Letourneau v. Clearbrook Iron Works Ltd., 2005 FC 333

Date: 20050306

Docket: T-1864-00

Citation: 2005 FC 333

BETWEEN:

                                                       JOHN LETOURNEAU and

                                                 LETOURNEAU LIFE RAIL LTD.

                                                                                                                                             Plaintiffs

                                                                           and

                                             CLEARBROOK IRON WORKS LTD.

                                                                                                                                           Defendant

                                                        REASONS FOR ORDER

HARGRAVE P.

[1]         This action involves alleged infringement of a patent for an easily removable safety rail stanchion, embodying a dog's leg offset, for use along the top edge of a precast concrete wall, to be put in place either in anchor sleeves cast into the wall, or bolted to the wall. With the stanchions and connecting cable railing in place, projecting above a floor capping the walls, workers are prevented from wandering off the edge of the building.

[2]         The Plaintiffs, by this motion, seek to strike out all or part of paragraph 22 of the Third Amended Defence and Counterclaim, which refers to section 76 of the Patent Act and sections 366 and 368 of the Criminal Code and which provide penal sanctions for false representations in the first instance and for forgery in the second instance. I now turn to some relevant background.

RELEVANT BACKGROUND

[3]         The third amended Defence and Counterclaim of 10 January, 2005, alleged that, before the commencement of this action, one of the Plaintiffs misled an employee of the Defendant as to the content of the pending patent application and:

22.           As a result of the conduct described in paragraphs 19-21 of the Third Amended Statement of Defence, the 136 Patent is void and unenforceable as against the Defendant. Further, and in the alternative, the Plaintiffs are not entitled to any equitable or other remedy as against the Defendant as alleged or at all. The Defendant pleads and relies upon Section 76 of the Patent Act, R.S.C. 1985, c. P-4, as amended, and Sections 366 and 368 of the Criminal Code of Canada.

The Defendant also pleads that this misleading amounted to the submission of a sham application to the Defendant and that it was used both with the intention of falsely and deceptively asserting rights which the Plaintiffs did not have and of falsely and deceptively inducing the Defendant to believe that it had infringed the rights of the Plaintiffs. Indeed, even the reference to a sham is in effect a reference to a deception or a deceit. It is paragraph 22, or alternatively the last sentence of paragraph 22, which the Plaintiffs wish struck out.

[4]         The response of the Plaintiffs to paragraph 22 of the Defence and Counterclaim, as set out in the Third Amended Reply and Defence to Counterclaim of 20 January, 2005, is that the error in one of the figures contained in a drawing of the stanchion ought to have been immediately detectable by the Defendant, but that, in any event:

In further answer to paragraph 22 of the Third Amended Statement of Defence, the Plaintiffs plead that section 76 of the Patent Act and the Criminal Code of Canada are not within the jurisdiction of this Honourable Court and the references to them do not disclose a reasonable cause of action, are embarrassing and should be struck out.

By raising the issue of want of a reasonable cause of action, embarrassment and the striking out of paragraph 22 in their Defence to Counterclaim the Plaintiffs, while responding by way of a pleading to the counterclaim, are not estopped from bringing the present motion to strike out all or part of paragraph 22.

[5]         Section 76 of the Patent Act, R.S.C. 1985, c. P-4 provides, in part, that:

Fox on Canadian Patent Law and Practice, 4^th edition, 1969, Carswell, at page 604, points out that the Crown "... enters into the administration of the law of patents as part of its criminal jurisdiction.", providing through the Patent Act penalty by way of fine and imprisonment. Here I would observe that the Federal Courts Act vests both the Appellate and Trial Divisions with a criminal jurisdiction:

This criminal jurisdiction is not a general criminal jurisdiction.

CONSIDERATION

[6]         I will begin with a consideration of paragraph 22 of the Defence and Counterclaim in the context of a quasi-criminal or criminal proceeding. The usual procedure in the Federal Court, where prosecutions under intellectual property legislation have taken place, is that the prosecution is by the Crown and here I have in mind, by way of example, The Queen v. Canadian Coat and Apron Supply Limited [1967] 2 Ex. C.R. 53. However that prosecution was under the Combines Investigation Act, Canada 1960, c. 45 which referred to proceedings initiated by the Attorney General in the Exchequer Court of Canada and here see also the present version of the legislation, The Competition Act R.S.C. 1985 c. C34, which again makes it clear, at section 73, that proceedings are to be initiated by the Attorney General of Canada in the Federal Court.

[7]         I recognize that a private prosecution of a criminal matter, by way of indictment, may still be open, with the consent of a judge with appropriate jurisdiction. Section 22 of the defence is clearly not a prosecution under section 76 of the Patent Act, nor does the Federal Court have the jurisdiction to entertain a prosecution under that section of the Act.

[8]         Sections 366 and 368 of the Criminal Code of Canada R.S.C. 1985 c. C64 deal, respectively, with forgery and uttering a forged document. However paragraph 22 of the Defence and Counterclaim is so defective as an indictment, in the sense of a written accusation, in the criminal law sense, as to make it clear that a defendant does not look to a Criminal Code remedy. I must therefore look to see if paragraph 22 of the Defence and Counterclaim, or any part of it, gives rise to or supports a reasonable cause of action or defence, within the jurisdiction of the Federal Court, or alternatively, whether the allegations are, as submitted by the Plaintiffs, scandalous, prejudicial or likely to delay the fair trial of the action, here the reference being to section 221(1)(c) and (d), dealing with the striking out of pleadings.

[9]         Here I would observe that the Federal Court, absent clear statutory jurisdiction as in Canadian Coat and Apron (supra), has always made it clear that there is no general jurisdiction in the Federal Court to deal with criminal matters and here I would refer, by way of example, to Canada Post Corporation v. Canadian Union of Postal Workers [1989] 1 F.C. 98 at pages 115 and 116. In that instance Mr. Justice Rouleau dealt with a motion to strike out a statement of claim which had a quasi-criminal offence basis, under the Canada Post Corporation Act. In reasoning through to striking out the statement of claim, for want of a reasonable cause of action, Mr. Justice Rouleau observed that quasi-criminal offences sections of the legislation, which had a punitive nature, could not be a sound basis by which to extend the jurisdiction of the Federal Court in a civil suit. He concluded, at page 115, that the only relief afforded by such legislation was by way of the laying of information and then the prosecution of the matter in the provincial courts. He went on to say:

I would also like to add that in my opinion, the case of [1983] 1 S.C.R. 205">R. in right of Canada v. Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205 clearly illustrates that there is no nominate tort based on the breach of a statutory provision alone, but rather that a cause of action must exist separate and apart under the law of tort. Without some indication in the Canada Labour Code or the Canada Post Corporation Act that such an action was contemplated in the statute, the breach of any provision of the Acts cannot be presumed to lead to a civil cause of action for the plaintiffs [page 116].

In effect, such quasi-criminal statutory provisions, in themselves, do not found a basis for a civil cause of action. The Defendant says, in argument, that it does not purport to prosecute a criminal or quasi-criminal offence nor is it laying the groundwork for an injunction based upon criminal activity. Of course there is uncertainty when a party has pleaded facts and then consequences, as has been done in paragraphs 19 through 21 of the Defence and Counterclaim, for the pleader is not bound by or limited to those legal consequences: see for example Johnson & Johnson Inc. v. Boston Scientific Ltd., an unreported 13 November 2004 decision in file T-1822-97, 2004 FC 1672. Therefore, despite what may have been said or represented on this motion the Plaintiffs may well wish further to discovery and that is provided for in the case management aspect of an order of even date.

[10]       Taking a different approach the Defendant submits that once the jurisdiction of the Federal Court is established, here through the Patent Act, the Court then has all the necessary powers to exercise that jurisdiction: in effect the Court has the necessary powers to give suitable relief whether or not there is any explicit statutory grant to that end: New-Pharm Inc. v. Canada (Attorney General) (2000) 2 C.P.R. (4^th) 49 (F.C.A.) at pages 52 and 53. From this the Defendant asserts that the Federal Court may apply statutes if they are relevant to matters otherwise within the Court's jurisdiction and that is said to be so even if the Court is unable to entertain actions or prosecutions directly based on such statutes.

[11]       The next case in this line of reasoning is 384238 Ontario Limited v. The Queen [1982] 1 F.C. 61 (F.C.T.D.) involving seizure of property which was supposedly transferred to a third party, the plaintiff, and out of the reach of the Crown after the fact. The plaintiffs, who had purchased the property, claimed for a return of the property from the Crown. The Crown in turn relied on the Ontario fraudulent conveyances legislation, by way of a defence. However 384238 Ontario is of no particular assistance, for in the present instance, neither section 76 of the Patent Act nor sections 366 and 368 of the Criminal Code provide defences.

[12]       Of interest is the case of Brewer Bros. v. Canada (Attorney General) (1991) 80 D.L.R. (4^th) 321 (F.C.A.), which involved alleged negligence on the part of the Crown as to the security provided by the failed operator of a grain terminal, which caused economic loss to the plaintiffs. In Brewer Bros. the Court of Appeal observed that the security provisions in the Canada Grain Act were enacted for a purpose, that of protecting grain producers whose crops were in the hands of the operator of a grain elevator. In Brewer Bros. the Court did not look at the legislated security provisions as providing a cause of action, but rather as evidence in support of a private law of duty of care:

It was not contended, and I do not suggest, that these provisions of themselves created liability in favour of the respondents. The learned trial judge pointed out [at pp. 85-6] that, in the words of Dickson J. (as he then was) in The Queen v. Saskatchewan Wheat Pool, supra [at p. 25] a "nominate tort of statutory breach giving a right to recovery merely on proof of breach and damages should be rejected" although "[P]roof of statutory breach, causative of damages, may be evidence of negligence". In the same judgment, at p. 24, Dickson J. stated: "Breach of statute, where it has an effect upon civil liability, should be considered in the context of the general law of negligence." It would seem, therefore, permissible to have regard to the foregoing provisions of the Act in considering whether one of the major elements of negligence - duty of care - exists.

The statute provides strong evidence of a private law duty of care.

      [Pages 341-372]

[13]       Important in Brewer Bros. is the clear and close connection between the harm that the statute was designed to prevent and the damage suffered by the plaintiffs. In the present instance there is a reasonably arguable connection between section 76 of the Patent Act, a disincentive and very real penalty for producing and tendering a document containing false information and what is alleged to have occurred: there is thus a direct connection and a reason for a part of what is alleged in paragraph 22 of the Defence and Counterclaim. However, on the basis of Brewer Bros., there is no similar direct connection between what is set out in the Defence and Counterclaim and sections 366 and 368 of the Criminal Code, dealing generally with forgery and uttering a forged document: paragraph 22 of the Defence and Counterclaim it is not, on the basis of Brewer Bros., able to lead to any favourable result, but will merely delay proceedings, the hallmarks of a vexatious, scandalous and prejudicial plea, which would delay a fair trial.

[14]       In the face of the Court of Appeal decision in Brewer Bros. and the limits arising out of that case, by reason of the need for a reasonable connection between the statute and the civil law, I am also not prepared to extend the use of a general Criminal Code provision, when assessing or measuring improper conduct, on the basis of either Montreal Fast Print Ltd. v. Polylock Corp. (1983) 74 C.P.R. (2d) 34 (F.C.T.D.) or Bertram v. Canada [1996] 1 F.C. 756 (F.C.A.). In Montreal Fast Print at issue was the production of documents, over which privilege had been claimed: no privilege existed. However in passing Mr. Justice Walsh referred to case law to the effect that if a client wished guidance from a lawyer to facilitate crime or fraud such communication would not be privileged. There is no connection between this and the present situation. Similarly, in Bertram Mr. Justice of Appeal Hugessen, in an aside which was not directly relevant, looked upon privilege as being vitiated by fraud. There is no connection between this principle as to the effect of fraud and what is alleged to have occurred in the present instance.

[15]       In argument counsel for the Defendant sought to establish the relevance of the Criminal Code provisions by a slightly different means, noting the criminal jurisdiction of the Federal Court granted by section 4 of the Federal Courts Act and section 20 of the Federal Courts Act granting, among other things, jurisdiction between subject and subject as to patents. Of course, this does not automatically give the Federal Court any limited or workable criminal jurisdiction, for that jurisdiction is only available when the test in ITO-International Terminal Ltd. v. Miida Electronics Inc. [1986] 1 S.C.R. 752 at 766 has been met and that requires a grant of jurisdiction in the statute being considered, which was the situation in Canadian Coat and Apron Supply (supra) but not the situation in Canada Post Corp. v. Canadian Union of Postal Workers (supra).

[16]       The Defendant's submissions also deal with an equitable aspect, referring to the equitable relief sought by the Plaintiffs, in the nature of injunction and delivery up of offending articles and profits, the granting of which is discretionary. This, the Defendant submits, makes the conduct of the Plaintiffs relevant, here referring to Beloit Canada Ltée v. Valmet-Dominion Inc. (1997) 73 C.P.R. (3d) 321 (F.C.A.). Beloit dealt, in part, with the remedy of accounting of profits as a discretionary equitable remedy and whether the principle was applicable when the entity seeking the accounting had not come before the Court in a proper state, there being allegations of unclean hands, laches and acquiescence.

[17]       In Beloit the Court of Appeal measured entitlement to an equitable discretionary remedy in terms of what in fact occurred, lengthy delay and bad faith, in the face of a Trial Division ruling. That factual and objective basis is pleaded in the present instance by the Defendant at paragraphs 19 through 21 of the Defence and Counterclaim. To try to use penalties under the Patent Act and under the Criminal Code to measure or augment the factual allegations is not workable: the plea, that entitlement to equitable remedies should somehow be measured against penal provisions, adds nothing by way of a reasonable cause of defence and indeed, as I have already pointed out, merely introduces a scandalous, vexatious, prejudicial or delaying element to the trial. The factual background set out in the Defence and Counterclaim, if proven, would provide the judge, at trial, with sufficient material by which to judge conduct and to measure the effect of that conduct on the availability of discretionary equitable relief.

[18]       This factual approach appears in Litwin Construction (1973) Ltd. v. Kiss (1988) 29 B.C.L.R. (2d) 88, a decision of the British Columbia Court of Appeal. Litwin adds nothing to the use of the penal provisions plea in paragraph 22 of the Defence and Counterclaim for the Court of Appeal merely points out that the test used by the trial judge, that of unfair or unjust conduct, which produced a result which was contrary to a sound sense of equity, rights and conduct, resulted in a conclusion in accordance with modern estoppel doctrine and "... the equitable jurisdiction to interfere in cases where the assertion of strict legal rights might be unjust or unfair." (page 100). In Litwin Construction, the Court of Appeal looked at factual conduct, not conduct as viewed in the light of statutory standards. In the present instance, one must keep in mind that only one of the statutory standards which the Defendant promotes, that set out in section 76 of the Patent Act has any relevance, but it does not provide a defence.

[19]       The foregoing is not to say that the Federal Court may not entertain pleas of abusive conduct. Here counsel for the Defendant referred to Levi Strauss & Co. v. Goldrunner Apparel Inc. (1997) 76 C.P.R. (3d) 129 (F.C.A.), where at issue was whether the paragraph of a defence, alleging a frivolous and vexatious action, intended to harass and intimidate, was a proper plea. In Levi Strauss one of the points raised was that the motive for bringing the lawsuit, that of harassment and intimidation, did not constitute a defence. The Defendant in the present case is able to point to the fact that the whole of the Defence and Counterclaim, including impugned paragraph 22, is incorporated in the counterclaim. While abuse of process may be a valid plea, in this instance in the counterclaim, that hinges on the misuse or perversion of the process of the Court. However this leads back to the factual conduct of the Plaintiffs, referred to at length in the Defence and Counterclaim and which really has no connection with penal provisions, be they in the Patent Act or in the Criminal Code.

CONCLUSION

[20]       One should not easily strike out a plea that has any indicia of legitimacy, in the sense that rather than being plainly and obviously futile, it has some chance of being an arguable part of the case. In view of the factual material alleged in paragraphs 19 through 21 of the Defence and Counterclaim it is arguable that paragraph 22, which is also relied upon in the counterclaim, is entirely unnecessary, but that is not the test on striking out.

[21]       In this instance the plea raising section 76 of the Patent Act may be arguable on the basis of a connection between section 76 of the Patent Act and what is alleged to have occurred, on the basis of the Brewer Bros. case (supra). Conversely, the application of sections 366 and 368 of the Criminal Code, which is a very serious allegation, are not only plainly and obviously futile, but also scandalous, prejudice and liable to delay a fair trial.

[22]       The portion of paragraph22 of the Defence and Counterclaim, dealing with section 76 of the Patent Act has, as I have indicated, some possible utility. Therefore, while the whole of paragraph 22 of the Defence and Counterclaim is struck out, it is with liberty to amend so as to remove all reference to the Criminal Code of Canada.

[23]       As I have already indicated this may be an instance in which the Plaintiffs may well wish further examination for discovery on the allegations which remain in section 22 of the Defence and Counterclaim. That will be provided for in the Order.

[24]       I thank counsel for their effort and the interesting material provided.

(Sgd.) "John A. Hargrave"

    Prothonotary

                                     FEDERAL COURT

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                  T-1864-00

STYLE OF CAUSE: John Letourneau et al. v. Clearbrook Iron Works Ltd.

PLACE OF HEARING:                                 Vancouver, British Columbia

DATE OF HEARING:                                   February 14, 2005

REASONS FOR ORDER :                           Hargrave P.

DATED:                     March 6, 2005

APPEARANCES:

Mr. Paul Smith                                                  FOR PLAINTIFF

Mr. J. Kevin Wright                                           FOR DEFENDANT

SOLICITORS OF RECORD:

Paul Smith Intellectual Property Law

Vancouver, B.C.                                               FOR PLAINTIFF

Davis and Company

Vancouver, B.C.                                               FOR DEFENDANT