ODM program has no dedicated staff

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Overall program management is provided by the Division V.P. (D. Muir). Development contracts are managed and executed by the Advanced Design and Development Division of the Company. System production in handled by the Company’s Production group.

3.TECHNOLOGY PLAN

The general strategy of the MSD with respect to technology or product development is to systematically obtain development contracts, both military and commercial, which will contribute to the overall development of its maintenance information management system and oil debris sensor products. Remaining elements of the technology plan are funded from internal resources or government grants, to the extent to which these funds are available.

The following describes the MSD technology development plans for FY 96/97.

3.1ECMS/FLTS

Further development of the ECMS and F/A-18 FLTS will occur under the following planned contracts.

a)DFTEM TIES

•development of a ‘context-sensitive’ Engine Maintenance Reporting System that is integrated into the ECMS

•modification of the ECMS to support the F/A-18 airframe including the support of alternate components, multiple blueprints, the management of airframe fatigue data, and the generation of airframe status reports

b)CRAD-Turbine Damage

•improved characterization of the effects of turbine damage on F404 engine performance.

c)U.S. Navy

•improved fleet management reporting

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•NAVAIR-specific intersystem interfaces

•F402 engine diagnostic rule set for FLTS

•automatic generation of work orders based on FLTS fault types

d)CRAD-Other

•implementation plan for application of CBM technologies to CAF helicopters (target application: Sea King)

•intersystem interfaces for periodic oil and vibration analysis systems

•Sea King pilot project

e)Other Contracts

It is anticipated that other potential contracts of the Aero Program will also contribute to the development of the ECMS product. This is particularly the case for the General Electric ECMS opportunity which will require conversion of the ECMS to the Windows NT/95 operating system. The estimated labour costs associated with this conversion are $280,000 and will not be undertaken without a prior commitment from GE to purchase the converted ECMS product.

3.2MAINSTAY

Further development of the MAINSTAY product will occur under the following expected contracts in FY 96/97.

a)Dofasco

•development of a thermographic interface capability

•development of a motor current analysis capability

•development of a PI Oil Systems data historian interface

b)Ontario Hydro

•development of motorized valve prognosis techniques and MOVATS interface

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•development of generalized RCM analyses of heat exchangers, pumps, valves, etc., that can be packaged with MAINSTAY

c)Petrochemical opportunities

•there are a number of potential contracts presently being pursued by Caidmark and Interplant which will require an interface between the InterPlant Process Data Historian database (this would provide a generic interface to all of the commercially available Distributed Control Systems) and MAINSTAY to be developed

•the development of an interface to PSDI’s MAXIMO work order management system will be undertaken if GasTOPS is successful in winning the Petronas Gas Processing Plant project

Because of manpower constraints, no significant internally funded or discretionary MAINSTAY development is presently planned the next year.

3.3Lube Analyst

No further development of the Lube Analyst product will be undertaken in FY 96/97, other than that required to meet the DoD JOAP requirement. It is anticipated that minor enhancements to the product will be required for the JOAP, including improved data transfer and reporting capabilities and possibly certain USAF and/or NAVAIR specific intersystem interfaces. For the most part, these enhancements will not be undertaken without a contract from the DoD.

3.4RCM Analyst

The RCM Analyst product has and will be provided to a small number of organizations on a “try and buy” basis. It is anticipated that minor enhancements to the product will be made in order to secure these initial orders for the product.

Activities planned for FY 96/97 which may require internal funding include:

•development of a tutorial database

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•preparation of a Users Reference Guide

•completion of conversion to Windows 95/NT

3.5ODM

A number of contracts in FY 96/97 will contribute to further development of the 0DM product. These include:

a)P&W ODM Development

•IFR sensor qualification testing

•design modification resultant from IFR EMI test results

•Initial Service Release (TSR) qualification test procedures

b)Sea King ODM

•development of a 2-channel ODM system for the Sea King Helicopter main gearbox

c)AH64 ODM

•production engineering and pre-flight qualification testing of the AH64 ODM system for McDonnell Douglas

d)P&W ADP Sensor

•development of a prototype, large bore (1¼ inch diameter) ODM sensor for P&W East Hartfordts Advanced Ducted Propulsor (ADP) engine development program.

e)Other Contracts

It is anticipated that BF Goodrich will contract GasTOPS to undertake specific ODM product development activities in response to specific business opportunities (e.g. the Allied Signal AS90 prospect).

No ODM development activities are planned for FY 96/97 which will require internal funding.

…

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4.HUMAN RESOURCES PLAN

4.1Management Plan

Figure 4.1 summarizes the present MSD management structure.

The Aero Program is in greatest need of additional management staff, and it is an objective of the Program Manager to establish at least one and possibly two additional Project Manager positions by the end of FY 96/97.

The Industrial Program may also require an additional Project Manager if the Company is successful in winning another major MAINSTAY implementation project.

…

5.MARKETING PLAN

5.1Aero Systems Program

5.1.1General Strategy

The general strategy of the Aero Program is as follows:

a)Continued marketing of maintenance program development and support services to the CAF, with an emphasis on funded technology and/or product development programs

b)Selective marketing of products developed for the CAF to

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other military and commercial aircraft operators and/or OEMs.

With regards to item b), current efforts are focussed primarily on the sale of the Engine Condition Monitoring System (ECMS) and F/A-18 Flight Line Troubleshooting (FLTS) products.

5.1.2CAF

The CAF represents the core business of the Program. In FY 95/96, sales to the CAF increased from $2300K to $2500K (9%), largely as a result of significantly increased revenues from the DFTEM TIES contract.

The objective for the upcoming year will be to increase revenues from the CAF to roughly $2700K (or by 8%) by pursuing the following general marketing plan:

a)DFTEM - Efforts with this customer will concentrate on bringing to contract a small number of new business opportunities already initiated at the time of writing this plan. These include:

•A long term contract to provide CF-18 ECMS support services at Canadian Forces Bases Cold Lake and Bagotville (3 technical representatives at each base)

•Expansion of the CF-18 ECMS to include non- engine aircraft systems; in particular, the structural components of the aircraft maintained under the CF-18 Aircraft Structural Integrity Program (ASIP)

•Production of solid state Tape Transport Magazines (TTMs) for the CF-18

The second item above will most likely require some form of co-operation agreement with Bombardier Defense Systems Division (formerly Canadair).

b)CRAD - GasTOPS is currently positioned to win a series of small R&D contracts related to the application of CBM to helicopters from the Chief, Research and Development (CRAD) directorate. This effort presently lacks an overall implementation plan and cost justification. This plan will be prepared by the Company as early as possible in the next fiscal year.

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Additionally funding may also be sought from CRAD to complete the development of the Deployable Filter Debris Analyzer (DFDA) and/or the Oil Screening Device (OSD).

c)DTA - The Company is presently attempting to position itself to secure a contracting arrangement from the Directorate of Technical Airworthiness (DTA) for on-going support of the CAF periodic oil and vibration analysis programs. GasTOPS is already the sole Canadian sales/service agency for the Dynamic Instruments VBAS vibration analyzer and has recently proposed to provide R&O support for the Baird MOA oil analysis spectrometers and CAF oil laboratory software systems. These opportunities are part of a broader marketing initiative to establish a “partnership agreement” with the CAF for the provision of “Integrated Health Monitoring (IHM)” development and support services.

d)Other Directorates - GasTOPS’ efforts to sell the ECMS to the maintenance managers of non-fighter CAF aircraft fleets (i.e. transport and helicopter aircraft) have yet to bear fruit. In the next fiscal year marketing efforts will be focussed on the following opportunities:

•CBM pilot project for the CH-124 Sea King helicopter

•inclusion of GasTOPS’ ECMS and 0DM products in the procurement specifications for the new Maritime and Search and Rescue (SAR) helicopter acquisitions

5.1.3 F/A-18 ECMS and FLTS

At the time of writing of this plan, the Company is positioned to win a major contract (~$1.5M) from BFGoodrich Aerospace to demonstrate the F/A-18 ECMS/FLTS to the US Navy (NAVAIR). This demonstration contract could in turn lead to additional F/A-18 ECMS/FLTS sales of approximately $15M to NAVAIR and foreign F/A-18 operators over the next 3 to 5 years.

The objectives of the next fiscal year will be to win this major demonstration contract, to develop a marketing plan for “production” sales to NAVAIR and foreign F/A-18 operators, and to position ourselves to win these production sales.

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It is also noteworthy that GasTOPS has positioned itself to win the NAVAIR F/A-18 ECMS/FLTS opportunity by marketing the system as a replacement for the problematic NAVAIR - developed Maintenance Data Processing System (“MDPS”), a common ground support system for the several US Navy fleets. Hence, winning the F/A-18 program will position GasTOPS as a possible supplier to other NAVAIR programs including the V22, F-14, CH- 53 and AH-1W aircraft.

5.1.4Generic ECMS

The F/A-18 ECMS application is built on a generic core system which the Company, in partnership with BFGoodrich, has recently presented to General Electric. In 1997, GE plans to upgrade its “Engine Services” information management capabilities as part of

acorporate-wide program to implement state-of-the-art, enterprise- wide database systems for finance, manufacturing and customer support.

The GasTOPS’ ECMS product has received a favourable evaluation by the GE Information Systems (IS) group and is presently being evaluated at 4 GE “user” sites. A “make or buy” decision will be made by GE in September 1996.

If selected, GasTOPS will be required to undertake a major development effort to convert the ECMS application to the Windows 95/NT operating system over a period of approximately 6 months. Once converted, however, the ECMS will have broad applicability to the aero-engine and aircraft OEM markets.

…

5.2.4MAINSTAY

The MAINSTAY product grew out of the Dofasco CBM-DAS project. Two follow-on sales have been achieved: Ontario Hydro and ITM. At the time writing, only one serious prospect for MAINSTAY is being pursued (Petronas Gas Processing Plants 5&6).

The objective for MAINSTAY for the upcoming year will be to identify a market sector in which to concentrate MAINSTAY marketing efforts and to position ourselves to win a contract with a new customer in this sector.

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The following marketing plan will be used:

•a MAINSTAY Marketing Brief will be prepared that includes an assessment of three candidate sector (metals, utilities, oil & gas) from which one will be selected

•a portfolio of marketing materials will be prepared that are tailored to the selected sector

•a direct marketing effort will be undertaken towards selected companies in the selected sector

•GasTOPS will position itself to achieve a MAINSTAY sale to one of these companies

5.2.5Lube Analyst

Lube Analyst marketing efforts for the upcoming year will focus primarily on winning a contract with one of the U.S. Joint Oil Analysis Program (JOAP) member organizations. GasTOPS has teamed with BFGoodrich to pursue this opportunity and, at the time of writing of this plan, has made good progress towards a sale to either:

a)the U.S. Air National Guard;

b)the U.S. Air Force; or

c)NAVAIR.

The total current market for a JOAP lab software support system breaks down as follows:

5.2.6RCM Analyst

The RCM Analyst product was launched in FY 95/96 with the

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following results achieved to-date:

•248 inquiries have been received

•a free trial copy was given to Penn State University

•two companies have ordered the product on a trial basis (U$7500 if kept; U$500 restocking fee if returned)

The objective for the upcoming year is to achieve RCM Analyst revenues of $90K, including the sale of a client-server version to Ontario Hydro. The marketing plan for RCM Analyst is summarized as follows:

•continue the promotion/advertising of the product in maintenance trade magazines; respond to resulting leads

•continue promoting its sale to Ontario Hydro

•monitor the trial use of the product by Johnson Controls, Eli Lilly and Penn State

•contact RCM service providers as possible sales channels

•survey existing contact list for reactions to product

•develop assessment of product viability (mid-way through upcoming year)

5.3ODM Program

5.3.1General Strategy

The general strategy currently employed by GasTOPS and BFGoodrich (our US partner company) to market the ODM product involves:

a)missionary sales efforts aimed at raising the general level of market awareness of the technology and product

b)provision of the product to technical “gate keepers” or enthusiasts within key organizations

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c)targeted sales to specific military and commercial engine/aircraft programs.

The short term market opportunities presently targeted include:

a)military helicopter retrofits

b)commercial engines for ETOPS service

c)new military aircraft acquisitions

All planned marketing efforts are restricted currently to the U.S. and Canada.

….

5.3.4New Military Aircraft Acquisitions

The basic strategy in this market segment is to get ODM in the procurement spec for the acquisition program and to subsequently (or preferable at the same time) position ourselves to win the program.

Programs which are presently being pursued by GasTOPS/BFGoodrich include:

•the CAF new SAR helicopter

•the CAF new Maritime helicopter

•the U.S. Navy V22

•the U.S. Army AH-64 Longbow

It is noteworthy that GasTOPS has already won a position on the F119 engine program which is presently the only engine specified for the USAF F22 Advanced Tactical Fighter (ATF) and the Joint Strike Fighter (JSF) programs. As previous noted, the expected production quantities for these programs are 3500 units over a 20 year period commencing in 1999.

BFGoodrich/GasTOPS are not pursuing the new European military aircraft programs such as the EJ2000, NH90, EH101 and JAS39.

5.3.5Other Opportunities

In addition to the above described planned activities, other applications of the ODM are presently pursued on an opportunistic basis. At the present time, these activities include an opportunity to

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incorporate the ODM into the design specification of Allied Signal’s new AS90 turbofan for regional and large business jets.

BFGoodrich has also approached GasTOPS recently for assistance in certifying their new helicopter Health and Usage Monitoring System (HUMS) product. This assistance will be provided in the form of engineering services for software verification testing.

5.3.6Revenue Plan

The total planned revenues for the MSD for FY 96/97 are summarized as follows along with results achieved for the previous fiscal year (estimated).

[67]In August 1996, Forsyth forwarded his technology report for the forthcoming business year to Muir:

2.2MAINSTAY Program

The MAINSTAY program grew out of the efforts to commercialize the maintenance methodologies and systems technology originally developed for the Canadian Air Force (CAF). The business development of the program is based on three products that incorporate this technology:

1.MAINSTAY - a Microsoft Windows 3.1 and Oracle based information system that provides enterprise wide Condition Based Maintenance functions. This product was primarily developed from the Dofasco projects, with the commercial packaging of the product carried out under the Ontario Hydro project.

2.Lube Analyst - an OS/2 3.0 and Watcom/Oracle based information system for managing and interpreting used oil analysis

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test results. This product was primarily funded by GasTOPS and CRAD (through the PIDMS project).

3.RCM Analyst - a Microsoft Windows 3.1 and Oracle based information system that supports the Reliability Centred Maintenance methodology for identifying and defining equipment maintenance tasks. This product was developed under two projects, one with Dofasco and the other with Orenda.

The general business development objectives of the program are to expand the sales associated with these products and supporting services. More specifically, the objectives are:

1.to successfully implement complete CBM programs throughout Dofasco and Pickering and establish these as credible reference sites for the GasTOPS Condition Based Maintenance products and services;

2.to continue the development of a suite of general purpose RCM and CBM information system products that will significantly reduce the effort to implement RCM/CBM and form the basis of, and maximize, the program business growth; and,

3.to position Lube Analyst to become the Joint Oil Analysis Program (JOAP) approved product for the United States Air Force.

2.2.1Marketing Position

….

The lack of sales from our business alliance with the commercial labs forced us to re-evaluate our marketing efforts and we have since returned our focus to our original market, the operator owned labs. In particular, the marketing efforts has been focussed on our business alliance with BFGoodrich and the sale to the United States Joint Oil Analysis Program (JOAP) labs. Progress has been made in this area with the successful installation of Lube Analyst at the JOAP Technical Support Center (TSC) in Pensacola, Florida.

2.2.2Technology Position

There has been very good progress in the product development

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efforts for MAINSTAY for the past fiscal year. The primary technological focus was to migrate the Dofasco specific CBM- DAS software to a general purpose, professionally packaged/presented product with broader functionality providing the basis for the program business development. This was accomplished, along with significant functional enhancements, including:

•a “user defined calculation” module that allows users to define condition indicator calculations in the database

•an Oracle based expert system for diagnosing/ prognosing the cause of condition indicator exceedances and automatically generates maintenance work requests

•an interface to the Entek E-monitor Vibration Analysis (VA) database, including the synchronization of equipment and sample routes as well as the definition and extraction of trending condition indicators from the recorded FFT vibration spectrum

•an interface to the GasTOPS Lube Analyst database (analogous to the VA interface)

•a Hand Held Data Logger (HHDL) user interface and MAINSTAY data transfer application that includes pen-based handwriting recognition that allows maintenance personnel to ‘write’ the measurement results directly into a local database that is then electronically (via an RS232 cable connection) uploaded to MAINSTAY

Many of these MAINSTAY enhancements have been incorporated at the database level in the ECMS version 2.0 development. The contractual requirement for a Second Line Prognostic System (SLPS) to be incorporated into ECMS provided an opportunity to consolidate the ECMS and MAINSTAY databases and database level functionality (i.e. the Oracle based programming language embodied in ‘packages’ and ‘triggers’ at the database level). The results of this effort are that the ECMS and MAINSTAY have identical database implementations for the condition indicator

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storage, user defined calculations, expert system and maintenance planning and scheduling. The only significant difference is that the ECMS 2.0 has a much more sophisticated equipment type and assembly representation to support comprehensive equipment configuration management; a current weakness in MAINSTAY that we have not had the contractual opportunity to develop.

Other MAINSTAY features that were pursued but not developed in FY96 include the development of a real-time process data interface and a thermography interface. It is expected that finding for both of these features will be obtained from either Dofasco or Ontario Hydro in FY97.

Another technology objective, the development of a Reliability Centred Maintenance (RCM) software tool, was accomplished in FY96. The RCM Analyst product was completed as a result of the Orenda Engines Ltd contract described above. This product allows the user to perform equipment Failure Modes and Effects Criticality Analysis (FMECA), to select the ‘optimal’ maintenance task for each failure (re-design, on-condition, restoration, replacement or ‘let it fail’) based on the RCM methodology, and to define the maintenance plan in terms of resources, skills, frequency, etc.

Additional technology accomplishments in FY96, include:

•the evaluation and selection of a Windows 95/NT development tool - Powerbuilder 5.0 (This tool will allow us to use our existing Powerbuilder 4.0 MAINSTAY code base for Windows 95/NT development)

•the evaluation, selection and implementation of an automated software testing tool - Segue QA Partner

•the evaluation, selection and implementation of a software configuration management tool (to replace GasTOPS’ in-house tools that are expensive to maintain) - MKS Source Integrity

•the development of a Software Trouble Report (STR) and “issues” tracking database

•the development of enhanced maintenance scheduling in the ECMS version 2.0

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•the prototype development of a Windows 95 equipment configuration management user interface

The Lube Analyst product also had a number of enhancements added over the last year, most of these were in support of the marketing effort to PMC customers and to the TSC. These enhancements included:

•the integration of a customizable database reporting tool (Powersoft’s InfoMaker) and the development some standard reports, the most significant being a statistical condition indicator operating limits report

•the incorporation of minor enhancements and ‘bug fixes’ identified through the PMC beta program at Sidbek Dosco and the TSC evaluation

•the development of a BioRad Fourier Transform Infrared (FTIR) spectrometer interface

•the development of a Spectroil M rotrode atomic emission spectrometer interface

•the development of a Predict DR III ferrography particle quantifier interface

2.2.3Human Resource Position

The MAINSTAY Program management structure has been refined and formalized over the past fiscal year, the first year of the program. An organizational chart for the program is provided in Figure 2.x

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5.Methods Development - with the re-deployment of Chris Cass to the Aero Program following the departure of Andrew Richardson, Brad Forsyth has resumed responsibility of condition monitoring methods development (with Mike Egan being ‘groomed’ for this role). These responsibilities include the research and development of condition indicators, statistical analysis, trending techniques and diagnostic/prognostic methods.

[68]In 1996, GasTOPS was pursuing several opportunities in the market place, including the U.S. Navy. In its pursuit of these opportunities, GasTOPS was planning on upgrading its ECMS and FLTS products, converting the ECMS product to a Windows NT/95 new operating system for the GE opportunity and upgrading the Lube Analyst product for a program run by the U.S. Department of Defence.

[69]In June 1996, GasTOPS and the DND entered into a TIES contract for a period of three years at a value of $3 million. Under this contract, GasTOPS was to provide ongoing support and further development of the ECMS system and the transitioning from ECMS v.1 to ECMS v.2. In accordance with section 4.2 of the contract, GasTOPS was to own the foreground intellectual property that it developed during the course of the contract.

[70]The draft functional specifications of ECMS v.2 were prepared by Jeff Cass during September 1996 (Exhibit 44c). At the time Jeff Cass resigned from GasTOPS and commenced employment at MxI, the actual deliverable document had not been prepared. The only copy GasTOPS had was the in-house workbook draft prepared by Jeff Cass. The draft report outlines the integration of the software program. The data from all of the programs was combined into a single integrated database and software developed or redesigned to support each of the major maintenance processes: namely, scheduled maintenance, corrective maintenance and conditional maintenance. The final software system was to be a single integrated system operating under a single database for support of the F18 aircraft. After Jeff Cass resigned from GasTOPS and was employed at MxI, he provided GasTOPS with a document containing the database design of ECMS v.2 as of June 1996.

[71]With respect to MAINSTAY, GasTOPS’ goal was to create a general purpose product

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that could be used across a wide range of market segments for condition-based maintenance. In ECMS v.2, GasTOPS was attempting to integrate a number of software programs that would support maintenance in a single integrated system operating under a single database. The new software program would include SLPS as the prognostic tool, ECMS v.1 as the parts life tracking tool, FLTS as the diagnostic tool and the ground data station was being replaced with the PC- based system known as Portable CF-18 Ground Station (“PCGS”). In addition, GasTOPS was developing EMRS. All of these programs were being integrated into a common database that would enable the program to support all components of the aircraft.

[72]GasTOPS had obtained a CRAD to assess the feasibility of applying the ECMS software product to the Sea King helicopter. GasTOPS had also begun to develop an application of ECMS for the CF5 aircraft and in particular for the General Electric J85 engine in the CF5 aircraft under a TIES contract. With respect to MAINSTAY, GasTOPS was creating a new database to integrate the database for the ECMS system into the MAINSTAY database. The functionality being developed for the CAF would also be a part of the general purpose MAINSTAY product. The expert system component of the GasTOPS technology that had been developed for the oil analysis product was integrated into MAINSTAY and into the Dofasco system.

[73]In his contribution to the 1996/97 the MSD business plan, Forsyth wrote that the ECMS and MAINSTAY products had identical database implementation for most of the areas of maintenance support. However, the database in ECMS v.2 was more advanced than the MAINSTAY design for the configuration management part of the parts life tracking. He identified that a new development requirement would be to have MAINSTAY implemented in Windows 95/NT. GasTOPS was planning on using PowerBuilder 5.0, a software development tool, to implement the next version of MAINSTAY. Forsyth wrote that a new software configuration management tool had been selected, namely MKS, and that a software trouble report system would be developed to record specific problems that were identified in the development of a large complex software system. This was necessary because of the number of individuals who would be working on the same software system on different components or

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modules. A database was required to track these problems during the development process, in order that they could be collated and their resolutions recorded.

[74]In 1996, GasTOPS was pursuing an opportunity with the U.S. Navy; an opportunity with GE to provide the ECMS product for their maintenance repair and overhaul business for aircraft engines; opportunities in Kuwait, Malaysia; and the Volvo opportunity. In addition, there were two business opportunities GasTOPS was pursuing with Bombardier, one for the structural tracking requirement for the CF-18 aircraft and a proposal to replace a maintenance management module for the Data Management System (“DMS”) with ECMS. GasTOPS was also pursuing an opportunity with B.F.Goodrich to supply ECMS as part of the product B.F.Goodrich was developing for the helicopter health and life usage monitoring and the opportunity to supply the ground support computer software for their product. In addition, GasTOPS was pursuing opportunities with its MAINSTAY product and its RCM analyst product with Petro-Canada. There was an opportunity to provide a product similar to ECMS to the Ministry of Transport. GasTOPS made a proposal to the Ministry of Transport in September 1996 for a commercial aviation opportunity. GE was being pursued as it was looking for a parts life tracking tool for all its aircraft engine repair and overhaul sites for both military and commercial aircraft engines. In the summer of 1996, GasTOPS set up the ECMS v.2 demonstration for GE at four sites for evaluation purposes. As of October 1996, GasTOPS had completed the development of each of the major components of ECMS v.2. The common database that resided under each component was fully developed. The MSD was in the final stages of integrating the various components, being the process of correcting deficiencies (“bugs”) and getting the system ready for delivery to the CAF. As of October 1996, GasTOPS owned the intellectual property, confidential information and trade secrets that were contained in the background property that was brought to the various contracts, and in particular, the general purpose objects library, which was licensed to DND for use. GasTOPS had brought to the ECMS v.2 project as background IP, major design components of the GasTOPS’ MAINSTAY product, design features such as the graphic analysis to all, sample management features of the system, the expert system featured from MAINSTAY and Lube Analyst software products, the maintenance planning and scheduling features, which had been developed in the course of the Dofasco project. In addition, GasTOPS owned the

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foreground IP under the second flight line troubleshooting development contract, which provided that the software and design, including database design, was the property of GasTOPS. All of the work under the FLTS contract was the property of GasTOPS, which included all of the preliminary design work, and the database design of ECMS v.2. Under the terms and conditions of the 1996 TIES contract, all development work done on ECMS v.2 software system from June 1996 to October 1996 was the property of GasTOPS.

III. Individual Defendants’ Roles at and Duties Owing to GasTOPS

[75]The individual defendants’ roles at GasTOPS are important in considering the duties (fiduciary and otherwise) they owed GasTOPS, including the implied period of notice they were required to give to GasTOPS upon resignation.

The Law

[76]As I describe the individual Defendants’ roles at GasTOPS in this section, I will be making findings about the fiduciary and other duties they owed to GasTOPS. To ground those findings, I will first outline the relevant legal principles.

Existence and Duration of a Fiduciary Duty

[77]All employees owe their employer a general duty of good faith and fidelity, even if they are not fiduciaries (57134 Manitoba Ltd. v. Palmer (1989), 37 B.C.L.R. (2d) 50 (C.A.) at 5). It is an implied term of every contract of employment that an employee must, at all times during the employment relationship, protect the employer’s interest. In CRC-Evans Canada Ltd. v. Pettifer, [1997] A.J. No. 20, Sanderman J. described the common law duty of an employee to an employer at para. 45:

It has long been accepted that there is a fundamental term implied in every contract of employment. The employee is expected to serve his employer honestly and faithfully during the term of his employment. This duty of fidelity permeates the entire relationship between employer and employee. It is a flexible concept that is paramount to the basic relationship. There is an implied obligation placed upon the employee to act in the best interests of his

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employer at all times. The employee shall not follow a course of action that harms or places at risk the interests of the employer.

[78]A fiduciary duty elevates this common law duty, but it is grounded in the same policy. In Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592 [CanAero], Justice Laskin in reviewing the policy behind the Court’s approach to fiduciary obligation in the corporate context stated:

What these decisions indicate is an updating of the equitable principle whose roots lie in the general standards that I have already mentioned, namely, loyalty, good faith and avoidance of a conflict of duty and self-interest. Strict application against directors and senior management officials is simply recognition of the degree of control which their positions give them in corporate operations, a control which rises above day-to-day accountability to owning shareholders and which comes under some scrutiny only at annual general or at special meetings.

[79]The Courts have provided some guidelines for determining whether a fiduciary relationship exists but stopped short of defining a strict test. Instead, the courts have stated that “the categories of fiduciary, like those of negligence, should not be considered closed” (Guerin v. The Queen, [1984] 2 S.C.R. 335 at 384) and that the determination of a fiduciary duty must be based on the facts of each particular case.

[80]The seminal case on fiduciary duty is the Supreme Court of Canada decision of CanAero. There it was held that for a fiduciary obligation to attach to an employee, the employee must be in a position to exert or exercise some independent power or discretion over the employer’s business. As such, fiduciary duty demands the general responsibilities of loyalty, good faith, and avoidance of a conflict of duty and self-interest. In Frame v. Smith (1987), 42 D.L.R. (4th) 81, the Supreme Court provided three defining characteristics of a fiduciary employee:

1.the fiduciary has scope for the exercise of some discretion or power;

2.the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests;

3.the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

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And according to the Supreme Court in Hodgkinson v. Simms (1994), 117 D.L.R. (4th) 161, to find a fiduciary relationship requires finding “evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party” (176-77).

[81]In determining whether an individual is a fiduciary, the court must look at the nature of the relationship between the parties, the job function and the responsibilities being performed, as being more determinate of the issue, than the title held by the employee. The varying degrees of trust, confidence and reliance given to the employee and the corresponding vulnerability or dependency of the employer to competition when the person leaves, are the most pertinent factors in determining whether a fiduciary duty exists.

[82]Although in most cases fiduciary duties or obligations have been limited to senior officials or management of a company, on occasion, the Courts have extended fiduciary obligations to lower level employees, including those with technical rather than administrative duties, when an individual is found to be a key employee (Wilcox v. G.W.G. Ltd. (1984), 4 C.C.E.L. 125 (Alta. Q.B.)). A key employee is one whose position and responsibilities are essential to the employer’s business, making the employer particularly vulnerable to competition upon that employee’s departure.

[83]M.E.P. Environmental Products Ltd. v. Hi Performance Coatings Co., [2006] M.J. No. 211 (M.B.Q.B.), aff’d 2007 M.B.C.A. 71 [M.E.P. Environmental], enumerates more specific indicia that can be used to determine whether a former employee could be classified as “key”:

The indicia to be considered on the issue of whether a former employee was a “key employee”, such that he or she owed a fiduciary duty to their former employer and not to solicit former employer’s customers may be summarized as follows:

i.What were the employee’s job duties with the former employer?

ii.What was the extent or frequency of the contact between the employee and the former employer’s customers and/or suppliers?

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iii.Was the employee the primary contact with the customers and (or) suppliers?

iv.To what extent was the employee responsible for sales or revenue?

v.To what extent did the employee have access to and make use of, or otherwise have knowledge of, the former employer’s customers, their accounts, the former employer’s pricing practices, and the pricing of products and services?

vi.To what extent was the former employee’s information as regards customers, suppliers, pricing, etc., confidential?

[84]After identifying an employee as “key”, further determining whether that employee is a “fiduciary” is a difficult endeavour. According to James D’Andrea, “generally, a fiduciary is one who is empowered to act on behalf of and for the benefit of another with the ability to affect that other’s interest through the use of discretion” (Employment Obligations in Canada, looseleaf (Aurora Ont.; Canada Law Book 2006))

[85]The jurisprudence has imposed fiduciary obligations on employees in a number of different factual circumstances and in so doing have considered:

(a)whether the employee has scope for the exercise of some discretion or power, the employee can unilaterally exercise that power or discretion so as to effect the beneficiary is legal or practical interest and whether the beneficiary is vulnerable to or at the mercy of the fiduciary holding the discretion or power;

(b)knowledge of customer contact information, needs and preferences, and therefore, an ability to influence customers. An employee may be held to be a fiduciary if they are found to have “encyclopedic knowledge” of their employer’s customers, unrestricted access to all customer lists and information concerning customers, privy to policy issues and personal contact with, and responsibility for, a large portion of customers: see Smyth v. UndercoverWear Ltd., [1993] O.J. No. 2180 at para. 32 citing Hudson’s Bay Company v. McClocklin, [1986] 5 W.W.R. 29;

(c)knowledge of the business and market opportunity of the employer or playing a role in the employer’s strategic market development is a consideration in determining if the employees owed a fiduciary duty to the former employer. In Scantron Corp. v. Bruce, [1996] O.J. No. 2138, Eberhard J. stated at paras. 19 and 20:

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A fiduciary duty owed by senior employees may co- exist with a contractual duty. Wallace Welding Supplies Ltd. v. Wallace (1986) 8 CPC (2d) 157 (HCJ)

This issue calls into question the degree of trust and confidence placed by Scantron Canada in Bruce. A mere employee, absent contractual protections, can take with him the knowledge and skill attained during the employment and to use it to directly compete with the former employer. It is conceded that by joining Bruce in his new enterprise, Burrows becomes bound to the same duties. Alberts v. Mountjoy, (supra). It is also true that the freedom to compete refers to skill and knowledge, not confidential information. This information could include not only the special knowledge of the target customer but also knowledge of the employer's policies and procedures making it possible to undercut the former employer with a view to inducing the customer to change from its current supplier to the former employees.

(d)knowledge of and access to confidential information. It is not necessary for an employee to have access to corporate financial information to be found to be a fiduciary. It is the employee’s access to information of which disclosure would make the employer vulnerable. In a sales environment, customer information is critical or in a technological environment, product specifications are critical. In Scanton Corp., Eberhard J. stated at paras. 21 and 22:

I am persuaded on the evidence before me that Bruce did have sufficient seniority in the corporate organization to impose upon him the duty not to unfairly compete with his former employers. I base this not on his formal status as officer and director but as the senior employee in charge of the day to day operations of the Canadian subsidiary. He may not have had access to corporate financial information but he had everything he needed to know to direct sales in Canada. He had the information that made the employer vulnerable. He knew the customer information. For a sales operation, that is obviously critical information.

I am persuaded that he was under a duty not to exploit that information unfairly to his own advantage at the expense of his former employer.

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(e)direct and trusted relationships with existing and potential customers, particularly where there is a “unique relationship with the clients personnel contacts and [the defendants] had direct access to confidential information as to the clients’ needs, preferences and accepted rates”: see Quantum Management Services Ltd. v. Hann et al., [1996] O.J. No. 5382;

(f)whether or not the employee’s functions are essential to the employer’s business, therefore rendering the employer vulnerable to the employee’s departure: see J. Thorburn and K. Fairbairn, Law of Confidential Business Information, looseleaf, (Aurora, Ontario: Canada Law Book, 1998) at 4:5200 at 4-26.

Any one of these factors, or a combination of them, could result in a finding that an individual owes a fiduciary obligation to his employer.

[86]The content of the duty is threefold. As D’Andrea notes, whether one determines the existence of a fiduciary duty through ‘vulnerability’ or through ‘dependence of beneficiaries’, courts demand fiduciaries:

1.avoid all conflict of interest;

2.act only in the best interest of the trust of beneficiary; and

3.do not profit as a result of their position.

[87]CanAero addresses whether a fiduciary duty follows a fiduciary employee after the employment has terminated. Prior to CanAero, following English common law, without an explicit contractual restriction, departing employees were allowed to directly compete with their former employers. For the most part, if post-employment conduct was not unfair in its competition, it was permitted. CanAero stands for the proposition that if an employee is a fiduciary, that employee is further held to those responsibilities post-employment. At a minimum, beyond the duties of loyalty and good faith owed by all employees to their employers, fiduciary employees are limited in their ability to compete with their former employer and a departing fiduciary cannot take advantage of a corporate opportunity that ripened during the course of his or her fiduciary employment.

[88]Although CanAero did not provide for how long fiduciary obligations should last post- employment, there have been a number of decisions that have suggested it ought to last for a

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“reasonable” period of time (see Cline v. Don Watt & Associates Communications Inc. (1986), 15 C.C.E.L. 181 (Ont. Dist. Ct.) at 206; Genesta Manufacturing Ltd. v. Babey (1984), 6 C.C.E.L. 291 at 311; Wallace Welding Supplies Ltd. v. Wallace (1986), 11 C.C.E.L. 108 (Ont. H.C.J.)).

[89]In determining what would constitute a “reasonable” temporal extension of the fiduciary duty post-employment, some cases have extrapolated from would constitute reasonable notice. There are thus two ways to consider what would constitute reasonable notice to calculate the duration of the fiduciary duty post-employment. In MacDonald v. Klein, [1998] O.J. No. 4922 (Gen. Div.), the court found that the defendant’s fiduciary duties continued for the period equal to the amount of notice the defendant should have given his former employer (see also KJA Consultants, supra). In CRC-Evans Canada Ltd. v. Pettifer (1996) 26 C.C.E.L. (2d) 294 (Alta Q.B.), aff’d 216 A.R. 192 (C.A.), the court determined the appropriate duration of fiduciary duty post-employment by considering what would constitute reasonable notice if they were terminated by the employer without cause.

Obligation to Provide Reasonable Notice

[90]Failure of an employee to provide adequate notice will entitle the employer to an award of damages. Generally, reasonable notice is meant to give the employer time to hire and train a replacement (Physique Health Club Ltd. v. Carlsen (1996), 25 C.C.E.L. (2d) 231 (Alta. C.A.) at 239; Sure-Grip Fasteners Ltd. v. Allgrade Bolt and Chain Inc. (1993), 45 C.C.E.L. 276 at p. 282 (Gen. Div.)). In determining the time required to hire and train a new employee, one must look at the nature of the employee’s position and the area of work that the employer was competing in (Sure-Grip; Tree Savers International Ltd. et al. v. Savoy et al., [1992] A.J. No. 61 (Alta. C.A.)). How long would it take the MSD to recruit, train, and familiarize new employees to the GasTOPS products and their clients? How does the simultaneous departure of 75% of the MSD’s employees affect this timeframe? These factors will contribute to what constitutes “reasonable” notice.

[91]In Sanford Evans List Brokerage v. Trauzzi, [2000] O.J. No. 1394 [Trauzzi], the fact that the defendant was able to compete unfairly as a result of failing to give proper notice was

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considered when assessing the proper period of notice. Three employees resigned from their employment, one having been in a top management position for at least 7 years (vice-president when she resigned), and created a competing company with a fourth individual. The court held that the breached the fiduciary duty owed to her former employer and fixed the other two employees with fiduciary duty as well as a result of their leaving with the vice-president and joining her in the new company. In assessing damages for breach of fiduciary duty, the Court considered the appropriate period of reasonable notice, making particular note of the effect the early departure had on the plaintiff’s ability to compete. The court found that the vice-president should have provided the employer with a minimum of 6 months notice; the employer would have been entitled to any damages flowing from her failure to give sufficient notice but had mitigated its damaged to a certain extent.

[92]The defendants state that the reasonable notice required of a departing employee is not measured as the reciprocal of that required of the employer. According to the defendants, the reasonable notice that an employee is required to give upon resignation is generally less than the employer would be required to provide to the employee upon dismissal.

[93]The defendants suggest that the notice of resignation of two weeks they provided to GasTOPS was reasonable in all of the circumstances. The defendants suggest that two weeks’ notice, is in accordance with the notice period found to be reasonable in Engineered Sound Systems Ltd. v. Klampfer, [1994] O.J. No. 867, where it was held that two weeks’ notice of resignation was reasonable in the case of a skilled technician who was solely responsible for repairing particular types of intercom systems used by the employer’s major customers and assisted sales staff in supplying and discussing customer requirement. However, Klampfer was simply a technician repairing sound equipment, while the defendants in this case were highly trained and skilled individuals. In addition, these defendants were vital to the MSD team and its customers. The defendants, as evidenced by their résumés, were vital to GasTOPS; securing the business opportunities it was pursuing and maintaining its existing customers.

[94]Forsyth and Brouse submit that GasTOPS waived its entitlement to a longer notice period when it demanded they leave its premises immediately upon rendering their resignations, which

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included two weeks’ notice. However, the notice given to GasTOPS by all of the individual defendants was insufficient and was therefore a breach of the defendants’ obligations to give reasonable notice of termination of their employment. GasTOPS attempted to persuade the defendants to either withdraw their letters of resignation or in the alternative provide more reasonable notice. In my view, GasTOPS was entitled to accept as it did the breach of the employment contract by Forsyth and Brouse and ask them to immediately leave the premises. It appears that GasTOPS probably paid Forsyth and Brouse to the end of the notice period.

Duty of Non-Competition and Duty to Disclose

[95]It is implied in all employment contracts that employees will not compete with their employer while employed. Generally, merely planning to establish a competing business does not necessarily violate the duty to not compete. The general rule does not apply where it is clear the employee planned to abuse confidential information or trade secrets in the future business.

[96]As held in Westcan, in order for a breach to have occurred, there must have been active competition on the part of the employee. Fiduciary employees are held to a high standard with respect to the duty of non-competition. In Hydro Kleen Systems Inc. v. Park, [2003] A.J. No. 1199 (Q.B.), it was held that the defendants had breached their fiduciary duty to the plaintiff because they had left to start their own competing business.

[97]Note also that fiduciary obligations can attach to a non-fiduciary employee who departs with a fiduciary for the purpose of setting up a business in competition with their former employer. In DiFlorio v. Con Structural Steel Ltd., [2000] O.J. No. 340, J. Wilson J. stated at para. 117: “In any event, the case law is clear that fiduciary obligations attach to a non-fiduciary employee who departs with a fiduciary for the purpose of setting up a competing business. I conclude, therefore, that Bertolo and Grace both stood in a fiduciary relationship to Rocca; they both had common-law fiduciary obligations to the business” [citations removed].

[98]While there is thus a fundamental duty for fiduciary employees to not compete with one’s employer post-employment, an employee who desires to branch out on his or her own must disclose those intentions. As held in Cinema Internet Networks Inc. (c.o.b. Cinemaworks) v.

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Porter, [2006] B.C.J. No. 3200 (S.C.), a fiduciary employee is required to disclose to his or her employer that planning to compete has begun. Failure to disclose such intentions to compete constitutes a breach of fiduciary duty (Restauronics Services Ltd. v. Forster, [2004] 32 C.C.E.L. (3d) 50).

[99]In conjunction with these duties not to compete and to disclose intentions to compete, the employee has a duty to not take advantage of corporate opportunities encountered in the course of employment. Fiduciaries in particular are prohibited from obtaining for personal use any opportunity or business advantage belonging to their employer without the employer’s consent or approval (CanAero).

[100]In KJA Consultants Inc. v. Soberman, [2002] O.J. No. 489 (S.C.J.), the defendant was found to be a fiduciary employee. After leaving, he had contracted with a client of his former employer. It was found that he had no designs on working for the client in question when he resigned, but the court nonetheless found that he had breached his fiduciary duty by accepting the contract because he only knew about the opportunity through his prior employment.

[101]The defendants submit that a fiduciary employee is not in breach of his duties if he

attracts customers to his new business by reason of his own qualifications and abilities. In Berkey Photo (Canada) Ltd. v. Ohlig et al., [1983] 43 O.R. (2d) 518 (H.C.J.) White J. stated:

On the other hand, upon cessation of employment an employee, including one in a top management position, may immediately go into competition with his former employer and solicit the former employer's customers so long as there is no misuse of confidential information such as trade secrets or lists of customers: 309925 Ontario Ltd. v. Tyrrell et al. (1981), 127 D.L.R. (3d) 99 (Ont. H.C.J.); DCF Systems v. Gellman, supra; Alberts v. Mountjoy, supra. A former employee, including one in a top managerial position, may make use of his skills, general knowledge and any personal goodwill acquired during the course of his employment in competing with his former employer: 309925 Ontario Ltd. v. Tyrrell, supra; DCF Systems v. Gellman, supra; Alberts v. Mountjoy, supra. It is not a theft of a corporate opportunity if a party who had an ongoing business relationship with a former employer decides to deal in the future with a former employee;

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309925 Ontario Ltd. v. Tyrrell, supra; DCF Systems v. Gellman, supra.

The defendants submit that it is not a breach of loyalty for an employee, including a fiduciary employee, to accept business from a client who offers the employee its unsolicited business. In IT/Net Inc. v. Doucette, [2005] O.J. No. 1814 (S.C.J.), Kealey J. stated at para. 23:

In conclusion, I can find no element of unfairness in anything Carl Doucette did or did not do. He did not solicit, nor did he use confidential information to re-direct the maturing RFP business opportunity from IT/NET to his new employer DMR. Our law does not require that he reject an unsolicited offer for work in these circumstances. IT/NET was more likely the author of their own misfortune by their neglect in responding to Col. Bernier's SOW, or Col. Bernier's concern as to their corporate connection which had him reengage with Mr. Doucette.

The defendants submit that they did not solicit the plaintiff’s clients after their departure. Rather, in all cases, the defendants state that they were approached by the plaintiff’s former customers and/or potential customers.

[102]The defendants claim that they did not take any advantage of business opportunities belonging to the plaintiff, which CanAero prohibits, especially where the fiduciary “is a participant in the negotiations on behalf of the company.” In CanAero, Laskin J. stated that the fiduciary duty of directors and senior officers

…disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.

The defendants submit that the plaintiff had created the corporate opportunity in CanAero through considerable effort and development, while the opportunities here were not “maturing

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opportunities” that the plaintiff was “actively pursuing” prior to the defendants’ departure.

[103]In Berkey Photo, White J. stated:

For competition by a former employee to be a breach of fiduciary duty where there is not misuse of confidential information, there must be acts committed before the cessation of employment which formed at least a part of the wrongful conduct complained of. There must also be the acquisition of a business opportunity or advantage which was available to the employer and not readily available to the employer's competition…

The defendants submit that it is not a breach of fiduciary duty if the opportunity in question is “merely an idea” that was not developed by the plaintiff employer.

[104]The defendants rely extensively on the statement of Henry J. at para. 81 of Pizza Pizza Ltd. v. Gillespie, [1990] O.J. No. 2011, in addressing GasTOPS’ misappropriation of corporate opportunities allegations:

By "ripe" I understand the case law to mean that the opportunity available to the corporation is a prize ready for immediate grasping

--not a general course of future conduct which is merely being explored as Overs was doing. Moreover, all the evidence indicates that a substantial amount of initiative was taken by Gillespie in preparation and development of the chicken business…

Note that the paragraph immediately preceding that upon which the defendants rely reads:

In particular, it is open to a former employee, including a fiduciary, to take advantage of a business opportunity where that opportunity was not mature or specific to the corporation and where the employee did not resign to pursue that opportunity; moreover, the opportunity must be "ripe". See Tyrell, supra, and Dialadex Communications Inc. v. Crammond (1987), 57 O.R. (2d) 746, 14 C.P.R. (3d) 145, 34 D.L.R. (4th) 392 (H.C.J.).

In my view, this decision does not stand for the proposition that a plaintiff must prove that it would have secured the opportunity in question. Such an obligation would clearly be inconsistent

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with the decision of Laskin J. in CanAero, when he stated:

Liability of O'Malley and Zarzycki for breach of fiduciary duty does not depend upon proof by CanAero that, but for their intervention, it would have obtained the Guyana contract; nor is it a condition of recovery of damages that CanAero establish what its profit would have been or what it has lost by failing to realize the corporate opportunity in question. It is entitled to compel the faithless fiduciaries to answer for their default according to their gain. Whether the damages awarded here be viewed as an accounting of profits or, what amounts to the same thing, as based on unjust enrichment, I would not interfere with the quantum…

In Berkey Photo, White J. interpreted CanAero to mean that “it is not a precondition to relief on a claim for damages for breach of a fiduciary's duty that the corporate employer of the fiduciary would itself have obtained or maintained the business opportunity in question” (para. 51).

[105]The maturity of the business opportunity usurped by the defendant in the present case must be examined through the lens of the particular attributes of the industry in question. The factors Laskin J. relies upon in CanAero to determine whether former employees usurped a maturing business opportunity in breach of a fiduciary duty are:

1.the position or office held by the former employee;

2.the nature of the corporate opportunity;

3.the “ripeness” of the corporate opportunity;

4.the specificity of the corporate opportunity;

5.the former employee’s involvement in the pursuit of the corporate opportunity while employed by the plaintiff employer;

6.the amount of knowledge possessed by the former employee concerning the specifics of the corporate opportunity;

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7.the circumstances in which the corporate opportunity was obtained and whether it was “special” or possibly even “private”;

8.the factor of time and the continuation of fiduciary duty where the alleged breach occurs after the termination of the relationship with the company; and

9.the circumstances under which the former employee’s relationship with the plaintiff employer was terminated, that is whether by retirement, resignation or discharge.

[106]In CanAero, the issue was not whether the business opportunity was within CanAero’s grasp but whether the knowledge held by the defendants O’Malley and Zarzycki was that the opportunity was beyond CanAero’s grasp. Laskin J. stated:

The cardinal fact is that the one project, the same project which Zarzycki had pursued for CanAero, was the subject of his Terra proposal. It was that business opportunity, in line with its general pursuits, which CanAero sought through O'Malley and Zarzycki. There is no suggestion that there had been such a change of objective as to make the project for which proposals were invited from CanAero, Terra and others a different one from that which CanAero had been developing with a view to obtaining the contract for itself.

Again, whether or not Terra was incorporated for the purpose of intercepting the contract for the Guyana project is not central to the issue of breach of fiduciary duty. Honesty of purpose is no more a defence in that respect than it would be in respect of personal interception of the contract by O'Malley and Zarzycki. This is fundamental in the enforcement of fiduciary duty where the fiduciaries are acting against the interests of their principal. Then it is urged that CanAero could not in any event have obtained the contract, and that O'Malley and Zarzycki left CanAero as an ultimate response to their dissatisfaction with that company and with the restrictions that they were under in managing it…

In addition, the plaintiff need not enjoy any exclusivity with the potential client to succeed in a

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claim for misappropriation of corporate opportunities. In CanAero, the former employer was but one of five companies invited to bid on the project in question.

[107]The defendants claim that the opportunities MxI pursued were not the same corporate opportunities pursued by GasTOPS. In CanAero, the court rejected the defendant’s submission that no misappropriation of corporate opportunity occurred where the contract won by the defendants was not based on exactly the same corporate opportunity as sought by CanAero.

[108]In my view, employees who have participated in negotiations on behalf of their employer ought to be restricted in terms of their involvement with corporate opportunities belonging to their former employer. This restriction applies regardless of whether the employees in question are the exclusive contacts for the clients with whom they negotiated on behalf of their former employer. In CanAero, the defendants were only two employees “among others” to pursue the business opportunity in question on behalf of the plaintiff. Nevertheless, they were to account for obtaining the contract for themselves after the severance of their fiduciary employment relationship with CanAero.

[109]Of course, fiduciaries are not expected to be beholden to their former employer for an indefinite period of time, but it is expected that they will maintain their fiduciary duty post- employment for a “reasonable period”. Certainly during that “reasonable period”, a fiduciary is precluded from competing directly with the former employer and from exploiting corporate opportunities developed during that employment. Further, as a point of fact, if it was found that they had planned to compete whilst employed as fiduciary employees, they certainly owed this duty of disclosure of their intention to compete: Felker v. Cunningham (2000), 191 D.L.R. (4th) 734 (Ont. C.A.).

[110]Former employees cannot compete unfairly after leaving their employment. A situation of unfairness clearly arises where the defendants failed to give reasonable notice of the termination of their employment, thereby forcing existing customers and potential customers to look to MxI rather than GasTOPS for technical advice. I have absolutely no doubt that Forsyth and Brouse were aware prior to October 7, 1996, that if they left their employment at GasTOPS,

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the overwhelming majority of the employees within that division would seek employment with their new company as opposed to staying with GasTOPS. I am sure this became more apparent when Jeff Cass and Vandenberg resigned from MSD within three days of the resignations of Forsyth and Brouse, and others followed shortly thereafter.

[111]In my view, as a result of the defendants Brouse and Forsyth knowing the likely effects of their resignations, they were under an obligation to provide GasTOPS with at least ten months’ notice to allow GasTOPS to recover from the loss of key and other employees. As a result of their failure to provide reasonable notice, the defendants are responsible for the damages resulting from that failure.

Duty of Non-Solicitation

[112]In Edgar T. Alberts v. Mountjoy (1977), 79 D.L.R. (3d) 108 [Mountjoy], the court found that Mr. Mountjoy, as a general manager or chief executive, was a fiduciary employee of the plaintiff. After leaving the plaintiff’s employ, he had a fiduciary obligation not to solicit the plaintiff’s clients. Fiduciary employees are precluded from soliciting their employer’s customers

– either while employed (Schauenberg Industries Ltd. v. Borowski (1979), 25 O.R. (2d) 737 (H.C.J.)), or after leaving employment. Fiduciaries, post-employment, are also disallowed from soliciting other employees of the former employer.

[113]In W.J. Christie & Co. v. Greer (1981), 9 Man. R. (2d) 269 (C.A.) [Christie], it was made clear that fiduciary obligations continue after termination of the employment relationship. Combined with Mountjoy, this necessarily disallows fiduciary ex-employees from directly soliciting their former employer’s customers. As pointed out in Reservoir Group Partnership v. 1304613 Ontario Ltd., [2007] O.J. No. 202 (S.C.J.), the reason for the non-solicitation duty is to protect the employer: active solicitation of clients by former fiduciary employees would erode the goodwill and reputation of the employer in question. Christie also held that a fiduciary is actually entitled to accept business from the clients of a former employer, provided they did not directly entice them away from the former employer. If the customers approached the fiduciary, mere acceptance of an invitation is not equivalent to soliciting or recruiting customers.

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[114]Two further refinements to this exception to the fiduciary duty of non-solicitation should be noted. First, it has been held that a fiduciary has not breached the non-solicitation duty unless the client in question has finalized a business arrangement with the employee in question (Atlantic Business Interiors Ltd. v. Hipson, [2004] N.S.J. No. 90 (S.C.), aff’d 38 C.C.E.L. (3d) 1 (N.S.C.A.)). Second, general advertising does not constitute solicitation. In Trauzzi, it was held that solicitation is not problematic; rather, only unfair solicitation constitutes a breach. A former fiduciary employee may notify customers of the former employer of their services if such notification is part of a broader general advertising campaign.

[115]As held in Berkey Photo (Canada) Ltd. v. Ohlig (1983), 2 C.C.E.L. 113, former fiduciary employees also cannot solicit or lure active employees of the former employer to leave and start a new venture. In the very recent Supreme Court of Canada decision of RBC Dominion Securities Inc. v. Merrill Lynch Canada, 2008 S.C.C. 54 [RBC Dominion], the majority of the court found an RBC branch manager had breached his fiduciary duty to RBC in leaving without notice to join the branch of competitor Merrill Lynch. Moreover, it was found that in leaving he had persuaded employees of RBC to leave en masse and join him at Merrill Lynch. The majority held that he had violated his contractual duty of good faith to RBC. As a manager of RBC, one of his primary duties was to retain employees. Thus, persuading them to leave with him, after he himself had left without providing reasonable notice, necessarily breached his duties to RBC.

[116]As held with the duty of non-solicitation with respect to clients, solicitation means something more than passively receiving those employees into the former fiduciary’s employ (West Telemarketing Canada, ULC v. Titley (2005), 2005 BCSC 1585). However, as with clients, it seems to me that with respect to fiduciaries, such nuanced understandings of the post- employment duty of non-solicitation, overlooks the very point of a fiduciary duty. Again, it seems impossible to reconcile the fiduciary duty with hiring or luring active employees of the former employer, regardless of whether those employees were actively solicited or passively received. Further, it seems to me that this is the point in RBC Dominion: the breach of fiduciary duty is grounded in the terms of fiduciary employment and need not be retrospectively imposed

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to be found to have occurred.

Duty to Not Misappropriate Trade Secrets or Confidential Business Information

[117]Regardless of whether an employee is characterized as fiduciary or key, he or she is barred from misappropriating the former employer’s trade secrets and/or confidential information and from using such information to compete with the former employer. This is one of the only exceptions to the general principle of an employee’s right to competition listed in Geoffrey England’s Employment Law in Canada, 4th ed., looseleaf (Aurora: Canada Law Book). What constitutes a trade secret is difficult to determine or precisely identify, however it generally pertains to the nature of the business. The English decision of Faccenda Chicken Ltd. v. Fowler,

[1986] 1 All E.R. 617 (C.A.) suggests, it is possible to identify a trade secret by reference to:

1)whether employees know the material or information in question ought to remain confidential;

2)the nature of the material itself;

3)whether the employer has emphasized the confidential nature of the material;

4)whether the material can be separated from other, non-confidential material.

[118]Geoffrey England lists these factors as weighing in favour of finding a trade secret:

(a)if the material in question affords the employer a comparative advantage such that disclosure of that information would seriously harm the firm;

(b)if the employer can prove that it has made reasonable efforts to limit access to, and dissemination of, the material within the firm;

(c)if the custom and practice of the industry is generally to regard that particular kind of information as confidential;

(d)if the material in question is not accessible to the rest of the industry;

(e)if the material in question can be categorized as “pure and applied” research such as a novel invention, technical or design specifications, technical manufacturing or construction processes, chemical formulae, secret recipes or craft secrets.

[119]Conversely, “confidential information” tends towards the more administrative aspects of a business. As held in R. v. Stewart, 1983 O.R. (2d) 225, confidential information includes lists of suppliers; lists of customers and their needs; instructions as to manufacturing processes; lists of employees and relevant employment information; and computer programs cataloguing

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the firm’s business. For information to be protected as confidential information, it must carry the indicia of secrecy and satisfy the legal test for confidentiality (Khan v. RDMI Inc., [2001] O.J. No. 233). Of particular interest here are customer lists. Generally, courts protect employees who happen to remember those lists for their own purposes post-employment but will not protect those who are found to have memorized lists for the exclusive purpose of canvassing them for personal business post-employment.

[120]The purpose of the law of trade secrets is to provide protection for information-based assets that are not publicly known by prohibiting others from using, disclosing or otherwise misappropriating the information. The terms “confidential information” and “trade secrets” are recognized in the jurisprudence as being synonymous concepts. Numerous decisions have imposed a duty of confidence on former employees, whether or not they are fiduciaries. The main principle articulated in these decisions is that trade secrets or other information obtained in confidence while in the employ of an employer is not to be disclosed or used by former employees. Any disclosure or use of such information is a breach of the duty of confidence.

[121]In CPC International Inc. v. Seaforth Creamery Inc., [1996] O.J. No. 3393 (Gen.Div.), Cumming J. stated at para. 22:

…To constitute a trade secret, the information must not be of a general nature, but must be specific. The specific information must not be generally known to the public but it [may] be acquired from materials available to the public with the expenditure of time and effort. The owner of that specific information must treat it as confidential and it must be clear that the owner regards the information as secret. The information should only be communicated to an employee on a need-to-know basis and within the constraint that the owner shows his/her intention to maintain the secrecy of the information. If there is disclosure to a third party beyond the employment relationship, the owner should require of that party that there cannot be disclosure or use in any way not authorized expressly by the owner.

[122]The confidential information need not be committed to a document that is physically removed from one’s former employer. Committing information to memory is tantamount to the

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physical taking of confidential information.

[123]In Matrox Electronic Systems Ltd. v. Gaudreau, [1993] Q.J. No. 1228 (S.C.J.), Guthrie J. discussed the “springboard” principle, which prohibits an individual from using information obtained in confidence as a springboard for activities detrimental to the person who made the confidential communication and requires such an individual to be careful to use only portions of the information that are in the public domain so as not to gain an advantage over the public. He stated at para. 83:

What is really being protected in situations of this nature is the original process of mind. The protection is enforced against persons who wish to use the confidential information without spending the time, trouble and expense of going through the same process. One can reconcile the springboard principle with the overriding principle denying confidence in information in the public domain, by describing the "springboard" as a measure of the scope and duration of the obligation enforcing good faith upon an ex-employee while the rest of the world catches up.

[124]Whether or not a particular subject matter is a trade secret is a question of fact. The onus is on the plaintiff to demonstrate that the information alleged to have been misappropriated was at all material times confidential. To determine whether information has the necessary “quality of confidence”, courts have considered:

(a)The extent to which the information is known outside the business;

(b)The extent to which it is known by employees and others involved in the business;

(c)Measures taken to guard the secrecy of the information;

(d)The value of the information to the holder of the secret and to its competitors,

(e)The effort or money expended in developing the information;

(f)The ease or difficulty with which the information can be properly acquired or duplicated by others; and

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(g)Whether the holder and taker of the secret treat the information as secret.

[125]In employment-related cases, the courts also consider whether:

(a)the employer possesses a trade secret;

(b)the employee knew it was secret;

(c)the employee acquired knowledge it during his/her employment;

(d)the employee has, after termination of his/her employment, used of this knowledge improperly.

[126]In my view, the defendants were well aware at all material times that the business opportunities GasTOPS was pursuing and its proposals to potential customers was confidential business information. I am also of the view that they were subject to a fiduciary duty not to use such information directly or through MxI to compete unfairly with the plaintiff. GasTOPS spent a great deal of time and money developing products and solutions for its customers, especially as its programs were “hard coded” (designed for a particular engine and/or aircraft). There can be no doubt that the confidential business information to which the defendants were privy at GasTOPS would be extremely valuable to GasTOPS competitors. It seems to me that confidential business information of which an employee learns during his/her employment over which a duty of confidentiality applies during the employment might also be subject to a duty of confidentiality after the employee leaves his/her employment, especially vis-à-vis customers or potential customers of the former employer. The defendants owed a higher degree of confidentiality with respect to such information in dealing with GasTOPS’ customers and potential customers than in dealing with those with whom GasTOPS had formed no business relationship during the defendants’ terms of employment there.

[127]In Delrina Corp. (c.o.b. Carolian Systems) v. Triolet Systems Inc., [1993] 47 C.P.R. (3d) 1 (Ont.Gen.Div.), the defendant was an experienced computer programmer employed by the plaintiff to re-write the source code for an application program. The defendant formed his own company and created a program to compete with the plaintiff’s program, and the plaintiff alleged misappropriation of trade secrets. O’Leary J. stated:

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In my view, the evidence before me does not enable me to conclude that what has gone into the development of this suite of programmes is of so confidential a character that respondent should be restrained... I emphasize that I am not here referring to the copying of the suite of programmes. That respondent plainly cannot do. It is common cause that much work, skill and time is needed to produce a suite of programmes of this kind. If respondent were permitted simply to copy it, he would be unfairly nullifying the advantage of the "long start" over anyone else to which applicants are entitled. To that limited extent, the suite of programmes is, in my opinion, a trade secret …

O’Leary J. found that if the defendant wanted to re-write the suite from scratch, he could do so, so long as he “wipe[d] clean from the slate of his memory (as if that were possible) any recollection he may have of the things which it seemed to him were appropriate for inclusion in such a suit of programmes, or of appropriate formulae, or the like.”

[128]In Software Solutions Associates Inc. v. Depow, [1989] N.B.J. No. 419 (N.B.Q.B.), Higgins J. discussed the criteria necessary to establish that information contained in computer software can be considered a trade secret, quoting an article that concluded:

[C]omputer software that is distributed pursuant to a licence agreement containing confidentiality provisions, and that is in all other respects treated as being confidential and proprietary property of the owner, would be a trade secret. Similarly, any information related to a unique hardware design will be a trade secret, provided of course that it is treated as such by the owner.

The information sought to be protected must be specific in nature.

[129]As with trade secrets, the facts of each particular case are crucial in determining whether a breach of confidence has occurred. The subject of an employee’s duties with respect to confidential information obtained in the course of employment was considered Chevron Standard Ltd. v. Home Oil Co., [1980] A.J. No. 656, aff’d [1982] A.J. No. 744 (C.A.), wherein Moore J. considered at para. 110 “the nature of the information, the employees' relation to it, the amount of knowledge possessed and the circumstances in which it was obtained and when it was obtained” as some of the factors to be considered. Moore J. also held that there is an onus on the

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plaintiff to establish that the information was confidential and that it was used to the plaintiff’s disadvantage.

[130]The facts in Clayburn Industries Ltd. v. Piper, [1998] B.C.J. No. 2831 (B.C.S.C.), are very similar to the facts of this case:

The information which was available to Messrs. Schoen and Piper was variously described. It included key contacts at various customers: who actually made the decision within an organization, who could agree by a "hand shake" and who had "constraints" on business decision making. It also included what products had previously been installed at a customer (how those products performed, what was and was not preferred by the customer), what workers from the union hall were good and what workers weren't (who should be "name-hired" and who had been found by which customers to be good or bad), the budget a client might have for repair or new construction in the upcoming year, the projects likely to require bids and those that would not be bid, what were the product costs of the plaintiffs, what were the standard markups of the plaintiffs for both product and labour costs, and technical information about the products of the plaintiff (productivity rates, installation practices and procedures, safety standards and practices).

After reviewing all of the evidence, I am satisfied that the plaintiffs have not shown that any lists were actually taken by Messrs. Schoen and Piper when they left the employ of the plaintiffs. As well, it is clear that some of the information that they took with them included information which would generally be available to anyone who made diligent inquiry.

However, I am satisfied that much of the information they knew as a result of their employment with the plaintiffs was of a confidential nature and that, in accordance with the decisions dealing with these matters, neither was in a position to use such confidential information. I find that Messrs. Schoen and Piper used the following confidential information improperly after they left the employ of the plaintiffs… (paras. 32-34)

[131]The defendants submit that in order to be capable of protection, the trade secret must be information that is defined with some degree of precision. In other words, it must be

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identified by the plaintiff with sufficient specificity.

[132]A breach of confidence will be established where: (1) the information has the necessary quality of confidence; (2) the information was communicated in circumstances giving rise to an obligation of confidence; and (3) there is an unauthorized use of the information to the detriment of the party communicating it. (See Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] S.C.J. No. 83, at para. 129.)

[133]The courts have used a “reasonable person” test to determine whether information embodies the necessary quality of confidence. The courts examine whether a person, acting reasonably, should have expected the information to be confidential: if the person should have realized that the information was to be maintained in privacy, there will be an implied obligation to maintain it in confidence. In Coco v. A.N. Clark (Engineers) Ltd., [1969] R.P.C. 41, Megarry J. stated at 48:

It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon his the equitable obligation of confidence. In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture ... I would regard the recipient as carrying a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence.

The fact that an employer did not tell its employee that information was confidential is not determinative. The test is whether a reasonable person standing in the shoes of the recipient of the information would have realized that the information was being given in confidence.

[134]In Matrox Electronic Systems Ltd. v. Gaudreau, supra, the court acknowledged the difficulty of proving misuse of confidential business information through direct evidence in some cases. Guthrie J. stated at para. 94:

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In cases involving confidential business information, misuse can rarely be proved by convincing direct evidence. In most cases, employers must construct a web of perhaps ambiguous circumstantial evidence from which the Court may draw inferences which convinced it that it is more probable than not that what employers alleged happened did in fact take place. Against this often delicate construct of circumstantial evidence, there frequently must be balanced the testimony of the employees and their witnesses who directly deny everything.

[135]In Computer Workshops Ltd. v. Banner Capital Market Brokers Ltd., [1988] O.J. No. 223 (H.C.), the court recognized that computer software, including components, methodologies, designs, specifications, schematics and knowledge of the trial and error process employed creating it falls within the ambit of trade secrets and confidential information. The court held that a trade secret can exist in a product even where all the components thereof are in the public domain on the grounds that a trade secret can exist in the original combination or characteristics of components or in the unique design of the product as a whole.

[136]Customer information has also been held to be confidential information in need of protection by the court, as it is valuable and forms part of the good will of the employer and was developed over time at the employer’s expense. A former employee who had access to such information and used it after leaving the employer could seriously injure the employer’s business by springboarding to activities detrimental to the former employer.

[137]In Metaphore Corp. v. Protek Systems (London) Inc., [2000] O.J. No. 4975, I stated at

paras. 8-9:

Given that Metafore has designed unique systems for its clients and is aware of the needs of these clients, Protek, with former Metafore employees, is a threat to Metafore's business. A new company entering this specialized field would not pose such a threat. It is the confidential information that Metafore has about its clients that is so valuable.

Protek with former employees of Metafore can compete for the business of Metafore clients on the basis that a shift from Metafore to Protek will be seamless as the same employees will be servicing

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the client and making recommendations on improving their systems.

[138]Confidential business information may include customers’ names, contact persons for customers or potential customers, customers’ or potential customers’ needs and preferences, the rates the business (employer) proposes to charge the customer and the price that the customer is prepared to pay or is paying. A particular document containing the information need not have been removed from the employer to find that confidential information has been misappropriated. (See Trauzzi at paras. 62-63.)

[139]In addition to the special knowledge of the target and actual customers of the employer, the knowledge of the employer’s policies, procedures and selling strategies in relation to their customers can constitute confidential information, as it makes it possible to undercut the former employer and to promise a seamless transfer of business to induce the customer to move its business to a new supplier. In Scantron Corp., Eberhard J. stated at para. 20 that the freedom to compete refers to skill and knowledge rather than confidential information, because “This information could include not only the special knowledge of the target customer but also knowledge of the employer's policies and procedures making it possible to undercut the former employer with a view to inducing the customer to change from its current supplier to the former employees.”

[140]Former employees may be liable to their former employer for wrongful appropriation of corporate opportunities based on misuse of confidential information. In Omega Digital Data Inc. v. Airos Technology Inc., [1996] O.J. No. 5382, the individual defendants held senior positions at the plaintiff employer and were, together, intimately familiar with virtually all aspects of its business. While employed by the plaintiff, they were involved in negotiations with a potential distributor of the employer’s product that did not succeed; within days of leaving the employers, they were engaged in similar discussions on their own. Sharpe J. noted at para. 30 that the following factors would be relevant in considering whether or not the defendants wrongly appropriated the plaintiff’s corporate opportunity: “the pursuit by the defendants of precisely the same market niche [and] the evidence of approach to the same customers and of

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deals and arrangements with co-venturers actual or proposed of the plaintiff.”

Fiduciary Duty not to Usurp a Business Opportunity

[141]Following CanAero, Ewaschuk J. stated in Quantum Management at paras. 41-42:

Following the fusion of law and equity, the common law developed exceptions that favoured employers as opposed to employees. These exceptions are founded on the equitable concept of fairness and place fiduciary duties on departing employees not to compete with their former employers in prescribed circumstances. The first notable exception lies in the area of trade connections. The former employee may not solicit any customer whose name is contained on a list which the employee has taken from the employer: Canada Bonded Attorney and Legal Directory Ltd. v. Leonard-Parmiter Ltd. (1918), 42 O.L.R. 141 at p. 157, 42 D.L.R. 342 (C.A.).

The second notable exception lies in the area of "top management" or senior employees as opposed to mere employees. The law imposes a fiduciary duty on senior employees not to take advantage of economic [opportunities] that they become aware of by reason of their employment with their former employer: Canadian Aero Service Ltd. v. O'Malley (1973), 40 D.L.R. (3d) 371, 11 C.P.R. (2d) 206, [1974] S.C.R. 592.

[142]Accordingly, the fiduciary obligation not to usurp a corporate opportunity exists separate and distinct from the fiduciary obligation not to solicit. Ewaschuk J. found the defendants were senior employees and stated that they had “a duty not to solicit or deal with former customers of Quantum with whom they had had exclusive placement rights within a reasonable time before quitting Quantum's employ” (para. 48).

[143]In KJA Consultants Inc. v. Soberman, [2003] O.J. No. 3175, the employer brought an action against the defendant for breach of fiduciary duty. The defendant had resigned from his position as general manager with the employer. Immediately thereafter the defendant started his own business in competition with his former employer. Part of the defendant’s marketing campaign included sending letters about his new business to many of his former employer’s clients. He also, at the request of a particular client, took on the most significant contract that his

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former employer had at the time of his departure. Sachs J. in describing the issue before the court stated at para. 33:

This case raises the following issues:

(i)Did Mr. Soberman breach the fiduciary duties he owed to KJA when he took over the GWL/Commerce Court elevator modernization project?

(ii)Did Mr. Soberman breach the fiduciary duties he owed to KJA when he wrote to KJA's clients in the fall of 2001?

(iii)If the answer to either or both of the first two questions is "yes", what damages flowed from those breaches?

[144]While employed with the plaintiff, Soberman had worked on a large project for which he had prepared a Request for Proposal, submitted a proposal and, after the proposal was accepted, had been in charge of the work being done under the contract. At the time of Soberman’s departure, the plaintiff had built approximately 30% of the quoted contract price. After Soberman’s departure, the client contacted Soberman at his home and asked him if he would be interested in making a proposal to complete the contract. Soberman submitted a proposal for the exact amount left on the contract price quoted by the plaintiff, which the client accepted. In her judgment, Sachs J. held that the elevator project was not a “maturing business opportunity”. The contract had been finalized and was in the midst of being completed. There was no evidence that Soberman had resigned because of a desire to acquire the contract for himself. Furthermore, Soberman did not approach the client with a view to diverting the corporate opportunity from the plaintiff to himself.

[145]Sachs J. stated at paras. 40-42:

The question is whether it was Mr. Soberman's "position with the company or a fresh business initiative that led him to the opportunity which he later acquired." (Canadian Aero Space, supra, at 382). This question is complicated by the fact that KJA's business is a personal service business. As such, as with lawyers and accountants, personal relationships can figure largely in client decisions about who to retain for their business. In this case, the

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decision to switch the contract was a client decision based on Mr. Ramsay's knowledge of Mr. Soberman and, more particularly, according to Mr. Ramsay, on Mr. Soberman's familiarity with the contract in question.

It is precisely this aspect of Mr. Ramsay's decision that, in my view, made Mr. Soberman's acceptance of the contract a breach of his fiduciary duties. Mr. Soberman was only as familiar as he was with the terms of the contract, and the needs of the client, because of the work that he had done in negotiating, securing and performing the contract on behalf of KJA. Without that knowledge, knowledge that Mr. Soberman acquired because of his position with KJA, Mr. Ramsay would never have retained Mr. Soberman. That knowledge included not only pricing, but also complete details as to the services that KJA had promised to perform when it originally won the contract, and complete details as to the methods that KJA had and would continue to use in performing the contract.

Furthermore, Mr. Ramsay testified that if Mr. Soberman had not agreed to take over the contract, he would have stayed with KJA …

[146]Accordingly, there is a close link between misappropriation of a corporate opportunity and a breach of confidence claim. Where a fiduciary gains specific knowledge of the particulars of a corporate opportunity, regardless of whether it is ripening or fully ripe, he or she cannot use that knowledge to take the opportunity away from his/her former employer even if there is no active solicitation by the former employee.

[147]In Frame, where Wilson J., in determining whether a fiduciary relationship existed, stated at para. 60:

Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics:

(1)The fiduciary has scope for the exercise of some discretion or power.

(2)The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests.

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(3)The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[148]In the context of employment relationships, fiduciary duties are owed only by those employees who are empowered to unilaterally affect an employer’s legal and business interest. Holding this sort of responsibility gives the employee in “the kind of authority typically found in a relationship of dependency or vulnerability,” and it is this sort of relationship “in which equity will intervene to protect the dependant or vulnerable party by acting on the conscience of the fiduciary”: Anderson, Smyth and Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd., [1996] A.J. No. 475 (Alta. C.A.) at para. 20.

[149]Further, in order for liability to attach to a fiduciary, his power, be it legal or practical, must have been the actual cause of acquiring the benefit. In Scott v. Trophy Foods Inc., [1995] N.S.J. No. 145 (N.S. C.A.), Hallett J.A. stated at para. 60, speaking for the court:

After pointing out how difficult it is to find a definition of a fiduciary he states that the most he would venture as a description is as follows:

"A person will be a fiduciary in his relationship with another when and insofar as that other is entitled to expect that he will act in that other's or in their joint interest to the exclusion of his own several interests."

The concern that is met by imposing fiduciary obligations is that the fiduciary has a discretion or power that can affect the employer’s legal or practical interest. However, the one feature which is considered to be indispensable to the existence of the relationship is that of dependency or vulnerability.

[150]In general, courts have applied a restrictive approach to imposing fiduciary duties as such duties are recognized as onerous and exacting duties which the courts are reluctant to impose on employees other than those with extraordinary power and discretion to affect the affairs of the employer.

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[151]The defendants submit that the fact that the majority of the MSD employees resigned within a short period of time does not in itself imbue the employees with a fiduciary duty to their employer.

[152]The defendants submit that RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. stands for the proposition that the determination of whether a fiduciary duty exists requires an assessment of the employment relationship “during its currency” and not based upon the circumstances of the defendants’ departure. Holmes J. stated at para. 44:

…to the extent that the finding of a fiduciary relationship rested on the circumstances of the defendant's departure, it appears to be inconsistent with authorities such as Barton, supra, which assess the character of the employment relationship during its currency.

[153]In my view, it is erroneous to say that the circumstances surrounding an employee’s departure are irrelevant to the determination of whether a fiduciary duty exists. I must consider whether the employer is particularly vulnerable to or at the mercy of the fiduciary. When an employee resigns without proper notice and immediately begins to work longstanding relationships that had been developed with customers through that employee’s previous employment, that conduct can be considered as evidence relating to a breach of a fiduciary duty.

[154]In Alberts et al. v. Mountjoy et al., [1977] O.J. No. 2334 (H.C.J.) the court recognized that a corporation’s relationship with its clients was an asset which entitled an employer to protection from post-employment competition. Estey C.J.H.C. stated at para. 29:

Thus, the substantial business asset of the plaintiff, namely, its trade attachment with its clients, is a vulnerable asset exposed to the depredations of competition in all forms and particularly competition from ex-employees. Accordingly, it is not surprising to find a fiduciary duty arising in former employees for the protection of the undertaking of the former employer.

[155]The defendants suggest that fiduciary duties in an employment relationship will only be imposed in cases where the employer experiences “extraordinary vulnerability” at the hands of its employee. In my view, there is simply no concept at law of extraordinary vulnerability. In

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Frame v. Smith, supra, and other related decisions speak of the beneficiary being “peculiarly vulnerable” to or at the mercy of the fiduciary. The phrase “particularly vulnerable” suggests that the beneficiary is uniquely vulnerable to damages if the fiduciary was to breach the duties owed to the beneficiary.

[156]In this case Forsyth, Brouse, Jeff Cass and Vandenberg were “key employees” and as a result of their responsibilities and information that they had access to, owed a fiduciary duty to GasTOPS to provide reasonable notice of their intention to resign and not to misuse confidential information which was proprietary to GasTOPS. In my view, all of the personal defendants breached the fiduciary duties they owed to GasTOPS and as a result competed unfairly with GasTOPS. In addition the personal defendants allowed MxI to compete unfairly with GasTOPS by making GasTOPS’ trade secrets and confidential business information available to MxI.

Status for Bringing Action re: Misuse of Trade Secrets

[157]To succeed in an action for misuse of trade secrets, a plaintiff must establish on a balance of probabilities that it has the sole right to benefit from the use of the information, that the defendant wrongly appropriated the information (committed a breach of confidence) and that it suffered damages as a result of the breach. (See Thorburn and Fairbairn at §5:1000.)

[158]While Canadian jurisprudence has not been entirely consistent whether jurisdiction to protect confidential business information is based on property or on an equitable right, the most common basis for awarding a remedy for breach of confidential business information appears to be in equity. In R. v. Stewart, [1988] 1 S.C.R. 963, Lamer J. stated at para. 24:

It appears that the protection afforded to confidential information in most civil cases arises more from an obligation of good faith or a fiduciary relationship than from a proprietary interest. No Canadian court has so far conclusively decided that confidential information is property, with all the civil consequences that such a finding would entail …

The Defendants’ Roles at GasTOPS

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Résumés and Performance Reviews

[159]In addition to the viva voce evidence of the witnesses at trial, the defendants’ performance reviews from GasTOPS and the résumés they created after they resigned are most helpful in answering these questions. The defendants suggested that little, if any, weight should be attributed to these documents in determining their role while employed at GasTOPS as the résumés were created to market MxI to companies in November 1996. The “list of accomplishments” contained in the performance review were created by the defendants when employed at GasTOPS as part of the annual salary review process. Notwithstanding that these documents in some cases were signed by the defendants and, if not, were prepared by the defendants, the defendants take the position that it was reasonable for them in their résumés (prepared at MxI) and/or performance reviews to have “embellished” or to have “overstated” the roles that they fulfilled while employed at GasTOPS. In making such an argument, the defendants are admitting to outright fabrications or lies in their résumé regarding their previous employment at GasTOPS and in their performance reviews.

[160]For the purposes of salary increases and expertise, the defendants were asking others to rely upon the veracity of these statements whereas for the purposes of this trial, they are suggesting that I should not rely upon these statements. In general terms, as far as the named personal defendants are concerned, I prefer the facts contained in these documents which were prepared independently of this lawsuit as opposed to their viva voce evidence where it conflicts with the statements in their résumés and/or performance reviews. Throughout the trial and more particularly within the evidence of Forsyth and Brouse, there emerged a common theme that there was nothing improper in being untruthful in statements which were made to prospective clients. Brouse’s contradicted his own written reports or memos numerous times and in one case even suggested that he had lied to his business partners when he was employed at MxI.

[161]In my view, the defendants wanted MxI’s prospective customers to accept as truthful the statements made in their résumé and wanted me to accept that they lied in their résumés but were telling the truth at this trial. There can be no doubt that the defendants, even on their own evidence, wanted third party purchasers to accept the statements made in their résumés as

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truthful and accurate. I am sure the defendants would have confirmed the accuracy of their résumé to potential customers and, in fact, the evidence indicates that they did in proposals made to potential customers repeat in essence the statements made in their résumés. The résumés were prepared by the individual defendants and were not the product of some other party who might be blamed for the overstatements or inaccuracies. Muir and MacIsaac’s evidence, which I accept, corroborates the accuracy of the statements in the résumés of the personal defendants. I simply reject such an argument and the fact that the defendants would make such an argument while under oath at this trial reflects badly upon their credibility. I accept the written description of their job responsibilities as set out in their résumés as accurate and reject their attempts to distance themselves from such statements.

[162]Mr. Muir described the manner in which Forsyth and Brouse interacted with him in fulfilling their job responsibilities:

A.In the summer of 1995, and every summer was we did our business planning, we would deal with the issues associated with the management or planning of the business, one of which I mentioned was Human Resources and the organization of staff within the company and the divisions and the assignment of management responsibilities. So in the summer of 1995 we had discussions leading up to the formalization of the business plan about a change in the management structure, not just of my division, but of the company. And Forsyth, Brouse and Tobin were a part of the discussions leading up to the change in the management structure. So they were participants, in other words, in the development of a new management structure.

The structure itself is formalized at the time the business plan is formalized and at that point it's announced to the entire company and the president would do that in a meeting held in September shortly after the board of directors approves the new business plan for the year. So there is a formal announcement of the new management structure, as well, I met one-on-one with each of the individuals throughout the summer and as the new structure was formalized to formalize their new management duties.

Q.At that time was there any discussion or agreement as to how you would interact with the three program managers on an

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ongoing basis?

A.Yes. We had -- when I say “we" I'm talking about myself, Tobin, Brouse and Forsyth, -- we had been meeting regularly as a management team throughout that period, from 1991 to ‘95. Nominally we met once a month, although it was not uncommon for us to miss the odd month for scheduling reasons. The managers submitted to me, again regularly but not every month, monthly reports on the status of their management responsibilities. And we had a monthly reporting process in place.

In 1995, when we created the programs and moved the decentralized management concept down to the program management level, we instituted within my division a quarterly reporting process, in particular Brouse and Forsyth, who were business managers, reported quarterly to me throughout the 95-96 business year as to the progress of their business unit in terms its financial performance primarily, against the business plan -- the business plan that had been set out at the beginning of the year. So we had a formal quarterly reporting process set up whereby they would report to me their progress against the plan and objectives set out for the year.

At our monthly meetings that we held, almost every month, we would discuss all of the issues related to the management of the division, whether it be a market development issue, the acquisition of new customers, Human Resources issues such as employees that perhaps were having problems, perhaps employees that had done an outstanding job and we wanted to recognize them, product development was central to almost all of our meetings, we were attempting to share requirements from the marketplace and Forsyth was putting those together in the form of a product development plan and activity that we called “Mainstay".

So we held regular management meetings, had monthly reporting and in the final year, quarterly reporting against the business plan for the year.

[163]I have no doubt that Muir’s assessment of the positions occupied by Forsyth and Brouse is accurate and correct and that in 1995 there was, within the MSD, a decentralization of management down to the program management level and that Forsyth and Brouse were responsible for managing all aspects of business development within their units.

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Forsyth

[164]At the time of his resignation on October 6, 1996, Forsyth was a program manager within the MSD of GasTOPS. He had been promoted to positions of increased responsibility over the nine-year period since he was hired in June of 1987. At the time of his resignation, Forsyth headed up the industrial systems group within GasTOPS’ MSD.

[165]In the résumé Forsyth prepared during the fall of 1996, after he had resigned from GasTOPS and was the president and CEO of MxI Technologies Ltd., he stated that from June 1994 to October 1996, he was “Responsible for the establishment and management of the Industrial Program within the Maintenance Systems Division of GasTOPS”, which required him to manage the Program by conducting “business development including marketing and sales of engineering services and products; revenue, profit and labour forecasts; account and contract management; Oracle business alliance management; customer liaison and management; human resource management.” He also stated that as Manager of Product Development between June 1991 and October 1995, he “Managed all research and development work undertaken by the Maintenance Systems Division with responsibilities for overall technical, management, budgetary and administrative duties”; “Established product development methodologies, procedures and tools including: requirements definition, data modeling, Graphic User Interface (GUI) design, object oriented programming, software configuration control, automated software testing, delivery preparation and Software Trouble Report (STR) tracking procedures”; and “Managed the development of” FLTS, MAINSTAY, an Integrated Diagnostic and Maintenance System (“IDMS”), Lube Analyst, ECMS and RCM Analyst. Forsyth also detailed his roles at GasTOPS between 1987-1991 in this résumé

[166]On June 20, 1996, Muir asked Forsyth, Tobin and Brouse to summarize their accomplishments for the past year and their objectives for the next 6-12 months. In response to Muir’s request, Forsyth sent him a written summary of his accomplishments (Exhibit 298), and Muir and Forsyth subsequently met on June 27 and 28 to review Forsyth’s performance over the past year for the purpose of adjusting his salary. On July 2, 1996, Muir made notes of his conversation with Forsyth, who believed his was contributing significantly more than his peers.

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Muir’s note states:

Appears to be based on the notion that he is the “creator” of our CBM software product for which the company presently derives a large portion of its business. Moreover, Brad feels that he has been instrumental in “selling” our CBM software to key clients such as the Canadian Air Force, for which other people have received the credit (i.e. Doug B.).

[167]It is clear that Forsyth played a key role in managing and directing the business activities of the industrial program of GasTOPS’ MSD. Forsyth was primarily responsible for the business development activities within the industrial system business unit, including marketing and sales of engineering services and products. On the financial side, Forsyth was responsible for budgeting and contract management. Given that the industrial system business unit accounted for 23% of the annual revenues of GasTOPS, the manner in which Forsyth was able to fulfill his job responsibilities had a great impact on the company’s financial success. In a similar fashion, having managerial responsibilities for customer liaison, it is clear that Forsyth was primarily responsible for ensuring that GasTOPS’ customers’ needs and requirements were properly met. Forsyth, as shown in Exhibit 3, had managerial responsibilities over 14 employees at GasTOPS. He was directly involved in the annual business plan development process, as well as making key recommendations with respect to software development technologies, software requirements, and corporate opportunities. In August 1995, Forsyth presented to Muir his technology contribution to the MSD’s 1995/1996 business plan. In that plan, Forsyth identified how the product development effort should proceed and a strategy for the development of the MSD’s family of products. Many of these strategies were, in fact, followed by GasTOPS.

[168]In the summer of 1996 Forsyth submitted a technology plan to Muir (Exhibit 9) to assist Muir in preparing the MSD’s 1996/97 business plan. Muir adopted many of Forsyth’s suggestions.

[169]Accordingly, in my view, Forsyth was a key employee of GasTOPS who owed a fiduciary duty to GasTOPS while employed at GasTOPS and after he resigned from GasTOPS. Given Forsyth’s knowledge of GasTOPS’ products and their design and business opportunities,

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it would have been impossible to replace him in two weeks.

Brouse

[170]At the time Brouse resigned from GasTOPS, he was the program manager of the Aero Systems Group within the MSD, having been promoted to positions of increased responsibility over the 10-year period since he was hired at GasTOPS. In the résumé he prepared after resigning from GasTOPS, Brouse described his responsibilities at GasTOPS Ltd. (Exhibit 1959) from June 1991 to October 1996 as Program Manager of the Aerospace Business Unit as follows: “Responsible for the over-all business management of the Aerospace Program within GasTOPS; this business unit was the largest program within GasTOPS and generated 33% of the annual revenue for the company.” Brouse described his responsibilities as “business development including marketing and sales of engineering services and products; revenue and profit forecasts; account and contract management; subcontract management; VAR and channel liaison and management; customer liaison and management; human resource management (including recruiting) of a staff of 7 engineers and 2 technicians.” He also stated that he “Expanded the revenue of the business unit from $300K/year (1991) to $2500K/year (1995) (i.e. 53% annual growth) and developed, implemented and supported (under contract from the Crown)” ECMS, PCGS, FLTS and EMRS. Also included in this résumé are descriptions of Brouse’s various roles at GasTOPS between 1986 and 1991.

[171]At trial, Brouse sought to downplay his roles and responsibilities at GasTOPS by testifying that he had “stretched the truth” or “fudged” his résumé. Many times throughout his evidence Brouse said that he had “stretched the truth” or used a similar phrase in an attempt to distance himself or to take a position different from what he had written in documents, memos, or e-mails. I find that in all such cases, Brouse, was repudiating these written documents in order to better the position of MxI and/or himself in this action. In his evidence concerning his résumé, Brouse stated:

Q.If we go down on the first page on Exhibit 1959, under "GasTOPS limited, you be June of 1991 to October of 1996" but you say you're responsible for the overall business management of

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the aerospace program within GasTOPS; the activities include business development, including marketing and sales, of engineering service and its products. Do you see that, Mr. Brouse?

A.Yes.

Q.And again, you're making a point there to make a distinction between marketing and sales; correct? That's the net the effect of it; correct?

A.I'm identifying marketing and sales as two separate words,

yes.

Q.And when you speak of engineering services and products, the engineering products would obviously include the GasTOPS ECMS product, correct?

A.Yes.

Q.And so it is a fact, is it not, Mr. Brouse, that while employed at GasTOPS, you were responsible in part for the marketing and sales of ECMS product?

A.Well, as I said in-chief, what I was responsible for was supporting the sales effort and supporting marketing effort of the ECMS; for the most part I was doing two things: I was demonstrating the system and fielding technical questions on behalf GasTOPS and B. F. Goodrich, as well as helping prepare statements of work and definition of what we could do for the United States Navy.

Q.Mr. Brouse, your resume doesn't say support of marketing sales efforts, does it?

A.No, it does not.

Q.And as you indicated before, you wouldn't embellish a resume, would you?

A.Oh, I don't think I said that.

Q.I'm asking the question?

A.Would I embellish my resume? I would fudge a resume,

yes.

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…

Q.Just that we know we're somewhat developing a list of descriptors, Mr. Brouse. Is "fudge" the same as "stretching the truth"?

A.It is.

Q.Or is it making a misstatement?

A.I'd say it's stretching the truth.

[172]The key role Brouse played in business development and marketing, set out in his résumé, is confirmed through an analysis of the performance reviews he received while employed at GasTOPS dating back to the year 1995. Muir recognized the role played by Brouse in his performance review stating that GasTOPS’ relationship with the Director of Fighter Trainer Engineering and Maintenance (“DFTEM”) was at an “all time high and Doug continues to do an excellent job of maintaining and building this relationship”, that “Doug has assumed overall management and responsibility” for GasTOPS’ CAF Support work and also of supervision of another employee in relation to this work, and that “Doug’s responsiveness for CAF Marketing Initiatives has been, on the whole, very good… I see an extension of Doug’s present role directly working with Gary to develop specific opportunities” (Exhibit 298).

[173]In a subsequent review dated June 1995 (Exhibit 299), Muir assessed Brouse as follows: “Doug has excelled in the business development aspects of his responsibilities. He has established excellent relationships with both the customer (DFTEM) and DSS and has used these to good advantage. He is focused, aggressive and persistent in the pursuit of specific business opportunities.” Therein, Muir also stated that

In the past year Doug has completed most of his planned objectives including:

Successful implementation of the ECMS.

Planning, preparation, negotiation and acquisition of a series of TIES taskings in support of the ECMS and its related development activities.

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Acquisition of the DIGS contract and successful execution of phase I of this contract.

This review was written by Muir and reviewed by Brouse, who signed it.

[174]In 1996, Brouse prepared and submitted to Muir a summary of his accomplishments at GasTOPS (Exhibit 300), which confirms the key role he played in GasTOPS’ Aerospace business unit. Brouse wrote that he “continued the growth of the Aero programme such that it represents 35% of the revenue and 37% of the margin produced by the seven strategic business groups of the company. This has been achieved while maintaining a thin utilization of the overhead categories with respect to Proposals, Business Development and Marketing.” He further details his roles with respect to some of GasTOPS’ products, human resource management, and relationships with other divisions within GasTOPS.

[175]It is clear that Brouse was primarily responsible for the continued growth of the Aero Program, the number one revenue generator within GasTOPS. It is also clear that Brouse was involved in the marketing, negotiation and execution of contracts on behalf of GasTOPS. He played a key role in GasTOPS’ marketing effort to the United States Navy and in establishing a solid working relationship with GasTOPS partner, B.F.Goodrich. Muir confirmed that when Brouse became program manager, he assumed lead responsibility for business opportunities such as the United States Navy and Volvo. Muir testified as follows:

Q.And is this the same Lemoore meeting that you had given testimony on previously, again to the Navy opportunity?

A.Yes. This was the Navy -- the meeting, sorry, that Brouse attended on behalf of GasTops. At this point Brouse is the program manager for our Aero program of my division and he has taken over lead responsibility on business opportunities such as the Navy as well as Volvo, at this point, would have been his opportunity.

[176]Brouse’s job responsibilities were essential to GasTOPS’ business operation. In addition, the manner in which Brouse carried out his responsibilities had a substantial impact on GasTOPS’ profitability.

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[177]I have no doubt that Brouse was directly involved in GasTOPS’ technology and product development. Brouse was intimately involved in various corporate opportunities being pursued by GasTOPS, and as a result he was familiar with the evolving needs of the aviation maintenance software marketplace. For example, through his direct involvement in GasTOPS’ pursuit of the GE/Oracle opportunities, Brouse, with the assistance of Jeff Cass, was able to identify the “gaps” between the existing state of the MSD technologies and that being sought by the customer. GasTOPS relied heavily on Brouse’s judgment and loyalty to it to ensure the success of the Aero Program within the MSD.

[178]As a result of his business management role within the Aero Program, Brouse had virtually complete knowledge of the internal workings of the MSD, its design and the capabilities its products, its marketing strategies (both through his contribution to GasTOPS’ business plan and through discussions with Muir), and the needs of the its customers and prospective customers. Brouse was primarily responsible for developing and nurturing relationships associated with the sales and service contracts pursued by GasTOPS.

[179]Muir met with Brouse in July 1996 for the preparation of the MSD’s 1996/1997 business plan. Muir reviewed with him the detailed marketing penetration strategy diagram which depicted a proposed “road map” for future sales of the GasTOPS products. Muir would not have shared such sensitive and valuable information with a “mere” employee, but chose to share it with an individual he considered to be a key member of GasTOPS’ senior management team whom he expected would use this information to direct the future growth of the MSD.

[180]In 1993, Muir authorized Forsyth and Brouse to sign contracts on GasTOPS’ behalf. On December 19, 1994, Brouse signed a contract amendment from the Canadian Government on GasTOPS’ behalf. On September 30, 1994 Forsyth signed on GasTOPS’ behalf a proposal that was submitted to the Canadian Government.

[181]In my view, Brouse was a key employee of GasTOPS who owed a fiduciary duty to GasTOPS while employed by GasTOPS and after he resigned from GasTOPS. Due to his intimate knowledge of GasTOPS’ technologies, marketing strategies and business opportunities,

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it would have been almost impossible for GasTOPS to have replaced him in two weeks.

Jeff Cass

[182]As early as 1994, Jeff Cass was GasTOPS’ chief software developer and he was considered the key product development person from a technical standpoint.

[183]At the time of his resignation from GasTOPS in October 1996, Jeff Cass was a member of the GasTOPS’ development team, holding the position of MAINSTAY design group leader. Jeff Cass had been employed at GasTOPS in positions of increasing responsibility for 7 years prior to his resignation. Jeff Cass was primarily responsible for the underlying design of the GasTOPS’ ECMS and MAINSTAY group of products and was responsible for assessing the requirements for the extension of GasTOPS’ products into the commercial aviation market place. Jeff Cass assessed the technical gaps of the GasTOPS’ ECMS product in relation to the requirements of the DOT/RCMP and GE opportunities.

[184]On September 25, 1996, Jeff Cass completed a report entitled “DOT and RCMP Aircraft Fleet Management Systems Proposed Work Plans and Estimates, September 25, 1996” (Exhibit 48C). A review of this Exhibit makes it abundantly clear that Jeff Cass was intimately involved in GasTOPS’ pursuit of the DOT/RCMP business opportunity. In his report Jeff Cass stated:

This work plan summarizes an approach to add incremental functionality to the existing OS/2 based ECMS. Although this approach will provide a more attractive short-term work estimate for our customer, the code base for ECMS will continue to grow. There will be more code to convert to Windows later on and our development efforts on a per function basis will not be as efficient as they could be with Windows development tools. In other words, this is a deadend approach in terms of product development.

An obvious alternative approach would be to convert the current ECMS to Windows and then add the functionality to ECMS as required. As a product development plan, this makes a lot of sense. We could even begin to re-align MAINSTAY with the ECMS data model and use it as a setup tool for the system (remember, there is

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no front end on the ECMS configuration tables). This strategy would be far more costly than the DOT budget can provide. The basic ECMS conversion to windows stands at $500K and the re- alignment of MAINSTAY is probably in the order of $200K…

[185]In his résumé, which was prepared after he resigned from GasTOPS and was working at MxI, Jeff Cass described his responsibilities from October 1994 to October 1996 at GasTOPS as follows. As Products Manager, he was “Responsible for coordinating the synergetic development of four products: MAINSTAY, ECMS, RCM Analyst and Lube Analyst” with specific responsibilities including

•Design of reusable, shared functional components for all four systems.

•Design of single ‘enterprise’ data model that supports all four systems.

•R&D tax claims associated with the development of these four systems.

•Technical review of requests for proposals (RFP’s).

•Preliminary job estimates and detailed project plans for proposals.

•Software tool development review and selection.

•Training and professional development of core product group.

Previously, from June 1992 to November 1994, Jeff Cass was a

Project Manager in the development of ECMS and of

MAINSTAY, for which his duties included (for ECMS)

•the definition of requirements based on site visits and interviews at each of the Canadian Airforce’s bases.

•the design and implementation of the system’s relational data model.

•the documentation of the system’s functionality.

•prime responsibility for the preliminary user interface design.

•distributed application architecture (system operates as a set of LAN’s over a WAN)

•project budgets, planning, scheduling and man power loading.

•introduction of a maintenance life cycle business process for the ECMS product that included configuration control, release planning, and feature enhancement planning.

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(and for MAINSTAY)

•conducting workshops and interviews for the purpose of establishing the new requirements.

•the design of an integrated relational data model that encompassed purchasing, payroll, inventory control and maintenance.

•the functional specification for MAINSTAY.

•the design and documentation of standards and conventions.

•assistance in the design of the ‘shop standards’ framework for Dofasco enterprise systems

•Project budgeting, planning and scheduling responsibilities.

Also included in this résumé are details of Jeff Cass’s earlier employment history with GasTOPS.

[186]During cross-examination on his résumé, Jeff Cass stated:

Q.If I can draw you to -- your attention to page 3 of Exhibit 1764 in hard copy, there it says under subheading “GasTOPS Limited October 94 to October 96", it says you were promoted to products manager; correct?

A.That's correct, that's what it says.

Q.That’s an accurate statement?

A.The title I had at GasTOPS was senior design lead.

Q.Well, whatever title you thought you had at GasTOPS, for purposes of your resume, you're stating that you were products manager, correct?

A.On the resume, yes, that's the statement I'm making here.

Q.And in that regard you were responsible for co-ordinating the synergetic development of four products, being Mainstay, ECMS, RCM Analyst and Lube Analyst; correct?

A.That's correct.

Q.And there is a description there of those four products?

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A.Yes, there is.

Q.Under the sub-heading of “specific responsibilities”, first bullet was you designed a reusable shared functional components for all four systems; correct?

A.That's what it says, yes.

Q.And that’s an accurate statement?

A.Yes, this is referring to those Mainstay contribution design elements that we’ve been walking through.

Q.Next bullet says that you were responsible for the design of a single enterprise data model that supports all four of the systems; and that's a correct statement as well, is it not?

A.Yes, that statement is referring to the condition based maintenance area that is common to all four of those applications.

Q.Is there anything else on your resume, Mr. Cass, that you think is embellished?

A.Yes. The next bullet down as well, stating that I prepared the R&D tax claims associated with the four. I participated in the status reporting, that ultimately went to SR&ED claim, but I didn't prepare the tax claims.

Q.Anything else in your resume that’s embellished?

A.I haven't read through it all.

Q.I would like you to take a moment to scan through it, Mr. Cass, and let us know if there is anything else that you think is embellished?

A.On page 2, the area where it's describing VP Research and Development, there is an entry that says 1999 U.S. Navy Maintenix Implementation Plan. I participated in some of the activities, but I did not run the project as a whole.

Q.Who was responsible for that, Peloso?

A.Yes.

Q.All right. Anything else?

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A.On page 4, the descriptions of the systems are reasonable. The durations for the projects are my estimations, and I'm not sure if they're accurate or not in terms of the man-years of development.

Q.Well, they were -- let's take for example the 30 man-years associated with the development effort of ECMS. That's your best guesstimate, is it not?

A.That would be my guesstimate, yes.

Q.Similarly with Mainstay, it's a 12-year development effort?

A.Yes.

Q.All right. Anything else in the resume that's embellished?

A.Again, more with the project management side of things, with respect to the ECMS project on page 4, project budgets, planning scheduling and the manpower loading, I did that for ECMS-1; for ECMS-2, I assisted Tom Kubiseski in that capacity. And again, in the ECMS-2 area, the feature enhancement planning, that's something that I partook with, with respect to the software change control process that was run between Chris Cass and Warrant Officer Pare.

Q.Is that it for page 4?

A.Yes.

Q.So the statements then under ECMS project manager that you designed and implemented the systems relational data model; that's certainly accurate?

A.Yes, it is.

Q.And under the Mainstay project, the design of an integrated relational data model that encompassed purchasing payroll, inventory control and maintenance, that's accurate?

A.That is accurate as a stretch with respect to the overall CMMS project that was under the SHL umbrella. My first-hand activities as part of that were with respect to the CBM-DAS component of that CMMS system.

Q.Anything else on the resume, Mr. Cass, that was

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embellished?

A.No, I think that's it.

[187]On June 26, 1996, Jeff Cass’s supervisor, Forsyth, completed his performance review (Exhibit 292); it was signed by Forsyth, Jeff Cass, and Muir. In his performance review of Jeff Cass, Forsyth assigned responsibilities to Jeff Cass for the next reporting period of managing the MAINSTAY Design Group, including involvement in design, implementation and life cycle support of the MAINSTAY Product Line; support of the MAINSTAY Marketing effort; continuous involvement of the MSD’s software development methodology; selection and administration of MSD Research and Development projects; and recruitment, development and retention of personnel). The specific objectives assigned to him included managing successful delivery of reliable products, completing planned projects, preparing the R&D portion of the 1997 MAINSTAY Business Plan, and recruiting new graduates and Co-Op students.

[188]Forsyth also documented Jeff Cass’s successes in the preceding year. Forsyth found that Jeff Cass had successfully implemented ECMS v.2, designed and implemented the RCM Analyst product, managed the review and selection of the new Windows-based MAINSTAY development environment, and managed the selection and implementation of the QA Partner automated testing tool. He had also totally rewritten the ECMS design documentation and contributed to numerous proposals and marketing efforts including “the Caidmark ITM, Canadian Coastguard MIMS, Canadian Forces MASIS, Canadian Navy MAINSTAY, etc.” Forsyth defined Jeff Cass’s areas of strongest performance as getting the job done, his technical capabilities unrivalled at GasTOPS, problem solving and organization.

[189]Muir during his direct examination was asked about the performance review of Jeff Cass by Forsyth and stated:

Q.I'd like to focus your attention first of all on the summary

of objectives for the upcoming period and again, could you describe for the court in general terms what was identified by Mr. Cass and Mr. Forsyth there?

A.Yes. By this time Jeff Cass is -- has fully assumed the role

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of the lead designer for Mainstay, so his first objective relates to the management of his team and the individuals that are a part of his design team are identified.

The second objective relates to the overall design implementation and support of our complete line of Mainstay products, including the ECMS product for the Air Force, the Mainstay product that we had delivered to Ontario Hydro, RCM analyst and Lube Analyst.

So Cass now has responsibility for our complete Mainstay product line and all aspects of it from design through to support. He has an objective to support the marketing efforts, including definition of “requirements" and estimating cost estimates for projects involving our Mainstay products. Again, an objective to continuously improve the software development methodologies of the division, that's an ongoing objective and activity for the division and in this case for Mr. Cass. He has an objective, next objective, to bring forward to Mr. Forsyth specific recommendations for research projects, to select those projects and then to subsequently administer them. And to, as far as Human Resources goes, to participate in recruitment, development and the retention of people within his group.

Q.Mr. Muir, I'm now going to show to you page 2 of exhibit 292, and I have just highlighted there for you a couple of the results that Mr. Cass had achieved for the previous period. And can you describe for the court your understanding of those items?

A.You're referring specifically to the highlighted items?

Q.Yes.

A.Yes, okay. First highlighted item deals with the documentation, the design documentation for our ECMS product, and the result that was achieved was a total or a complete rewrite of the design documentation.

Q.Second item?

A.Second item under “areas of strong performance", this is Forsyth's assessment of Cass and he’s essentially saying that from a technical perspective his abilities are unrivalled, he’s never seen anyone like that at GasTops, Systemhouse, Dofasco et cetera. And that was certainly the cases for Jeff Cass, he is technically an extremely strong performer.

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And the final recommendation that's highlighted, again under his own professional development, Forsyth notes that he should endeavour to remain current in all of the technologies related to our Mainstay product and those are software technologies.

Q.Mr. Muir, I'm going to show you now page 3 of exhibit 292, can you first describe to the court based on this document the nature of your personal involvement in this particular review of Mr. Cass?

A.Yes. I reviewed this particular document and Forsyth's assessment and Mr. Cass and I signed the document, indicating that I agreed with his assessment.

Q.And there is a highlighted passage there with a red arrow. What was your understanding as to the meaning of that particular entry?

A.My understanding of that entry is that Cass has documented key components of our Mainstay product.

Q.Mr. Muir, based on this performance review and also based on your conversations directly with Mr. Forsyth and Mr. Cass, were you aware of anyone other than Mr. Cass at GasTops who had a better understanding of the technology associated with the Mainstay line of technologies?

A.No, there was certainly no one better than Jeff Cass.

[190]During cross-examination, Forsyth was also asked to review his June 26, 1996, performance review of Jeff Cass (Exhibit 292):

Q.Now, you've reviewed the document, does it accurately set

out his performance review?

A.Yes.

[191]Jeff Cass, during his own cross-examination, was referred to Forsyth’s June 26, 1996, performance review (Exhibit 292) and he stated:

Q.With respect to the employee objectives that you have for

the next period, so we're now speaking of the second half of 1996, your responsibility is to manage the Mainstay design group,

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consisting of Linh Nguyen, Darcy Chorneyko, which is spelled C- H-O-R-N-E-Y-K-O, Andrew Hircock and Kurt Strutt. And those duties include first bullet design implementation and life cycle support of the Mainstay product line, ECMS, Mainstay for Windows, RCM Analyst and Lube Analyst. Do you see that?

A.I see that, yes.

Q.So clearly you have the overall managerial responsibility for the Mainstay design group contrary to whatever your position may be described as in the upper right-hand corner; correct?

A.Yes. At the point in time here there are four separate systems. I am to become the person in charge of design and life cycle support of those four things.

Q.One of the responsibilities as well that you had was the selection and administration of the MSD research and development projects; do you see that?

A.Yes, I see that.

Q.Do I take that to mean it was your personal responsibility to choose those areas that would be subject to MSD research and development?

A.No. At this point the objectives for R&D had been laid out coming into the fiscal year and I was administering the reporting as well as the execution of work under those objectives. I did have latitude in terms of which objectives we pursued and which ones we didn't, but the objectives had been settled.

Q.Obviously the statement speaks for itself, but you're not just administering the projects, you're selecting them as well, that's what the statement says; correct?

A.Yes. I'm just clarifying the -- I'm selecting which ones have priority and which ones we're going to put effort in behind within a set of objectives that had been defined.

Q.Certainly as the manager of the Mainstay design group, if during the period of this time you identified other areas that were appropriate for research and development, surely you would have brought those to the attention of the company?

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A.At this time frame I would have given rise or communicated with Brad on the progress of activities that I was administering and executing. And if there were other activities I would have discussed those with Brad.

Q.And what I'm saying to you, Mr. Cass, I'm not asking you to tell me if you agree with this or not, if you identified other areas that you felt were appropriate for research and development it was your responsibility to bring those to the attention of Mr. Forsyth, correct?

A.That's correct. Within the scope of the work I already understood was the mandate of what I was to be doing research under.

Q.In fact, under the sub-heading of specific objectives, which is the third bullet from the bottom of the page, it says your objective is to prepare the R&D portion of the fiscal year 1997 Mainstay business plan, correct?

A.That's what it says, yes.

Q.Doesn't say review, it says prepare; you’re the person responsible for drafting it, correct?

A.Yes, at this point that is an objective Brad is handing to me,

yes.

Q.On the second page, again there is reference to the fact that your technical skills are still unrivalled at GasTOPS, SHL, Dofasco, at least that’s Mr. Forsyth's review of you; correct?

A.That's correct.

Q.And you're still being asked to further delegate responsibility in that regard; at paragraph 4, you're being asked to take an active role in recruiting personnel to support the growth of your own team, correct?

A.That's correct. And again, within the confines of the business that were sitting around, the projects that I worked on required people and if the projects required staff then I was to participate in the new additions it was recruiting them.

Q.If you identified a particular area that you wanted to

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exploit, like a new technology area you thought would have been beneficial to the product development, you would have raised that with Mr. Forsyth and perhaps recommend that you hire personnel to do that, correct?

A.No, that wasn't something I did at the time.

Q.Are you suggesting that your objectives don't include that?

A.Yes. At this point the objectives were both with research as well as hiring people that was in the context of a plan already put forward, at this point in June 26, ‘96, I certainly did not see it as my objective to come up with the marketing plan, the research plan and the staffing plan from the position I held.

Q.No, Mr. Cass, we have seen in your PRS that it was expected of you to remain fully current on what customers' needs were; why, because impacts directly on the design of the system, correct; you cannot design the system if you don't know what the customer needs?

A.Correct. When you're engaged in a project with a client, they do tell you pretty specifically what it is that they need.

Q.You're aware of what the customer requirements are?

A.From the specific customers, yes.

Q.I'm sorry?

A.From the specific customers, yes.

Q.You're charged with the overall responsibility of designing the products to meet those customer requirements, correct?

A.The requirements that I understood, yes.

Q.So the question to you is, if you became aware of new requirements of the customer, or new technologies, you would bring those forward and incorporate them into the design, would you not?

A.No. It would be quite the reverse. Well, there is actually two scenarios. One is if a customer and I'm working on a project is directly asking me for a requirement to be addressed, that is

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something I would deal with by bringing it back to project management, looking to see whether it's in scope or whether there is change control required to change the scope of the contract with that customer.

The second one being that if I was aware of a requirement that could go into any kind of a product, it wouldn't be R&D driving the development of those, it would be marketing forward saying this is what we want to build for the marketplace as a product. R&D wouldn't lead the identification and design of technology without marketing saying this is the customer base we're now going to try and build this for them, no.

Q.In your dealings with the customers, when you're ascertaining their requirements, Mr. Cass, if you became of the view there is another requirement that exists out there, maybe this customer does not need it but it's out there, could you not go under this general authority that you have to do R&D and say I think we should incorporate this new functionality in the product?

A.No, I didn't have authority to set the scope of R&D nor the budget nor the resources.

Q.It says right in your objectives you're to select and administer the R&D projects?

A.Select which ones that I work on in terms of ones that have already been defined, I think were 9 or 10 of them identified and we couldn’t do all of them at once. So I did have authority to say okay we're not going to do work on requirement no. 3, we’re going to work on requirement no. 4. But in terms of setting the overall list of requirements, no, I didn't do that.

Q.Do you not think, Mr. Cass, it would have been good business practice that if you learned through your contact with your customers of a new and exciting requirement that you would at least bring it forward to the company under the auspices of R&D, why wouldn’t you do that?

A.Definitely requirements would come back and be identified. As for setting in place the execution of the business to meet those, that's -- that is what the business is. That defines the business.

[192]It is clear to me that Jeff Cass was a key and essential employee within the MSD at

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GasTOPS. Due to his intimate knowledge of the GasTOPS’ ECMS and MAINSTAY technologies, GasTOPS was vulnerable to an abrupt resignation, as it would be difficult and time-consuming for GasTOPS to replace Jeff Cass. Certainly, GasTOPS could not have expected, nor could any company be expected, to replace an employee such as Jeff Cass in two weeks.

Vandenberg

[193]Vandenberg commenced work at GasTOPS after graduating from Carleton University. He was employed at GasTOPS at various positions until his resignation in October 1996. Subsequent to his resignation from GasTOPS, Vandenberg immediately commenced employment with MxI. At the time of his resignation, Vandenberg was a project manager, spending the majority of his time at Dofasco.

[194]In his résumé, which was prepared after he commenced employment at MxI, (Exhibit 1874), Vandenberg described his employment from November 1995 to October 1996 at GasTOPS as follows:

Project Manager within the Maintenance Systems Division of GasTOPS. Responsible for all engineering and software projects executed at Dofasco Inc. Specific job responsibilities included:

•Consultant to Dofasco’s implementation and roll-out of their condition-based maintenance system and methodology.

•Coordination of the engineering analysis performed on the turboblower system at Dofasco.

•System Architect and Designer for enhancements to Dofasco’s Condition-Based Maintenance - Data Analysis System (CBM- DAS)

•Management of the CBM-DAS software development team.

•Conducted technical investigations and feasibility studies regarding the integration of additional predictive maintenance technology systems with the CBM-DAS.

He was also previously (November 1994 - November 1995)

Project Manager on the CBM-DAS implemented at Dofasco

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(November 1994 - November 1995) and a systems analyst (May 1991 - November 1994) for GasTOPS.

[195]In his performance review of Vandenberg, dated June 25, 1996, Forsyth stated:

Summary of Results for Appraisal Period

1. Results achieved for regular or planned objectives

ohas successfully completed the CBM-DAS development

projects as defined in the sub-contracts to SHL

ohas successfully implemented the Dofasco Utilities pilot CBM project

2. Results achieved for special or major unplanned tasks or

objectives

ohas developed a high level of respect from Dofasco personnel so that he has become indispensable; unfortunately, this has resulted in a brutal living arrangement with Rob travelling to Dofasco every week for the last two years…

[196]During his cross-examination, Vandenberg was questioned concerning this performance review (Exhibit 294). He stated:

Q.If I take you to Exhibit 294, which is your performance review dated June 25 of 1996, at page 3, we reviewed this earlier, at item 2:

"Has developed a high level of respect from Dofasco personnel such that he has become indispensable." Do you see that?

A.Yes.

Q.Do you agree that grow that [sic] was an accurate statement as to the relationship that you had with that particular GasTOPS client, being Dofasco?

A.I think from a technical sense it's true, in that from my experience on their project, I had a lot of background on that project. But that's, as I said, it is from a technical sense, I'd agree with that.

Q.At page 4 of the same exhibit, it says, on the right-hand side, on the top of the page, this is under the category of Job Knowledge and Technical Competence, it says: "Has the extremely

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rare skill of truly understanding the abstract data model required of Mainstay." Do you see that?

A.Yes.

Q.And this is assessment of you by Mr. Forsyth, correct?

A.Yes.

Q.Can you tell us, Mr. Vandenberg, what that particular statement means?

A.It's a measure of my data modelling skills. I had done a lot of data modelling work on the CBM-DAS and then subsequently Mainstay version 2.

Q.Will you agree with me, Mr. Vandenberg, this statement is in specific reference to the data model associated with Mainstay, the GasTOPS' product?

A.Yes. But the only data model I ever worked with was the CBM-DAS or Mainstay version 2.

[197]In my view, Vandenberg was a “key employee” at GasTOPS and certainly could not be replaced within two weeks. In addition, as a result of his position and access to confidential business information belonging to GasTOPS, he owed a fiduciary duty to GasTOPS.

GasTOPS’ Recognition of Defendants’ Key Status: Stock Option Plan

[198]In recognition of the key roles that certain employees such as Forsyth, Brouse and Jeff Cass held, GasTOPS created a stock option plan with the intent to divest some ownership in GasTOPS to the layer of management below the vice-presidents, when individual employees were identified as key to the growth of the company. Its purpose was to “develop the interest of key full-time and permanent employees of the Company in the growth and development of the Company by providing them with an opportunity through share options to acquire an increased proprietary interest in the Company” (Exhibit 283). Participation in the “Employee Stock Option Plan” was by invitation only.

[199]The defendants Brouse, Forsyth and Jeff Cass were identified as key employees of

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GasTOPS for the purposes of the Employee Stock Option Plan and were offered an opportunity to participate in the plan. In December 1995, letters and copies of the Employee Stock Option Plan were sent to these defendants. Muir stated in direct examination:

Q.How was it again determined that these managers would have the entitlement to purchase these shares?

A.The employees eligible for this particular plan were nominated by their vice president, so in my case I would nominate or recommend those key employees that I felt should participate in this plan, they were generally speaking the future key managers of the company. And each year a list of prospective employees, key employees, would be presented to the board of directors and approval for participation in this particular plan was reserved to the board of directors.

…

A.The purpose was to provide the employees with the ability to obtain a proprietary interest in the company on the argument that that was a good thing for the long-term growth and development of GasTops.

[200]The “key employee” stock option plan should be contrasted with the “GasTOPS’ Employee and Associates Share Purchase Plan,” the purpose of which was “to develop the interest of full-time and permanent employees and selected associates of the company in the growth and development of the company by providing them with an opportunity through share purchase to acquire an increased proprietary interest in the company.” Participation in the Employee and Associates Share Purchase Plan was available to any permanent full-time employee of GasTOPS.

[201]At the annual general meeting of GasTOPS on December 13, 1995 Forsyth, Brouse and Jeff Cass were approved for participation in the “Employee Stock Option Plan”. On December 22, 1995 an invitation to participate in the Employee Stock Option Plan was extended to Forsyth, Brouse and Jeff Cass along with others. Forsyth, Brouse and Jeff Cass accepted the offer to purchase shares pursuant to the Employee Stock Option Plan.

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[202]Chris Cass, the brother of Jeff Cass, was employed at GasTOPS and subsequently became an employee of MxI. During his cross-examination he stated:

Q.So in your mind, key people at GasTOPS are Forsyth, Brouse, Cass and Vandenberg, correct?

A.From a technical point of view, yes.

Q.Why do you say they’re key people from a technical point of view, Mr. Cass?

A.That’s simply my opinion of their positions.

Q.Why do you say that, Mr. Cass?

A.Because that was my understanding of their positions.

Q.Can you explain that, please, Mr. Cass?

A.My interactions with Brouse, Forsyth, Cass and Vandenberg led me to believe their capacities were of a technical nature.

Q.That wasn’t my question, Mr. Cass, my question is why did you say in your note that they were key people within the organization?

A.To indicate that in my opinion their technical capabilities were influential.

Q.Important?

A.Yes.

Q.And why do you say that?

A.Simply put, that was my understanding of their positions.

Q.Why do you say that, Mr. Cass? On what factual basis do you make that claim?

A.I’m not sure ---

Q.What technical roles were they assuming that led you to believe that they were key people within the organization? Was it

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their level of knowledge, was it their participation in contracts; what was it?

A. Their level of knowledge and their capabilities, as

I understood them, in designing software.

Q.Would you agree with me, Mr. Cass, that from a design perspective with respect to both ECMS and Mainstay that those four persons were effectively the designers of the system?

A.Yes, I would.

Q.And they were the persons who therefore had the key knowledge with respect to the design of those systems; correct?

A.They would be amongst the most important people, yes.

Defendants’ Roles, 1991-1995

[203]Between 1991 and 1995, Muir was responsible for market development, technology development, human resources and financial management for the MSD. During this time frame, the managers would assist him with these activities. Muir stated in direct examination:

Q.From 1991 to 1995, in your division, who would prepare contract proposals for customers?

A.The responsibility to prepare proposals, for the most part, was the managers: Forsyth, Brouse and Tobin. My role would be to help them do that as a manager. In some cases I may have actually written entire proposals if they we unavailable or not able to do it. But generally speaking, almost all of the proposal development was done by the three managers. My role was one of helping them do that and providing a review of those proposals before they were submitted to a client.

Q.Now, what role would your managers perform once they had -- the proposal has been submitted to the client?

A.Again, it depends somewhat on who the client is and the nature or complexity of the project and the contract. For much of what we did, the managers themselves would submit the proposal to the customer, be involved in any kind of fact finding or negotiation that took place following the proposal submission and,

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for example, deal with Public Works, who handled most of the contracting for DND at the time; they would deal with public works officer as well.

My role, again, was to help them do that. If there was a special need for me to get involved, I would get involved.

Q.If a contract was arrived at between GasTops and a client, who would sign that contract on behalf of GasTops as it relates to your division?

A.That varied, but again, generally speaking, certainly towards the 1993, ‘94, ‘95 time frame, the managers would sign the contracts. But there was many contracts that I signed on behalf of the division because of the nature of the contract, they were large significant contracts for which the customer expectation would have been someone senior at GasTops would sign the contract.

Q.And from ‘91 to ‘95 can you describe Mr. MacIsaac's role in the contract process in your division?

A.MacIsaac had little or no role at all in the contract process, except in the case where a contract might involve an investment by the company. I can't think of one, but the only time that MacIsaac would be involved, as I said, if there was an investment required by the company. If we were to take a contract where we knew up- front that the company was going to invest its own money to execute the contract as opposed to use customer money, he would be involved.

There was certain general business relationships being developed at the time, particularly B. F. Goodrich, where if we were to form something like a corporate teaming agreement, which is in effect a contract between two companies, certainly the president would be involved in that and likely sign a corporate teaming agreement. But for the most part, the work that the division was doing and the contacts being developed and executed by the divisions were done entirely within the division.

[204]According to Muir, during this time frame, managers such as Forsyth and Brouse would help to recruit new talent for GasTOPS. The managers would interview the candidates and make a recommendation to Muir. Upon approval by Muir, the managers would make an offer of

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employment to the candidate. Muir identified Forsyth in particular as making offers, subject to his review, beginning in the early 1990s (1992 or 1993).

[205]Between 1991 and 1995, the managers’ responsibilities included: identifying new work (particularly with existing customers); developing customer and champion liaison and developing work plans and cost estimates. Muir noted that everyone at GasTOPS, particularly managers, was always looking for new work and contributed by identifying opportunities. Tobin, for example, was in a new market and looking for new customers. The managers would work with the champions within organizations that were either already customers or considered very good prospects. With them, the managers would develop work plans, cost estimates, and justifications for the work so that the client or potential client organization could consider the contracts. Muir was responsible for the commercial side of negotiations, sometimes with the assistance of a manager (as occurred with Brouse regarding CAF contracts).

[206]Forsyth and Brouse stated that their customer and “champion” liaison contacts were of a technical nature and that more senior people from GasTOPS and B.F.Goodrich (Muir, MacIsaac, Chivers and Howe) were responsible for dealing with the customer decision makers. According to Muir, by 1994, the managers (Brouse, Tobin and Forsyth) organized the work within the area of their responsibility and their contracts. Muir stated that he had no role in assignment of work or manpower allocation within the particular areas.

[207]Muir testified that the managers below him were included in the discussions surrounding the change in corporate structure. Forsyth, Brouse and Tobin all testified that they were not consulted on this change, but rather the new structure was explained to them. The changes involved a new accounting system to keep better track of various projects, business development costs, and administrative and marketing costs and to make better business decisions. The different managers were assigned different roles according to their strengths; for example, Tobin was considered very good at customer interactions and business development and was assigned marketing and other business development roles.

[208]The change in the business structure at GasTOPS in the summer of 1995 increased

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the responsibilities of the managers, Brouse, Forsyth and Tobin, and also increased the responsibilities of Jeff Cass and Vandenberg. It may well be that there was not a great deal of consultation between MacIsaac, Muir and the managers concerning the change in management structure but the fact remains that the change increased the responsibilities of Brouse, Forsyth, Tobin, Jeff Cass and Vandenberg.

Oversight by MacIsaac and Muir

[209]The defendants submit that in addition to the new responsibilities which were given to the managers, Forsyth, Brouse and Tobin, there were new oversight controls which were put in place. One of these was the oversight by the vice-president of the division. Another control over the program managers was the program evaluation performed by quarterly “President’s Reports”. In 1995/96, MacIsaac created the procedure of having “President’s Reports” in order that program managers would report to him quarterly. This allowed him to stay apprised of their progress towards the business plan, the risks and the overall financial parameters they were achieving. In compiling these reports, the program managers worked with Kind, a vice-president, who advised them of the kinds of risks that should be included in their reports. MacIsaac stated that Brouse participated in the program evaluation for Aero Systems and Forsyth participated in the program evaluation for Industrial Systems/MAINSTAY, among others. Each program manager was expected to give a briefing to the president on their programs. Further, Kind, as the Advanced Development vice-presidence, would create reports for MacIsaac to serve a quality assurance function on complicated, technical projects. To create the reports, Kind would look at the program managers’ own reports and at the content of the individual projects within the program and he would discuss with the program managers the risks involved in their programs to determine which would be highlighted in the report for MacIsaac.

[210]Although MacIsaac wanted “President’s Reports” quarterly in 1996, there were no “President’s Reports” prior to Forsyth and Brouse resigning. Brouse and Forsyth did provide progress reports to Muir on a quarterly basis in the 1995/1996 business year.

[211]MacIsaac was a hands-on president and wanted to be aware of the finances of

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GasTOPS during each year. In order to maintain an oversight of finances, MacIsaac had the central accounting department report directly to him; direct responsibility for corporate infrastructure costs; at least five vice-president round table meetings per year; the purchase invoice files came across his desk for review; direct signing authority was limited to himself and the three vice-presidents; and program managers who were to provide quarterly briefings.

[212]In my view, these actions on the part of MacIsaac, did not detract in any way from the responsibilities given to the program managers. Any manager of any division in any corporation, has from time to time his/her actions and results reviewed by his/her superior.

[213]Muir also reviewed the actions of his three managers, Forsyth, Brouse and Tobin. They aimed to meet monthly between 1991 and 1995, the managers submitted regular reports (although not every month) on the stature of their management responsibilities, and they had a monthly reporting process in place.

Responsibility for Contracts

[214]Between 1991 and 1995, managers Forsyth and Brouse were, for the most part, responsible for preparing proposals for contracts. Muir would help them and review their proposals before they were submitted to a client. Often, the manager would also submit the proposal to the customer, be involved in any kind of fact-finding or negotiation following the proposal submission. The manager would also sometimes deal with Public Works or its officers, as it was responsible for most of the DND contracting at the time. Muir provided assistance and became involved as required. From 1993 onward, when contracts were arrived at with clients, managers would generally sign the contracts on behalf of GasTOPS; Muir would sign on behalf of the Division in cases of large, significant contracts for which the customer expected someone senior at GasTOPS to sign.

[215]Between 1991 and 1995, MacIsaac had little to no role in the contract process in the MSD. The exception would be in cases where the contract involved an initial investment by GasTOPS. Muir also noted in his testimony:

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There was certain general business relationships being developed at the time, particularly B. F. Goodrich, where if we were to form something like a corporate teaming agreement, which is in effect a contract between two companies, certainly the president would be involved in that and likely sign a corporate teaming agreement. But for the most part, the work that the division was doing and the contacts being developed and executed by the divisions were done entirely within the division.

[216]Forsyth and Brouse submit that their contacts were of a technical nature and that more senior people from GasTOPS and B.F.Goodrich (Muir, MacIsaac, Chivers and Howe) were responsible for dealing with the decision makers. I do not interpret the responsibilities that Muir had for his division and/or the role played by MacIsaac as detracting from the managers’ responsibilities.

Allocation of Workforce

[217]According to Muir, by 1994 the managers were responsible for the assignment of work and manpower allocation in their own particular area of responsibility and the contracts that they were responsible for.

[218]In contrast, Forsyth stated that the division was organized around projects and that employees would be moved from project to project depending on the need for manpower and although it was the responsibility of the managers to work out the allocation of manpower, Muir had the final say on the allocation of personnel. Forsyth stated that as a lead project engineer between June 1989 to September 1991, working under Muir, he was given a budget measured in terms of person hours to complete a job and a schedule of delivery dates. He stated that he was “given a fair bit of autonomy” on how he did it as long as the project came in on budget and on schedule. Muir would be involved on the customer side and would sometimes tell Forsyth what the project requirements and deliverables were, and Forsyth would report up to Muir (at that time through another management level).

[219]Forsyth also described the relationship he typically had with GasTOPS’ customers. He stated that the customer would have, on their end, the equivalent of a project manager or lead

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engineer – one of the “technical people” at the client – and it was with that person that he would have direct contact. Where GasTOPS’ deliverables were technical reports on, for example, the development of the condition indicator, he would provide the client with a report and would receive back from the client information about what changes they desired.

[220]When Forsyth was promoted to a management position, he “actually became responsible for a set of projects.” He stated that, once he was a manager, he might be the lead project engineer on some projects and have someone else working for him as lead project engineer on others, who Forsyth would supervise and help conduct the work. He was responsible for the budget, which turned into labour costs, called “cost of goods sold” by the company. He was responsible for adhering to the schedules for his projects. In his testimony, Forsyth stated that each group within GasTOPS had a set of engineering managers.

[221]Forsyth also testified that within the MSD, the managers often knew what work the others were doing. He reported that they “were really organized from a personnel standpoint” around projects, so that people could be reassigned to work on a different project if that would be a more efficient use of resources and more effectively generate revenue. He stated that the three MSD managers and their vice-president would hold administrative meetings to “sit down and juggle… who would work on what project going forward.” While the managers tried to work out the details amongst themselves, Forsyth claimed that Muir had the final say.

[222]MacIsaac stated that at the time he wrote the 1995/96 corporate business plan, the senior management of GasTOPS consisted of Chivers, Muir, Dupuis, Kind and himself. Following the reorganization and creation of program managers as detailed in the business plan, senior management also included Brouse, Forsyth, MacGillivray and Neilsen. The GasTOPS business plan 1995/96, authored by MacIsaac, detailed GasTOPS’ reorganization. He sought to support the development of management capability, fostering development of general managers and more specialized project managers, design managers, or production managers. He also sought to improve GasTOPS’ program/project evaluation system to allow management to quickly and conveniently appraise the performance of a particular program.

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[223]The business plan subsequently describes a shift to a “program team” concept with Program Business Managers responsible for business development strategy, customer requirements definition, customer liaison roles, sales, contract negotiation, and program quality assurance; Contract Managers responsible for project definition, estimates, personnel assignment, management and control, and reporting as well as program annual budgets; and Engineering Personnel. The plan stipulated that several teams were to report to a vice-president who would be responsible for all aspects of a given business unit. Finally, as president of GasTOPS’, MacIsaac retained control over final determinations regarding the initial or windup of specific programs.

[224]The business plan specified the organization for the 1995/1996 financial year, in which Forsyth and Brouse were program managers for the MAINSTAY and Aero system projects. Tobin, whose name does not appear on the organizational chart, was the third manager in the MSD, and was responsible for “business development in a marketing and sales sense for the whole division.” The organizational chart appeared in the business plan as follows:

[225] Muir stated that Forsyth, Brouse and Tobin were a part of the discussions –

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participants – in the development of the new management structure. He met with them one-on- one as the new structure was developed in order to formalize their new management duties. Then when the new structure was formalized in the business plan, it was announce to the entire company and then presented to the board of directors for approval.

[226]Once the new management concept was implemented, Muir instituted a quarterly reporting process, particularly for Brouse and Forsyth who were business managers. Each quarter, the managers would report their progress to Muir, compare it to the plan and objective set out for the year. Monthly meetings were used to discuss management issues within the MSD, such as market development issues, acquisition of new customers, human resources issues, and, especially, product development.

[227]Muir stated that Forsyth had the responsibility of determining who would assume second-level management positions among those working for him. He noted that he could not recall an occasion where he disagreed with Forsyth’s selections with respect to managers.

[228]Muir also discussed Jeff Cass’s responsibilities as a manager of development within Forsyth’s group in the MSD. The products Jeff Cass was responsible for were the MSD’s software products: MAINSTAY, Lube Analyst, RCM Analyst. He was further responsible for products under development for the CAF, such as the ECMS products. His roles included full responsibility for the design, implementation, testing and support of these products.

[229]Muir stated that Vandenberg was responsible for the management of GasTOPS’ project and work with Dofasco.

[230]The MSD 1995/96 business plan, which Muir authored, described its programs as:

1.Aero Systems

2.MAINSTAY

3.ODM/B.F.Goodrich.

[231]Brouse was the program manager for the Aero Systems, Forsyth the program manager for MAINSTAY and Muir was the program manager for ODM/B.F.Goodrich. Each

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team consisted of a program manager, contract/project manager and engineering personnel. Each program manager, reported to the vice-president of the MSD and was expected to undertake the following major tasks: business developments strategy; customer requirements definition; customer liaison; sales; contract negotiation; and program quality assurance. The project manager was responsible for the following tasks: project definition; project estimate; project personnel assignment; project management and control; project reporting; and project annual budget.

[232]Brouse’s overall view of the management structure changes is reflected in his evidence when he stated:

A.In the last year of the company I had been identified as the Aero Systems program manager for the -- for that little business unit call Aero Systems. And then I sort of discovered that one of my concerns was that I did not have as much authority over that program as I would have hoped. I discovered I had considerable responsibility but no real authority. But one of the things that happened in that program is that I had to take over the management of contracts other than the J85 and F404 TIES contract. And specifically, a number of hardware contracts that we had with regard to the oil screening device, the vibration analyser system, the aug tube. There is a number of these activities -- I should say augmented to.

What I discovered is on projects outside of the TIES area, the best that I could do, really, to manage the project is watch the time being billed by the engineers working on the project, but I had no real control and I found myself simply reporting to Mr. Muir at the end of the month what the status of the over budget would be on some of these projects.

I had attempted to work with the engineers in the other part of the company to try to get these projects under control. And I found that because they didn't report directly to me, in a supervisory position, that they were not responding to my request to get these projects on schedule. In fact, one of my difficulties was that one of these projects that I was in charge of was in fact run by another vice president at the company. So I had very little real control over these projects so I found that difficult to deal with.

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With regard to the project I was working on, with regard to the ones I did have control over, which is the Canadian Air Force TIES contract, I discovered that Mr. Muir would insist that at times I would be forced to, at his insistence, take resources off the project and put them on other projects which Mr. Muir had identified as being higher priority within the division, leaving me short staffed.

And at other times when there wasn't enough activity or work being conducted in these other projects, Mr. Muir would insist that I would take these people which were non-billable and place them on my projects and have them work. I found that difficult in that it was difficult to run projects when your Human Resources are being either added or pulled away.

So I found that aspect difficult. I also found it difficult that from time to time that what was referred to as an executive decision would be made by senior management or Mr. Muir, with regard to one of my programs and I would have to simply live with that decision. An example would be the promise to convert ECMS to Windows by Christmas or November of ‘96. I had no input into that, that decision was made without consultation with me, yet that would be something I would have to act on.

I also found that, you know, I wasn't contributing as much as certainly I would like to to [sic] business development plans. I wasn't participating in any of the significant meetings, such as the meeting that would occur once a month with B. F. Goodrich and GasTOPS. I was left out of that. Similarly to the meeting with Mr. Dinwoodie, I would have loved to attend at that, but that's the class of event that I was not invited to.

So those were certainly concerns. I was sort of recognizing that there was a very big distinction between myself and senior management and in that I wasn't really being asked to participate in senior management.

[233]It appears to me that Brouse was acknowledging that he had responsibility for the profitability of the program he was managing. His complaints, if valid, were directed more to the fact that he had to pursue profitability and efficiency in running his program. That he did not attend a limited number of specific meetings does nothing more than confirm that it was his expectation to attend at the said meetings. By way of singular example, Brouse claims that he

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would have liked to have attended at the meeting between MacIsaac and Dinwoodie in the context of the GE opportunity. In raising this issue, Brouse ignored that GasTOPS may have been seeking to add “weight” to the significance of the meeting by sending its president, a person who previously had little participation in the pursuit of the GE opportunity.

[234]Forsyth stated that when he became a project manager, he understood that he would get measured by how the program did, except that for the first year Muir still had authority over the accounting codes and charge codes. Accordingly, Forsyth felt that the restructuring did not change his responsibility. Forsyth stated:

A.I think that there was the intention down the road we would get measured as program managers, we would get measured by how the program did. But for the first year in particular he still had control and authority over the accounting and administrative charge codes or project codes. But there was this understanding that they wanted down the road, once the system was up and running, the accounting system, and once the system was running, that we would probably be measured on our overall performance on how well the program itself was going to be doing. So that I understand was the intention, but for all practical purposes it was the same responsibility we'd had previously.

Forsyth also stated that there was no difference in terms of his authority as compared to his years as an engineering manager. He said that the managers still had authority within the contexts of their projects to get the job done, and that how they did it was up to them. With respect to discretionary spending, there was no change in his role.

[235]Forsyth also stated that as a program manager his contact with senior management did not change. As before, he had no interaction with the board of directors. Similarly, the relationships he had with MacIsaac and Muir remained the same, subject to changes in the particular projects he was working on. He stated: “we were responsible for a series projects. We would have our bi-weekly meetings in which we would discuss resourcing and prospects coming in and what the effect that would have on the -- brought on the. But it was the same type of meetings and the same interaction that we had before, there was nothing changed.”

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[236]Although MacIsaac, Muir and Chivers retained oversight and control of the opportunities pursued by the MSD program managers, the program managers clearly exercised substantial management responsibilities, especially after the 1995 reorganization.

[237]According to Forsyth, Muir’s day-by-day role in the organization did not change except that he (Muir) took over work on the oil debris monitor (“ODM”) project. Forsyth acknowledged that he was responsible for three projects although the restructuring had shifted the programs that he was responsible for. Although Forsyth argued that in his capacity as a program manager his interaction with “senior management” did not change, the program management concept now envisaged President’s Reports being submitted to MacIsaac. The fact is that the defendants’ resignation occurred before the said reporting system could be implemented. The defendants argue that the program management concept resulted in only “superficial changes” and did not result in Forsyth and/or Brouse being imbued with trust, reliance or the authority of a fiduciary. In my view, the trial evidence verified the exact opposite. Forsyth and Brouse were given significant management responsibilities within GasTOPS.

[238]On January 13, 1997, Muir wrote to MacIsaac concerning his contribution to GasTOPS (Exhibit 693):

s.5 - “Organization Strength/Flexibility”

The events of the past three months indicate that the MSD organization was seriously flawed and that I failed to recognize these flaws and deal with them.

As a team, the MSD employees were extremely close-knit and worked well together. However, they were also very parochial in their interest (i.e. software) and extremely arrogant with regard to their perception of the value of their work relative to other groups within the company.

This situation suggests that a significant gap existed between the values held by the MSD staff and those held by senior management. As a member of senior management, it was my responsibility to communicate and explain the importance of these values and to deal with employees, particularly those in a

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management role, which would not accept the company’s value. In this particular case, I failed to recognize that the problem even existed, although in hindsight I can see numerous symptoms of the problem.

[239]It is clear from this extract, that Muir saw Forsyth, Brouse, Tobin and Cass to be in key management roles.

[240]When paragraph 5.4 of Exhibit 296 is read in its entirety, it is clear that MacIsaac perceived that the program managers were, in fact, fully responsible for their independent business units. According to MacIsaac, the vesting of the said responsibility in the program managers had created a competitive situation in the company that needed to be addressed. The “less than full understanding of the business responsibilities of the program managers” was referenced to the fact that the individual defendants, Forsyth and Brouse, needed to understand that loyalty and good faith towards the company, as a whole, was a mandated component of their role as business managers.

[241]The defendants submitted that their salaries were not indicative of the salaries paid to senior management. I fail to see how the salaries paid to Forsyth, Brouse, Jeff Cass and Vandenberg are relevant, to the issue of whether or not they owed a fiduciary duty to GasTOPS. In my view, in reviewing the organizational structure of GasTOPS, it is clear that within such structure, Forsyth, Brouse, Jeff Cass and Vandenberg were part of senior management notwithstanding they had reporting responsibilities to the president and vice-presidents.

Contributing to GasTOPS Business Plans

[242]In 1991, MacIsaac introduced the concept of preparing an annual business plan for GasTOPS to set out where the company had been and where the company was headed. MacIsaac wanted the company to grow in a fiscally responsible manner. The business plan was based on information provided to MacIsaac by the vice-presidents of each division, who had in turn gathered information from project managers within their divisions. MacIsaac attempted to project the number and types of contracts GasTOPS would secure in the forthcoming year. MacIsaac would go through the division “order books” to predict the anticipated revenues. In

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addition, he would review the projected costs to fulfill the contracts. In my view, the steps taken by MacIsaac in preparing the annual business report for GasTOPS was simply sound financial planning for a high tech company carrying on business in an extremely competitive field. The defendants, particularly Forsyth and Brouse, claim that they played no part in the preparation of the GasTOPS annual business plan. MacIsaac did not meet with Forsyth and Brouse in preparing the annual business plan for GasTOPS, but it is totally wrong to suggest, that Brouse and Forsyth and to a lesser extent Jeff Cass did not provide any input.

[243]In preparation for the annual business plan, each vice-president would prepare an annual business plan for his division. There can be no doubt that Forsyth and Brouse and to a lesser extent Jeff Cass and Vandenberg made submissions on the data, strategy and prospective customers to be pursued for inclusion in the MSD annual business plan. Forsyth and Brouse, were responsible for the management of their program and by making recommendations as to prospective customers, sales strategies, they were in fact dictating the MSD’s revenues and profitability targets. These were eventually incorporated into the annual business plan.

[244]Rarely did the individual defendants claim at trial that their information, decision, strategies and/or recommendations were not substantially agreed to and accepted by Mr. Muir and subsequently incorporated into the MSD plan. It was Muir’s responsibility as vice-president of the MSD to ensure that the divisional plan was completed on time for incorporation into GasTOPS’ business plan. Muir accomplished this through a direct and consultative process with the defendants Forsyth and Brouse as well as Matt Tobin. Muir stated he and his managers set out a plan as a management group and that it was understood that any members of the management team who became aware of anything that would significantly impact the plan were obliged to disclose such factors to Muir specifically.

[245]Forsyth was almost exclusively responsible for the development of the technology plan for the MSD. Muir did not “decide” on what technology development would be included in the business plan. Rather as he stated, those decisions were made in direct consultation with Forsyth.

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[246]In their submissions the defendants state:

More importantly, the defendants lacked the ability to dictate the development of technology at GasTOPS. Although Mr. Forsyth could make plans as to how the technology should be developed, it was Mr. Muir who decided what would be included in the business plan. Again, the defendants had the ability to recommend but not the ability to make the decision. Furthermore, the direction of the technology was ultimately dictated by the focus of the company which was condition-based maintenance as it related to gas turbine engines.

The ability for any of the defendants to control the development of the technologies under their programs was also constrained by the development philosophy of GasTOPS. The GasTOPS philosophy was that the primary source of research and development funding had to come from customers. Although this may have been a very smart plan financially it took control of the path of product development away from the company and put it in the hands of the customer.

The end result was that Mr. Forsyth (or defendant Cass although he was not a program manager) may have been able to make decisions about what platforms to develop in or what programming language to use (so long as these were not dictated by the customer), but they could not decide the overall direction of the software.

[247]It is clear that the defendants and the other employees of the MSD division, who left GasTOPS to work with MxI did not subscribe to MacIsaac’s business philosophy. Throughout the trial, the defendants and those who worked for MxI were critical of MacIsaac’s philosophy of increasing market share on a sound financial basis. In my view, the GasTOPS’ business approach did not in any way minimize the management role of the defendants or detract from their being key employees.

Recruitment

[248]From 1991 forward, Forsyth recruited new employees for the MSD. He would visit universities and recruit through co-op programs, including the industrial experience program at Carleton. Up to 1995, Muir would meet with the managers to determine how many people were

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needed for the upcoming year. Forsyth would interview the prospective employees and then bring his recommendations for hiring to Muir. Muir and Forsyth would then engage in a consultative process to decide whether GasTOPS needed the person, assess their suitability and to consider their qualifications to work within the group.

[249]Forsyth in his evidence indicated that he had responsibility for the recruitment and the hiring of students. He described how GasTOPS hired students from several universities, recruiting students from a number of those universities. Forsyth conducted interviews at Carleton University. He would go to the university knowing how many students were needed by the company as a whole, and he would return after the interviews with a short list of students to invite into the company for second interviews with the particular groups they would work with should they be hired. The ultimate decision regarding hiring for a particular student or group of students lay with whomever they would be working for, such that if Forsyth himself had authorization from Muir to hire a student it would be Forsyth himself would make the final selection. If a student proved to be a good addition to Forsyth’s group, he could seek authority from Muir to hire him or her full-time following graduation. Salaries for students and engineers were set by the company, and Forsyth stated that he had no input in setting them.

[250]Forsyth seemed to feel that his authority in hiring employees was in some manner curtailed as he did not have control over how many new employees would be hired in a given year or what the starting salaries would be. In my view, the fact that Forsyth did not control starting salaries or determine the number of employees that would be hired in no way detracted from his authority and management responsibilities.

[251]Forsyth and Brouse indicated that they had no managerial responsibilities concerning salaries and bonuses for employees who worked on their projects. The evidence is clear that Forsyth and Brouse made recommendations as to the appropriate salaries and bonuses of their employees. There was a consultative process between Muir, Brouse and Forsyth regarding the setting of salaries. Muir indicated that the setting of salaries would usually end up being a “compromise” between what was being recommended and what Muir felt, in his capacity as vice-president, was “reasonable”. Muir determined if he would make a recommendation to

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MacIsaac for a bonus to be awarded to Forsyth, Brouse and/or Jeff Cass. Forsyth recommend to Muir a bonus for Vandenberg. The process of determining and awarding bonuses was eventually the MacIsaac’s and the vice-presidents’ responsibility, ensuring that bonuses would be consistent throughout GasTOPS and reasonable given the profits generated by the division.

Recommendations

[252]The defendants Forsyth, Brouse and Cass were entrusted with primary responsibility for the identification of potential customers, the pursuit of prospective customers, the ascertaining of those customers’ unique requirements and the face-to-face meeting with the clients.

[253]The defendants in their submissions claimed that they were only responsible for making “recommendations” to more senior management on the key issues relating to the MSD. The defendants’ submission fails to account for the key role that their recommendations played in shaping the direction of GasTOPS. The MSD was entirely project driven. It was in the context of these projects that the defendants did, in fact, have ultimate management responsibility for ensuring the successful/profitability of their program. Further and of equal importance, the defendants were responsible for participating in the future direction of business development, playing key and vital roles in the marketing the GasTOPS technology to prospective third party customers. The DOT/RCMP opportunity and/or the GE opportunity are examples of how the success or failure GasTOPS’ marketing efforts rested almost entirely on the defendants’ ability to sell the ECMS product and to convince the customer that GasTOPS was able to meet its unique requirements. On all of these fronts, MacIsaac and Muir, played little, if any, role.

[254]Forsyth and Brouse held senior management positions at GasTOPS and had the ability to direct and unilaterally affect GasTOPS’ interests. The plaintiff entrusted Forsyth and Brouse with significant business development responsibilities based on a reasonable expectation that these defendants would conduct themselves with loyalty and commitment to GasTOPS. The defendants were fully aware of the control and influence they had in the management of their respective business units, and that the plaintiff would be particularly vulnerable to their post-

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employment if they entered into competition with GasTOPS. The defendants Forsyth, Brouse and Jeff Cass, were also entrusted with direct involvement in virtually all aspects of the business being carried out by the MSD at GasTOPS. These defendants were directly involved in:

i.the development of the MSD business plans;

ii.market identification;

iii.the development and implementation of market penetration strategies;

iv.technology and product development plans, particularly as they related to the needs of existing and prospective customers;

v.direct and trusted relationships with both existing and potential customers of GasTOPS;

vi.the actual pursuit of existing corporate opportunities;

vii.direct and trusted relationships with subordinate employees within the MSD and GasTOPS; and

viii.hiring, supervision and mentorship of subordinates at GasTOPS.

Confidential Business Information Available to the Defendants

[255]The individual defendants were entrusted with direct and virtually unfettered access to confidential business information that was proprietary to GasTOPS:

(1)The MSD’s business strategy, including its market penetration strategy and product development plan;

(2)The design of the ECMS and MAINSTAY family of products;

(3)The full particulars of all aspects of GasTOPS’ pursuit of ongoing and potential contracts with entities such as the U.S. Navy, Kuwaiti Air Force, GE Corporation, Oracle Corporation, Volvo, Bombardier, the DOT/RCMP and the CAF.

[256]This information was developed, created and/or assimilated at GasTOPS through the expenditure of considerable time, effort and money and had put GasTOPS in a leading competitive position in the computerized maintenance market place by the summer of 1996. The defendants knew, as any reasonable person would know that the foregoing information and documentation, was confidential and proprietary to GasTOPS and that they had been given access to this information for the sole purpose of fulfilling their job responsibilities at GasTOPS. The defendants, in their evidence, conceded that much of the information and documentation to

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which they had access or helped to develop was confidential business information.

[257]The defendants used the plaintiff’s confidential and proprietary information concerning the existence, status and particulars of various corporate opportunities to identify their market niche and target markets. In developing their marketing strategy, the defendants used the plaintiff’s confidential and proprietary information concerning the competition in “target markets” and the entities with whom they might partner to sell their competing product. In particular, the defendants used GasTOPS’ confidential information to:

a.Identify and then maintain communications with key client contact persons on existing and prospective contracts;

b.Know customers’ precise needs and requirements and the prices they were willing to pay;

c.Convince target customers that the defendants themselves had a complete and in-depth knowledge of those needs and requirements.

[258]Through their misappropriation and unauthorized use of GasTOPS’ trade secrets, confidential and proprietary information and intellectual property, the defendants convinced customers GasTOPS was pursuing that they could provide the same software solutions. They were, in fact, able to deliver the same software solutions in a shorter timeframe than would have been possible had the defendants developed their own software from scratch. The misappropriated information was used to design and develop the Maintenix/FlightWorks software system, through which MxI obtained and competed for corporate opportunities GasTOPS had been pursuing at the time of their resignations.

[259]In my view, the defendants used GasTOPS’ confidential and proprietary information as a springboard to gain an unfair business advantage in the market place by offering GasTOPS’ existing and prospective customers a virtually seamless transition to MxI and its products. The defendants actively portrayed themselves as a “spin off” of GasTOPS that possessed all of the experience and knowledge necessary to meet existing and potential customers’ needs. The defendants indicated that their product was the next iteration of the product they had developed at GasTOPS.

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[260]In addition to the reasonable inference that the defendants were privy to and used confidential business information of GasTOPS when pursuing the business opportunities after resigning from GasTOPS, there is direct evidence that the defendants had in their possession the 1997 GasTOPS’ business plan and the GasTOPS’ United States Navy ECMS implementation plan, described by Brouse as being a “sophisticated plan”, wherein he set out the strategy by which the ECMS product could be rolled out to the U.S. Navy.

[261]Subsequent to their resignations, the defendants pursued virtually every existing and potential MSD customer: the U.S. Navy, the Kuwaiti Air Force, GE/Oracle, Volvo, Bombardier, DOT/RCMP, and CAF. When dealing with these organizations while employed at GasTOPS, the defendants acquired confidential business information. It is for this reason that as key employees of GasTOPS, the defendants were subject to a fiduciary duty not to compete unfairly with the plaintiff corporation upon resignation.

[262]During its first three years of operation, over 80% of MxI’s total income was derived from U.S. Navy contracts. Even if the defendants’ program was a not fourth iteration of GasTOPS’, its purpose and function mirrored the purpose and function of GasTOPS’ product.

[263]In this case, the personal defendants were key employees and as such subject to a fiduciary duty not to compete unfairly with their former employer. After leaving GasTOPS, they had access to and improperly used and/or allowed MxI to improperly use GasTOPS’ marketing strategy, the needs and requirements of its customers and potential customers, the identities of its customers’ and potential customers’ decision-makers, the pricing proposals it made to potential customers, details of its intellectual property and programs and details of its future marketing and product development plans. Armed with the details of the plaintiff’s contracts with its customers or the details of contracts the plaintiff was proposing or about to propose to potential customers the personal defendants either directly or through MxI competed unfairly in breach of the fiduciary duty they owed to GasTOPS when they sought the very contracts GasTOPS was pursuing when they resigned.

[264]During the early stages of this trial, the parties consented to a confidentiality order

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clearly indicating that they understood that many of the documents that would be filed were confidential business documents and, as such, they could not to reveal their contents to others.

[265]It is clear from Forsyth and Brouse’s letters of resignation that they knew that they had access to confidential business information at GasTOPS, which they promised not to use.

[266]The plaintiff alleges that the defendants misappropriated the its data model designed and developed for the ECMS v.2 and MAINSTAY software systems, the GUI, the common functionalities and the trade secrets that were contained in the specifications, user manuals and design documents of ECMS v.1 and v.2, the FLTS and MAINSTAY. It alleges that the defendants used this confidential information to design and develop Maintenix/FlightWorks.

[267]In my view, the trade secrets that the defendants acquired while working for the plaintiff regarding existing customers and potential customers were so confidential that they cannot lawfully be used by former employees for their benefit without breaching their fiduciary duty. It is clear from the evidence that a great deal of time and money was expended by GasTOPS to determine the needs of its potential customers and develop proposals to satisfy those needs. It is a reasonable inference, based on the evidence of this case, that the confidential business information to which the defendants were privy could undoubtedly help the defendants pursue the very business opportunities they had worked on at GasTOPS. In my view, the defendants, having been privy to such confidential business information, were subject to a fiduciary duty not to pursue these business opportunities. It was, in my opinion, obvious to the defendants that such information was to be treated as confidential; their resignation letters and the parties’ request for a confidentiality order at the commencement of this trial demonstrate that they understood this.

Findings

[268]By reason of the foregoing, GasTOPS was vulnerable to the defendants’ direct competition in the area of aviation maintenance software.

[269]Although Jeff Cass and Vandenberg were less involved in the business aspects of the

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MSD, they possessed extremely valuable confidential information that was proprietary to GasTOPS, namely the design and development history of the ECMS/MAINSTAY family of products. In addition, Jeff Cass had been intimately involved in ascertaining the modifications that would be necessary to this technology to meet the ongoing and/or evolving needs of GasTOPS’ existing and prospective customers. Accordingly Jeff Cass was “poised and ready” to take the subject technology to the next development level. When all of the individual defendants resigned without proper notice, GasTOPS’ vulnerability was further increased, since the defendants as a group possessed confidential information, trade secrets and customer contacts necessary to immediately compete unfairly with GasTOPS.

[270]In my view, the personal defendants were key employees and, further, owed GasTOPS a fiduciary duty. This subjected MxI’s employees to the same fiduciary duties that the personal defendants owed to GasTOPS: see Metafore Corp.v. Protek Systems (London) Inc. [2000] O.J. No. 4975 at para. 15. Whether one follows the test of vulnerability or of dependence of beneficiaries, it is clear that the personal defendants firstly were key employees, and secondly owed the plaintiff a fiduciary duty. They were responsible for developing a significant commercial component of GasTOPS’ business, and achieved that through the use of sensitive technological information that they helped develop and which was at the very core of GasTOPS’ corporate identity. In addition, they were privy to or had determined the customers’ and potential customers’ requirements.

[271]The defendants were privy to GasTOPS’ sales strategies and to contractual relations between GasTOPS and its existing and potential customers, including contractual negotiations. In many, they instances were responsible for the negotiation of the contracts.

[272]The defendants carried out their responsibilities with little if any supervision. These defendants had a high degree of responsibility and were expected to be accountable.

[273]While the defendants claim to have been solely technical employees, the case law suggests that even highly skilled technical employees may be found to be fiduciary employees if they are crucial to the direction and guidance of the company.

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[274]In my opinion these defendants as a result of their responsibilities and expertise were “key employees” of the MSD of GasTOPS and owed a fiduciary duty to the plaintiff.

Project-Specific Roles and Duties

CAF

[275]Over a span of approximately 10 years, GasTOPS had developed its business relationship with the CAF and the DND with a view to developing and supplying software technology in the area of computerized aviation maintenance. Forsyth and Brouse were actively involved in the ongoing development of business opportunities with the CAF and other related opportunities for the marketing and sale of the ECMS software from the beginning of their employment with GasTOPS. They worked towards developing the technical requirements for GasTOPS’ software product for the CAF’s CF-18 aircraft engine maintenance program and on other military and non-military opportunities for the software system.

[276]By 1996, the MSD’s support of the CF-18 aircraft engine maintenance program for the CAF was valued at approximately $1.4 million per year (Exhibit 6). In the MSD’s 1995/96 business plan (Exhibit 6), which Muir with the Forsyth and Brouse’s assistance, GasTOPS’ business with the CAF was described as follows: “The prospects for continued business growth with the CAF appear to be very good. GasTOPS enjoys a leadership position in the area of condition based maintenance at a time when the CAF is attempting to rationalize and make more effective its aircraft maintenance programs.”

[277]The 1995/96 marketing plan, prepared by the MSD with Forsyth and Brouse’s input, projected the expansion of DFTEM support contracts. Forsyth and Brouse were actively involved in proposals to the CAF for the continued development of the ECMS system and the expansion of its application to other engines and aircraft.

[278]The MSD had a TIES contract for engineering support of the CF-18-F404 engine maintenance program, which Brouse administered on behalf of GasTOPS along with Warrant Officer Paré and Captain Scott Fitzgerald on behalf of the CAF. It also had a fixed-price contract

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to provide two technical representatives, one at CFB Bagotville and one at CFB Cold Lake, in support of the CF-18-F404 engine maintenance program and a fixed price contract to provide ground stations for the CF-18 aircraft. Expectations for the 1995/1996 fiscal year included new contracts, including a fixed-price contract to develop and implement an engine parts life tracking system for the GE J85 engine located on the Tutor trainer aircraft.

[279]The MSD continued to develop software technology requirements and business opportunities with the CAF into 1996. Its 1996/97 business plan (Exhibit 8) stated that in 1995/96, “the Company significantly strengthened its position with this customer through a number of successful initiatives including: renewal of company TIES contract; development and delivery of the ECMS version 2.0; provision of new CF-18 ground stations; development of a prototype solid state TTM for the CF-18; implementation of a Tutor/J85 ECMS.”

[280]With Forsyth responsible for the technical development of the software product and Brouse as head of Aero Systems, the MSD expected to develop new programs in the next fiscal year. Such programs included the rolling out of ECMS operations at CFB Bagotville and Cold Lake and expansion of the ECMS to include non-engine CF-18 aircraft systems. The MSD was technically positioned to expand the ECMS to include the structural components of the aircraft. It was also in a position to sell the ECMS to other CAF opportunities, including the Sea King helicopter and the new Maritime Search and Rescue helicopter (Exhibit 8).

[281]In June 1996, Brouse had completed negotiations for the renewal of the TIES contract for an additional three years. The renewal was referred to as the “1996 TIES contracts” and was signed by the Crown and GasTOPS (Exhibit 45C).

[282]By July 1996, the MSD’s ECMS v.1.7 was fully operational and in the field for the CAF. The MSD’s product development team, under Jeff Cass’s supervision, was in the final stages of completing the development of ECMS v.2.0 and preparing it for the necessary factory acceptance test that were anticipated to take place in the fall of 1996.

[283]During this period, ECMS and FLTS technology were being used by the CAF on

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their fleet of F18 A and B fighter aircraft for maintenance of the F404 engines.

[284]During 1996, Forsyth, Brouse and Jeff Cass were in the development phase of expanding the application of the ECMS software technology to the entire aircraft for GasTOPS. Negotiations were ongoing with Bombardier, CAE and the CAF to provide the ECMS software as an upgrade to the DMS system, which was being used by the CAF and provided by Bombardier. The Bombardier software system provided all maintenance support for the C-18 aircraft excluding the engine. Brouse was actively involved in pursuing the opportunity to provide ECMS technology to the CAF through Bombardier. Brouse was intimately familiar with the requirements and functionality of the upgrade. In addition, Forsyth and Jeff Cass were undertaking a further enhancement of the ECMS technology, including converting the system to run on Windows 95/NT, multiple equipment types blueprint within a common database.

[285]The MSD 1995/96 Business Plan had targeted the Sea King helicopter as a potential business opportunity for the sale of the ECMS. GasTOPS began to actively market the ECMS software to the Directorate responsible for Sea King helicopter maintenance. That marketing effort resulted in GasTOPS securing a 1996 contract through CRAD to assess the feasibility of applying the ECMS software to the Sea King helicopter. Brouse was aware of this contract, under which GasTOPS undertook a cost-benefit analysis in summer 1996 to determine the effect of implementing condition-based techniques on the Sea King helicopter. ECMS v.1 was used by GasTOPS as its primary tool for marketing and demonstrating the capability of the GasTOPS’ products. The software was demonstrated to the Sea King helicopter operators.

[286]Muir and Brouse prepared a document entitled “ECMS Marketing Hierarchy” dated July 21, 1996 (Exhibit 169). This exhibit presented the MSD’s marketing plan for the ECMS and FLTS components of GasTOPS’ business. Muir prepared the basic diagram and Brouse added the Sea King opportunity as a bubble on the top of the chart.

[287]Forsyth’s role with regard to the CAF, according to the defendants, had been to manage the various research and development CRADs. When he was made a program manager, he gave up these responsibilities to concentrate on the industrial side of the MSD.

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[288]According to the defendants Brouse who was the program manager of the Aero program at GasTOPS which included the CAF work, did not have exclusive contact with the Canadian Air Force. According to various witness, there was a set protocol that dictated that Brouse spoke with lower level members of the customer while Muir, Chivers and MacIsaac had contact with higher members of the CAF. In this regard, Muir stated:

Q.While we deal with the Canadian Air Force, am I right, Mr. Muir, that when you look at the relationship between the Canadian Air Force and an outside private contractor such as GasTops, that there was what I'll call a military protocol in place, in terms of what level of person within the company would normally speak to what level of person within the Air Force?

A.I suppose that's one way of viewing it. I think that generally speaking in business to business sales or business to in this case military organizational sales, there are a number of people involved in the process. And there is a chain of command on both sides and it's not uncommon at all in a large business transaction to have meetings right up the chain of command including the top ranking GasTops person meeting with the top ranking DND persons. That’s part of the business to business sale process.

Q.All right. So let's look at that sort of business to business chain of command. Let's start here: It's my understanding that Mr. Chivers was hired out of the Canadian Air Force, correct, or he had retired from the Canadian Air Force?

A.Yes, that's right.

Q.And if I am right, he came out of that particular directorate that you -- the company did a lot of business with, that is the fighters and trainers?

A.That’s right.

Q.Am I right that Mr. Chivers had occupied the rank of Colonel within the Canadian Air Force at the time of his retirement?

A.That's right.

Q.Am I right that when we talk about him being the vice president in the area of business development, one of the key areas for

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him was to continue the relationship between GasTops and the Canadian Air Force, correct, you've told us that?

A.Yes.

[289]Muir continued:

Q.What would have been the nature of other contact as between GasTops and CAF, apart from that that is being shown here with respect to Mr. Brouse?

A.Well, the air force is a large complicated organization and we had contact up the chain of command, right to the -- certainly the director level, perhaps the director general level within the

department that this customer is in. Throughout that period I maintained contact primarily with the major, who was responsible for this project. And my role was to go periodically to see the major, Major Marc Leblanc, and simply ask him how things were going and give him an opportunity to voice any concerns he had about the work that GasTops was doing.

So that was my role, was to simply give the customer an opportunity at that level to provide us with feedback, particularly if it was related to concerns they had with the work we were doing.

At the levels above the major, we had an individual at our company, Gary Chivers, who would maintain regular contact at the senior officer level, both the Lieutenant Colonel, the Colonel and infrequently but from time to time the Brigadier General, who is the director general of the group.

Q.Did Mr. Chivers, previous to his employment with GasTops, have any involvement with the CAF?

A.Yes. Mr. Chivers was the director of this particular directorate before coming to GasTops, he was the colonel and was the director of the fighter and trainer engineering and maintenance directorate.

[290]The defendants submit that during the period of time Brouse was employed at GasTOPS, he did not move up the rank within the GasTOPS protocol for dealing with the CAF to any great extent:

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(a)As a system analyst from 1988 to 1991, Brouse worked with the Warrant Officer level staff and sometimes Captain level staff at CAF. Brouse understood that the Warrant Officer reported to a Captain who reported to a Major who reported to a Lieutenant-Colonel who reported to a Brigadier- General.

(b)In October 1991, Brouse became a project manager. He gained more responsibility for budget and work allocation and reported to Muir. As a project manager, his contact was still primarily with the Warrant Officer level of the CAF. From time to time, he would deal with Captain level. On occasion, Brouse would attend a meeting with Muir where a Major would be present.

(c)In June 1993, Brouse was the EPLTS/ECMS project manager and was responsible for defining taskings under the TIES umbrella agreement. Brouse would do the taskings in conjunction with Mr. Warring (a civilian at NRC) and Warrant Officer Paré. In addition, Brouse also managed the execution of the project.

(d)In 1993, Chivers joined GasTOPS. Chivers was a former Colonel in the CAF. Chivers became vice-present of business development at GasTOPS. By the autumn of 1994, Brouse was supporting Chivers (and also Daryl Churchill and Larry Toms in their marketing work). In terms of the protocol for contact with the CAF, MacIsaac dealt with the Brigadier-General level, Chivers dealt with the Colonel level, Muir dealt with the Major level and Brouse would have contact with the Warrant Officer and Captain levels. Churchill would have contact with the Warrant Officer and non-commission officer levels.

(e)In 1993 through to June 1996, Brouse was still dealing with Warrant Officer Paré and Warring at the CAF. Once Warring left the CAF, Brouse worked with Captain Scott MacDonald. Brouse worked almost exclusively with the F404 personnel and DFTEM.

(f)In his performance review in June 1996, Brouse requested that he be allowed to have more contact with more senior members of the CAF. According to Brouse, this did not occur prior to his resignation.

[291]According to Brouse, he had responsibility for the projects under the TIES contract which included helping to define potential taskings with the CAF staff and making sure they were executed on time and on budget. Brouse stated that he had a role in the negotiations and discussions leading up to the signing of the 1996 TIES contract. According to Brouse, he wrote the GasTOPS’ proposal and response to an RFP from the government although he claimed that

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there were sections that he did not write. I gather from the evidence that he was responsible for the operation of the proposal. The defendants argue that the responsibility for negotiating the CAF contracts was shifted from MacIsaac to Muir within three or four years of Muir joining the company. At that point in time (mid-1980’s) MacIsaac saw it as a “repeat” customer and, whereas he kept control of other customers, he gave up control of the repeat customers early on. In addition, the defendants argue that Brouse was not in control of the overall strategy for gaining business within the CAF. This responsibility was shared between MacIsaac, Muir, Chivers and Brouse. Muir stated that by January 1996:

Q.Right. Am I right that it was your view that when it came to business strategy, in particular with the Canadian Air Force and other related Air Force customers, that it was the team of Mr. MacIsaac, Gary Chivers, Doug Brouse and yourself that were involved in that, correct?

A.Yes. In terms of the development of strategy. I'm primarily responsible, and I'm working together with Doug Chivers and MacIsaac.

[292]The defendants also submit that when GasTOPS sought to pursue further work with the Canadian Air Force by way of an unsolicited proposal to expand the ECMS program, none of the defendants authored the proposal which was forwarded by Chivers to Colonel Parch. Chivers stated:

Q.Let me take you to Exhibit 129. You identified for us

yesterday this covering letter of April 2, 96 from yourself addressed directly to Colonel Partch; correct?

A.Yes.

Q.We know from your evidence that Colonel Partch is now occupying the same position that you had occupied at the time you left the Canadian Air Force; correct?

A.Correct.

Q.Am I right, it was a conscious decision at GasTops to have you send the proposal directly to Colonel Partch in order that it have its maximum impact; correct?

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A.Correct.

[293]The defendants submit that they did not carry any influence or sway with the CAF and thus GasTOPS was not made vulnerable to unfair competition by their resignations. The defendants rely upon the statement of Muir as follows:

Q.Am I right that the practice was that if Mr. Brouse was

going to have contact about the level of captain, inevitably it would be either with yourself or perhaps Mr. Chivers simply because of that protocol we've been talking about, correct?

A.Usually Chivers. Again, Brouse especially as a program manager can make use of Chivers to execute the business development or the project related activities that he wants to do. If he wants to get into a certain office and present a certain proposal or issue, Gary was able to provide Mr. Brouse with entry to that office.

Q.That’s my point. He would use Mr. Chivers as his resource in order gain entrance in some fashion, correct?

A.That's right.

[294]The defendants submit that Chivers was the person in charge of GasTOPS’ government business. Chivers was hired by GasTOPS to bring in business and his title was vice- president of business development. Chivers stated:

Q.Now when you joined GasTops in 1993, what position did

you take?

A.I was hired as the vice president of business development.

Q.And can you give us a brief description of the scope of that position?

A.My primary responsibilities were associated with the development and maintenance of government business, GasTops and the Government of Canada.

Q.What would your duties responsibilities have been, firstly within GasTops, then, secondly, with respect to the government business?

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A.Well, probably best to answer the government business first is my responsibilities were to advance the business of GasTops within the Government of Canada, specifically the Canadian Armed Forces.

Q.Within GasTops?

A.Within GasTops I reported directly to the president, Bernie MacIsaac, and was responsible for developing GasTops' business within the Government of Canada.

[295]Based on this evidence, the defendants submit that Brouse’s role when employed at GasTOPS with the Canadian Air Force did not have the hallmarks of a fiduciary. In particular, the defendants argue that he did not have exclusive or high level contact with the customer, he was not the one with a relationship of trust or influence with the customer, nor was he the primary person planning the strategy for this customer.

[296]In my view, Brouse and Forsyth, were fiduciaries of GasTOPS and as such breached their fiduciary duties to GasTOPS vis-à-vis the CAF opportunity because:

(a)“Positions held by the defendant employee”: Brouse, Forsyth and Jeff Cass held positions at GasTOPS which provided them with direct and unfettered access to all information relating to GasTOPS’ business dealings with the CAF. Forsyth was responsible for the technical development of the software product and Brouse, as head of “Aero system” negotiated the contracts with the CAF, including the renewal of the TIES contract, which resulted in the 1996 TIES contract.

(b)“Nature of the corporate opportunity”: GasTOPS’ corporate opportunities with the CAF were unique and all contracts were sole source, providing for the research, development and provisions of computer software systems for the CAF to facilitate the process of aircraft maintenance.

(c)“Ripeness of the corporate opportunity”: GasTOPS had spent years in meetings and negotiations with the CAF to design and develop the requirements and functionalities that were needed by the CAF. Brouse and Forsyth were intimately involved with the CAF in order to understand all of the requirements and functionality that had to be designed and developed.

(d)“Specificness of the corporate opportunity”: The opportunity that GasTOPS had with the CAF and in particular, the roll-out of the 1996 TIES contract,

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was the exact opportunity that Brouse and Forsyth, were trying to take over in November and December 1996.

(e)“Amount of knowledge possessed by the defendant employees concerning the specifics of the opportunity”: Brouse, Forsyth and Jeff Cass were in possession of all of GasTOPS’ knowledge of the requirements and functionality that was contained within the software products developed for the CAF, including all of the modules that comprised the ECMS v.2 software system.

(f)“Circumstances surrounding the corporate opportunity, was it special or private?”: It was only through the direct communications with the CAF that GasTOPS, including Brouse, Forsyth and Jeff Cass came to have a complete understanding of the CAF requirements for their software systems.

(g)“The time factor”: Brouse and Forsyth were in contact with the key customer contacts (Warrant Officer Paré and Captain Scott MacDonald) prior to their resignation, in order to advise them of their coming resignations from GasTOPS. Within a matter of days after resigning, Brouse and Forsyth were attempting to convince the CAF through Warrant Officer Paré and Captain Scott MacDonald that MxI in a position to compete the 1996 TIES contract. In his “summary log” for the month of October 1996 (Exhibit 1322 at page 8), Jeff Cass stated:

Captain Scott MacDonald dropped into MxI. He went to lunch with Brad and Doug. Scott is willing to push hard for the ECMS IP change to MxI. He said the TIES would be openly competed and the process will take at least four months. He said that Orenda would like the source code as well and they may be made prime in any arrangement. Orenda wanted [desperately] to hire ex-GasTOPS employees as they felt this was their chance to get back into the systems development arena.

[297]When I consider the above facts, I am convinced that Brouse, Forsyth and Jeff Cass all owed a fiduciary duty to GasTOPS and part of that fiduciary duty was not to misappropriate GasTOPS’ business opportunities with the CAF and/or interfere with GasTOPS’ contractual arrangements with the CAF.

[298]Prior to their resignations, Forsyth and Brouse arranged to meet with Warrant Officer Michel Paré (“Paré”), their primary contact on work related to the CAF. The defendants advised

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Warrant Officer Paré that they were about to resign from their positions at GasTOPS. The CAF was one of GasTOPS’ most valued customers. Warrant Officer Paré, after being advised that Brouse and Forsyth intended to resign from GasTOPS, arranged for them to meet with his superior officer, Captain Scott McDonald, who they also advised of their intentions to resign from GasTOPS. Having regard to the post-resignation conduct of Brouse and Forsyth, it is a reasonable inference that the purpose of their meeting with Warrant Officer Paré and Captain McDonald was to set the stage to pursue CAF business for MxI.

[299]During the trial it came to light that Forsyth, while employed at GasTOPS albeit a few days before his resignation, prepared a detailed diagram depicting the business process to be followed in his new company (Exhibit 2195). Exhibit 2195 was initially created on October 2, 1996 on a computer which bore the name “Forsyth”. This information appears from the “Properties” of the electronic file. The business process diagram as prepared by Forsyth, was similar to the business process diagram which was used by GasTOPS. The business process chart as prepared by Forsyth prior to resigning from GasTOPS appears in all of the MxI business plans from 1996 through to 1998. It is clear that Forsyth was preparing this business process plan for MxI while he was still employed at GasTOPS. This is a clear breach of his ongoing fiduciary obligation to GasTOPS while in its employ.

U.S. Navy

[300]One of Brouse’s primary responsibilities at GasTOPS was to pursue sales of GasTOPS’ ECMS product to both the U.S. Navy and GE. At trial, Brouse was asked to confirm that he was responsible, in part, for the marketing and sales of ECMS at GasTOPS. He stated:

Well, as I said in-chief, what I was responsible for was supporting the sales effort and supporting marketing effort of the ECMS; for the most part I was doing two things: I was demonstrating the system and fielding technical questions on behalf GasTOPS and B. F. Goodrich, as well as helping prepare statements of work and definition of what we could do for the United States Navy.

[301]As noted above, in my view, the written documents prepared by Brouse are far more accurate than his viva voce evidence. The role that Brouse played in the marketing of the ECMS

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product to the U.S. Navy is demonstrated in the list of “D. Brouse Accomplishments” authored by Brouse himself, in anticipation of his 1996 performance review (Exhibit 300). Under the sub- heading “USN”. Brouse described his own accomplishments: “Successfully caught the USN’s attention whereby we are presently well positioned to gain a large contract.”

[302]Further evidence of the role played by Brouse in the pursuit of the sale of ECMS licenses to the U.S. Navy is reflected in the draft sub-contract agreement between GasTOPS and MxI dated October 31, 1996. In the preamble to the agreement (Exhibit 367 at page 1) Brouse wrote:

WHEREAS GasTOPS has carried out marketing activities related to participating in the procurement of an Engine Condition Monitoring System (ECMS) to or on the behalf of the United States Navy (USN).

WHEREAS certain former employees of GasTOPS who are now employees of MxI were primarily responsible for such activities and would have been primarily responsible for carrying out the implementation of any contract relating to the ECMS for the USN.

It is clear from this document that Brouse and the other members of MxI considered themselves as the personnel at GasTOPS primarily responsible for the marketing efforts of ECMS products to the U.S. Navy and for the procurement of contracts with the U.S. Navy.

[303]I find it astounding that Brouse and Forsyth would suggest that they were not key employees at GasTOPS, and more particularly within the MSD, and that they were not responsible for the development and sale of ECMS products to the U.S. Navy. Mr. Howe of B.F.Goodrich, with whom GasTOPS was partnering in an attempt to secure the U.S. Navy opportunity, put it this way:

Q.Now, Mr. Howe, can you just describe us for us in general terms, say up until the end of August, 1996, the nature of your working relationship with Mr. Brouse in the pursuit of these opportunities?

…

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A.Basically Doug was introduced early -- I believe early in -- fairly early in the process as the person who would be the technical expert for our demonstrations and would help with all of the -- and provide all of the tech data for the proposals, and would also act as the Gas Tops marketing representative who would work directly with me in forming strategy for the pursuit of the U.S. Navy ECMS and FLTS opportunity, as well as the GE ECMS opportunity, to provide an enterprise-wide solution at GE.

Q.And can you describe the nature of the information flow as between the two of you?

A.Typically we would have frequent telephone strategy sessions. There were meetings many times, as often as every month, to talk about the strategy and to talk -- and we met obviously when we travelled together, which was frequent as you can see from the record, making these briefings. It was a pretty much hand-in-glove relationship where we had to be both knowledgeable of what was happening from the point of view of the pursuit plan.

Q.And as between yourself and Mr. Brouse, which of the two of you would have had more knowledge of the technical requirements of the United States Navy?

A.Clearly Mr. Brouse.

[304]Brouse sought to downplay the role he assumed in GasTOPS’ marketing efforts to the U.S. Navy. Brouse claimed that he was merely supporting the sales process through Brad Howe of B.F.Goodrich, but it is clear that Brouse had direct and influential contact with various representatives within the U.S. Navy, including Lieutenant Matt Herl, Terry Chandler, Ray Lebeau, as well as Robert White of McDonnell Douglas Aerospace (“MDA”). Through his marketing efforts, Brouse acquired an in-depth understanding of the U.S. Navy technical requirements, the details and limitations of existing legacy software systems, the details of possible alternative software solutions, as well as the full particulars of the technology the U.S. Navy sought.

[305]Brouse also learned while working at GasTOPS about the political hierarchy within the sections of the U.S. Navy, the key players in the U.S. Navy’s decision-making process and

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the U.S. Navy’s procurement process. As a result of Brouse’s direct interaction with Lieutenant Matt Herl, he was able to convince Herl that he (Brouse) had a complete understanding as to the U.S. Navy’s requirements and that he had access to the solution to the U.S. Navy’s requirements.

[306]Brouse’s logbooks for the period of September 1995 through October 1996 (Exhibits 58, 140 and 96) are replete with entries that evidenced the corporate intelligence that Brouse was gathering while in pursuit of the U.S. Navy opportunities on behalf of GasTOPS. The information, collected over a period of approximately 12 months, was gathered by Brouse at closed door U.S. Navy meetings, through direct and private telephone conversations with various U.S. Navy contacts, through interaction and communications with GasTOPS’ partner, B.F.Goodrich, through attendance at GasTOPS’ management meetings and through extensive face-to-face contact with key representatives of the U.S. Navy, including Lieutenant Herl who unfortunately died prior to the commencement of this trial. Brouse used this information to develop sophisticated marketing plans and strategies (Exhibits 93, 2136, 1890 and 1889), all of which were relied upon by GasTOPS and B.F.Goodrich to bring the U.S. Navy opportunity to near fruition. The confidential business information that Brouse gathered and was privy to while employed at GasTOPS can be seen in his daily logbooks, Exhibit 2135 (February 20, 1995 – September 18, 1995); Exhibit 58 (September 25, 1995 – April 15, 1996); Exhibit 140 (April 16, 1996 – August 21, 1996) and Exhibit 96 (August 25, 1996 – October 4, 1996).

[307]Brouse did not produce any of his logbooks after he resigned from GasTOPS; Forsyth did produce his. Brouse claims that at least one of his logbooks was lost after he left GasTOPS. When I review the details in Brouse’s logbooks while at GasTOPS, I believe that Brouse continued to maintain logbooks while at MxI and, based on his failure to disclose other relevant documents, deliberately “lost” or disposed of such logbooks in order to avoid having to disclose them. It is a reasonable inference that Brouse’s logbooks contained notations which would contradict his evidence.

[308]In his capacity as the GasTOPS’ representative primarily responsible for marketing the GasTOPS’ programs to the U.S. Navy, Brouse was required to assimilate all of the information he was gathering into detailed sales strategies for the ECMS and FLTS products.

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Brouse authored a document that explained the manner in which the ECMS product could be used for the F-18 program by PMA265 (Program Management Authority 265) in the context of the Automated Maintenance Environment (“AME”) development. The document was entitled “Proposed Role of the ECMS within the F/A-18 Program” (Exhibit 1890).

[309]Howe of B.F.Goodrich stated that Exhibit 1890 was delivered to the U.S. Navy in August of 1996 as part of the GasTOPS’ marketing effort. In the “introduction” section of Exhibit 1890 Brouse provided a succinct summary of his understanding as to the opportunity that was available to GasTOPS in the context of the U.S. Navy’s AME initiative. Brouse wrote:

The United States Navy (USN) presently operates a fleet of F/A- 18 aircraft as the backbone of their aircraft carrier fighter fleet. In order to maintain these aircraft more cost effectively, the USN has a requirement for a comprehensive information system to manage the F/A-18 maintenance data. Presently the maintenance data is managed using an assortment of software systems. These systems differ at each level of maintenance and are inconsistent in terms of hardware and software architectures, support required, and as a result are cumbersome to integrate. The Navy’s most serious problem is at the O-level whereby maintenance information support is provided by the Engine Configuration and Monitoring System (“ECAMS”) which is a 1970’s vintage computer system (i.e. the DEC PDP-11) that suffers from reliability problems and is difficult to maintain due to the unavailability of spare components.

To resolve this problem, the USN plans to develop and implement the Automated Maintenance Environment (AME) which will be designed to support F/A-18 C through F class aircraft and will provide an integrated approach to maintenance data collection, management and utilization. The USN has adopted an aggressive schedule for delivery of this system, whereby an interim, GUI- based system will be fielded at the O-level in 1997, and the comprehensive, complete system which includes all levels of maintenance will be implemented in 1999. It is noted that the AME will not be designed to support the aging F/A-18 A and B model which are planned to be phased-out of the Navy fleet in the near future.

The USN has identified that the commercially available Engine

Condition Monitoring System (ECMS) and the First Line

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Troubleshooting System (FLTS) could be used as a component of the AME. The ECMS and FLTS have been used by the Canadian Air Force (CAF) for over ten years to support their fleet of F/A-18 aircraft. It is a mature, robust system that can provide many of the functions required for the AME, including serialized configuration tracking, engine diagnostics, engine trending, technical directive tracking and maintenance scheduling.

[310]Under the sub-heading “Proposed Role of the ECMS within AME”, of Exhibit 1890, Brouse wrote:

As shown in Figure 1, it is proposed that the ECMS/FLTS be integrated as a client PC into this Local Area Network (LAN) architecture. The current functionality of the ECMS/FLTS meets and exceeds that of the current ECAMS system and would provide the following comprehensive maintenance information support for the F/A aircraft and engines:

•aircraft reports regarding avionic, airframe (including airframe fatigue), and armament data

•wide area network data transfer to other sites and computers (including ADF and airframe fatigue data) and replication (for data viewing purposes)

•engine serialized engine configuration tracking

•engine diagnostics

•engine trending and maintenance prognostics

•engine life tracking

•engine maintenance scheduling including inspections, technical directives, scheduled removals, and periodics

•engine status and logistic reports

The functionality described above is focussed primarily on the management of engine information. However, it is noted that with minor software modifications, the ECMS functions could be utilized to provide maintenance information support to the entire F/A aircraft. In that regard the system would:

•manage the serialized tracking of all airframe, avionic and armament systems;

•perform life tracking for the airframe in terms of the FLEI’s data;

•schedule all aircraft and subcomponent inspections,

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technical directives, scheduled removals, periodics, and phase activities; and

•provide aircraft status and logistics reports.

Utilizing the ECMS to support the entire aircraft offers several advantages to the USN. In addition to providing a single workstation with a common user interface to support both aircraft and engine, the system could be implemented quickly and with minimal risk.

[311]At page 5 of Exhibit 1890, under the sub-heading “Interim F/A-18 Support”:

As described above, the AME will be designed specifically for the F/A-18 C through E type aircraft only, and as a result, no support is planned for the A and B model types. In order to manage these aircraft, it is proposed that the ECMS/FLTS be fielded as a ‘stand- alone’ system for this fleet. Since the ECMS/FLTS is used specifically for A and B aircraft in this configuration in Canada, the system can be rapidly deployed and set-to-work. This early deployment would have the advantage of exposing a component of the AME to the users prior to complete AME implementation such that useful feedback to the AME developers could be provided.

Furthermore, if the USN determines that support is required for the C and D model types prior to the implementation of the AME, the ECMS/FLTS could be configured (with minor software modifications) to support these aircraft in a stand-alone configuration. Subsequently, as the AME initiative is implemented, the ECMS/FLTS systems would be ported to the Unix client-server configuration with no loss of investment to the USN. Figure 3 depicts the ‘stand-alone’ ECMS/FLTS system.

[312]Based on Exhibit 1890, one of the opportunities that GasTOPS was pursuing was for the ECMS to be a component part of the U.S. Navy’s AME initiative. It was being proposed that the ECMS/FLTS products be used on all of the United States Navy’s fleet of F/A-18 aircraft, models A through F, for both engine and airframe data. The primary functionality to be provided included serialized configuration tracking. The GasTOPS’ ECMS product would act as an ECAMS replacement.

[313]Brouse had known well in advance of his authorship of Exhibit 1890 that the U.S.

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Navy had identified the GasTOPS’ ECMS software as being a viable source of configuration management technology. As set out in Exhibit 80, Brouse’s Trip Report from the U.S. Navy visit, dated July 8, 1996, he knew that the ECMS data stripping and configuration management technologies were being considered as a component part of the AME initiative.

[314]Brouse also authored a document entitled “ECMS/FLTS Opportunity as MDPS Replacement” (Exhibit 1889). The document described the manner in which the ECMS product could be used as an MDPS replacement. At page 1 of Exhibit 1889, under the sub-heading “Background”, Brouse wrote:

The United States Navy is presently developing a generalized ground station called the Maintenance Data Processing System (MDPS) that is designed to support the data processing needs of their fleet of aircraft at both the 0, I and Depot levels of maintenance (i.e. First Line, Second Line and Depot). As best as we can determine, the MDPS is planned to support the F/A-18, the F-14, the V22 as well as several other aircraft that are classified in nature. As a first release of the system, the unit has been targetted specifically for the F/A-18 and the F-14 B and D class. In my opinion these weapon systems have been targetted because of their on-board data collection systems and their unique engine fatigue life requirements. The scope of this initial [sic] release involves 135 0-Level squadrons and 23 I-level sites.

It is noted that the GasTOPS FLTS and ECMS products, in their present form, can meet most of the MDPS requirement.

Also at page 1 of Exhibit 1889, under the sub-heading “Status of the MDPS”, Brouse wrote:

The MDPS system was originally to be delivered ~1991, but the delivery date has been moved several times and numerous revised delivery schedules have been missed. Most recently, the delivery schedule has been moved from August 1995 to August 1997. Total cost to date - $110 million.

Presently the MDPS is about to enter a technical evaluation phase (“TechEval”) at PAX River that has been targetted to last 6 months. Although this phase has not yet officially started, preliminary reports arising from the final stages of development/testing indicate that the system is performing poorly

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and over 200 software trouble reports (STR’s) have been raised. We have been told that the problems are significant in nature and include poor performance as well as logic processing errors. As a result, the MDPS Program Manager (Don Martin) has privately identified a requirement to fund a trial (“Demo”) of the GasTOPS system.

In addition, our lobbyist at Hill and Knowlton has determined that GasTOPS is well positioned to be contracted as a replacement to the MDPS. His intelligence has determined that, as a result of our successful presentation at PAX River, the Navy sees us as the number one contender if the MDPS fails. Apparently the Navy harbours little doubt (except for volume and deployability issues) that the ECMS could readily meet and exceed their needs.

Further at page 1 of Exhibit 1889, under the sub-heading “MDPS Functionality”, Brouse wrote:

The MDPS is to be the primary data collection source of aircraft data. It has been designed to interface to specialized hardware such as the Aircraft Data Interface Device (ADID) and the New Aircraft Data Interface Device (NADID), which are similar to the GasTOPS FDIU (i.e. devices used to interface to Aircraft Data Units such as the TTM’s and Digital Storage Units (DSU’s)). The data is then used by the MDPS to provide considerable functionality. This functionality is described in the ‘Prime Item Development Specification” for the MDPS and is summarized in the following table. Those requirements that are presently met by the FLTS/ECMS are identified.

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-486 PC

-Unix Operating System with Motif GUI

-Oracle

-TCP/IP Network

With the exception of the Unix operating system, this architecture is compatible with the ECMS/FLTS. It would be anticipated that the 0-level PC hardware could be used to host the ECMS and FLTS.

At pages 3 and 4 of Exhibit 1889, under the sub-heading “Scope of Our Offer”, Brouse wrote:

In order to meet the MDPS requirement, it is noted that GasTOPS need only offer a portion of the ECMS and FLTS functionality. The necessary function could be readily integrate together due to the modular structure of our systems. Features which are not part of the MDPS specification such as the diagnostic, predictive, fault defect reporting, and maintenance scheduling capabilities of our system could be offered as costed options.

It is noted that the original MDPS was to forward data to a PLTS II system that would provide fleet-wide tracking of engine configuration and life status. As part of our offer, we would replace this system with an ECMS unit. Furthermore, we would provide modification tracking for engine components.

Some non-recurring engineering will be required to meet the MDPS requirement. This involves software customization to meet the unique requirements of the Navy including interfaces to other information system and equipment, customized reports and maintenance input forms. Most notably an interface to the ADID/NADID device would be required. Furthermore, considerable effort will be required to set-up the system, populate it with data and train the users.

With regard to the F/A-18 and F-14 opportunity, our offer can be summarized as follows:

-deliver ~160 ECMS/FLTS units as MDPS replacements at 0, I and Depot level sites

-deliver an ECMS unit as a PLTS II replacement

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-provide engine component modification tracking (addition to MDPS requirements)

Non-recurring engineering would include:

-development of interfaces to ADID/NADID

-development of interfaces to other information systems

-development of customized reports and data entry screens

-system set-up and database population

-system installation

-user training

Costed Options Include:

-engine diagnostics

-predictive capability and trending

-fault/defect reporting

-maintenance scheduling

Finally, at the end of the proposal, Brouse wrote: “It is expected that the system would first be implemented for the F/A-18. Considering this aircraft represents a large portion of the Navy’s fleet, it is hoped that the system would then be used as a fleet-wide MDPS replacement.”

[315]Based on Exhibit 1889, GasTOPS was also pursuing an opportunity to provide configuration management and data stripping technology to the U.S. Navy if ECMS became a replacement for the failing MDPS system. It was anticipated, that the initial focus would be on PMA265s F/A-18 fleet of aircraft, with the hope and expectation that the ECMS would then be used across the entirety of the U.S. Navy’s fleet of aircraft.

[316]While employed at GasTOPS, Brouse authored a document entitled “U.S. Navy ECMS Implementation Plan” (Exhibits 93 and 2186). Exhibit 2186 (the U.S. Navy ECMS implementation plan) was found in MxI’s 1999 Lotus back-up in Forsyth’s file USNIMPL2. The

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ECMS Implementation Plan outlined the manner in which the GasTOPS’ ECMS product could be rolled out to the U.S. Navy’s fleet of F/A-18 aircraft. At trial, Brouse described the ECMS Implementation Plan (Exhibits 93 and 2186) as follows:

A.Brad Howe was asked to present at this meeting the B. F. Goodrich GasTOPS vision of how to provide an ECAMS replacement for the interim. And Mr. Howe and Mr. Muir had tasked me to come up with a plan as to how we could deliver the ECMS as a replacement for the ECAMS system.

Q.And did you in fact do that?

A.I did. I come came up with a pretty -- I thought a pretty sophisticated plan for how we could take the ECMS system and deliver it to the Navy in under a year time frame and deliver it to the Navy where it would have zero or at least minimal impact to their operations.

He came up with a pretty – I thought I pretty sophisticated plan and for how we could take the ECMS system and deliver it to the Navy in under a year time frame and deliver it to the Navy where it would have zero or at least minimal impact to their operations.

Later, in cross-examination, Brouse stated:

Q.Mr. Brouse, on day 162 of your evidence -- the search term, Your Honour, would be “sophisticated plan".

In describing this document, Mr. Brouse, you said “I came up with a pretty, I thought a pretty sophisticated plan for how we could take the ECMS system and deliver it to the Navy in under a year time frame, and deliver it to the Navy where it would have zero or at least minimal impact to their operations”?

A.Yes.

Q.And that was a true and accurate statement, Mr. Brouse; correct?

A.Yes.

Q.And that implementation plan, Mr. Brouse, would have represented the culmination of a fair amount of information

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gathering on the part of yourself, learning what the Navy's operational setup was and what their requirements were; correct?

A.I wouldn't say that. I mean, what you need to know, I think, for that implementation plan was what the ECAMS system did, which is provide a specification to us. As well as be aware of where these things were located, maybe a little bit about how they operated them. But that was really -- that is the key fodder for the information you would need to come up with that plan.

You probably would have to know about PLTS2 as well, a little bit.

Q.Mr. Brouse, clearly you knew by this date about optimized NALCOMIS; correct?

A.I had heard of it now, I think I'd heard of it once in the late August of ‘96.

Q.We've already seen your logbook two or three references to NALCOMIS; correct?

A.Right. But the reference to the optimized NALCOMIS, I think I had learned of it in late August.

Q.And you knew all about the AME initiative; correct?

A.I knew about the AME initiative.

Q.And as you've just indicated, you knew about the shortcomings of the ECAMS system; correct?

A.The ECAMS or the MDPS?

Q.The ECAMS system?

A.Yes, I did, yes.

Q.You also knew about the intended functionality of the MDPS and the status of its development; correct?

A.Yes. I did know that, yes.

Q.You had received information from various sources as to the various levels of maintenance within the United States Navy; correct?

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A.Yes.

Q.All of that information was taken into account by you in the preparation of this implementation plan; correct?

A.It was, yes.

Q.As I understand it from looking at the various productions, this document represents the, in your words, the most sophisticated implementation plan that had been developed to date; correct?

A.It was, in my opinion, a clever plan, not because of the technical nature of it -- I'm not a terribly technical person. It was clever in the concept of replacing these ECAMS units with ECMS is that whereby the other ECAMS units or the PLTS database upline wouldn't be able to identify that a replacement had occurred. It was a form fit functionality concept.

Q.Right. So you also knew about the PLTS system and its functionality and what was required to minimize the impact on that, correct, that is what you're saying?

A.I knew about the PLTS system. I didn't know much about PLTS, quite frankly. I thought -- I didn't know, I mean, I knew that the ECAMS sent up information. I knew that if we got the specifications for that, that we could mimic the same data going up.

So it was still important to, as part of this process, and I think we've seen in the logbook we had to gather much more information to be able to execute that plan.

Q.Given everything that you've just said about this plan, obviously the plan itself was commercially valuable to GasTOPS; correct?

A.I don't know what you mean, really.

Q.Pardon me?

A.I don't think I understand your question.

Q.Well, the implementation plan that you drafted, as sophisticated as it was, was commercially valuable to GASTOPS; GasTOPS would not want a competitor to get its hands on this

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plan, would it?

A.I doubt they would, no.

Q.It's a fact, they would not, Mr. Brouse. In your capacity as an employee at GasTOPS, you would not have handed this plan to somebody that's marketing the GOLD system?

A.Well, the reality is we did give the plan directly to the MDPS people at that very meeting. So it was a good plan. It was, I thought, a creative plan because of the approach. We didn't seal it up with confidentiality statements; and in fact we gave it directly to Jeff Kniola at that meeting in September.

Q.You gave it to the persons within the United States Navy that you have to give it to in order to further the opportunity from GasTOPS' perspective; correct?

A.Well, I guess Mr. Yach, if we were truly concerned about it, we could have easily gone to the Navy and to Lieutenant Herl and said we're giving this to you, but we don't want it shared with Bob Green from -- I forget the name of his organization -- or Jeff Kniola, and we didn't do that.

It was a creative plan, but I don't know how commercially sensitive it was. I wasn't terribly concerned about it. I mean fundamentally, to execute this plan, you know, you had to have a product like ECMS or MDP.

Q.Let me put it to you this way, Mr. Brouse, assume that there was some other third party corporation that operated out of the United States who was not involved with the United States Navy up to this point but who had a product that they could potentially sell to the United States Navy on this opportunity, all right. Can you assume that?

A.I can assume that.

Q.You would not want, Mr. Brouse, your ECMS implementation plan to be given to that corporation; is that fair?

A.I don't know if it really matters, Mr. Yach, quite frankly, if an implementation plan is not a design document, it's not a functional specification, it's a roll-out plan.

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Q.Mr. Brouse, you've just indicated in your evidence that you thought this was a clever plan because it would serve to minimize the impact on the U.S. Navy's operations and it would permit the implementation of ECMS within a specific time frame; you've already given that evidence, Mr. Brouse?

A.It's a clever plan, Mr. Yach. Quite frankly the concept is clever; the concept could be described to somebody in two sentences.

You're right, I think our druther would be that if there was this third party competitor with a product, our druther would be not to have it. But the reality is that we didn't try to protect it. The reality is we did give it to people that were competing with us.

Jeff Kniola, and it was quite clear in the meeting in September, when he was making his version of the MDPS, was very eager to compete with us and that plan was handed right to him, and nobody said he shouldn't get it. It was handed to Bob Green from Logicon as well.

[317]In my view, even though the document was shared with the U.S. Navy and more particularly Lieutenant Herl, it was a confidential business document that was the property of GasTOPS and should never have been in the care and control of Forsyth and/or Brouse after they resigned from GasTOPS. I have no doubt that Forsyth and/or Brouse made use of this confidential business document which belonged to GasTOPS on behalf of MxI.

[318]The analysis by Brouse of the status of the U.S. Navy opportunities, as articulated in Exhibits 1889 and 1890 was also reflected in a document entitled “NAVAIR ECMS/FLTS – Long-Term Tactical Action Plan” (Exhibit 92) authored by Howe and Brouse and dated September 22, 1996.

[319]Exhibit 92 identified that the failed or failing ECAMS and MDPS systems gave rise to the U.S. Navy’s need for configuration management and data stripping technology. Exhibit 92 also outlined that the MDPS was to be a component part of the AME initiative and that it was to be deployed on the F-18 E and F, as well as on the V-22 aircraft. Page 3 of Exhibit 92 under the sub-heading “Action Plan”, both “short-term” and “long-term” goals were identified. The “short-

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term” goal was described as being a replacement for ECAMS and PLTS for the F-18 A, B, C and D model aircraft whereby comprising the “MDPS core”. It was anticipated that if the short-term goal was obtained, the GasTOPS/B.F.Goodrich team might be allowed to continue to participate in the AME/Aviation Maintenance Integrated Diagnostics Demonstration (“AMIDD”) development process and ultimately become the MDPS replacement of the F-18 E and F, F14 and V-22 fleet of aircraft.

[320]The existence and particulars of the U.S. Navy opportunities, as articulated by Brouse in Exhibits 1889 and 1890 were confirmed at trial by witnesses from the U.S. Navy. They confirmed that GasTOPS’ ECMS was being seriously considered as the means by which the U.S. Navy might procure the configuration management/data stripping technology that it was seeking. Terry Chandler gave evidence concerning the functionality of the proposed MDPS, saying that it was intended to do data stripping, parts life tracking, and configuration management. It was “intended to be integrated with other suites or other applications, like interactive technical manuals and things like that,” but these three features were its guiding functions.

[321]Chandler then testified concerning the demonstrations of the GasTOPS’ ECMS product that were given in February of 1996 to various representatives within the U.S. Navy:

A.That particular demonstration, to put it quite frankly, blew everyone's socks off. They had never seen anything like this before. The majority of the configuration management, logistics management tools that the Navy was using at that particular time were very cumbersome, very difficult to operate and extremely labour intensive. The reliability of the data was always in question.

This system provided one-stop shopping for any manager that had an asset that they had to track. It also ensured that -- one of the things that we try to do in the Navy is capture realtime data, where does the best information occur? Right at the aircraft; right off the aircraft. We'd never been able be to truly do that before. This product offered that kind of functionality and was purported to provide that. From what we'd heard from the Canadian Air Force, it was doing that for them right then and there. A lot of people were very, very intrigued.

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My commanding officer, Commander Mark Stone was impressed. Many of the managers within the Naval Aviation Maintenance Office wanted more information. So it was a constant -- after that demonstration it was a constant parade through my office of people wanting more, wanting to hear more. I was presenting to people at all levels of leadership through NAVAIR and the Naval Aviation Maintenance Office. There was a lot of excitement.

[322]Further, and with respect to Lieutenant Herl and the development of the Super Hornet E and F aircraft, Chandler stated:

Q.All right. How did the GasTOPS ECMS product fit into Lieutenant Herl's mandate?

A.It provided a new realtime planning capability, configuration management, ownership rules, a lot -- and new ideas as well that he could embrace within that F-18 program. One point that I wanted to make is when you were -- I'm sorry. When you are in the middle of R and D cycle like the E/F was -- the Super Hornet was at that particular time. It's very well funded.

The problem with pushing a product through NAVAIR has always been finding funding. If you can get a sponsor like Lieutenant Herl, that had plenty of money to put on a system, to evolve it, make it a Navy working core [ph] system, then you've hit the jackpot. Lieutenant Herl was that kind of sponsor, he had the funding available.

So the ECMS approach took on a real tangible life. We had a sponsor; we had a potential customer that was interested, and that was lieutenant Herl.

[323]Accordingly, based on the evidence of Chandler, the U.S. Navy had identified GasTOPS’ ECMS as a potential source of configuration management and parts life tracking technology both in the context of the failing MDPS and for use on the new Super Hornet F-18 E and F aircraft and which were the subject matter of the AME development. Further, Chandler’s evidence provides clear insight into the value of GasTOPS’ relationship with Lieutenant Herl. Lieutenant Herl had the requirement, the money and had become a “champion” and advocate of the ECMS solution.

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[324]At trial, and with respect to the MDPS, Raymond Lebeau testified that MDPS was cancelled after objections were raised that the program would never be completed or would never do what it was supposed to do. When asked as to the impact of the cancellation of the MDPS program, on his own initiative, the AME, Lebeau stated:

A.That gave us a big problem because with that not there, there was no replacement system that would work into the year 2000, and we had to do OPEVAL in '99. So there was a great deal of concern what we were going to use in '99 and then what we were going to use in the next time period, because ECAMS was basically built and had a 2000 drop-dead point because of the way the system had been built.

Q.You made reference to an OPEVAL in 1999. Can you describe what that refers to?

A.Again I wasn't present at EVAL -- to the OPEVAL for the F-18 E and F, but basically it's where we check out the airplane, make sure it actually flies the way it is supposed to fly, and the all systems and support systems that work with the airplane are functional, and that's where the stuff like the IETM had to be functional, the other pieces of it had to be functional in terms of keeping track of all the maintenance data, et cetera.

The problem we were faced with at that point was we had to find a replacement system. We could run ECAMS in '99, but that would not give us a system that would let us deliver the aircraft in the year 2000, and we had to have both.

Q.Just so we're clear, the OPEVAL in 1999 is reference specifically to the E and F Super Hornet aircraft?

[325]In a similar vein, Chandler testified that the cancellation of the MDPS development gave rise to a need for a replacement, given the requirement for support for the E and F aircraft and the ECAMS’ Y2K problem. Chandler stated:

A.MDPS stands for the Maintenance Data Processing System.

I was the functional rep while on active duty for that system. It was a philosophy and envisioned system that was intended to become the ground station for multiple aviation platforms, the F14,

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V22, all series F-18s and anything else that required a ground station at that time.

When I arrived at the Naval Aviation Maintenance Office in 1993 it was still a -- it was a developmental effort within the Naval Aviation Maintenance Office, NAMO as we referred to it. Throughout my tenure at NAMO, it never really got beyond that development effort.

In late '95, the decision was made by the Navy leadership to no longer pursue the MDPS solution. As a result, that left a hole, because the ECAMS system was non-Y2K compliant, everyone knew that. There was also the requirement for supporting the F-18 E/F, everyone knew that. And they were hoping or counting on MDPS to provide that functionality.

When the decision was made to cancel that program and cease any further development on both the ground station and the upline repository, we were at a loss as to how to proceed.

[326]Bob White of MDA, the prime contractor to the U.S. Navy on the AME initiative also confirmed that the U.S. Navy was considering GasTOPS’ ECMS product as a replacement for the MDPS.

[327]There was extensive evidence adduced that established that Lieutenant Matt Herl was an important player in the United States Navy’s decision making process. (Note that Lieutenant Herl died before this trial commenced.)

(a)At trial, White of MDA (McDonnell Douglas Aerospace) stated:

A.Lieutenant Herl was my -- was the point of contact with the Navy. He attended most of the meetings and gave direction. He was in my view the representative from the Navy on that program.

(b)Chandler stated:

A.I was working closely with Lieutenant Herl at the time, and I was working as I said earlier as his contract technical support. And we were -- the Lieutenant and I both were learning as we went.

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And having been a fleet operator and understanding the environment, my approval was sought in a lot of the areas based on that experience and how complex certain things would be to support within the fleet or deployed or various other things.

But approval and input only mean that I liked it. I had no funding authority, lines of funding, or authorization for to allow them carry forth, that's basically the way it worked. Lieutenant Herl was the sole decision authority.

And later Chandler stated:

The problem with pushing a product through NAVAIR has always been finding funding. If you can get a sponsor like Lieutenant Herl, that had plenty of money to put on a system, to evolve it, make it a Navy working core [ph] system, then you've hit the jackpot. Lieutenant Herl was that kind of sponsor, he had the funding available.

So the ECMS approach took on a real tangible life. We had a sponsor; we had a potential customer that was interested, and that was lieutenant Herl.

And later Chandler stated:

A.Lieutenant Herl, as we've seen throughout some of these other documents, took to NAVMASSO a list of requirements: data stripping, DAS, lies usage indices calculations for the engines, and network functionality over the Navy wide area network. These were things he'd taken to NAVMASSO and directed them to develop those capabilities. They were having a hard time doing it; they were focussed in other areas. They were not necessarily at that time looking out for the F-18's best interests. The F-18 had a schedule, and they weren't staying on that schedule. That schedule was driven by the operational test and evaluation of the F-18 E/F and the Y2K issues relative to ECAMS, like I started earlier. He was becoming frustrated.

So as said earlier, he decided to pluck certain functionality out of NAVMASSO's development effort, that was DAS and LUI. And we approached China Lake, the government side at first, and they in turn contracted EER Systems at China Lake to develop those particular modules out there,

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independent of NAVMASSO. And it was kind of done is a

vacuum...

Q.We have heard evidence of ---

A....NAVMASSO wasn't pleased.

(c)Lebeau stated in regard to Lieutenant Herl:

Q.Let's speak just for a moment, Mr. Lebeau, about Lieutenant Matt Herl. At what time did he come into play with respect to the AMIDD/AME developments?

A.I would say it was somewhere in '96 he was -- Captain DYER brought him aboard out of naval graduate school.

Q.What was his title as of that date, do you know?

A.Lieutenant. He never had a title, but he was the one that was controlling AME within a year of his arrival.

Q.Now when you say he was controlling AME, what do you mean by that?

A.He was the one making the decisions.

[328]It is clear that Lieutenant Herl was an extremely valuable contact for GasTOPS as he was deeply involved in the decision making process of the U.S. Navy and had become an “advocate” and “champion” of the ECMS solution. The fact that Lieutenant Herl and the F-18 program office (PMA265) had become the “champion” of the GasTOPS’ ECMS product was noted in the NAVAIR ECMS/FLTS long-term tactical action plan (Exhibit 92) authored by Brouse and Howe on September 22, 1996:

The F-18 program office (PMA265) is now our sponsor. They understand the value, functionality and most of all, the maturity of our product. They have risked criticism and possible reprimand for being too supportive of our product when “competing” Navy developed products exist. They have even invited us to participate in the AME Program (described below) which seems to cause both McDonnell-Douglas and GE great consternation.

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At page 3 of Exhibit 92, it was stated:

While attending a meeting at Pax River on 8\27 & 8\28, our Navair PMA265 (F-18) program sponsors were summoned to Crystal City to brief Capt. Joe Dyer, the F- 18 Program Manager, on what they planned to do about an unsupportable ECMS/PLTS1 and an abandoned MDPS system. We were asked to help them develop their response in a late night session in our hotel room.

[329]The foregoing extracts from Exhibit 92 are clear evidence of GasTOPS’ understanding that PMA265 was in a position to dictate the possible outcome of the procurement process. The decision makers within PMA265 would not rely upon the opinions of PMA260, but rather the recommendation of their logistic support team including Lieutenant Herl.

[330]Howe of B.F.Goodrich stated that Lieutenant Herl had given a briefing at the CIP meeting in Toronto, Ontario on September 9 and 10, 1996 and as part of Herl’s briefing, the entirety of his (Herl’s) report entitled “Maintenance Data Brief and Recommendations” (Exhibit 96) was presented to those in attendance. On page 6 of Exhibit 91 the “ECAMS alternatives” were listed as being: MDPS, ECMS and Swiss/Finn Maintenance Data System.

[331]At page 8 of Exhibit 91, Herl noted that the MDPS will not pass TECHEVAL; that the system was not maintainable; and that the system will not support the F/A-18 deployment requirements. At page 12, of Herl’s report, it was specifically noted that the F/A-18 A/B/C aircraft would be outfitted with the ECAMS replacement commencing March 1991 until optimized NALCOMIS OMA was in the fleet in 2001. It was apparent from the report of Lieutenant Herl (Exhibit 91) that he and the PMA265 program office were considering and promoting the GasTOPS ECMS product as a possible source of the parts life tracking and configuration management technology that the F/A program office was seeking.

[332]In my view, Brouse played a key role in GasTOPS’ pursuit of the U.S. Navy opportunity and was a “key employee” who owed a fiduciary duty to GasTOPS. Some of the actions of Brouse which lead me to this finding are as follows:

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(1)Brouse had direct communication with key U.S. Navy contacts concerning matters of sales strategy and pricing. By way of example, Brouse corresponded directly with Joe Barrera of the V-22 office. His communications with the V-22 group office are consistent with GasTOPS viewing ECMS (Engine Condition Monitoring System) as an MDPS (Maintenance Data Processing System) replacement that could be ultimately applied across other fleets, including the V-22;

(2)Brouse was the “face of GasTOPS”, clearly being the GasTOPS’ representative at all of the key face-to-face meetings with the U.S. Navy. The defendants argue that Brouse’s role was a “demonstrator of the software” and was evidenced by Howe making a note for Brouse to get out his “pearl handled, duel roller ball, quick draw mouse”. I interpret this statement of Howe to be indicative, of the key role Brouse was playing in the pursuit of the U.S. Navy business opportunity. The U.S. Navy requirements were extremely technical and the success or failure of the marketing effort hinged on the GasTOPS/BFG team being able to convince the U.S. Navy that the ECMS (Engine Condition Monitoring System) product would meet their technical needs. Accordingly, Brouse, who understood the technical needs of the U.S. Navy and the ability of the GasTOPS’ product ECMS (Engine Condition Monitoring System) v.2 to fulfill those needs, was a critical person in the pursuit of the U.S. Navy business opportunity. On all of the evidence, only Brouse, at GasTOPS appeared to have the knowledge and ability to fulfill this role and as such he was a “key employee”;

(3)Brouse developed a trusted relationship with key U.S. Navy contacts, including Chandler and Lieutenant Herl;

(4)Brouse was the marketing representative from the GasTOPS/BFG team to whom the U.S. Navy looked for answers to their critical technical questions. The U.S. Navy was looking for a technical solution to a very technical problem and it was Brouse to whom the U.S. Navy personnel turned for answers to these questions. The precise procurement path by which the GasTOPS/BFG team might ultimately effect a sale was not as important as convincing the U.S. Navy that the ECMS (Engine Condition Monitoring System) v.2 product could fulfill the U.S. Navy’s requirements. This was the responsibility of Brouse. The role played by Brouse in pursuit of the U.S. Navy business opportunity when he was employed at GasTOPS, was a serious if not a fatal blow to GasTOPS’ ability to pursue this business opportunity when Brouse resigned giving two weeks’ notice of his resignation. The importance of Brouse in pursuing GasTOPS’ business opportunity with the U.S. Navy was apparent during the early part of November 1996 when Lieutenant Herl

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wanted Brouse to conduct the presentation on behalf of the GasTOPS/BFG team. In addition, it appears based on all of the evidence, that Brouse convinced Herl that MxI could meet the U.S. Navy’s requirements and at that point, Herl switched his allegiance and became the “champion” of MxI.

(5)Brouse was present at meetings, internal to GasTOPS at which time U.S. Navy marketing strategy was discussed. Brouse met with representatives of B.F.Goodrich on May 1, 1996 to “discuss the strategy for the NAVAIR (US Navy) F/A-18 opportunity”.

(6)Brouse had more frequent contact with the U.S. Navy than Howe and was frequently engaged with Chandler due to the paramountcy of the technical aspect of the sales process; and

(7)Brouse was directly involved with analyzing the U.S. Navy procurement process. Brouse was directly involved in a telephone conference call designed to ascertain how ECMS (Engine Condition Monitoring System) might be procured by the U.S. Navy without competition.

[333]The defendants argue that Brouse was “replaceable” and yet are critical of GasTOPS’ decision to proceed with its presentations to the U.S. Navy his absence. There can be no doubt that Brouse was fully aware of his influence and impact on the relationship between GasTOPS/B.F.Goodrich and the U.S. Navy through Herl.

[334]MxI argues, that “Mr. Brouse was not the primary individual marketing the GasTOPS’ product”. In my view, based on all of the evidence, Brouse was the primary individual at GasTOPS marketing the GasTOPS’ ECMS v.2 product to the U.S. Navy. Howe may have had the contractual obligation to be the primary marketer of GasTOPS’ product, but it was Brouse who was playing a more visible role in the marketing efforts: he made demonstrations and presentations, met with the U.S. Navy on short notice to prepare presentations to satisfy other inquiries that were being advanced by the U.S. Navy representatives, fielded inquiries from other platforms (including the V-22) and who Lieutenant Herl wanted to make the presentations.

Volvo

[335]As early as September 1989, GasTOPS targeted the Swedish Air Force as a potential

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customer through Volvo. The RM-12, a variant of the GE F404 engine, had been selected for the Grippen/JAS 39 aircraft of the Swedish Air Force and therefore presented an opportunity for GasTOPS. In 1994, GasTOPS again pursued this opportunity through the Canadian Embassy and was provided with the name of Stefan Hjort (“Hjort”) as a contact person at Volvo Aero Corporation. Shortly thereafter, Chivers, GasTOPS’ Vice-President, Business Development, wrote to Hjort (Exhibit 106) expressing GasTOPS’ interest in being represented by VOLVO Aero Corporation in Sweden in order to approach the Swedish government about providing ECMS for the F404 engine. In this letter, Chivers explicitly stated: “We are interested in supplying an ECMS for the F404/RM12 to meet an FMV requirement for aircraft maintenance information system. Unfortunately, we do not have any information on the precise requirements for this new system. Mr. Joakim Wallin of FMV is familiar with our ECMS and believes it could satisfy some of the requirements. Again, we require more information.” Finally, he noted that GasTOPS had also presented its product to representatives of the Finnish and Swiss Air Forces, who had expressed interest in it, as had the Spanish Air Force.

[336]On November 7, 1994, Chivers reported to the Canadian Embassy in Stockholm, Sweden (Exhibit 107) stating, “I think there is solid potential for sales of our system not only to Swedish Air Force but to Finnish and Swiss Air Forces for their F/A18 fighter fleet. If VOLVO Aero could act as our agent in Sweden, the possibility exists that they could act as our agent for all European sales. We would also be prepared to consider VOLVO as a follow-on life cycle support contractor for our ECMS” and, further, that “Possibilities aside, I think that a relationship with VOLVO is a natural, given they will be manufacturing and providing life cycle support for the engine that our ECMS supports.”

[337]On February 14, 1995, Chivers forwarded a fax to Volvo (Exhibit 108) stating, “I think our potential business arrangement is very important to GasTOPS and hopefully to VAC also. Therefore I would suggest that you and I continue our negotiation of the business agreement by fax. I believe we are close to agreement now; I see no VAC terms and conditions that GasTOPS could not agree to.” He continued:

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There is an F404 Component Improvement Program (CIP) meeting being held at GE in Lynn, Massachusetts during the week of 27 February. From our contacts in the Canadian Air Force, we have learned that the last CIP was attended by Mr. Magnus Bergstrom and Mr. Hans Berg from VAC/RM12 engineering and Mr. Somnel Tuve and Mr. Joachim Wallin from FMV. We have been asked by the Swiss Air Force to come to Lynn Massachusetts on 3 March to provide a detailed demonstration of our ECMS. We propose to expand our stay at Lynn to include a detailed demonstration to the VAC and FMV attendees at CIP. We also will be able to assign one of the system designers currently assigned to the ECMS improvement project to give the detailed demonstration. This engineer would not have been able to come to Tröllhatten. I think that the VAC and FMV engineers will receive a much more detailed demonstration of ECMS at Lynn than we could have provided in Tröllhatten.

[338]It appears from the exchange of correspondence and discussions that Volvo was seeking a more general business relationship with GasTOPS and wished to discuss opportunities for selling or re-selling GasTOPS’ products, with Volvo acting as a distributor for GasTOPS’ software products. In March 1995, GasTOPS and Volvo representatives met in Boston, at which time GasTOPS demonstrated its ECMS and FLTS. GasTOPS saw in Volvo an opportunity to sell ECMS and/or FLTS as part of a ground support data processing component because of the similarity between the functions of the Grippen flight recorder and that of the F18.

[339]On March 9, 1995, Chivers send a fax to Volvo entitled “F404 Engine Monitoring System” (Exhibit 109):

2.Our understanding of the JAS 39 requirement is as follows. FMV wants a new integrated information management system for the JAS 39. Our ECMS could be the engine module of the system. SAAB/VOLVO are co-developing an on board monitoring system that continuously records engine and aircraft parameters at 7.5 Hz, calculates and records engine LUI’s, status/error codes and “event monitoring”. FMV and VOLVO are working on a functional specification of the new system for the JAS 39. Procurement, by a competitive process, is planned by the end of 1995. We assume that the procurement of an existing system that requires little non-recurring

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engineering is preferred. Have we got it right?

3.I also hope that we were able to demonstrate that GasTOPS is more than a software development house. Our company was started in 1979 by our current president as a one man company doing gas turbine performance research and development. Although we are now 85 people (55 engineers), and we have expanded into condition based maintenance systems and propulsion system dynamic analysis for aircraft, naval ships and heavy industry (steel mills, pipelines, nuclear reactors, etc) we still base our expertise on [vigorous] engineering analysis and methods development.

[340]On November 1, 1995, Chivers sent a further fax to Volvo (Exhibit 110) regarding the “General Electric F404 CIP meeting at NAS Lemoore, 13-16 November, 1995,” which stated: “At the General Electric F404 CIP meeting being held at NAS Lemoore 13-16 November, 1995, the Canadian Forces will be providing a detailed and comprehensive briefing on the F404 Engine Condition Monitoring System that was developed under contract with GasTOPS Ltd.” Brouse attended the meeting at the Naval Air Station Lemoore, California, and met with representatives from Volvo. At this time, Brouse was GasTOPS’ Aero Program’s manager and took the lead on business opportunities with the U.S. Navy, Volvo and others. Muir stated that at this meeting with Volvo, Brouse presented further information about GasTOPS’ product to Volvo, including information about its pricing and “its justification for a potential procurement.”

[341]In the MSD’s 1995/96 business plan (Exhibit 6), Muir described the Volvo opportunity: “The MSD will also continue to pursue an opportunity to provide the ECMS to the Swedish AF for their JAS39 Grippen program. The JAS39 is powered by a derivative of the GE F404 engine (RM-12) which is manufactured under license by Volvo. GasTOPS is close to signing a formal cooperation agreement with Volvo for the JAS39 program.”

[342]In February 1996, arrangements were made for representatives from Volvo to attend at GasTOPS for a demonstration of the ECMS. On February 29, 1996, GasTOPS received a fax from Volvo (Exhibit 111) setting out the items that Volvo wished to discuss during the meeting:

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During the proposed meeting with you we feel that the following items should be included.

1.Presentation and demonstration of the GasTOPS EGMS concept.

2.Presentation of current JAS39 RM12 Condition Monitoring System.

3.Discussion of similarities and differences regarding data registration, handling and evaluation.

Questions: We intend to forward to you questions that arise during our review of the available documentation.

4.Possibilities to customize and implement the GasTOPS ECMS in the JAS39 system or include selected modules of the ECMS.

5.Evaluation of possible continued technical co-operation.

[343]The meeting at GasTOPS’ offices in Ottawa was held on February 29 and March 1, 1996. Brouse demonstrated GasTOPS’ products and recorded details of the meeting in his logbook (Exhibit 58 at pages 151-157). As far as GasTOPS was concerned, the meeting was successful, and on May 24, 1996, Volvo suggesting it work with GasTOPS and the Swedish Air Force to valuate “manpower, time schedule and costs to modify the FLTS-system so it can be used by the Swedish Air Force for JAS 39/RM12… The SAF and AMD people will now [consider] if they should continue with the GasTOPS FLTS. Our impression is that they will look upon the possibilities to buy knowledge and parts of software from you. They are also interested in your Oil Debris Monitoring and Deployable Filter Debris Analyzer” (Exhibit 113).

[344]Muir testified that Brouse was responsible for pursuing the Volvo opportunity for GasTOPS as of February 29, 1996. Muir would provide technical assistance as needed, and Chivers would also help Brouse, with the possibility of continuing on as a liaison if Volvo was comfortable dealing with Chivers. Brouse, however, would be the one to make any decisions about Chivers’ role. According to Chivers, and I accept his evidence, when he was “speaking to” Volvo he relied upon Brouse for all of the technical information pertinent to the Volvo

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opportunity.

[345]On August 12, 1996, Volvo’s Roger Persson (“Persson”) wrote to GasTOPS (Exhibit 114) stating that he wanted to make a demonstration of the ECMS to the Swedish Air Force in March 1997. He stated that he wanted GasTOPS’ system to apply to the RM12 engine and sought information on “How do I do it [his demonstration]? What will the cost be? How much work have to be done?” GasTOPS responded by fax on August 12, 1996 (Exhibit 115), expressing continued interesting in working with the Swedish Air Force, describing the ECMS’s support modules, and seeking clarification of the details of this request in preparation for a March 1997 demonstration. Prior to Volvo’s August 12, 1996, request, Volvo’s interest had been limited to the FLTS, which is only one component of the ECMS. This request was for a complete condition-based maintenance system. Volvo indicated that it wanted GasTOPS to give a demonstration of the ECMS and suggested that a meeting be held in Ottawa in September 1996.

[346]On September 12, 1996, representatives of Volvo met with Brouse and Forsyth. Brouse recorded details of this corporate opportunity in his logbook (Exhibit 96, pages 51 to 56), including the commercial terms, customer requirements and the functionality that the potential customer requires. He also send a follow-up fax to Volvo on September 18, 1996 (Exhibit 117), confirming GasTOPS’ willingness to assist Volvo in setting up a demonstration of the ECMS and FLTS for evaluation by the Swedish Air Force and clarifying the steps that each party would have to take to go forward in preparation for a March 1997 presentation date.

[347]During the latter part of November 1996, Volvo and GasTOPS discussed the possibility of GasTOPS demonstrating the ECMS and FLTS to Volvo in Sweden. On November 25, 1996, GasTOPS received an RFP from Volvo for the demonstration of ECMS and FLTS during March 1997 in Sweden (Exhibit 431). By December 18, 1996, GasTOPS had submitted a proposal with a fixed price of $58,000 USD (Exhibits 433 and 434).

[348]The defendants suggest that Brouse played a minor role in the Volvo corporate opportunity at GasTOPS and as such did not owe it fiduciary duty. They submit that Chivers was the lead person at GasTOPS for the Volvo opportunity. In my view, as I have stated previously,

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Brouse owed a fiduciary duty to GasTOPS which included a fiduciary duty vis-à-vis the Volvo opportunity. Although Chivers may have been the contact person between GasTOPS and Volvo, Brouse was responsible for the Volvo opportunity when he became a program manager and was certainly the lead in the technical requirements of this opportunity. Brouse had full knowledge of the Volvo requirements as set out in his logbook (Exhibit 58, pages 151-157). Chivers indicated in his evidence that he remained the lead on the Volvo project until mid-September 1996 and remained involved in the Volvo project after the resignations.

[349]It is clear that Brouse, as program manager, was responsible for the Volvo opportunity within GasTOPS’ corporate structure. He had full knowledge of Volvo’s requirements, notwithstanding that Chivers was the person speaking to Volvo on behalf of GasTOPS until Brouse became directly involved with Volvo as a result of a meeting held on September 12 and 13, 1996. Chivers described that meeting as a “hand off” to Brouse.

[350]On October 25, 1996, Volvo replied to Brouse’s October 3, 1996, fax, wherein he outlined a work plan for a demonstration to be given by GasTOPS to Volvo (Exhibit 359). It is apparent that Volvo was aware that Brouse was the lead on GasTOPS’ end.

[351]Even if I accepted that Brouse’s involvement in the Volvo opportunity while employed at GasTOPS was limited to a technical role, I would still find that he owed a fiduciary duty to GasTOPS, as he was intimately involved in Volvo’s technical requirements and how GasTOPS intended to address those requirements.

[352]In my view, Muir, correctly set out the roles played by himself, Chivers and Brouse in the Volvo opportunity. He said that “At this particular stage [Brouse] would be presenting to Volvo further information about our product, its pricing, its justification for a potential procurement.” Chivers acted as a liaison at this point and handed off responsibility to Brouse when two engineers were coming to GasTOPS from Sweden to discuss the ECMS: GasTOPS would present the ECMS product, the visiting engineers would described the system being developed for the Grippen and RM12, and they would discuss similarities between the two and possibilities for customizing or modifying GasTOPS product as a specific module of the Grippen

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development, as well as any other possible avenues of technical cooperation. Muir testified that he would himself assist Brouse at the meeting because he had quite a bit of technical knowledge about flight data recording generally, but Brouse would be the one to make the presentation and conduct the ECMS demonstration on behalf of GasTOPS.

[353]Muir also testified about the notes he took from the meetings when they took place, including detailed notes about the portion of the meeting dealing with Volvo’s development for the Grippen. He felt that the meeting had been generally positive. GasTOPS had software tools already developed that met much of what Volvo perceived as its futures requirements; GasTOPS viewed the meeting as having identified an opportunity to provide existing software tools to Volvo. At the same time, Brouse was recording specific information from the Volvo representatives regarding technical work that was underway and business-related commercial information.

[354]GasTOPS claims the defendants misappropriated its confidential business information in the design and delivery of the ADS system to Volvo. The defendants argued that in law these claims are not supportable. The defendants submit:

1)There is no generic cause of action known as “misappropriation of intellectual property”;

2)Intellectual property is a convenient label with which to encapsulate a number of specific types of rights recognized and protected under the law. These specific rights consist of the following: patents; trade-marks; copyrights; industrial designs; plant breeders’ rights; integrated circuit typographies and trade secrets;

3)All of the aforementioned intellectual property rights except trade secrets are governed by Federal Statutes. None of the Federal Statutory intellectual property rights have been asserted in this case. As a result, we are left with trade secrets;

4)Trade secrets are governed by the common law;

5)Trade secrets deal with private, confidential information

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that give the owner a business advantage over its competitors. As a result, trade secrets are information that: is the result of the expenditure of human effort, skill or money; is not known to others; and has been kept confidential;

6)Factors to be considered when deciding on whether property is a trade secret include: (1) the extent to which the information is known outside the owner's business;

(2)the extent to which it is known by employees and others involved in the owner's business; (3) the extent of measures taken by him to guard the secrecy of the information;

(4)the value of the information to him and his competitors;

(5)the amount of money or effort expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or [independently] duplicated by others; and (7) whether the holder of the secret and the taker treat the information as secret.

7)While trade secret protection can apply to computer technology and software it does not apply to information that is in the public domain or otherwise available to customers or competitors;

8)Trade secrets do not encompass an employee’s general skill and knowledge. Employees are free to use their general skills and knowledge anywhere following termination of employment;

9)In order to have status to bring an action for misuse of trade secrets the party must have an exclusive right in the subject matter of the trade secrets. This exclusive right belongs to the owner of the trade secret.

[355]The defendants argue that GasTOPS did not have an exclusive right in the trade secrets it claims were misappropriated by MxI. They submit that the Government of Canada owned the intellectual property on which FLTS was based and the Government of Canada allowed GasTOPS to market FLTS under a license signed in July 1995 and a letter of agreement dated April 1997. The defendants argue that GasTOPS did not have the status to bring an action or an alleged misuse of the trade secrets by the defendants.

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[356]The defendants argue that GasTOPS had the onus to prove that the information in question was actually a trade secret and was treated as such. The defendants submit that GasTOPS failed to show that the data model or other FLTS documentation were, in fact, kept secret or confidential by GasTOPS. For example, the defendants submit that the FLTS data model and documentation was also possessed by the CAF and no member of the CAF was called as a witness by the plaintiff to establish that the CAF treated the FLTS data model and documentation as secret or confidential. This is the same argument that the defendants put forward with respect to the ECMS software system, and in particular that GasTOPS had no exclusive right to the trade secret because the Government of Canada owned the IP and that GasTOPS failed to prove that the ECMS documentation was a trade secret and/or kept secret or confidential.

[357]In my view GasTOPS derived its rights in the trade secrets from the design work it performed for itself and on behalf of its clients. These trade secrets developed by GasTOPS were protected through both its contracts and license agreements with its clients. The trade secrets are contained in the various technical reports prepared for each of the products. In addition, the roles of each of the defendants, was described in detail in the development of these trade secrets.

[358]Muir described in detail the development of GasTOPS’ trade secrets and the contracts entered into with the Canadian Government. He identified two types of contracts that GasTOPS had with the Government of Canada, the CRAD and TIES contracts. The first series of contracts referred to as CRADs, contained specific terms and conditions setting out the ownership and confidentiality of trade secrets.

[359]In July 1995, GasTOPS entered into a license agreement with the Government of Canada for the ECMS software, whereby GasTOPS received a license to market the ECMS software as described in the Appendix “A”, namely FLTS v.3 and ECMS v.1. Section 8 of the license gave GasTOPS the following rights:

a)The licensee and the licensor shall promptly inform each other of all improvements, enhancements, derivatives or updates made from time to time to the Licensed IP during

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the life of this agreement, and provide each other with information documents and other matters necessary to put the improvements, enhancements, derivatives and updates into practice.

b)Improvements, enhancements, derivatives and updates made by the Licensor shall be included under the Licensed IP without alteration of the terms and conditions therein.

c)The Licensee agrees that it shall grant to the Licensor, for such period as this license remains in effect, a non- exclusive unconditional, irrevocable, royalty free, right and license to use sub-license or lease for such improvements and enhancements, derivatives and updates, proprietary to the licensee and existing at the date of this license or made during the life of this license.

[360]I am satisfied that GasTOPS has status to bring this action for misuse of its trade secrets. It must also be remembered that the plaintiff in this action has confined its claims to business opportunities it was pursuing at the time of the resignations and, as such, the trade secrets encompass the confidential business information that GasTOPS had developed for these specific business opportunities. I find it difficult to accept as a matter of fair business practice that employees who owe a fiduciary duty to an employer can work on a business opportunity for their employer and then leave the employer and use that information to pursue the same business opportunity for another employer.

[361]The defendants suggest that the FLTS IP was not confidential and that there was an onus on the plaintiff to adduce evidence to “show whether the Canadian Air Force kept the software and its related documentation a secret, or even considered it to be secret.” This argument is based on the fact that GasTOPS had contractual obligations preventing it from keeping the trade secrets confidential. Accordingly, the defendants argue that GasTOPS lost all confidentiality concerning their trade secrets because the design documents were delivered to customers as contract deliverables.

[362]In my view, this argument fails to take into account Muir’s evidence as to how diligently GasTOPS treated its trade secrets, such as by securing access to its facilities with

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different levels of safe keeping for classified and unclassified information and conducting security clearance to the NATO secret level on its employees, or how the trade secrets were referenced in its contracts with its customers. These required the customers to protect the confidentiality of such trade secrets. In addition, GasTOPS marked documents as “confidential” in circumstances where there was not a contractual obligation between the parties to keep the trade secrets confidential.

[363]Muir’s testimony regarding the procedures and protocols put in place at GasTOPS to protect its confidential information is confirmed by the contracts entered into between GasTOPS and the DND/Government of Canada. There was an abundance of evidence contained in the contracts between the Government of Canada and GasTOPS of the contractual customer’s obligation to protect confidential information GasTOPS supplied to it.

[364]The defendants argue that the FLTS software was based on an open database model and as such could not be a trade secret. There was no evidence adduced at trial that any other party aside from MxI had gained access to any of GasTOPS’ trade secrets. In fact, the only product that was competing with GasTOPS after the defendants’ departure from GasTOPS in October 1996 was the software products manufactured by MxI. Many of MxI’s employees, including the personal defendants, had access to all of GasTOPS’ trade secrets and confidential information concerning the business opportunities that are the subject matter of this lawsuit while employed there.

[365]The defendants suggest that “GasTOPS voluntarily disclosed the data model and/or database to others.” All of the contracts entered into between GasTOPS and its customers required that both parties keep the information confidential. There is no evidence that GasTOPS disclosed the design of the data model and/or database to any person or corporation that was not bound by a confidentiality agreement.

[366]The only witnesses who gave evidence on the development of the MMP codes were MacIsaac and Muir. Contrary to the defendants’ submissions, Muir did not say that the troubleshooting capability based on MMP codes already existed, but that GasTOPS thought that

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it could be automated by using a computer. A careful reading of the testimony indicates that he said that GasTOPS was undertaking research to develop a software system that resulted in the FLTS. The defendants are mistaken when they submit that GasTOPS “automated the troubleshooting manuals and the rules within them.” Muir testified that GasTOPS used completely different data to improve the troubleshooting logic and automated the entire process.

[367]According to Muir, and I accept his evidence, GasTOPS’ contribution to the development of the expert system was unique in that it used an entirely different set of data (event recording which GE had not been using prior to that time). It was not the extension of the knowledge base found in the FLTS paper manuals that GasTOPS extended, as alleged by the defendants. GasTOPS had developed an entirely different set of data and logic. It was GasTOPS’ logic that MxI provided to Volvo when they forwarded their proposal to them. Volvo was correct when it stated it wanted MxI to provide the requirements for an FLTS.

[368]The defendants argue that the basic idea behind troubleshooting (that a failure in a machine has a cause and that you can hopefully discover what actually broke by checking for symptoms and fix it) is not knowledge owned by GasTOPS, GE or any other person or corporation. It is a basic application of deductive reasoning and cannot be a trade secret.

[369]I find this argument misses the heart of the issue in this case, as the “basic idea behind troubleshooting” has nothing to do with database design. As the evidence showed in this case, the design decisions made by the designers in the troubleshooting domain of ADS and ECMS v.2 are identical. If the defendants’ proposition is correct, there should only be one way to design a database that would support the troubleshooting process. The defendants did not ask their experts to express an opinion on this. Dr. Mendelzon was of the opinion that “one can think of many different ways of slicing that pie,” with “many degrees of freedom there and a lot of room to be creative.”

GE

[370]As of July 1996, the MSD was poised to market its ECMS and FLTS technology in the aviation maintenance market place. As of July 1996, the MSD had rolled out ECMS v.1.7 to

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the CAF for use on its CF-18 fighter aircraft. The ECMS v.1.7 was fully operational in the field and the CAF served as a “reference site” to assist GasTOPS in its efforts to market the ECMS product to other target customers. The MSD product development team, headed by Jeff Cass, was in the process of finalizing the next release of ECMS v.2.0.

[371]At this time, the MSD was engaged in an intensive marketing campaign in selling ECMS licenses to large entities such as the U.S. Navy and GE. The defendants Forsyth, Brouse and Jeff Cass were directly involved in the pursuit of such opportunities. Brouse focussed on direct marketing activities, while Forsyth and Jeff Cass managed the direction of the product design to address the emerging needs of new prospective customers.

[372]The U.S. Navy and GE were significant players in the aviation market place and the fact that they were interested in the software technology of GasTOPS is direct evidence of the uniqueness and state of the art of GasTOPS’ ECMS and FLTS technologies as of July 1996. In fact, During July 1996, GasTOPS felt that the competition in the niche market place it was pursuing was minimal. In the case of the U.S. Navy, the only competition that GasTOPS was aware of was the ongoing in-house development of a system known as MDPS, a program that was eventually cancelled. In the case of GE, the only competition which GasTOPS was aware of was the Sabre system, and by October 1996, GasTOPS understood that the Sabre system was no longer being actively considered by GE.

[373]Muir and Brouse met in July 1996 for the purpose of preparing the MSD business plan. At that time, Muir reviewed with Brouse a detailed market penetration strategy diagram that depicted a proposed “roadmap” for future sales of the ECMS and FLTS technologies. The strategy diagram was entitled ECMS/FLTS Targets and dated July 21, 1996 (Exhibit 169). The diagram identified target customers for these technologies and also identified the linkages and pathways by which GasTOPS could penetrate various sub-segments of the aviation market place. The market penetration strategy represented a single business opportunity, being the opportunity to exploit the GasTOPS’ ECMS and FLTS technology throughout the entirety of the aviation market place. Muir explained the diagram as all beginning with the CAF reference site, which GasTOPS used to position itself with major contacts with the U.S. Navy, Navy/Air Force

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(“NAVAIR”) and GE. According to Muir, GasTOPS viewed the GE opportunity as key to its marketing strategy:

It’s like a domino effect to the entire aviation industry, both military and commercial. And you can see the linkages with the different engines, specific engines, and how the GE opportunity, together with the Navy, can be used to -- as a pathway or a means to penetrate a huge potential market. So, for example, if you look at the General Electric bubble and the arrow going from GE to the F18 E/F, that’s the Super Hornet, you see the 414 engine; and there we can use the General Electric opportunity as a stepping stone to the Navy Super Hornet. Likewise if you go back to bubble no. 3, the U.S. Navy opportunity, the U.S. Navy opportunity, as we understood at that time, was a multi-faceted opportunity. Not only were we poised to win the NAVAIR F18 program, but there was related foreign military programs shown as item no. 5, the F18 FMS opportunities. As I described earlier, the Navy opportunity, which was to replace this MDPS system, also opened the door to the V22, and that's shown as item 26, that's the V22 Osprey aircraft. Those are all military programs.

Now, if you go back to bubble no. 2, General Electric is also a primary supplier to the United States Air Force, in particular of the F110 engine. That's an engine that's used in both the F16 and the F15 fighter aircraft. So the General Electric opportunity also opened the door to opportunities with the United States Air Force and I noted there, in addition to the General Electric opportunities with the air force, there is several other major fleets such as C130 Hercules, the F22 advanced tactical fighter, the B2 bombers, these are all major fleets of the United States Air Force with a requirement for parts tracking.

General Electric, going back to bubble no. 2, also manufactured at their Lynn facility the T700 engine and that's the predominant engine used by the United States Army for their Apache helicopters, which is their primary fleet. So you can see bubble no. 9, General Electric also opened the door to the United States Army and the Apache opportunity with the United States Army.

General Electric also, as we've described or as I've described earlier, was primarily a commercial aviation engine opportunity. Most of the engines of interest to General Electric in the demonstration we conducted were engines for commercial airlines,

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and I've noted three engines there, two which I talked about earlier: the CF6 and the CFM56 on an arrow going from GE to the airlines. GE had a third engine under development at that time, just being introduced to the marketplace, which was the GE90. And that’s one of their primary engines today for the commercial aviation section.

GE, being one of three major commercial aircraft engine suppliers (and the one with the largest market share), was the opportunity GasTOPS saw to get to the rest of the commercial aviation market. GE had a connection with Oracle, and Muir expected Oracle to have connections to the other two major suppliers as well.

[374]Muir’s evidence can be summarized as follows:

(1)The CAF would be used as a “reference customer” to assist GasTOPS in the pursuit of other target customers. As of July of 1996, the CAF was using the ECMS and FLTS technology on their fleet of F18 A and B fighter aircrafts.

(2)The CAF had been used successfully, as a “reference site” to position GasTOPS to potentially sell licenses for the ECMS and/or FLTS technologies to the F18 program office of the U.S. Navy for use on the U.S. Navy’s fleet of F18 E through D aircrafts.

(3)GasTOPS considered the U.S. Navy opportunity to be a “multi-faceted opportunity”. GasTOPS knew that the successful licensing of its ECMS product to the F/A-18 program office within the United States Navy would likely lead to additional sales of ECMS licenses to foreign military operators of the same aircraft, such as the Kuwaiti Air Force. Similarly, given that the sale of ECMS licenses to the F/A-18 program office might constitute a replacement for the common ground station system known as MDPS, the ECMS might become the technology of choice for other intended users of the MDPS system, including the U.S. Navy’s fleet of F18 Osprey aircrafts.

(4)Further, as a “multi-faceted opportunity” the sale of ECMS licenses to the F/A- 18 program office might lead to sales of the ECMS licenses for use on the F/A- 18 E and F aircrafts, known as the Super Hornet, an aircraft that was then under development.

(5)The GE opportunity was considered by GasTOPS to be the “door” to the entire aviation industry, both military and commercial. The General Electric opportunity was linked directly to the NAVAIR F/A-18 A through D opportunity as GE was the manufacturer of the F404 engine used on the F/A-

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18 A through D aircraft.

(6)The GE opportunity was also linked directly to the possible sale of ECMS licenses for use on the U.S. Navy’s fleet of F/A-18 E and F aircraft (Super Hornet). GE was the manufacturer of the F-414 engine, utilized on the Super Hornet aircraft.

(7)The GE opportunity potentially could lead to sales of ECMS licenses to the U.S. Air Force given that GE was the manufacturer of the F-110 engine used by the U.S. Air Force on their fleet of F-15 and F-16 aircraft.

(8)The GE opportunity could possibly lead to sales of ECMS licenses to the U.S. Army, given that GE manufactured the T-700 engine utilized by the U.S. Army’s fleet of Apache helicopters.

(9)The GE opportunity potentially could lead to an association between Oracle and GasTOPS, which in turn might lead to further opportunities with other major engine suppliers in the commercial aviation market place, including Pratt and Whitney, Allison/Rolls Royce. In the case of Pratt and Whitney, it was known by GasTOPS to be the manufacturer of the F-119 engine, utilized by the U.S. Air Force as well as the JT8-D, JT9-D and PW400 engines. The latter three engines were used in the commercial aviation market place. Allison/Rolls Royce was the manufacturer of the T-56, GMA-2100 and RB- 211 aircraft engines, also utilized by the United States Air Force, the T-406 engine used on the V-22 aircraft and the RB-211 trend engine used by commercial airlines. GasTOPS considered the GE opportunity to be primarily a “commercial aviation engine opportunity”. Both of the demonstrations of the ECMS technology to GE were conducted on GE engines used by commercial airlines, including the CF-6 and CFM-56. Accordingly, the GE opportunity opened the door to the commercial airline market for GasTOPS.

[375]The market penetration strategy, as set out in Exhibit 169, was commercially valuable and confidential to GasTOPS. It showed how the successful pursuit of one market opportunity could lead to others and the linkages or pathways that could be relied upon to penetrate the market place. The information contained in Exhibit 169 had been gathered by Muir, Brouse, and to some extent Forsyth in the pursuit of various opportunities over a number of years.

[376]All of the personal defendants were aware of GasTOPS’ market penetration plans and the business opportunities available to GasTOPS immediately prior to their resignations. GasTOPS’ future plans to pursue the business opportunities available in September 1996 and the

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enhancement to its products was clearly confidential business information, which GasTOPS would not have shared with its competitors. I have no doubt that the personal defendants were aware of the confidentiality aspect of this information and realized that all times that this information which was vital to the ongoing success of GasTOPS was not to be shared with GasTOPS’ competitors.

[377]In fact, Forsyth, Brouse and Jeff Cass were directly involved in GasTOPS’ pursuit of the sale of ECMS licenses to GE. Forsyth was involved in supporting the marketing effort from a “technical standpoint,” in terms of the technology underlying ECMS. Jeff Cass was directly involved in the more technical aspects of the marketing effort, particularly with respect to the possible conversion of ECMS to a Windows operating system, although he testified that he had a “fairly light role.” Similar to the role he played in pursuing U.S. Navy opportunities, Brouse was directly involved in virtually all aspects of the GasTOPS/B.F.Goodrich marketing effort to both GE and Oracle:

(1)Brouse met and corresponded with key representatives of GE to fully identify the GE opportunity and to ascertain the GE requirements;

(2)Brouse met and corresponded with a representative of Oracle regarding the possibility of GasTOPS teaming with Oracle to satisfy both the GE requirements and for the ECMS product to possibly become a component part of the enterprise-wide solution that Oracle was considering;

(3)Brouse interacted with the technical personnel from both GE and GasTOPS (including Forsyth and Jeff Cass) to ascertain the enhancements/modifications that would be necessary for ECMS to meet GE’s requirements; and

(4)Brouse became the GasTOPS representative most knowledgeable of the overall GE requirements, the ability of GasTOPS’ ECMS product to meet them, and perhaps most importantly, the size and importance of the GE opportunity as a gateway to the entire aviation marketplace.

In his role as the GasTOPS representative primarily responsible for the pursuit of the GE opportunity, Brouse compiled extensive information regarding all aspects of the GE opportunity. This information constituted confidential business information and was GasTOPS’ property

[378]There are several specific examples of Brouse’s involvement in the GE and Oracle

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opportunities and the confidential business information he was gathering at GasTOPS:

(1)Exhibit 154 is a memorandum from Brouse to Muir dated May 28, 1996, and copied to Forsyth with a subject line “G.E.C.M.S.” Brouse identified this document as his report from a trip he had taken with Brad Howe of B.F.Goodrich to Lynn, Massachusetts. The purpose of the meeting was to determine the GE requirements and to demonstrate the ECMS. In his report, Brouse noted:

(a)that he and Howe had met with Lou Bernazzani of GE, who was the head of a tech support team;

(b)that GE was looking for a software system to help with the management of engine data, including for both military and commercial clients;

(c)that GE wanted to track the usage, modification and configuration data against the engines;

(d)that GE would not accept an OS/2-based system – accordingly, the GasTOPS/ BFG team had stated to GE that the tentative product plan was to convert the ECMS system to Windows ‘95 by the summer of 1997;

(e)that according to Brad Howe, GE had shortened the list of potential purchases to GasTOPS’ ECMS and the Sabre system used by American Airlines; and

(f)that a decision was expected to be made shortly, possibly within a few weeks.

(2)Exhibit 156 was Brouse’s Trip Report from a trip to GE aircraft engines in Cincinnati, Ohio. The report was dated June 14, 1996. Again, Brouse was accompanied by B.F.Goodrich’s Howe. In his report, Brouse specifically identified some of the key players from both GE and Oracle who were in attendance at the meeting:

(a)Mark Tulino – GE – Manager, Fleet Management Systems;

(b)Jorge Ortiz (“Ortiz”) – Oracle – Principal Analysis;

(c)Ted Whaley (“Whaley”) – GE – Manager, Data Support.

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[379]In the introductory paragraph to his Trip Report to GE Aircraft Engines in Cincinnati (Exhibit 156) Brouse wrote:

Brad Howe and I visited GE Aircraft Engines in Cincinnati to discuss the possibility of providing the ECMS to GE to track engine data. From this trip we have discovered that:

1)GE is serious about the possibility of purchasing our system, and

2)Oracle Corp may be interested in using our system as a means to supply an R&O solution to airlines, OEMs and the military for both engines and airframe.

This makes clear to me that Brouse understood ECMS was being considered by GE and Oracle as a possible component of a larger R&O application. In his Trip Report, Brouse explained:

Oracle is taking a keen interest in our product and depending on the outcome of GE’s decision, may invite us to become a CIAP partner, whereby Oracle would promote and sell our system as a component of a larger R&O application targeted to airlines, engine and aircraft OEM’s and the military.

Oracle, I believe, has succeeded in dominating the RDMS market (somewhat like Microsoft has done in the operating system market). Like Microsoft, Oracle’s next step is to get into (and dominate) the RDBMS application market. Oracle is attempting to identify vertical market segments, capture them, and then move horizontally across the market area. As part of this process, Oracle is locating third party companies that have developed applications that can be integrated together to meet the vertical market requirement. These companies would be invited to participate in the Cooperative Integrated Applications Partnership (CIAP) programme whereby the mighty Oracle marketing and sales staff (which is legendary in the RDBMS business and is credited for capturing the RDBMS market) would promote and sell the integrated package (the third party company would still be allowed to sell their product independently of Oracle). Oracle presently publishes a catalogue of all Oracle applications; however, it is their plan to develop these integrated solutions of third party systems and publish the products in a separate catalogue (a product can only be listed in one of the catalogues). As a result, Oracle would

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be competing against many of their clients!

According to Joe Dugan, Regional Vice President, Oracle wants to get into the “Repair and Overhaul” application area and sees GE as the entry mechanism. I strongly believe Oracle has done a market analysis and knows the scope of the market. I also believe that Oracle is presently working on the technical scope of the service. I also believe that Oracle will recommend the ECMS to GE. In that regard, Jorge Ortiz, an Oracle consultant, wants to visit GasTOPS separately from the GE tour to examine our database design and to further discuss the functionality of the system. Most notably, Jorge wants to discuss some of our Mainstay features such as route management.

[380]At trial, Howe described the relationship between GE and Oracle:

Q.Mr. Howe, what's your independent recollection, if any, with respect to the significance of Oracle's involvement in these meetings?

A.Well, it could be both a good thing and a bad thing. The good thing was that Oracle, if we were able to integrate our ECMS into their larger system, it opened up even a more major piece of the market to us, beyond GE.

Any negative aspects, though, would be -- would centre around Oracle deciding that they could somehow do the same thing that we could do, you know. There was no indication that they thought that, but we knew it was important to protect our proprietary position.

[381]Based on the description of the relationship between GasTOPS and Oracle, it is understandable that GasTOPS identified Oracle as a target for ECMS sales. In his Trip Report (Exhibit 156), with respect to the GE opportunity itself, Brouse again noted that GE was considering two options, including GasTOPS’ ECMS. In his report, Brouse noted: “GE is sold on the functionality of the ECMS and sees it as the solution to their parts life tracking requirement.” As he did in his earlier Trip Report (Exhibit 154), Brouse noted that ECMS must be in Windows ’95 and that GE had been told GasTOPS’ planned to migrate its product into Windows ’95 during summer 1997. Brouse noted: “GE has not balked at our price (i.e. —200K for the R&O site). Nor have they balked at our customization per diem rate of —$800/day (we

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have described to GE that customization will be required). I believe GE is ready to throw a lot of money at this requirement. My guess is GE already has about 6 to 10 Oracle guys working on this project.” Clearly, Brouse had been privy to pricing discussions between GasTOPS and GE.

[382]At trial, Howe described his understanding of the GE requirements as of June 1996 as

follows:

A.They were looking for what they would term "an enterprise-wide solution" where they would actually install -- this Oracle-based enterprise-wide solution would do a number of different things. But the part they were interested in with us was our ECMS application, to be able to go and deal with engine configurations, parts life tracking, the same kind of things that the U.S. Navy was interested in, except for GE it was at their various maintenance bases; they had approximately 29 light and heavy combined -- some were light, some were heavy maintenance bases. And they had what you would have to call the equivalent of four depot sites: they in one in Strouther, Kansas, one in Ontario, California; there are, of course, majors sites at Lynn and Evendale.

I mean you could make that rough comparison to the Navy's, you know, depots; and then the varies other sites would be more like intermediate and operational organizational sites.

Q.Do you have an understanding as of this date as to the type of aircraft that were being serviced at these stations?

A.These would have been large commercial aircraft, large commercial transports.

[383]On June 20, 1996, Brouse and Howe of B.F.Goodrich received a fax from Bernazzani of GE (Exhibit 157), in which Bernazzani identified the GE environment and the specific requirements involved within the GE Aircraft Engines. Bernazzani advised that

(a)GE Aircraft Engines had manufacturing facilities in Evendale, Ohio and Lynn, Massachusetts as well as service facilities in Strother, Kansas and Ontario, California.

(b)The Evendale plant manufactured large engines for both military and commercial applications and the Lynn plant manufactured small engines, also for both military and commercial applications;

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(c)GE had entered into an agreement with Oracle to install its enterprise software at all GE facilities. Oracle, however, did not have a module to support parts life tracking, technical bulletin tracking and event tracking.

(d)The task was to identify one system that could satisfy the requirements of all four facilities to become a part of the Oracle enterprise solution; and

(e)His goal was to have a central repository of data consisting of multiple databases related to one another and encompassing military and commercial applications, from which GE facilities could process and retrieve data.

[384]The fax Bernazzani sent to Brouse and Howe was directed to them personally as members of the GasTOPS/B.F.Goodrich team as opposed to an industry-wide release. Accordingly, the fax corroborates that Brouse and Howe were “key employees” for GasTOPS and B.F.Goodrich in this business opportunity and were privy to GE’s most confidential needs.

[385]On July 3, 1996, Brouse authored a report (Exhibit 161) after GE’s Mark Tulino visited GasTOPS. According to Brouse, Tulino wished to discuss the possibility of GasTOPS providing GE with a “trial copy” of ECMS. GE was, according to Tulino and reported by Brouse, seeking trial copies of the ECMS software for use at all four of the major General Electric sites (Lynn, Massachusetts; Cincinnati, Ohio; Strother, Kansas and Ontario, California). GE sought GasTOPS’ assistance in the demonstration of the ECMS system. Brouse stated in Exhibit 161:

GE is somewhat sceptical about our ability to deliver a Windows version by Nov. 96 and will not pay “up front” for a system.

GE has identified that we are on a short list of one (i.e. the users have dismissed the STD solution), and that if we are not chosen they will develop the technology in conjunction with Oracle.

Mark stated that the November time frame is soft and that GE doesn’t have any ‘real’ deadlines. He mentioned March 97 as a more probable time frame for system delivery.

[386]At this point, Brouse understood that GE was narrowing its options down to the ECMS product. Further, he understood that the deadline for delivery was “soft” and that GE

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would likely wait until the following year for delivery of a Windows based system.

[387]On July 12, 1996, Brouse sent a fax to Howe at B.F.Goodrich (Exhibit 164). He outlined GasTOPS’ willingness to provide four copies of the ECMS program to be evaluated by the GE user communities. Brouse specifically stated that “Due to the highly sensitive nature of the ECMS database design, it is imperative that a non-disclosure agreement be signed by G.E. prior to delivery.” This statement by Brouse indicates his belief that the ECMS database was proprietary to GasTOPS and that it required protection by way of a non-disclosure agreement.

[388]With respect to the GE demonstrations, Brouse stated:

A.I was very involved technically with this project. I worked personally with Mr. Bernazzani and Mr. Whaley determining their requirements and getting their information about how these engines configured and about the engine data. And I was liaising back with Mr. Bernazzani and Mr. Whaley about how far along we were in setting up the evaluation, providing them information regarding how we configured the engines, was it satisfactory.

During this process GE was insisting that we do more engines and do considerably more engines than we had agreed to at the front of this project, to establish the data and load the data for many more engines, and I forget how many we proposed, but it was supposed to be just a handful; in the end it was I think in the order of dozens.

Accordingly, it is clear that Brouse was directly involved in ascertaining the GE requirements and obtaining detailed information on how their commercial airline engines were configured. This information constituted confidential business information proprietary to GasTOPS.

[389]On July 18, 1996, Brouse authored a memorandum entitled “Cost Estimate for Windows Conversion of the ECMS for G.E.” (Exhibit 167). In the introductory paragraph, Brouse stated that discussions with GE personnel suggested that only 55% of the system needed to be converted to Windows to meet their requirements and that the “actual” deadline for delivery was March 1997. In the cost estimate section of his report (Exhibit 167), Brouse concluded that the Windows conversion could be completed within six months at a cost of $496,000.00.

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[390]In early October 1996, Brouse was asked to prepare a GE briefing (Exhibit 178) note for MacIsaac, who was visiting GE in Cincinnati, Ohio. In it, he described the status of the opportunity and some of the people and issues involved:

GE Briefing Note

1.Opportunity

GE is presently implementing, in conjunction with Oracle, an enterprise wide information system to manage all of their corporate data (e.g. human resources, finances, etc.). To be included in this project is the implementation of an ‘R&O’ capability to manage their engine maintenance data. Their time-line is short, and GE had originally intended to have a portion of the over-all information system (including the R&O function) completed for Sept - Dec of 96.

To meet the R&O requirement, GE and Oracle are exploring the possibility of purchasing third party software; however, if nothing can be found then GE/Oracle intends to develop the functionality themselves.

To GasTOPS, the GE opportunity represents a large license fee and an appreciable-amount of labour services and associated revenue. More importantly, GE could provide us the opportunity to have a presence in the commercial aviation sector and could allow us to offer our product as an integrated subcomponent to the Oracle Enterprise system.

2.Status

2.1Our Understanding of their Procurement Process

To the best of our knowledge, the GE decision process for procurement of the R&O function was as follows:

1.Review the market for possible third party software products and generate a short list of possible candidates;

2.Obtain the software for the potential

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solutions and technically trial and evaluate the software with GE end users; and

3. If a suitable candidate passes the evaluation, purchase the software and integrate it into the GE enterprise system.

2.2The Contenders

To the best of our knowledge, GE is considering 3 potential options for the R&O solution:

1)the STD system from STD of the Sabre Group; and

2)the ECMS;

3)in-house development.

Our understanding is that the STD solution did not meet the expectations of the GE users and may have been eliminated as an option.

We do not know if GE/Oracle are still considering in-house development of the R&O capability, but one would have to assume so.

2.3Work Completed By BFG/GasTOPS to Date

In pursuit of this opportunity, we have done the following:

May 1 - provided a presentation of the system to representatives of GE Lynn

June 12 - provided a similar presentation to GE Cincinnati with Oracle in attendance

~June - based on concerns about the system architecture, BFG/GTL stated that a Windows-based ECMS can be ready by Nov. if a commitment is made by

GE

June 25 - as part of the evaluation, GE visited Orenda to view the ECMS in operation and to discuss the system with the users.

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July 3 - Mark Tulino made a surprise visit to GTL and asked us to provide a limited scope, free demo of the system for evaluation purposes at their 4 major North American User sites (Evendale, Lynn, Ontario (CA) and Struthers (Kansas)).

Aug 28- BFG/GTL provided 4 demonstration copies of the ECMS that contained substantially more data than agreed to in the SOW (i.e. ~2500 engine compared to

10)and provided a 1 day training session in Cincinnati (it is noted that delivery date was pushed back due to delays in obtaining data from GE).

Sept 18 - subsequent to the two week evaluation, GE had a number of questions regarding the manner in which the engine data was stored and a one day database design seminar was provided to GE in Cincinnati. It was agreed by all parties that this was the end point of the evaluation.

As a result of the evaluation, BFG/GTL have provided considerable information to GE regarding the manner in which one would structure (from a user perspective) such an engine information system. We have educated them in this area.

Although not officially stated, it is our understanding that the ECMS has successfully passed the technical evaluation. However, it is recognized by both GE and BFG/GTL that the ECMS is not designed to meet all of their specific requirements as a commercial engine OEM.

What is still unknown for both GE and BFG/GTL is what specific modifications will be necessary to the ECMS to meet their requirement. It was therefore agreed that the next step would be a “gap analysis” whereby BFG/GTL would be funded to analyze the GE maintenance operations, their data collection mechanisms, their utilization of the data and their Oracle enterprise system. This is to be a paid effort whereby BFG/GTL would get to ‘go to school’ on the operations and problems of an engine OEM. The end product of the gap analysis would be a functional definition of the modifications necessary to the ECMS, and a preliminary budget and schedule.

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BFG/GTL do not know if GE’s senior management has been briefed on the events described above.

2.4Pricing Provided

BFG has provided the standard US Navy pricing to GE (i.e. 215K per Depot and $860 per diem services). It is noted that GE has four major depots.

3.Players

The key technical players from GE are: Lou Bernazzani - Mgr Data Support in Lynn Ted Whaley - Mgr Data Support in Cincinnati The project manager from GE is:

Mark Tulino - Mgr, Fleet Mgt Systems, Cincinnati

Mark works for Ling Ling Juang who I believe manages their IS department.

Ling Ling works for Jay Dinwoodie, who you will be meeting. Dinwoodie is the decision maker.

Our one key contacts in Oracle is Jorge Ortiz who is a promoter of our system. He works for Joe Dugan, an Oracle VP. BFG has made overtures to Dugan with regards to working together, but Dugan has not responded.

4.Questions to be Answered

1.Is GE senior management aware of the possible purchase and integration of a third party R&O product and do they support this strategy?

2.Is GE still considering any other third party systems other than the ECMS (e.g. is STD really dead)?

3.Is GE/Oracle still considering development in-

house?

4.What is GE’s procurement plan? What steps will be followed prior to a purchase by GE? Would the purchase be

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handled through Oracle? What is the budget?

5. What is GE’s schedule for their new information system?

5.Delivery Schedule

It is estimated that to convert the ECMS components required for the GE requirement, a group of 9 skilled employees (including project managers, programmers and database specialists) will be required, full-time, for 6 months. Special enhancements to the ECMS to meet new GE requirements would be extra.

This briefing note demonstrates that Brouse fully appreciated and understood the significance of the GE opportunity to GasTOPS. He understood that the GE opportunity might open the door to the entirety of the commercial aviation market place and that it could lead to ECMS becoming a component part of the Oracle enterprise system. In my view, the briefing note also demonstrates that Brouse had an intimate understanding of all aspects of the GE and Oracle business opportunities.

[391]Clearly, the information that Brouse included was confidential and proprietary to GasTOPS, as it was the culmination of extensive marketing efforts directed at GE and Oracle.

[392]On October 3, 1996, MacIsaac attended at the GE facility in Cincinnati, Ohio. MacIsaac met with Mark Tulino and Jay Dinwoodie, the latter being the GE person that Brouse had described as “the decision maker.” MacIsaac described his understanding of Dinwoodie’s role in the decision making process. He said that Dinwoodie “had been brought in to run the Information Technology Services Group in an attempt to unify that service across some or all of the corporation.” MacIsaac asked Dinwoodie directly if he would be the person to make the final decision in these negotiations; Dinwoodie replied that he was.

[393]In his October 3, 1996, Trip Report on his visit to GE in Cincinnati, Ohio, MacIsaac

stated:

Background

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GasTOPS Ltd. has demonstrated the PLTS System to GE and had been asked to provide the kind of consulting services to GE that were judged to be unnecessary to complete an evaluation. The purpose of this meeting was to “smoke out” the real reason for this situation and to withdraw totally if it was judged to be a corporate espionage exercise.

…

General Observations

…

Dinwoodie spent considerable time filling in the background to the project. He has been 19 months in the position and in his mind, he was sent in to clean up a bad scene.

It was an “out of control” organization which had been allowed to pretty well do whatever it wanted. They were losing money and fooling with various software packages with no apparent purpose. He stated that he had been required to write off $100 million in purchased packages that could never be commissioned to any useful purpose.

At the same time, GE has decided that customer service is where its at and one of the key elements of this initiative was to clean up ITS and make it responsive not just to GE Aircraft Engines but to all other GE divisions as well.

To achieve this grand plan, they set out to buy as much of the solution as possible in a multi-tier fashion. This is roughly as follows:

a)Establish a common Base System (This has turned out to be Oracle)

b)Establish specific Division Systems (For Example - Engine Services)

c)Establish specialized application (GasTOPS PLTS)

He repeatedly stated that so long as he was in charge GE would stop developing their own s/w for anything that can be purchased.

…

In evaluating the PLTS systems we were pitted against SABRE

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and another company that neither Dinwoodie nor Tulino could (or wanted) to remember. SABRE was brought to the table by Oracle and is their system of choice at the moment. They have lost the competition to GasTOPS in GE’s mind and GE will only return to them if GasTOPS Ltd. fails in the “due diligence” segment of their evaluation.

Due Diligence is apparently a Dinwoodie initiative. He stated repeatedly that the “old” GE method of buying Software by “feel” is gone. They now only make final decisions after they have obtained satisfactory answers to questions which, in their mind, relate either to functionality or to the ability to obtain a clean interface.

Mark Tulino stated that their concerns with BFG/GasTOPS were:

a)OS/2 conversion

b)Software Stress resistance

c)API (I think means application procedures Interface)

He estimated that our timely conversion to Windows was mandatory. A brief discussion on the level of maturity of Windows 95 lead only to the fallback position of WINDOWS NT.

At the end of their due diligence period, they “plan on buying our software”! Dinwoodie admitted that they were asking for things that may make us uncomfortable and apologized for not telling us that for all but due diligence we had won the competition.

He suggested the following course of action simultaneously:

1)Get started on the larger purchase agreement.

2)Issue P0 for due diligence services.

…

Final Conclusions

1.This project is going to go.

2.It’s ours to lose.

3.We are running out of time.

4.We should be able to work the commercial deal through at the same pace as the due diligence. Dinwoodie was quite sensitive to our concerns and seems to be willing to have a

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contract ready to sign on the same day as the due diligence issues are settled.

5.Neither I nor Bob Mason feel that there is another agenda nor is there an in house effort. GE Cincinnati have gone from 20,000 employees in 1989 to 8,000 in 1996. They only do things themselves now if it is either cheaper or they can’t find an outside supplier. Dinwoodie would like to see an arrangement with Oracle emerge because he will obtain the benefit of our outside experience when he tackles other application areas. (Locomotives??)

[394]At trial, MacIsaac stated that his “take away” from the GE meeting was as follows: “My intention was that we work both the due diligence purchase order and the larger procurement contract together, and one move of my tests of General Electric was their willingness to work those together. It was my belief that the time frame we were talking about was of the order of six to eight months, but we had better be able to demonstrate something by Christmas.”

[395]On October 4, 1996, the day following his meeting with GE, MacIsaac met with Muir and Brouse at the GasTOPS offices in Ottawa, where he provided an account of his GE meeting and how GasTOPS would proceed. He recalled that he “specifically asked” Muir and Brouse to develop a plan for completing the conversions required by GE, to demonstrate that GasTOPS was capable of supplying the system to them. MacIsaac said that he planned to assemble the money needed to complete the project, which would require extra funding because it was not in GasTOPS’ business plan. To do so, MacIsaac would first find out “whether our banker would extend us that amount of credit” and, if necessary contact venture capitalist funds around Ottawa to acquire credit.

[396]Throughout his evidence, Brouse attempted to downplay the significance of documents and statements which indicated the maturity of the business opportunity between GasTOPS/B.F.Goodrich and GE. I am not prepared to accept the gloss that Brouse put on most of his evidence. When asked to confirm that the outcome of MacIsaac’s meeting with GE was positive for GasTOPS, Brouse attempted to downplay its significance:

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Q.In fact, Mr. MacIsaac told you at that particular meeting that he was prepared to go out to his bankers and to get the funds necessary to do this work with General Electric; you knew that?

A.I don't remember. It might be in my notes, but I don't remember that specifically.

Q.Well, Mr. Brouse, does it not make sense, that if you're having a meeting with the president of the company, and you -- according to your evidence, you rarely had such meetings?

A.That's correct.

Q.You’ve come to meet with Mr. MacIsaac; you're clearly receiving what is good news for GasTOPS; correct?

A.It would be appear to be good news to GasTOPS, yes.

Q. How could it not be good news, Mr. Brouse, if Mr. MacIsaac is telling you that GE says they're going to go with GasTOPS, they're going to buy the software?

A.Well, quite frankly, I was a bit confused coming out of that meeting. Some things that were said in that meeting that seemed to me completely inconsistent with what I knew about the opportunity, specifically these 1100 stations, as opposed to the four stations, the four depots which we had been quoted at $250,000 apiece.

Furthermore, the other thing that confused me, was this statement that, as I took it in the meeting, had this been a half billion dollar exercise, they would have moved forward; had it been $100,000 they would have moved forward with it. But somehow, being a multi-million dollar exercise, it’s all swept up in this time, that to me I saw as a bit of a specious argument.

I also – it was inconsistent with my understanding of Tulino being the pusher. It's my recollection that Tulino was, in fact, the most generous on potential deadlines for the timing of the Windows conversion.

So a lot of this information that Mr. MacIsaac got was inconsistent with my understanding of the GE potential opportunity.

Q. Whatever the information was, Mr. Brouse, that Mr.

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MacIsaac received, he received it from the most senior person within GE that GasTOPS had dealt with up to this particular point; correct?

A.That's correct.

Q.If nothing else, Mr. Brouse, you'll agree with me that GasTOPS saw the outcome of the meeting with General Electric as being positive?

A.Certainly Mr. MacIsaac did, yes. And, to be fair, despite the inconsistencies in the information that Mr. MacIsaac was providing to me, I would say it's positive too, because it did appear they wanted to move forward with GasTOPS limited.

[397]At the conclusion of his meeting with MacIsaac and Muir, it must have been apparent to Brouse that GasTOPS was on the verge of concluding an enormous contract with GE. In my view, by the following Monday, both Brouse and Forsyth were aware that GasTOPS/B.F.Goodrich were on the verge of contracting with GE for the delivery of approximately 1000 licenses for ECMS. Brouse and Forsyth were also aware that in order to bring this business opportunity to fruition, it would be necessary to convert the ECMS program to operate in Windows and to make other modifications to ECMS. I am sure that Brouse and Forsyth were aware that it would be necessary for the MSD to remain intact over the next 12 months for GasTOPS to achieve these goals.

[398]It is a reasonable inference that MacIsaac’s decision on October 4, 1996, to raise the necessary capital to convert GasTOPS’ products Windows and the pending contract with GE played a large part in Brouse and Forsyth’s decision to resign. It may well be that they had been considering resignation for some period of time prior to October 4, 1996, but the information delivered to Brouse by MacIsaac on that date was the imminent cause of their resignations. It is also a reasonable inference, notwithstanding the protestations of Forsyth and Brouse, that they resigned from GasTOPS at that time as they intended to form their own corporation and develop a computerized maintenance management system in a Windows environment and to compete with GasTOPS in the aviation marketplace, including the military marketplace.

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Bombardier

[399]In the MSD’s 1996/1997 business plan, which was prepared before the resignations, Muir forecasted the expansion of the ECMS software system to include the structural components of the aircraft. Muir saw this as a new business opportunity. He anticipated that GasTOPS would be required to enter into a cooperation agreement with Bombardier’s Defense System Division (formerly Canadair) as Bombardier was the “system engineering support contractor” for the CF-18 fighter aircraft. Bombardier provided all of the maintenance support for the aircraft with the exception of the engines.

[400]On March 4, 1996, Chivers became aware of an upgrade being planned to the DMS, a maintenance database system developed and maintained by Bombardier and used on the CF-18 aircraft to record primarily maintenance and technical information related to the aircraft, with the exception of the engine. Chivers understood that the projected upgrade would take 24 months to complete with a software development component valued at 4 million dollars. At that time, the officer responsible at DND for the DMS was Major Comtois.

[401]In March 1996, Brouse received a copy of Chivers’ memorandum outlining the software development component having a value of 4 million dollars (Exhibit 128). Shortly thereafter Brouse attended a meeting with Chivers and Muir, wherein they decided to prepare a proposal to the CAF on the basis that the application of the ECMS system could be extended from the engine to the entire air frame. Muir saw this as a significant opportunity for GasTOPS and felt that GasTOPS could meet this requirement with a modified version of the ECMS.

[402]As a result, Brouse prepared an unsolicited proposal for the CAF with Forsyth and Jeff Cass’s assistance. In the proposal, he described how the ECMS could effectively perform the functions of the DMS. In his proposal, Brouse maintained that the functionality contemplated by DND for the CF-18 as an upgrade of the DMS already existed in the ECMS. According to Brouse, ECMS v.2 had been designed so that it could deal with all components of the aircraft. Brouse described the manual system that the CAF was using to record maintenance information in logbooks on the entire aircraft, except the engine. The information in the logbook was then

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given to a data entry clerk who entered the information into the DMS software system. Brouse commented on the inefficiencies of this process and proposed that the ECMS be used to meet the CAF’s requirements as it could (Exhibit 130 at page 5):

1.Perform serialized parts tracking on all maintenance significant components of the aircraft;

2.Track the usage utilization on all lifed aircraft components;

3.Track all maintenance transactions against the aircraft;

4.Identify and schedule all routine and non-routine aircraft maintenance activities including modifications, special inspections, conditional inspections, periodic inspections, etc.;

5.Provide an electronic log set;

6.Provide logistic planning capabilities including stock levels, sparring requirements, fleet status life/inspection/modification status reports, workload planning and best build component matching.

[403]Brouse stated in the unsolicited proposal (Exhibit 130) that the ECMS database would simply be configured to support CF-18 aircraft maintenance to set the proposed system to work. A series of PC computers, networked together and placed at locations where aircraft maintenance would be performance, would host the system. This would allow maintenance information to be entered directly into the system while the work was being executed and allow data to be forwarded to other locations for further support.

[404]On April 2, 1996, GasTOPS forwarded its unsolicited proposal to DND. On April 12, 1996, Brouse and Chivers met with the CAF to review the unsolicited proposal. At the end of the meeting, Brouse believed that the CAF would not be moving forward with either the GasTOPS or Bombardier proposals.

[405]On July 11, 1996, Brouse spoke with Bombardier’s Serge Leguellec (“Leguellec”) regarding the possibility of GasTOPS teaming with Bombardier so Bombardier would provide the technical/domain knowledge and GasTOPS would provide the software for the upgrading of the DMS. Leguellec, formerly an officer with DND, was and had been employed in

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Bombardier’s marketing group since March 1996. Brouse forwarded the details of their conversation to Muir in an e-mail entitled “hop on board the S. Leguellec team” (Exhibit 131). Brouse opined that Leguellec was very interested in working with GasTOPS to develop a type of condition-based maintenance system for specific aircraft structural components. Brouse was advised by Leguellec of who to contact at the CAF. Brouse wrote in his e-mail to Muir:

1)He has informed his superiors that the Canadair/CAE relationship wrt to DMS is not working and is a “piece of crap”. He was summoned to the V.P. of Marketing (Jane ?) to explain himself (after he had announced this at an internal meeting) and has described the situation to Marc Bourret, the Director of the F-18 program.

2)He has discussed the situation with his old team at DTA. Most notably, Serge feels that the key guy now is Major Normand Landry who is now in charge of IFOS and F-I 8 ASIP. BJ has been placed in a senior consult/policy role (I don’t know what that means over at DND, but that is the death knell at GTL). Apparently the Ozzies and the Canucks have identified that they require a Fault/Defect database to support this project and are considering joint funding of a system.

3)Apparently Normand has agreed to a two step plan whereby an SOR is developed by a contractor under RISO and then the production is contracted. With regard to the SOR, Normand is considering having Lansdowne, Celeris or one other company generate the document. Serge feels that Steve H is the most likely candidate. Serge claims that the company that generates the SOR cannot bid or be used on the actual production contract.

[406]When Leguellec was a captain in the CAF working for Major Miller, he championed GasTOPS and its products. Brouse had known Leguellec since April 4, 1995, and had worked with him on an aircraft component life management (“ACLM”) project/concept, which was an attempt to bring condition-based maintenance methodologies and technologies to specific components on the air frame of the aircraft. At that time, the parties considered a teaming arrangement to meet the future information technology needs on the CF-18s.

[407]In pursuing an arrangement with Bombardier, Muir led the development and

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negotiation of any agreement and Brouse was responsible for specific opportunities, namely on- line maintenance and structural tracking.

[408]As suggested in Brouse’s e-mail (Exhibit 131), Muir instructed Chivers to contact Major Marc Bourret who had left the CAF and was working at Bombardier. By memorandum dated July 12, 1996 Chivers reported that the information received from Leguellec was correct and that Bombardier was considering GasTOPS as a potential partner for the on-line maintenance tracking and structural tracking project as well as a third project known as MASIS.

[409]Bombardier arranged to make a presentation to GasTOPS on July 31, 1996, entitled “The Winning ASMIS/ACLM Information System Concept, a Bombardier Inc. and GasTOPS Ltd. Strategic Alliance, Synergy of Air Frame and IT Know-How” (Exhibit 133). Bombardier reviewed the CAF’s requirements for a software information system that would obtain all maintenance information on the air frame. Leguellec proposed that GasTOPS’ generic information system be used to provide the required functionality. Leguellec was suggesting that GasTOPS develop a generic information system from the ECMS concept which was particularly well-suited to ACLM. According to Muir, Leguellec was referring to the fact that the ECMS was based on a generic condition-based maintenance design (MAINSTAY) and that this design concept was well-suited for the ACLM requirement. Bombardier was suggesting a partnership arrangement with GasTOPS for this opportunity and for future opportunities.

[410]Upon returning from the Bombardier presentation, Chivers reported to Muir by handwritten note dated August 1, 1996 (Exhibit 134), and provided Brouse with a copy of the presentation. After reviewing the PowerPoint presentation, Brouse understood that Leguellec wanted Bombardier and GasTOPS to work in a partnership to develop an ACLM system.

[411]According to Chivers’ memorandum, Leguellec would obtain approval from Bombardier to go ahead with the partnership agreement with GasTOPS. Bombardier expected the CAF to issue a RFP for the ACLM in October 1996 and that Bombardier and GasTOPS would prepare a statement of work or work plan for the project by early 1997.

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[412]In September 1996, Brouse noted in his logbook that Bombardier was interested in having GasTOPS work with Bombardier “to solve the DMS” and Major Jim Henry of the CAF was in favour of such an arrangement. Leguellec described to Brouse how the requirements were being made and where DND was going on the project (Exhibit 96, pages 34 to 36).

[413]On September 13, 1996, Brouse spoke with Leguellec about recent developments at Bombardier and CAF about this business opportunity. Apparently, there were agreements between Bombardier and Canadian Aviation Electronics (“CAE”) that had to be considered before Bombardier could enter into an agreement with GasTOPS. Leguellec suggested that Bombardier’s preferred solution would be for CAE to work with GasTOPS (Exhibit 96 at pages 56 to 63).

[414]On September 24, 1996, Muir received a memorandum from Leguellec scheduling a meeting for September 27, 1996, at GasTOPS and requesting the presence of Muir, Brouse and Chivers. Leguellec invited two representatives from CAE. The meeting was called because of a consortium agreement between Bombardier and CAE whereby Bombardier was obliged to work with CAE on the DMS. Bombardier sought to arrive at an agreement between GasTOPS, CAE and Bombardier to discuss how the DMS would be upgraded and the role that GasTOPS and its ECMS system would have in the upgrade. Leguellec provided an agenda for the meeting setting out the topics to be discussed (Exhibit 135).

[415]The meeting was held on September 27, 1996 at which time the CAE representative did a PowerPoint presentation entitled “CF-18 DMS”. The slides described the DMS, its users, specifications and DND’s requirements. According to Muir, during the presentation, CAE proposed to use ECMS to meet certain requirements for the upgrades of the DMS, namely the on-line maintenance tracking and the electronic log set for the aircraft. (Exhibit 136) Bombardier and GasTOPS also made presentations. Warrant Officer Paré attended the meeting, as he had been advised of it by Brouse. The meeting covered the potential working relationships between GasTOPS and Bombardier in a software development project, whereby ECMS and DMS would be merged to support the CF-18 air frame and the engines. Brouse recalled discussions around the possibility that the GUI being the front end of ECMS would be applied to the DMS

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(Exhibit 96 at pages 79 to 84).

[416]After the meeting, Muir anticipated receiving a non-disclosure agreement from Bombardier and that continued discussions would take place with CAE and Bombardier.

Kuwaiti Air Force

[417]During the time he was employed at GasTOPS, Brouse knew that the Kuwaitis were awaiting an MDPS replacement and that they would likely procure the same system as the U.S. Navy. As a result, Brouse was directly involved in GasTOPS’ marketing efforts to sell the ECMS technology to the Kuwaiti Air Force.

[418]On August 22, 1996, Howe of B.F.Goodrich sent a faxed transmission to Brouse and Muir (Exhibit 84) which included a cover page that stated:

Lt. Matt Herl called this morning in a tizzy for two reasons

(1)Brian Burns is in today pitching their alternative to Todd Mellon/Capt Dyer for sale to Kuwait.

(2)Matt has his own meeting with Todd and Capt. Dyer to show procurement options (which avoid competition) for ECMS.

The attached (13) pages are my response and they include your white paper. I pulled out the stops and sent it directly to them as decision time for Kuwait is imminent.

[419]At page 2 of Exhibit 84, Howe provided Brouse with a copy of correspondence he had forwarded to Lieutenant Herl dated August 22, 1996. In his correspondence under the sub- heading “Option” “B”, Howe stated that one of the circumstances that would permit other than full and open competition for the U.S. Navy to acquire ECMS licenses was through the “procurement of ECMS/FLTS through international agreement” (FMS sale to Kuwait)”. In his correspondence, Howe wrote, “This does not directly help the Navy procure ECMS/FLTS for Navy F18 use but offers the benefit of establishing the software as COTS. The sale to Kuwait could be permitted without full & open competition using the PAR 6.302-4 International Agreement Clause.”

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[420]Accordingly, Brouse was fully aware that an opportunity existed for GasTOPS to provide its ECMS technology to the Kuwaiti Air Force as a foreign military sale (“FMS”) as a direct result of GasTOPS’ pursuit of the U.S. Navy opportunity. The NAVAIR/ECMS/ FLTS long-term tactical action plan authored by Brouse and Howe specifically confirms that the GasTOPS/B.F.Goodrich team had “pitched” the ECMS/FLTS to the Kuwaitis at the CIP meeting in Toronto (Exhibit 92 at page 4).

[421]In describing this Kuwaiti opportunity, Muir stated that in summer 1996 Lieutenant Herl told Howe and Brouse that Kuwait was interested in an MDPS replacement as that program became further and further delayed. Brouse later attended a meeting with representatives from the Kuwaiti Air Force to show them GasTOPS’ product and discuss “the potential of the Kuwaiti procurement of ECMS.” On September 18, 1996, Brouse followed up with Ken Johnston, F/A- 18 project office, Kuwaiti Air Force, providing him with literature on the ECMS and FLTS.

[422]When asked about the Kuwaiti Air Force opportunity as of the end of September 1996, Muir testified that he understood Kuwait’s plan to be to purchase the same MDPS replacement as the U.S. Navy.

[423]When questioned concerning the Kuwaiti Air Force business opportunity while employed at GasTOPS, Brouse confirmed that he knew through his employment at GasTOPS, and from conversations with Terry Chandler and with representatives from the Kuwaiti Air Force itself, that whichever company sold its system to the U.S. Navy would have an advantage in selling to other forces, such as the Kuwaitis.

[424]On October 7, 1997, Muir prepared a “ROM Estimate for Kuwaiti AF ECMS” (Exhibit 499) to demonstrate to a possible partner who indicated that he might be able to assist in the sale of ECMS to Kuwait. Pursuant to the Rough Order of Magnitude (“ROM”), Muir estimated that the proposed sale to the Kuwaiti Air Force of ECMS would generate revenues to GasTOPS of $1,270,000.

DOT/RCMP

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[425]In the summer of 1996, GasTOPS was pursuing an opportunity to modify its ECMS products for use on a fleet of commercial/passenger aircraft, similar to those used in the computer airline market place. In the summer of 1996, Darrel Churchill (“Churchill”) of GasTOPS identified an Advanced Contract Award Notice (“ACAN”) of the government’s intention to purchase, on a sole source basis, a parts life tracking system for the RCMP. The ACAN identified the need for an inventory management software system to track parts both on and off the aircraft and keep maintenance records. The ACAN identified the opportunity as one that would not be competed. The government had already chosen its vendor, Time Air Inc., but was required by policy to publicly state its intention to purchase a product from a specific vendor. Any potential vendor was allowed to challenge the ACAN by indicating it had a product that may meet the requirements. According to Brouse, he did not consider the ECMS as a “good fit” for the opportunity as it appeared to him that the RCMP was looking for a CMMS. Churchill did not agree with Brouse and contacted Public Works and Government Services Canada (“PWGSC”).

[426]On August 2, 1996, Churchill spoke to the procurement arm of the Canadian Government, PWGSC, suggesting that GasTOPS’ ECMS software product could meet the RCMP requirements (Exhibit 138). By letter of response dated August 2, 1996 (Exhibit 139), PWGSC provided GasTOPS with a system requirements document that listed the functionality being sought by the RCMP which stated:

COMPUTERIZED AIRCRAFT MAINTENANCE CONTROL

SYSTEM

Air Services Branch has since August 96 been reviewing several software packages designed for inventory and maintenance control. The projects initial purpose was to determine what products were on the market and that would fulfil Air Services requirements which would consist of the following.

-The program has to have good reliability reporting capabilities to allow Air services to monitor hard time components.

-Be able to track parts to an exact location at all

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times without any breaks in the process.

-Error checking capabilities for times, part no.’s, serial no.’s etc.

-An audit section for Quality Assurance reports.

-A proven program acceptable to Transport Canada.

-Because the AME’s at the Air Sections would be required to do their own planning and data entry, the degree of security of any given program would be an important determining factor.

-The ability to handle assemblies and subassemblies.

-The ability to handle inspection and installation kits.

-Be able to deal with Airworthiness Directives and Service Bulletins, both mandatory and non mandatory.

-The ability to be wide area networked across Canada to a minimum of twenty two Air Sections.

-The ability to track all of the journey log entries and report on them.

-It must error check serial numbers so that a serial number can not be attached to more than one of the same part number.

-Have a good financial section capable of budget forecasting and cost analysis, and the ability to export data to the RCMP financial programs.

-Be able to track the technical libraries in Ottawa and all the Air Sections.

[427]In its covering letter dated August 2, 1996, PWGSC advised GasTOPS that its ECMS marketing information had been provided to both the RCMP and the DOT. In subsequent correspondence dated August 8, 1996 (Exhibit 141), PWGSC advised GasTOPS that DOT was interested in acquiring a similar system to that being sought by the RCMP and accordingly GasTOPS was pursuing business opportunities with both the DOT and RCMP.

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[428]At trial, Brouse testified that he was actively involved in GasTOPS’ pursuit of the opportunity with the DOT and the RCMP. On August 9, 1996, Brouse met with Mr. Zorn from the RCMP, and Brouse gathered further information about the required functionality and the various other software systems that the RCMP and DOT had considered. On September 4, 1996, Churchill, Brouse, Forsyth and Jeff Cass met with personnel from DOT and the RCMP, and GasTOPS learned that DOT was installing an Oracle enterprise software system and Oracle Financials for management of their finances and that it sought to integrate this system with the maintenance management system. They further learned that the requirement was for E/D aircraft including helicopters and fixed wings aircrafts such as Cessnas and Beavers. The system would have to maintain compliance with ATA codes and the CARS and FARS programs. This was a concern as GasTOPS was only able to manage engines and specifically only one engine type at a time. The minimum requirements of a system for DOT/RCMP included tracking parts and labour costs, tracking authority level of individuals, entering transactions, journey logs, recording technical publications and training installation support. At this point, Brouse was of the opinion that ECMS was not capable of meeting the DOT/RCMP requirements and would require significant functionality changes.

[429]After this meeting, Brouse, Forsyth and Jeff Cass remained actively involved in pursuing the DOT/RCMP opportunity on behalf of GasTOPS. These defendants attended a further meeting to define more accurately the required functionality of a software system similar to users of commuter aircraft and they learned more about the business process of both the RCMP and DOT. They worked collaboratively with one another to develop a scope of work that identified the enhancements/modifications that would have to be made to the ECMS to meet the requirements of the commuter aircraft market place as well as the pricing for the job.

[430]On September 18, 1996, Brouse sent a copy of Jeff Cass’ DOT/RCMP Aircraft Fleet Management System Requirement Report (Exhibit 146) to DOT/RCMP to confirm their requirements. Brouse claimed it was a summary of the notes he took at the meeting on September 4 setting out the requirements as understood by GasTOPS. Jeff Cass authored the summary and noted on the first page in section 1.1 that “the Department of Transport and RCMP

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requires functionality that is above and beyond the existing capabilities of ECMS v.2.”

[431]On September 24, 1996, Mr. Grace, sent a fax to Churchill and Brouse requesting an estimate for ECMS v.2 without any additional functionality. Upon receipt, Brouse stated that he believed that they were no longer interested in using ECMS for their overall solution but were interested in some of its capabilities. Brouse contacted Grace to specifically ask about their thoughts on the ECMS product. Brouse made notes on the face of the fax indicating that the government was worried about GasTOPS’ lack of exposure to the commercial sector and GasTOPS’ lack of understanding of the commercial requirements.

[432]Muir felt that PWGSC was looking for a quote before the opportunity went any further. Later on September 24, 1996, Brouse sent a fax to Grace indicating GasTOPS could provide ECMS v.2 for a discounted price of $4,500 per unit (quoted under the other systems that PWGSC considered). Customization of ECMS would be provided at a reasonable rate.

[433]On September 25, 1996, Jeff Cass authored an internal document entitled “DOT and RCMP Aircraft Fleet Management System Proposed Work Plan and Estimate.” On September 26, 1996, Brouse sent a fax to Grace outlining that the cost of customization in addition to the license fee would be in the range of $280,000 to $410,000. Prior to their resignation, Forsyth, Brouse and Jeff Cass had no further interaction with Grace concerning the DOT/RCMP business opportunity.

[434]Days before Brouse resigned from GasTOPS, he advised GasTOPS that it should not pursue the DOT/RCMP opportunity: “I provided to Mr. Churchill my opinion that this is not something that we should really purse, that it's very different than what we've pursued in the past and what they're requesting goes far beyond the capability of the ECMS product.”

[435]During the summer of 1996, Brouse was intimately involved in ascertaining the requirements on the DOT/RCMP opportunity, which could have provided a separate and distinct pathway for GasTOPS to enter into the commercial aviation marketplace. Brouse made the decision that GasTOPS should not pursue this opportunity. It is a reasonable inference that at the

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time Brouse made his recommendation that GasTOPS should not pursue the DOT/RCMP opportunity, he knew that he would be resigning from GasTOPS and would become part of a new company that would compete with GasTOPS. It is also a reasonable inference that when Brouse recommended that GasTOPS not pursue the DOT/RCMP opportunity he intended that his new company would pursue.

IV. The Resignations

[436]On October 7, 1996, Forsyth and Brouse submitted separate letters of resignation from GasTOPS. The letters of resignation were identical and stated:

I regret to inform you that I have decided to resign from GasTOPS Ltd. on Friday, October 18, 1996. While my future plans are somewhat uncertain, rest assured that I will NOT:

1.solicit business from any existing GasTOPS Ltd. clients or potential clients that GasTOPS Ltd. has been pursuing and counting on;

2.utilized or take with me any confidential company information or property; nor,

3.solicit any employees or GasTOPS Ltd.

I hope that my departure will not be too disruptive to GasTOPS Ltd. and that the company will find a suitable replacement. However, if GasTOPS Ltd. should need my services to assist in the transition, I will be available on a sub-contract basis.

In their letters of resignation, Forsyth and Brouse provided GasTOPS with 2-weeks notice of the effective date of their resignation, being October 18, 1996.

[437]On any interpretation of the letters of resignation of Brouse and Forsyth it is clear that they understood that they owed a fiduciary duty to GasTOPS. Both Forsyth and Brouse assured GasTOPS that they would not solicit business from any existing GasTOPS clients or potential clients that GasTOPS had been pursuing and counting on and would not utilize or take with them any confidential company information or property. In addition they stated that they would not

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solicit any employees of GasTOPS.

[438]In my view, Forsyth and Brouse’s letters of resignation set out the duty that they owed to GasTOPS as a result of their employment and that each of them was aware of their duty. If they had abided by the contents of their letters of resignation, this lawsuit would never have proceeded. Unfortunately, Forsyth and Brouse did not follow through on the assurances that they gave to GasTOPS. A review of the evidence leads me to believe that they never intended to abide by such assurances.

[439]During his cross-examination, Forsyth conceded that he and Brouse had given short notice to ensure that they could start their own business, as they would not be able to start a business while employed by GasTOPS. Forsyth stated:

We thought that -- we talked about how much notice we would give and what we would do. We decided that we couldn't start a business while we were working for GasTOPS directly, but we could do, if we were working in a subcontract arrangement, because then we're not employees anymore."

Later, during cross-examination Forsyth confirmed that the primary purpose of working in a subcontract arrangement for GasTOPS would be to fund the development of MxI’s own product and provide revenues, saying “It was to provide income to live off of and to support what we were doing.”

[440]In my view, Forsyth and Brouse gave insufficient notice of their resignation in order to establish their own company, which would compete directly with GasTOPS, as soon as possible. If they had given ten months’ notice, which would have been reasonable, the defendants would have continued to owe to GasTOPS a duty of loyalty and good faith which would have prevented them from establishing their own company and competing with GasTOPS in the area of aviation maintenance software. I have no doubt that the defendants Brouse and Forsyth resigned when they did in order to have an opportunity to compete for the GE and the U.S. Navy opportunities that were almost at the point of fruition for GasTOPS.

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[441]On October 10, 1996 Jeff Cass resigned from GasTOPS effective October 25, 1996. On October 10, 1996 Vandenberg submitted his letter of resignation from GasTOPS effective October 23, 1996.

[442]Muir was shocked when his two senior managers resigned at the same time with virtually no notice. Muir asked Brouse and Forsyth to reconsider their letters of resignation but both indicated their resignations were non-negotiable. Once Muir determined that neither Forsyth nor Brouse would reconsider their resignation, he discussed the matter with MacIsaac. Muir considered it “highly suspicious” for the two senior managers to arrive at the same time and submit identical letters of resignation which gave virtually no notice and to do so almost immediately after MacIsaac had announced that he was prepared to obtain the necessary financing to convert ECMS to Windows in order to close the GE deal.

[443]Muir and MacIsaac then asked Forsyth and Brouse to immediately leave the GasTOPS premises. Muir indicated that, given the lack of proper notice, he and MacIsaac were concerned about GasTOPS’ best interests and Brouse and Forsyth’s effect on other employees:

We felt that the potential was there for them to affect our employees and that we look might lose further employees. So for those reasons it was decided that Forsyth and Brouse should leave immediately, and I went down to speak to the two of them.

[444]When Forsyth and Brouse failed to give reasonable notice of their intention to resign, they breached their implied contractual obligation to provide reasonable notice and as such GasTOPS was justified in asking the defendants to leave the GasTOPS’ premises.

[445]During the conversation Muir had with Forsyth regarding his resignation, Forsyth advised that Vandenberg and Jeff Cass would also be resigning. I have no doubt that when Forsyth and Brouse resigned they understood others would be resigning from GasTOPS to join their planned new company.

[446]During his direct examination and cross-examination, Forsyth suggested that when he resigned he and Brouse had no plans regarding the type of business they would engage in. After

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Forsyth completed his evidence, certain backup tapes were produced by the defendants, which established that Forsyth and Brouse intended to establish a company which would compete with GasTOPS in the aviation maintenance software field.

[447]In the backup tape produced by the defendants (during Brouse’s cross examination of Brouse and pursuant to my order) was an electronic document from Forsyth’s directory entitled business process.vsd and dated October 2, 1996 (Exhibit 2195). It was an elaborate diagram depicting the numerous, interrelated divisions of the company he planned to incorporate.

[448]As a result of the late disclosure by both sides I allowed both sides to have witnesses recalled in order that they could cross-examine such witnesses on documents that had been disclosed after the witness left the witness box and which should have been disclosed prior to the commencement of the trial.

[449]When Forsyth was re-called for continued cross-examination on November 25, 2005, he was presented with the document’s “Properties.” It suggested that he had created this diagram on October 2, 1996, in anticipation of MxI’s business plan, which Forsyth confirmed:

Q.Again, just to confirm, this, sir, is your original work done in anticipation of preparing your business plan at MxI; correct?

A.Correct.

[450]I have no doubt, that given the nature of the work that the employees of MSD were doing, they became members of a team and there was a strong relationship between the employees and their managers (Forsyth, Brouse and Tobin). There was also, I am sure, a strong relationship between Jeff Cass and the employees who worked for him. Between the discontent within MSD and the abrupt resignations of Forsyth, Brouse, Jeff Cass and Vandenberg, as well as other program managers such as Peloso, I am sure the remaining MSD employees seriously considered joining MxI. MSD was looked on as a “team” of employees and it is therefore not surprising that the initial abrupt resignations of the defendants would result in a further “exodus” of MSD employees from GasTOPS.

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[451]The following employees resigned from the MSD on the dates indicated:

*Matt Tobin, Dave Isaacs, Darcy Chorneyko, Donna Kind and Dekun Cao did not immediately join MxI upon resigning from GasTOPS.

[452]On October 7, 1996, the day that Forsyth and Brouse resigned from GasTOPS, there was an informal gathering of MSD employees at the Beacon Arms. These employees were upset by Forsyth and Brouse’s resignations. Many of them felt that if their team leaders resigned they wanted to continue to be members of the team or teams headed by Brouse and Forsyth. There were a number of meetings involving employees of MSD and Brouse and Forsyth. Within 18 days of the resignation of Forsyth and Brouse, 12 further MSD employees had resigned and gone on to work for MxI.

[453]After the impromptu gathering at the Beacon Arms, there was a further gathering at Jeff Cass’s home. As the evening progressed, those who were at Jeff Cass’s home met with

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Forsyth and Brouse at Brouse’s home. Peloso described the meeting at Brouse’s home as follows:

Q.Who else was there, sir, other than the three of you [Forsyth, Brouse and Peloso]?

A.I can't be definitive. Marc Lennox, Bill Smith, I believe D’Arcy Chorneyko. I believe Jeff Cass.

Q.Chris Cass?

A.It's possible. Again ---

…

Q.I take it, sir, at that particular meeting you also said you were there pretty much every night that week; correct?

A.Correct.

Q.I take it during the course of those meetings, Mr. Brouse and/or Forsyth would have advised you fully of what they were planning to do in their new business venture; correct?

A.Advised me fully is maybe a bit strong, but there was discussed about what they thought they were going to do, yes.

Q.I would like to know, sir, the entirety of your recollection of those discussions?

A.That they wanted to form a software company. They wanted to produce a software product. There was debate that one of the product ideas was an Internet based backup system. Another idea was software maybe for someone with their -- has their own private aircraft or something like that.

Q.So, sir, if I understand your evidence correctly, starting as early as the Monday after they've resigned there is discussions about possibility of doing some type of an aviation maintenance software; correct?

A.Again, it was on the Monday, the Tuesday or the Wednesday. I'm there every day that week, that topic does arise, yes. I really don't recall which specific date, but it does arise, yes.

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Q.Sir, what were the discussions surrounding that potential product?

A.That it would have absolutely nothing to do with condition based maintenance. That it would be a small product in the sense that it would likely deal with someone who, you know, who had an airplane or two or something like that, small aircraft, and just trying to follow the owner's manual, if you like. The owners makings manual.

…

Q. … What convinced you to go and join them?

A.They would allow me to join them. As I explained to Mr. Muir, I really didn't care what they were doing, it was more important to me as to which team I’m going to be on and I’m joining those guys. I really didn't care what they were doing.

[454]Within hours of their resignation from GasTOPS, Forsyth, Brouse and Cass were meeting with MSD employees and describing to them their plans to start up their own business focused on aviation maintenance software.

[455]On October 8, 1996, Muir met with MSD’s remaining managers. In attendance were Jeff Cass, Peloso, Reynolds and Chris Cass. At the meeting Jeff Cass confirmed to Muir that he intended to resign. Reynolds also confirmed his intention to resign while Peloso seemed, according to Muir, to be leaning towards resignation. At the same time Muir believed that Chris Cass might not resign. On October 9, 1996, Muir met with the entire MSD staff and confirmed that the company was seeking to restructure itself following the Forsyth and Brouse’s abrupt resignations. Muir did not advise the remaining MSD staff that other managers of GasTOPS had expressed an intention to him to resign. On October 10, 1996, Jeff Cass submitted his letter of resignation to Muir (Exhibit 317), writing: “My last day at GasTOPS will be Friday, October 25, 1996 which should allow me to complete the deliverable MAINSTAY system for ITM and to see ECMSv.2.01 through its Acceptance Test Plan.”

[456]With respect to the period of notice given by those who resigned, Muir stated:

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Q.Mr. Muir, was there any discussions between yourself and Mr. Vandenberg with respect to his continued employment at GasTops past October 23, 1996?

A.Yes. In the case of all of these resignations, including Forsyth and Brouse, I felt that these individuals had a professional responsibility to remain at GasTops until such time as we could, as a company, arrange for a suitable replacement for them, and I made that point to them all. I said that 'the notice you're giving me is not adequate to find a replacement.' I impressed upon them all my desire to have them stay until such time as we could find a suitable replacement or effect a change in the team at GasTops that would allow us to continue to do our work.

Q.Did Mr. Vandenberg express any interest in working past that day of October 23?

A.No.

[457]Although the MSD employees wanted of their own accord to be part of the MxI team and were to some extent disenchanted with their working conditions at GasTOPS, they also had assurances that they could work for MxI before they tendered their resignations at GasTOPS. It may well be that after the departures of Forsyth, Brouse, Vandenberg, Jess Cass and Peloso, the remaining employees would have eventually left GasTOPS, but under other circumstances their departures would have been delayed as they searched for further or different employment.

[458]In my view, Forsyth and Brouse knew that if they resigned from GasTOPS and started their own software company, the majority of the MSD “team” would want to join their company to continue its software development work. In addition, Forsyth and Brouse knew that if most of the members of the MSD left GasTOPS for MxI, GasTOPS would be unable to fulfill its contracts and continue to pursue the new business opportunities it had been pursuing at the time of the resignations. I have no doubt that Brouse and Forsyth knew the devastating effect that their resignations and the resignations of the other MSD employees would have on GasTOPS. Also, the resignations of Forsyth, Brouse, Jeff Cass, Vandenberg, Peloso and the other members of the MSD without reasonable notice and their subsequent employment at MxI, would in all likelihood result in the MSD’s customers and potential customers wishing to stay

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with the MSD “team” now employed at MxI.

[459]Again, any employee of MSD was entitled to resign with reasonable notice, taking into account the technical nature of the work being carried out by the employees and the time it would take to find, hire and familiarize new employees to their positions. In addition, the new employees would have to be introduced to GasTOPS’ customers and potential customers so that the customers would have confidence in the new employees’ abilities to understand and satisfy their needs. The MSD’s customers prior to October 1996 had great confidence, built up over a number of years, in Forsyth, Brouse, Jeff Cass, Vandenberg and Peloso and those who worked for them. Finding, training and introducing new employees to the GasTOPS’ customers would take far longer than two weeks. Accordingly, the notice given by Forsyth, Brouse, Vandenberg, Jeff Cass and Peloso was totally inadequate, and each of these individuals knew their notice was inadequate In my view, these defendants intended to destroy GasTOPS’ MSD.

[460]In my view, there is a lack of evidence that Brouse and/or Forsyth directly lured the MSD employees away from GasTOPS to join MxI. On the other hand, I find that Forsyth and/or Brouse, having resigned from GasTOPS in order to establish a new company, owed a duty to GasTOPS to ensure that any MSD employee who approached them about future employment with MxI had resigned from the MSD with reasonable notice before they discussed any future employment possibilities at MxI. In addition, there was an obligation in my view on Forsyth and/or Brouse to ensure that any new MxI employee who had been employed by GasTOPS was aware of his/her fiduciary obligations to GasTOPS.

[461]In this case the personal defendants, who were fiduciaries of GasTOPS and who did not provide their employer with reasonable notice, should not have encouraged employees of GasTOPS to leave to leave GasTOPS by offering them employment with MxI. The encouragement in this case arose when employees of GasTOPS approached them and asked if they could work for MxI. These people were still employed at GasTOPS when they made such a request and did not resign from GasTOPS until after securing employment at MxI. In my view, this amounts to solicitation and is a breach of the duty of non-solicitation of employees. The defendants knew or ought to have known that the employees of MSD to whom they offered

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employment would not give GasTOPS reasonable notice and would thereby render GasTOPS incapable of fulfilling its contractual obligations or continuing to pursue the opportunities it was pursuing prior to the defendants resigning.

[462]It is clear that Forsyth and Brouse gave insufficient notice in order to afford themselves an opportunity to establish their own company, which would compete directly with GasTOPS. If they had given proper notice, GasTOPS would have converted ECMS to a Windows environment and closed the pending opportunity with General Electric. If Forsyth and Brouse had given proper notice of their intention to resign, they would have remained employees of GasTOPS and during such period of notice they would have continued to owe to GasTOPS a duty of loyalty and good faith which would have prevented them from establishing their own company to compete with GasTOPS in the area of aviation maintenance software.

[463]In his letter of resignation dated October 7, 1996 Forsyth stated: “I hope that my departure will not be too disruptive to GasTOPS Ltd. and that the company will find a suitable replacement. However, if GasTOPS Ltd. should need my services to assist in the transition, I will be available on a sub-contract basis.” In his letter of resignation dated October 7, 1996 Brouse stated: “It is my sincerest hope that my departure will not be too disruptive to GasTOPS (this is certainly not my intent) and that the company successfully find a suitable candidate to fill my role. However, if GasTOPS should need my services to assist in the transition, they can be made available under contract.”

[464]The offer by both Forsyth and Brouse to assist in the transition on a sub-contract basis is indicative of Forsyth and Brouse’s realizing that GasTOPS would need assistance in the transition period given the fact that they were leaving on two weeks’ notice.

[465]The contractual negotiation between GasTOPS and Forsyth and Brouse during October and November 1996 were indicative of the true objectives of MxI. GasTOPS was seeking assistance from MxI while it re-established MSD (Maintenance System Division) whereas the true intent of MxI was to appropriate the software developed by GasTOPS for its own and to own any software developed by MxI under sub-contracts with GasTOPS.

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[466]On October 7, 1996 Brouse and Forsyth delivered their letters of resignation to Muir and were not prepared to discuss providing GasTOPS with a more reasonable period for the effective date of their resignation. On October 8, 1996 Jeff Cass verbally advised Muir that he was resigning and his formal letter of resignation was delivered on October 10, 1996 with the effective date of resignation being October 25, 1996. On October 10, 1996 Vandenberg delivered his letter of resignation.

[467]The combined effect of the failure of Forsyth, Brouse, Jeff Cass and Vandenberg to provide reasonable notice of their intention to resign from GasTOPS, offering employment to the other members of the MSD (Maintenance System Division) team resulted in GasTOPS suffering irreparable damage which included:

(a)It caused the remaining employees of the MSD (Maintenance System Division)/GasTOPS to seriously question their willingness to remain employed at GasTOPS particularly given that the defendants were offering the said employees the opportunity to remain with the “MSD (Maintenance System Division) team” by joining the new, start-up company, known as MxI;

(b)It caused existing GasTOPS customers such as Dofasco and the Canadian Air Force, to re-evaluate their existing business relationship with GasTOPS. In the case of the CAF (Canadian Air Force), it caused the CAF (Canadian Air Force) to seek to claw back certain intellectual property rights that had accrued to GasTOPS under previous contractual arrangements;

(c)It caused prospective customers, such as the United Stated Navy and General Electric, to re-evaluate their willingness to contract with GasTOPS for the sale of ECMS (Engine Condition Monitoring System) licenses;

(d)It enabled the defendants to immediately establish a competing business to GasTOPS, thereby offering to the existing and prospective customers of GasTOPS an alternative source for configuration management software technology and services;

(e)It ensured that GasTOPS’ business, in terms of both software sales and development was paralyzed for a prolonged period of time thereafter, enabling the defendants to compete unfairly with

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GasTOPS in the market place;

(f)It enabled the defendants and corporate defendant MxI to continue to pursue GasTOPS’ prospective customers in a virtually seamless manner. More particularly, it enabled individuals such as Brouse and Jeff Cass to continue interacting with GasTOPS’ prospective customers in an effort to close the pending deals that GasTOPS had been pursuing; and

(g)Once the defendant MxI was successful in procuring the United States Navy opportunity that GasTOPS had been pursuing, it used the profits from the said contract to fund a development and marketing of its Maintenix product to other market segments.

[468]Immediately upon the breach by the defendants of their implied contractual obligation to provide reasonable notice, GasTOPS sought to mitigate its potential losses arising from such conduct.

[469]Muir asked both Brouse and Forsyth to reconsider their letters of resignation and both of them advised him that their resignations were non-negotiable and that neither intended to discuss further continued employment with GasTOPS.

[470]Given the breach of the implied term of their employment contract to given reasonable notice, GasTOPS was entitled, on such a breach, to ask Forsyth and Brouse to immediately leave the premises and the GasTOPS’ action was in no way an acceptance by GasTOPS of the two weeks’ notice of resignation given by these employees.

[471]When Muir met MacIsaac and went to advise Forsyth to leave the premises forthwith, he was advised by Forsyth that he (Forsyth) knew that there were other employee resignations forthcoming. Muir testified:

I was pretty sure in the case of Forsyth I could at least get some information from him as to why they were leaving. So I asked him, I said 'Brad, why are you guys doing this?' And at that point he told me it was the list of concerns. He said 'You never did anything about the list of concerns.'

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And I said to him something to the effect that we were to work on that together, and that in my mind we simply hadn't gotten to it yet. But in his mind he didn't want to discuss it any further. He simply said 'It's the list concerns and that's why I'm leaving.' And then he offered to me the fact that there would be other resignations; he said 'We're not the only ones that are leaving.' I then asked him 'Who else is leaving?' And he said to me Vandenberg, Cass and others. I probed him on the "the others", and he wouldn't volunteer who "the others", and he simply said to me "just others".

So I said to him again that I felt he should leave immediately. I suggested to both he and Brouse that they leave and come back after hours and pick up their personal effects, and I believe both of them did that.

[472]Accordingly, the moment Forsyth resigned, he knew that others were about to resign and I have no doubt, that he knew that as soon as it became known that he and Brouse intended to establish a software company developing computerized maintenance software for the aviation industry, many of the employees of the MSD (Maintenance System Division) would want to join the fledging company.

[473]On October 15, 1996, Muir received letters of resignation from Peloso, Reynolds and Chris Cass, each of whom gave two weeks’ notice. Muir requested that each of these individuals extend their period of notice in order to assist GasTOPS in the transition period following their resignation but they all refused. On the same day Muir also received letters of resignation from Tobin, Smith, Lennox and Linh Nguyen. Lennox, Smith and Nguyen went to work for MxI. Nguyen conceded at trial that he spoke with Forsyth and Brouse after Forsyth and Brouse resigned and met with Forsyth before resigning from GasTOPS.

[474]Earlier, on October 8, 1996, Muir had met with Reynolds, who advised that he intended to resign, and it had nothing to do with Forsyth and Brouse’s departures from GasTOPS. Reynolds said that he had just returned from his honeymoon and that he and his wife had talked about leaving Ottawa. When Reynolds delivered his letter of resignation to Muir, Reynolds cited only personal reasons for his refusal to extend his period of notice, which Muir did not find to be a rational explanation. The MxI-Maintenance by Information Ltd. business

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plan which was created on October 11, 1996 (Exhibit 2116) indicates quite clearly that, at the time Reynolds delivered his notice of resignation to Muir, he had already committed himself to MxI and that for this reason he could not and did not wish to extend his period of notice to GasTOPS.

[475]In summary, the failure of Forsyth, Brouse, Jeff Cass and Vandenberg to give reasonable notice of their intention to resign caused GasTOPS irreparable damage, including:

1.The remaining employees of the MSD questioned their willingness to remain at GasTOPS, particularly when the defendants were offering them an opportunity to remain with the “MSD team” at MxI;

2.Existing GasTOPS customers, such as the Dofasco and the CAF, re- evaluated their relationships with GasTOPS. It caused the CAF to seek a claw back of certain intellectual property rights that had accrued to GasTOPS under previous contract arrangements;

3.Prospective customers, such as the US Navy and GE re-evaluated their willingness to contract with GasTOPS for the sale of ECMS licenses;

4.The defendants were able to immediately establish a competing business, offering GasTOPS’ existing and prospective customers an alternative source for configuration management software technology and services;

5.GasTOPS’ business, in terms of both software sales and development, was paralyzed for a prolonged period of time thereafter, enabling the defendants to compete unfairly with GasTOPS and the market place;

6.The individual and corporate defendants continued to pursue GasTOPS’ prospective customers in a virtually seamless manner. More particularly, it enabled Brouse and Jeff Cass to continue to attempt to close pending deals that GasTOPS had been pursuing and relying on; and

7.Once MxI successfully misappropriated the GasTOPS’ United States Navy opportunity, it used those lucrative profits to fund the development and marketing of its maintenance products to other market segments.

Explanations

Alleged Reason for Resigning

[476] In January 1996, individual MSD employee concerns were brought to Muir’s

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attention. At the end of January or early February 1996, Pierre Dorion, who had worked for Forsyth on the Dofasco project, and was “a key player in the RCM analyst project” resigned. His resignation was a shock to those who worked with him. Dorion advised his fellow employees that he had secured a position at Télévitesse, which he felt was more in line with his educational background and training as an electrical engineer. On the last day of Dorion’s employment at GasTOPS, many of the MSD employees gathered in the conference room for a farewell party. At the gathering Dorion spoke frankly about what he saw as lacking in his position at GasTOPS, including his opinion that the management/focus of the company was unclear. This observation started a chain reaction wherein other MSD employees voiced their concerns on employment issues and job satisfaction. Forsyth invited everyone to the boardroom to discuss the emerging issues, ranging from product development to growth potential to company focus to older issues such as the lack of computers, e-mail and a secretarial pool. This was an informal meeting convened as a result of the apparent employee discontent. Forsyth effectively took charge of the gathering and gave the employees a forum to speak about their concerns, and he, Brouse and Tobin attempted to explain the company’s philosophy and responded to certain misconceptions. According to Reynolds, Forsyth was defensive of GasTOPS which in his (Reynolds’) mind was not the way to encourage the employees to have an open discussion. Reynolds stated:

Just people were – like I said, people started throwing out complaints and Brad would sort of counter each one, well, the company isn't that bad, it’s not – I don't remember individual instances, I just remember Brad sort of countering all these things. I was thinking in my own mind well, that’s not a good way to encourage people to come and talk to you. I think he must have recognized that, because it evolved – like I say, I can't remember if it was in one meeting or over maybe two, but into okay if people aren’t happy with things, we should start to look at that and understand what people aren't happy with.

But don't just complain like we should start to look at how we can deal with some of these issues as well.

[477]Tobin stated in reference to Muir’s knowledge of the “employee concerns” that the question of employee concerns had come up at one of the managers’ meetings (including Forsyth and Brouse). The notion was raised that the managers might convene meetings to solicit

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concerns from the group’s members, and Muir did not dissuade or discourage the managers from doing so. I have no doubt that Muir had an indication of employee discontent around this time.

[478]The second meeting concerning the employee concerns was held during the second week of March 1996. The entire MSD was invited to the meeting and all employees were encouraged to voice their concerns and to recommend a solution to the issues that they raised. Forsyth, Brouse and Tobin facilitated the meeting and clarified the issues and solutions identified by the employees. As facilitators, Forsyth, Brouse and Tobin did not contribute or voice any issues or concerns about GasTOPS and/or MSD. At the conclusion of the meeting Forsyth agreed to transcribe the notes and distribute the organized list to the employees of MSD.

[479]In a memorandum dated April 30, 1996, Forsyth asked each employee of MSD to review and rank the concerns, which were broken down into 12 sections:

1.Communication;

2.Management leadership / business focus;

3.Treated with respect (e.g. upper colony);

4.Advanced opportunities (company growth);

5.Professional challenge;

6.Benefits (dental, pension);

7.Salary (market value);

8.Company equity;

9.Technical screen role and advancement;

10.Training and professional development;

11.Resistance to office automation and computer tech;

12.GasTOPS’ image.

[480]All of the employees, with the exception of Forsyth, Tobin and Brouse, ranked their concerns, and by mid-June 1996, Forsyth had collated the results of this survey. Forsyth then

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submitted the results to Muir, who was annoyed that Forsyth had undertaken this process. Muir was concerned that Forsyth had opened a “Pandora’s Box” and that Forsyth would have trouble keeping the lid on this process. Muir instructed Forsyth to meet with the employees and emphasize the non-monetary benefits that they enjoyed while working at GasTOPS.

[481]According to Muir, on receipt of the employee concerns which was provided to him by Forsyth, he provided a copy of the document to MacIsaac, whereas MacIsaac said that he first received the document from Forsyth.

[482]The plaintiff submits that Forsyth, Brouse and Tobin were attempting to instill employee discontent during the spring and summer of 1996 by suggesting the employees air their concerns and suggest a solution. The plaintiff suggests they did this to be able to more easily recruit the MSD members to MxI once they resigned from GasTOPS.