Leesona Corpn. v. Consolidated Textile Mills Ltd. et al.

Leesona Corpn. v. Consolidated Textile Mills Ltd. et al. Collection Supreme Court Judgments Date 1977-11-16 Report [1978] 2 SCR 2 Judges Laskin, Bora; Martland, Ronald; Ritchie, Roland Almon; Spence, Wishart Flett; Pigeon, Louis-Philippe; Dickson, Robert George Brian; Beetz, Jean On appeal from Federal Court of Appeal Subjects Action Decision Content Supreme Court of Canada Leesona Corpn. v. Consolidated Textile Mills Ltd. et al., [1978] 2 S.C.R. 2 Date: 1977-11-16 Leesona Corporation (Plaintiff) Appellant; and Consolidated Textile Mills Limited and Consolidated Textiles Ltd. (Defendants) Respondents; and The Attorney General of Canada Intervenor. 1977: October 20; 1977: November 16. Present: Laskin C.J. and Martland, Ritchie, Spence, Pigeon, Dickson and Beetz JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL Practice—Federal Court—Amendment—Correction of defendant’s name—Effect of provisions of Quebec Civil Code relating to prescription—Civil Code, arts 1138, 2188, 2224, 2261, 2267—Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 38(1)—Federal Court Rules, 424, 425. In August 1973, appellant brought an action in the Trial Division of the Federal Court for a patent infringement committed in the City of Montreal. The action was against respondent Consolidated Textile Mills Ltd., which was mentioned in its previous correspondence with appellant as the company responsible for the alleged offence. In its defence, filed on April 18, 1974, Consolidated Textile Mills Ltd. argued that it was a holding company and did not engage in the production or sale of textile yarns and goods, nor in the importation thereof. Appellant then filed a motion to correct the name of the defendant from Consolidated Textile Mills to Consolidated Textiles Ltd., the latter being in fact the operating company. Heald J. of the Federal Court granted the motion and made an order permitting the amendment. The Federal Court of Appeal reversed this decision on the ground that, since part of the damages were prescribed under the Civil Code, the Federal Court Rules did not permit the amendment, which was a substitution of person that would result in the revival of an

extinguished debt. Held: The appeal should be allowed. Because admittedly, there could be no more than prescription of a part of the damages claimed, there was no justification for the Court of Appeal’s reversal of the order granting leave to amend. A motion to amend is to be denied only when it is apparent that it would serve no useful purpose. But this holds true only if it appears that the claim is totally extinguished. The essential question is to what extent the provisions of the Quebec Civil Code relating to prescription may curtail the application of Federal Court Rules 424 and 425 under which the amendment was authorized. In Dupuis v. De Rosa, [1955] Que. Q.B. 413, Rinfret J.A. of the Court of Appeal of Quebec stated the principles that [TRANSLATION] “if it can be seen from the substance of the proceedings that the true plaintiff has been a party to these proceedings from the beginning, even though it has been incorrectly described, this plaintiff must be permitted to correct the error, to regularize the situation and to continue the proceedings”. This Court accepted this test as correct in Ladouceur v. Howarth, [1974] S.C.R. 1111, and there is no reason to reject it after the time for prescription has expired. The reference in s. 38 of the Federal Court Act to provincial “laws relating to prescription” does not include procedural rules. In the case at bar, filing and

service complied with the Federal Court Rules. Service was effected upon a person who was the proper person to receive service in the same capacity for both respondent companies. This person knew perfectly well that the company intended to be sued was the operating company, not the holding company. It would be repugnant to any sense of justice and fairness to permit a defendant to take advantage of an error occasioned by itself. Federal Court Rules 424 and 425 do not conflict with the provisions of the Civil Code relating to prescription. For the correction of a misnomer they do not substantially differ from the rule stated in Dupuis v. De Rosa and Ladouceur v. Howarth. What they authorize the Federal Court to do is to decide that substance will prevail over form. In the case at bar, the trial judge properly exercised his judicial discretion by allowing an amendment which amounted to no more than correcting a name despite the fact that it entailed substitution of a party, though in the formal sense of the word only. Dupuis v. De Rosa, [1955] Que. Q.B. 413; Ladouceur v. Howarth, [1974] S.C.R. 1111, applied; Royer v. St. Jean and Royer, [1975] C.A. 451; Boissonneault v. Piscines Val-Mar Ltée, [1970] C.A. 406, distinguished; Montreal Street Ry. Co. v. Boudreau (1905), 36 S.C.R. 329; Veilleux v. Marineau, [1969] S.C.R. 861; Hamel v. Brunelle and Labonté, [1977] 1 S.C.R. 147;

Lussier v. Marquis, [1960] Que. Q.B. 20, rev’d. [1960] S.C.R. 442, referred to. APPEAL from a decision of the Federal Court of Appeal[1] reversing a judgment of the Trial Division granting the leave to amend. Appeal allowed. G.F. Henderson, Q.C., and Gordon S. Clarke, for the appellant. Peter R. O’Brien and Louis P. Bélanger, for the respondents. T.B. Smith, Q.C., and J. Mabbutt, for the intervenor. The judgment of the Court was delivered by PIGEON J.—This appeal is from a judgment of the Federal Court of Appeal reversing a judgment of the trial division which had allowed an amendment of the statement of claim, to correct the name of the defendant in a patent infringement suit under the following circumstances. On August 31, 1972 Leesona’s solicitors sent a letter to Consolidated Textiles Ltd. (Textiles) referring to possible infringement of Leesona’s patents pertaining to textured yarn and inviting negotiations for a settlement to avoid litigation. Following a telephone conversation, a draft licence agreement was mailed with another letter of September 27. No answer having been received further letters were sent. Under date of February 20th, 1973 a letter was sent to Leesona’s solicitors by D.J. Speirs, Vice-President—Finance, of Consolidated Textile Mills Limited (Mills) in which one reads: “As per your request at our February 20th meeting, we list below the number of

machines at Montmagny currently able to do texturizing:…”. This letter is on Mills letterhead. Under a post office address identical with Textile’s there is printed: “Mills: St-Hyacinthe, Que., Joliette, Que., Square C Textiles Ltd., Alexandria, Ont.”. On March 15, 1973, Leesona’s solicitors sent to Speirs a new draft agreement with Textiles. Following further letters, Speirs sent, on May 29, 1973, a letter to Leesona’s solicitors the first paragraph of which reads: “We are enclosing our cheque for $11,601 U.S. representing the royalty on our production of textured yarn made from January 1st, 1973 up until April 28th, 1973.” The letterhead and the signature are Mills but the cheque was issued by Textiles. After further correspondence with Mills, Leesona’s solicitors wrote on July 24, 1973 stating that legal proceedings had been prepared and would be instituted failing a settlement. The statement of claim is dated August 23 and was filed on August 29, 1973. No settlement was reached in spite of further correspondence. On April 18, 1974 a statement of defence was filed, para. 20 of which reads: 20. Defendant Consolidated Textile Mills Limited is a holding company and does not engage in the production or sale of textile yarns and goods nor in the importation thereof; On Leesona’s motion supported by affidavit Heald J. made under date of September 24, 1974, an order permitting the

plaintiff to amend its statement of claim “to correct the name of the defendant from Consolidated Textile Mills to Consolidated Textiles Ltd.”. The statement of claim was amended accordingly on September 30, 1974. On appeal, the Federal Court of Appeal set aside the decision of the trial division and dismissed plaintiff’s motion to amend. The reasons given by Pratte J., after a statement of the facts, read as follows: At the hearing of the appeal, it was not seriously contested that, at the time the Trial Division made the order under attack, part of the damages claimed by Leesona were prescribed under article 2261 of the Civil Code of the Province of Quebec. However, counsel for Leesona argued that the Court had nevertheless, under Rule 424, the power to authorize the change in the name of the Defendant. With that contention, I cannot agree. When an action is prescribed under article 2261 of the Civil Code, “the debt is absolutely extinguished and no action can be maintained” (art. 2267). The Rules cannot give the Court the power to revive a debt which, under the applicable substantive law, is absolutely extinguished. At the hearing in this Court, counsel for Leesona took exception to the statement in the first sentence above quoted. He also pointed out that, in any event, damages for patent infringement accrue day by day. Prescription could affect a part only of the claim for

damages and would not affect the other remedies claimed. This was properly conceded by counsel for the respondent. In this connection, I would refer to the judgment of this Court dealing with damages by nuisance in Montreal Street Ry. Co. v. Boudreau[2]. Because admittedly, there can be no more than prescription of a part of the damages claimed, I fail to see on what basis this could possibly justify a reversal of the order granting leave to amend. Under the Quebec Civil Code, art. 1138, prescription is a mode of extinction of obligations. It is therefore a defence on the merits. In the case of short prescriptions, such as under art. 2261, the debt is absolutely extinguished no action can be maintained (art. 2267) and the Court will of its own motion supply the defence resulting from the description (art. 2188). As a result of those provisions, a motion to amend is to be denied when it is apparent that it would serve no useful purpose. But this holds true only if it appears that the claim is totally extinguished. If not, the amendment is properly permitted as was held by this Court in Veilleux v. Marineau[3]. As I understand it respondent’s submission is that Federal Court Rules 424 and 425, under which the amendment was authorized, are ineffective in a case where the prescription rules of the Quebec Civil Code apply. These rules are as follows: Rule 424. Where an application

to the Court for leave to make an amendment mentioned in Rule 425, 426 or 427 is made after any relevant period of limitation current at the date of commencement of the action has expired, the Court may, nevertheless, grant such leave in the circumstances mentioned in that Rule if it seems just to do so. Rule 425. An amendment to correct the name of a party may be allowed under Rule 424 notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party, if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the party intending to sue, or, as the case may be, intended to be sued. Section 38(1) of the Federal Court Act provides: 38. (1) Except as expressly provided by any other Act, the laws relating to prescription and the limitation of actions in force in any province between subject and subject apply to any proceedings in the Court in respect of any cause of action arising in such province,… In the statement of claim the infringement is alleged to have been committed in the City of Montreal. Therefore it is clear that the provisions of the Civil Code relating to prescription are applicable and the question becomes how far those provisions affect the operation of Rules 424 and 425. The relevant part of art. 2261 of the Civil Code reads: Art.

2261. The following actions are prescribed by two years: … 2. For damages resulting from offences or quasi-offences, whenever other provisions do not apply;… Article 2267 mentioned by Pratte J. reads: Art.

2267. In all cases mentioned in articles 2250, 2260, 2261 and 2262 the debt is absolutely extinguished and no action can be maintained after the delay for prescription has expired. In the present case, another important provision is art. 2224, the first paragraph of which presently reads: Art.

2224. The filing of a judicial demand in the office of the court creates a civil interruption provided that demand is served within sixty days of the filing in accordance with the Code of Civil Procedure upon the person whose prescription it is sought to hinder. The essential question is to what extent these three articles of the Civil Code may curtail the application of procedural rules authorizing amendments. As I noted in Hamel v. Brunelle and Labonté[4] (at p. 155) the Court of Appeal of the Province of Quebec in Lussier v. Marquis[5], took the view that the expiry of the short prescription period prevents the making of an amendment to increase a claim beyond the amount of the original action. This decision prompted a remedial intervention by the Legislature (1959-60 (Que.), c. 98, s. 4). This turned out to be mere surplusage, because the decision was later reversed unanimously in this Court[6]. After citing arts. 2262, 2264, 2265 as well as 2224, Taschereau J., as he then was, said for the Court (at p. 451): [TRANSLATION] With all possible respect for those holding contrary views, I am of the opinion that when an action for damages is instituted within the proper time, it interrupts the prescription, which begins to run again only after the final judgment. It follows that during the proceedings the plaintiff may, depending on the circumstances, claim, by means of an

incidental demand or an amendment, additional damages resulting from the same cause of action. … In the present case the question really is whether a different view is to be taken where the object of the amendment is not to correct the amount claimed but the description of one of the parties. Respondent relies on the judgment of the Court of Appeal of the Province of Quebec in Royer v. St. Jean and Royer[7]. In that case Dubé J.A. quotes from Rinfret J.A., as he then was, in Dupuis v. De Rosa[8] (at pp. 415-16): [TRANSLATION] The principle underlying these judgments is that if it can be seen from the substance of the proceedings that the true plaintiff has been a party to these proceedings from the beginning, even though it has been incorrectly described, this plaintiff must be permit- ted to correct the error, to regularize the situation and to continue the proceedings. If, on the other hand, the proceedings do not reveal the presence of the true party behind the error, that party should not be allowed to continue. I am satisfied that in the case at bar the inclusion in the statement of claim of the document in favour of Raymond de Rosa Inc. and the description of the plaintiff in the ex parte inscription, before the defence was filed, are sufficient indications to allow me to conclude that the intention was to proceed in the name of Raymond de Rosa Inc., and that the

incorrect description was in fact the result of error and inadvertence. Had prescription already been acquired, the question would have been more important, but such is not the situation in the case submitted. Dubé J.A. also refers to Boissonneault v. Piscines Val-Mar Ltée[9] in which Rinfret J. said (at p. 407): [TRANSLATION] The actual effect of the intervention was to substitute a new plaintiff, Les Placements Val-Mar Inc., for Val-Mar Swimming Pools Inc.; this caused no difficulty since this was in fact the same legal entity under a new name. Such is not the case here, however, when it is sought to substitute a new legal entity, Les Piscines Val-Mar Ltée, for Les Placements Val-Mar Inc. This substitution is unacceptable because it is an attempt to replace the plaintiff by a totally different third party. It does not appear to me that those cases really support respondent’s contention. The principle stated by Rinfret J. in Dupuis v. De Rosa does not differ from the test accepted as correct by this Court in Ladouceur v. Howarth[10] (at p. 1115). Would he say, if a defendant, “this must be myself who is meant, but I have been named wrongly”, or would he be put to inquiries beyond the contents of the document to ascertain what was meant? Would he say, if a defendant, “this plaintiff in the writ is so named by mistake—I have no dealings with him”? I can see no reason why, under

the Quebec Civil Code this test would become inappropriate when, by reason of the passage of time, prescription would be accomplished if no action had been instituted. It is true that the limitation of actions statutes merely prohibit the institution of an action and do not extinguish the cause of action as prescription does. But what difference does this may make as to the proper test to be applied on an application for an amendment when it has to be decided whether the purpose of the amendment is to correct a misnomer or to effect a substitution of parties? In Ladouceur v. Howarth, this Court rejected the contention that where the name of the party in the proceedings as instituted is the name of a known and existing person, an amendment to change such name to that of another known person is necessarily a substitution of a party for another. In that case plaintiff’s name in the proceedings as instituted was that of Conrad Joseph Ladouceur, the father of the true claimant, Paul Ladouceur. Applying the test above‑quoted, it was held that this was simply a case of a misnomer of the claimant, a typical example of a misnomer. In my view, Rinfret J.A. was quite correct in stating in Dupuis v. De Rosa that this was the proper test and I can see no reason why it would cease to be the proper test after the time for prescription has expired. Just why in the two later cases it was held

that the amendment involved a substitution of parties rather than the correction of a misnomer is not quite clear to me, but, if the basis of the decision was that there is a substitution whenever the name of a different person is to be inserted by the amendment, even if the error is apparent, then I must respectfully disagree. It is clear that, in s. 38 of the Federal Court Act, the reference to provincial “laws relating to prescription” does not include procedural rules. It cannot have been intended that, in respect of prescription, the filing and service of the proceedings in the Federal Court would be governed by the Quebec Code of Civil Procedure mentioned in art. 2224 rather than by the Rules of the Federal Court. In order to decide whether any part of the claim was prescribed when the amendment was made, the question that must be asked is whether there has been valid filing of a judicial demand followed by a valid service within sixty days thereof to the proper defendant. The record shows that after the filing on August 29, 1973, service was effected on September 7, upon a person who was the proper person to receive service in the same capacity for both Mills and Textiles, D.J. Speirs. He knew perfectly well that the company intended to be sued was Textiles, the operating company, not Mills the holding company. The facts make it perfectly obvious that the defendant’s

misdescription was occasioned by his written misrepresentation of Mills as the operating company. It was no doubt done inadvertently by mere carelessness. But how can a defendant be permitted to take advantage of the obvious error he has so occasioned, to defeat what must be assumed to be a just claim. I consider it as repugnant to any sense of justice and fairness. It is a result which could be justified only if compelled by explicit legislation leaving no alternative and I can see nothing of the kind in the present case. I do not think that, on a proper construction, Rules 424 and 425 conflict with the provisions of the Quebec Civil Code relating to prescription. For the correction of a misnomer they do not substantially differ from the rule stated in Dupuis v. De Rosa and Ladouceur v. Howarth. What they authorize the Federal Court to do is to decide that substance will prevail over form. What Heald J. decided was in effect that, in spite of the misdescription of the defendant there was an effective filing and service upon the true defendant on August 29 and September 7, 1973, respectively. In Rule 424, the words “if it seems just to do so” would not authorize the Court to disregard the effect of prescription. In the exercise of judicial discretion, it can be considered just to allow an amendment after the expiry prescription period, only when a mere technicality has to be

overcome. In the present case Heald J. could properly so hold. In the Federal Court of Appeal, Ryan J. with whom Urie J. concurred as well as with Pratte J., referred to Mitchell v. Harris Engineering Co. Ltd.[11], a case decided under English rules indistinguishable from Federal Court Rules 424 and 425. He said at pp. 262-63: …, looking at the matter in a non-technical way, the Civil Code prescription period was interrupted in good time because the action itself was started in time. I am afraid, however, that there is a real difference between suing and intending to sue a party. The amendment sought in this case would not merely involve the correction of a name; it would also substitute a party. As Russell, L.J. said in the Mitchell case, “The amendment sought involves the correction of the name of the Defendant, albeit that it is alleged and correctly so, that it also involves the substitution of the Irish company for the Leeds company.” (at p.

721) The person sought to be substituted in this case would be a person which, prior to the substitution, had had its alleged debt, arising out of the acts complained of, extinguished. If the Rules in question were applied in this case, there would be a consequent revival of the extinguished “debt”. This, in my view, would take the attempted application beyond the scope of the rule-making powers in respect of the regulation of practice and procedure delegated by section 46 of the Federal Court Act. With respect, this is a misreading of the Mitchell case. In fact what Russell L.J. did decide was that the amendment should be allowed because the rules were procedural only and did not mean that the Statute of Limitations could be disregarded. He said at p. 721: We were referred to a number of cases in which the courts have declined to permit amendments which would have the effect of depriving a party of the ability which he would have in any fresh proceedings to take advantage of the Statute of Limitations. It was urged that these were based rather upon an inability in point of substantive law to deprive a person of a right conferred upon him by the Statute of Limitations than upon a settled practice. Various locations were used in these cases, some expressly referring to practice, others pointing (but not, I think, conclusively) in the direction of “defeating” the statute. See,

for example, Greer L.J. and Scrutton L.J. respectively in Mabro v. Eagle Star & British Dominion Insurance Co. Ltd. (1932, 1 K.B. 486). But I take these cases to have been decided on grounds of settled practice, albeit attributable to the parties’ position vis-à-vis the Statute of Limitation. So far as I am aware, no judge said that it would be outside the jurisdiction of the court to allow the amendment in question: and if it were thought to be a question of substantive law, this would surely have been the immediate and short answer to the application to amend. I turn to the next point, whether the present case is within the language of the rule. I think it is. The amendment sought involves the correction of the name of the defendant, albeit that it is alleged and correctly so, that it also involves the substitution of the Irish company for the Leeds company. Moreover, there was in my view a genuine mistake by the junior clerk on the facts stated, though it is true that with a greater degree of diligence, and perhaps with a lesser degree of self-reliance, he would not have made it. It is suggested that mistake here means error without fault; but, I do not see why the word should be so narrowly construed. It was not misleading, because when the writ was served, it was served on Mr. Buteaux, secretary to both companies, who could not have failed to observe, since the accident

alleged was at the Irish company works, that the Irish company was intended to be the defendant. Moreover, the mistake did not mislead the Irish company into thinking it was clear of liability on August 27, 1966. It would have thought so (if at all) without the mistake. It is readily apparent that, in the context, the sentence quoted by Ryan J. refers to a “substitution” of a party in the formal sense only. The context shows that Russell L.J. agreed that, in substance, the amendment was only the correction of a misnomer and did not involve a disregard of the Statute of Limitations. The Attorney-General of Canada intervened on a constitutional question that had been raised by the appellant. At the conclusion of the argument at the hearing, seeing that the question had not been discussed, counsel for the Attorney-General made no submission. I would allow the appeal and restore the order of the trial division with costs in this Court and in the Federal Court of Appeal against the respondents. There shall be no costs to or against the Attorney-General of Canada. Appeal allowed with costs. Solicitors for the appellant: Gowling & Henderson, Ottawa. Solicitors for the respondents: Stikeman, Elliot, Tamaki, Mercier & Robb, Montreal [1] [1975] F.C. 258. [2] (1905), 36 S.C.R. 329. [3] [1969] S.C.R. 861. [4] [1977] 1 S.C.R. 147. [5] [1960] Que. Q.B. 20. [6] [1960] S.C.R. 442. [7] [1975] C.A. 451. [8] [1955] Que. Q.B. 413. [9] [1970] C.A. 406. [10] [1974] S.C.R. 1111. [11] [1967] 2 Q.B. 703.