Two software companies wanted to integrate their software
products. The relationship soured and one of the parties - McHenry
- purported to terminate the Software Licensing and Development
Agreement and then launched a lawsuit in the Federal Court in the
US, claiming copyright infringement and breach of contract. The
other party - ARAS - countered by invoking the mandatory
arbitration clause in the software agreement. The US court
compelled the parties to resolve their dispute through arbitration
in Vancouver. After the arbitration, the arbitrator's decision
was appealed in the BC Supreme Court. In that appeal, McHenry
sought a "sealing order" asking the BC court, in
effect, to order confidentiality over the March 26, 2014Arbitration Award itself. This
is because ARAS, who prevailed at arbitration, circulated the
arbitration award to others.
In the recent decision (McHenry Software Inc. v. ARAS 360
Incorporated, 2014 BCSC 1485 (CanLII)) the BC
Supreme Court considered the law of "sealing orders" and
confidentiality in the context of a dispute between two software
The essence of McHenry's complaint was that the
arbitrator's award should be treated confidentially, since it
contained confidential and sensitive information about the dispute,
which could harm or disadvantage McHenry in its negotiations with
future software development partners.
The court reviewed the legal principles governing sealing
orders. A "sealing order" is simply court-ordered
confidentiality over court records or evidence. While there is a
presumption in favour of public access in the Canadian justice
system, there are times when it is appropriate to deny access to
certain records to prevent a "serious risk to an important
interest" as long as "the public interest in
confidentiality outweighs the public interest in openness".
(To dig deeper on this, see: Sierra Club of Canada v. Canada
(Minister of Finance), 2002 SCC 41 (CanLII), 2002 SCC 41.)
If you were hoping for a handy three-part test, you're in
First, the risk in question must be real and substantial, and
must pose a "serious threat" to the commercial interest
The interest must be tied to a public interest in
confidentiality. The SCC said: "a private company could not
argue simply that the existence of a particular contract should not
be made public because to do so would cause the company to lose
business, thus harming its commercial interests." Courts must
remember that a confidentiality order involves an infringement on
freedom of expression, so it should not be undertaken to satisfy
purely commercial interests.
Third, the court must consider whether there are any reasonable
alternatives to a confidentiality order, or look for ways to
restrict the scope of the order as much as possible in the
Ultimately, the BC Court was not sympathetic to McHenry's
arguments for a sealing order. If McHenry was so concerned about
the confidentiality of these proceedings, the court argued, then
McHenry would not have launched a lawsuit against ARAS in the US
Federal Court, where there is no confidentiality. In pursuing
litigation, McHenry filed numerous documents in the public record,
including its Arbitration Notice, its Statement of Claim in the
Arbitration and its petition in the BC Court
proceedings, some of which contained potentially
"Moreover," the court continued, "there is no
general principle that the confidentiality of arbitration
proceedings carries over to court proceedings when the arbitration
is appealed. On the contrary, such court proceedings are generally
This case serves as a reminder of the confidentiality issues
that can arise in the context of a dispute between software
companies, both in arbitration proceedings and in the litigation
context. Make sure you seek experienced counsel when
handling the complex issues of confidentiality, sealing orders and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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