Universal Foods Inc. v. Hermes Food Importers Ltd.

Universal Foods Inc. v. Hermes Food Importers Ltd. Court (s) Database Federal Court of Appeal Decisions Date 2003-01-29 Neutral citation 2003 FCA 49 File numbers A-690-02 Notes Digest Decision Content Date: 20030129 Docket: A-690-02 Neutral citation: 2003 FCA 49 PRESENT: SEXTON J. A. BETWEEN: UNIVERSAL FOODS INC. Appellant - and - HERMES FOOD IMPORTERS LTD., MASOUD MOTAMEDI, TOUS ENTERPRISES LTD., H & R IMPORT-EXPORT INC., HAMIDEH RAFATI, FEREYDON EBADIAN, SUPER ARZON INC., SUPER ARZON LTD., SUPER KHORAK INC. o/a THE MARKET SUPER KHORAK, ASY'S MARKET INC., JOHN DOE and JANE DOE Respondents Heard at Toronto, Ontario, on January 29, 2003. Order delivered at Toronto, Ontario, on January 29, 2003. REASONS FOR ORDER BY: SEXTON J.A. Date: 20030129 Docket: A-690-02 Neutral citation: 2003 FCA 49 PRESENT: SEXTON J. A. BETWEEN: UNIVERSAL FOODS INC. Appellant - and - HERMES FOOD IMPORTERS LTD., MASOUD MOTAMEDI, TOUS ENTERPRISES LTD., H & R IMPORT-EXPORT INC., HAMIDEH RAFATI, FEREYDON EBADIAN, SUPER ARZON INC., SUPER ARZON LTD., SUPER KHORAK INC. o/a THE MARKET SUPER KHORAK, ASY'S MARKET INC., JOHN DOE and JANE DOE Respondents REASONS FOR ORDER SEXTON J.A. [1] The appellant's (hereinafter referred to as "the plaintiff") business involves the manufacture and sale of food products bearing the trademark BADR. [2] The plaintiff claims to be the exclusive licensee of the BADR trademark pursuant to a written trademark license agreement dated December 1, 2002 and further claims that the BADR trademark has been used in Canada since July 1994, its registration having occurred on October 7, 1998. [3] On October 21, 2002, the plaintiff commenced an action for infringement of the BADR trademark by the respondents (hereinafter referred to as "the defendants") who they claimed were marketing, advertising and distributing inferior wares bearing the name BADR. [4] On October 21, 2002, the plaintiff obtained an ex parte Anton Piller Order authorizing inspection and seizure of products bearing the BADR trademark in the possession of the defendants. [5] On November 11, 2002, the defendants brought a motion to have the Anton Piller Order set aside and on December 5, 2002, the plaintiff discontinued its motion for an Anton Piller Order and consented to it being set aside except as to the issues of damages and costs. [6] On December 16, 2002, the parties attended before the Motions Judge at which time he issued an Order setting aside the Anton Piller Order, adjourned the motions in order to provide the defendants time to submit evidence of damages and costs to March 7, 2003, and ordered the plaintiff to post with the Court security in the amount of $100,000.00 for costs and damages of the defendants. [7] In granting the Order as to security for costs, the Motions Judge said as follows: Taking into account the plaintiff's undertaking relating to damages contained in paragraph 26 of the Anton Piller Order herein dated the 21st of October 2002 and Rules 3 and 416(1)(g), the plaintiff is ordered to post with the Court, in accordance with Rule 418, security in the amount of $100,000.00 for costs and damages, such security to be posted on or before the 3rd of January, 2003. (Para. 4 of the Order of Gibson J. dated December 17, 2002 at p. 132 of the respondent's record) [8] The security was to be posted by January 3, 2003 and this date was later extended by the Motions Judge to February 10, 2003. [9] The plaintiff has brought a motion for an order granting a stay of the Order of the Motions Judge with respect to the requirement to post with the Court security in the amount of $100,000.00 for costs and damages. [10] The three part test to determine whether a stay should be granted was established by the Supreme Court of Canada in RJR-Macdonald v. Canada (Attorney General) [1994] 1 S.C.R. 311. The three parts consist of the following: 1. A serious question to be tried must be demonstrated. Whether the test has been satisfied should be determined by a motions judge on the basis of common sense and an extremely limited review of the case on the merits. The threshold is a low one. Unless the case on the merits is frivolous and vexatious, a judge on a motion for relief must, as a general rule, consider the second and third stages of the test. 2. An applicant must convince the court that it will suffer irreparable harm if the relief is not granted. 3. A court must assess the balance of inconvenience. Under this branch of the test, a Court must consider which of the two parties will suffer the greater harm from the grant or refusal of a stay, pending a decision on the merits. Serious issue to be tried [11] In my view, there is a serious issue to be tried. The Motions Judge purported to justify the Order for security for damages and costs with reference to Rule 416(1)(g). However, that rule only refers to security for costs and not to security for damages. Therefore, there is considerable doubt as to whether the Order can be justified under Rule 416(1)(g) in that it orders security for damages in addition to costs. [12] Rule 416(1)(g) reads as follows: Where, on the motion of a defendant, it appears to the Court that... there is reason to believe that the action is frivolous and vexatious and the plaintiff would have insufficient assets in Canada available to pay the costs of the defendant, if ordered to do so... the Court may order the plaintiff to give security for the defendant's costs. [13] There are two elements to Rule 416(1)(g). Firstly, there must be reason to believe that the action is frivolous and vexatious. There are no reasons of the Motions Judge adverting to this matter. Before me it was argued that the action by the plaintiff for trademark infringement was not frivolous or vexatious as the plaintiff holds a registered trademark which is presumed to be valid. The defendants have not adequately met this argument. It is conceivable that the Motions Judge was referring to the obtaining of the Anton Piller Order in invoking Rule 416(1)(g) but in the absence of reasons I am unable to conclude that this is so. It would appear arguable that this aspect of the test has not been met. [14] The second element of Rule 416(1)(g) is that there must be reason to believe that the plaintiff would have insufficient assets in Canada available to pay the costs of the defendants. Again this was not addressed by the Motions Judge, but it appears to me that the plaintiff does have sufficient assets in Canada to pay the costs of the defendants. Indeed the defendants appear to concede this. [15] For all of the above reasons, it appears it is arguable that Rule 416(1)(g) did not provide sufficient authority to support the Order which was granted. [16] The other ground on which the Order for security rested was the undertaking given by the plaintiff when the Anton Piller Order was obtained. That undertaking was as follows: On behalf of Universal, I hereby confirm that Universal undertakes to abide by any Order concerning damages that this Honourable Court may make if it ultimately appears that the granting of the Orders sought has caused damages to any of the Defendants, for which the Plaintiff, Universal, sought to compensate them. (Para. 43 of the Katebian Affidavit at p. 20 of the respondent's record) [17] The undertaking was referred to in the Anton Piller Order as follows: This Order is issued on the Plaintiff's undertaking to obey promptly any Order of Court with respect to damages, that may issue, arising out of any unauthorized execution of this Order or upon the setting aside of the Order. (Para. 26 of Anton Piller Order dated October 21, 2002 at p. 15 of the respondent's record) [18] The plaintiff also indicated that it would argue, on the appeal, although this is not referred to in the Notice of Appeal, that the terms of the undertaking were not broad enough to authorize the order which was made. Specifically, while the undertaking refers to "any Order of the Court with respect to damages," it is arguable that this refers to an order which the Court may make as to payment for damages and costs after there has been a finding to this effect, and not to orders for security of costs in advance of such a determination. [19] For the reasons above, it is my conclusion that the plaintiff has satisfied the first branch of the test set out in the RJR-Macdonald case. Irreparable harm [20] The plaintiff argues that if the stay is not granted, that it will not be in a position to both post security and also to continue to finance its business. It argues that if it is unable to finance its business that it will lose customers to the defendants with the result that the plaintiff will be out of business before it has its day in court on its claim that the defendants are infringing its trademark. There is some force to this argument. [21] The defendants argue that this argument does not avail the plaintiff because of the reasoning in the case of Dableh v. Ontario Hydro [1994] F.C.J. No. 1325 [F.C.T.D.]. In that case, it was held that a plaintiff who had been unsuccessful in a patent infringement action could not obtain a stay of an order for costs against him by the defendant on the basis that he would be unable to finance his appeal of the judgment. It seems to me that case is somewhat different in that it had been determined that the plaintiff did not have a valid claim for infringement. In the present case, the plaintiff has a prima facie claim for infringement in the action. Also, in Dableh, there had been a judgment that the plaintiff should pay the costs of the defendant. In the present case, there is, as yet, no judgment for payment of costs or damages. [22] The defendants argue that the plaintiff has sufficient assets to post the security. If the plaintiff has sufficient assets to post the security then presumably it has sufficient assets to satisfy any judgment which may issue up to that amount. There is no evidence to suggest that the plaintiff is attempting to dispose of its assets in order to avoid payment of any judgment. Furthermore, I was advised by counsel that it is expected that determination of any damages and costs will take place on March 7, 2003 so that the defendant would be in a position to be paid at that time. [23] Quite apart from this, it appears to me that if the stay is not granted, then the plaintiff must post security. If it posts security, it will be in the difficulty which I have already described. Furthermore, if it does post security, the appeal will become moot so that, in effect, the plaintiff will have lost its right to appeal. It can be argued that this would constitute irreparable harm. [24] In the circumstances, it appears to me that the plaintiff has satisfied the second branch of the test in RJR-Macdonald. Balance of convenience [25] The defendants have argued, as I have indicated, that the plaintiff has sufficient assets to post security in an amount exceeding $100,000.00. The evidence adduced by the defendants does not establish that their claim for damages and costs will exceed the amount of the plaintiff's assets. [26] Furthermore, the issue of the claim for damages and costs is to be decided on March 7, 2003. Consequently, there appears to be little risk that the defendants will not be able to obtain from the plaintiff a payment of any award made. [27] On the other hand, the plaintiff has established that a considerable disruption to its business may well occur if it is required to post the security in the interim period. [28] I am therefore of the view that the balance of convenience favours the plaintiff. Conclusion [29] In the circumstances, I believe a stay of the Order for security is warranted. However, I do not think it should be lengthy. There was no evidence before me that the plaintiff has taken any steps beyond serving a Notice of Appeal from the Order for security. No effort has been made to expedite the appeal. The issue of damages and costs will be considered by the Motions Judge on March 7, 2003. It appears to me unlikely that the appeal will be heard before March 7, 2003. The stay of the order should not extend beyond the time when the Motions Judge makes an order with respect to damages and costs. Disposition [30] I therefore would grant a stay of the Order of the Court with respect to the requirement to post with the Court security in the amount of $100,000.00 for damages and costs until the earlier of the time at which the appeal from this order is disposed of or the time when an order for payment of damages and costs is made by the Motions Judge. [31] Costs of this application shall be in the cause. "J. E. Sexton" J.A. Toronto, Ontario January 29, 2003 FEDERAL COURT OF CANADA APPEAL DIVISION Names of Counsel and Solicitors of Record DOCKET: A-690-02 STYLE OF CAUSE: UNIVERSAL FOODS INC. Appellant - and - HERMES FOOD IMPORTERS LTD., MASOUD MOTAMEDI, TOUS ENTERPRISES LTD., H & R IMPORT-EXPORT INC., HAMIDEH RAFATI, FEREYDON EBADIAN, SUPER ARZON INC., SUPER ARZON LTD., SUPER KHORAK INC. o/a THE MARKET SUPER KHORAK, ASY'S MARKET INC., JOHN DOE and JANE DOE Respondents DATE OF HEARING: WEDNESDAY, JANUARY 29, 2003 PLACE OF HEARING: TORONTO, ONTARIO REASONS FOR ORDER BY: SEXTON J.A. DATED: WEDNESDAY, JANUARY 29, 2003 JUDGMENT DELIVERED FROM THE BENCH ON WEDNESDAY, JANUARY 29, 2003. APPEARANCES BY: Mr. Kenneth D. Hanna For the Appellant Mr. Donald Cameron For the Respondents SOLICITORS OF RECORD: Ridout & Maybee LLP 1 Queen Street East Suite 2400 Toronto, ON M5C 3B1 For the Appellant Baird & Berlis LLP BCE Place Suite 1800, Box 754 181 Bay Street Toronto, ON M5J 2T9 For the Respondents