Date: 20050630
Docket: T-2289-03
Citation: 2005 FC 933
Toronto, Ontario, June 30, 2005
Present: The Honourable Madam Justice Heneghan
BETWEEN:
NETBORED INC.
Plaintiff
and
AVERY HOLDINGS INC., SEAN EREN, SUSAN EREN, SUSAN KATZ,
COREY KATZ and BINARY ENVIRONMENTS LTD.
Defendants
REASONS FOR ORDER AND ORDER
INTRODUCTION
[1] Netbored Inc. (the "Plaintiff") appeals from the June 10, 2005 Order of Prothonotary Milczynski in which paragraphs 1(a)(i) and 1(a)(ii) of the Amended Statement of Claim were struck out, upon the motion of Avery Holdings Inc., Sean Eren, Susan Eren, Susan Katz and Covey Katz (the "Defendants").
BACKGROUND
[2] The Plaintiff is a corporation that conducts the business of operating electronic retail or "e-commerce" websites on the internet. It commenced this action against the Defendants on December 10, 2003, alleging copyright infringement and other causes of action. In support of its Statement of Claim, the Plaintiff sought and obtained an Anton Piller Order.
[3] Subsequently, the Plaintiff brought a motion, seeking review of the Anton Piller Order. By motion filed January 7, 2004, the Defendants sought an order setting aside and/or staying the interim injunction flowing from the Anton Piller Order and effectively striking that Order.
[4] By Order dated February 20, 2004, both the Plaintiff's review motion and the Defendants' motion were adjourned sine die and the interim injunction arising form the Anton Piller Order was continued. Further, that Order provided that the action be case managed.
[5] The Defendants then sought an Order striking certain paragraphs of the Statement of Claim. Prothonotary Milczynski, as case management prothonotary, granted the motion in part by Order dated February 15, 2005, striking out paragraphs 1(a)(i) and 1(a)(ii), as well as other paragraphs in the original Statement of Claim. These paragraphs provided as follows:
(i) an interim, interlocutory and permanent injunction restraining Sean Eren from (whether as an owner, manager, operator, consultant or employee of a business substantially similar to or competitive with the Plaintiff) competing with the Plaintiff until August 30, 2004;
(ii) an interim, interlocutory and permanent injunction restraining Sean Eren from using, for himself or others, disclosing or divulging to others including future employers, any trade secrets, confidential information, or any other proprietary data of the Plaintiff which he received or created during the course of his employment with the Plaintiff including, but not limited to, methods, processes, formulae, compositions, systems, techniques, inventions, machines, computer programs, source code, research projects, customer lists, pricing data, sources of supply, financial data, marketing plans, production plans and merchandising systems;
[6] Upon appeal, the Plaintiff was partially successful and obtained an Order allowing the reinstatement of paragraphs 1(c)(v) and 28 of the original Statement of Claim. Justice Gibson upheld that part of the Prothonotary's Order dealing with paragraphs 1(a)(i) and 1(a)(ii) and said the following in paragraphs 24 and 28:
[24] I adopt the words of Justice Rouleau in R.W. Blacktop Ltd. et al v. Artec Equipment Co., quoted immediately above, as my own, substituting for the reference to "infringement of the plaintiffs' patent" the words "...infringement of the plaintiff's copyright". This is an action for infringement of the plaintiff's copyright. The plaintiff's allegations in the impugned paragraphs of the Statement of Claim relating to breach of contract and breach of fiduciary duty and the like are not advanced for the purpose of establishing infringement. Rather, they are advanced for the purpose of obtaining relief in respect of those breaches themselves. As such, this Court lacks jurisdiction to entertain them.
...
[28] An Order will go allowing this appeal by way of motion to the extent of reinstating the expressions "use of the Plaintiff's confidential information" and "the enforcement of the Plaintiff's employment contracts" in paragraph 1(c)(v) and reinstating paragraph 28 in the Statement of Claim. In all other respects, I am satisfied that the prothonotary was correct in striking the various provisions of the Board's Statement of Claim identified in the prothonotary's order. In the result, in those other respects, this appeal will be dismissed.
[7] The Plaintiff presented an Amended Statement of Claim in which it amended paragraphs 1(a)(i) and 1(a)(ii) as follows:
(a) as against the Defendant, Sean Eren:
(i) in order to prevent Sean Eren from further infringing the Plaintiff's copyrights, an interim, interlocutory and permanent injunction restraining Sean Eren from (whether as an owner, manager, operator, consultant or employee of a business substantially similar to or competitive with the Plaintiff) competing with the Plaintiff; [Emphasis in original]
(ii) in order to prevent Sean Eren from further infringing the Plaintiff's copyrights, an interim, interlocutory and permanent injunction restraining Sean Eren from using, for himself or others, disclosing or divulging to others including future employers, any trade secrets, confidential information, or any other proprietary data of the Plaintiff which he received or created during the course of his employment with the Plaintiff including, but not limited to, methods, processes, formulae, compositions, systems, techniques, inventions, machines, computer programs, source code, research projects, customer lists, pricing data, sources of supply, financial data, marketing plans, production plans and merchandising systems; [Emphasis in original]
[8] As well, the Plaintiff added a new paragraph 36 as follows:
36. The Plaintiff states that it is entitled to the relief claimed in subparagraphs 1(a)(i) and 1(a)(ii) herein and that such relief is necessary in order to prevent the Defendants, Corey Katz, Susan Eren and Sean Eren, from further infringing the Plaintiff's copyrights, on the basis that:, inter alia:
(i) Corey Katz, Susan Eren and Sean Eren have each demonstrated that they desire to compete with the Plaintiff by exploiting the Plaintiff's original computer programming and original content to gain a commercial advantage over the Plaintiff and others;
(ii) Corey Katz, Susan Eren and Sean Eren have each demonstrated that they have no regard for the Plaintiff's intellectual property rights and that they will continue to infringe these rights so long as they can benefit from doing so;
[9] The Defendants brought another motion seeking various orders, including an order requiring the Plaintiff to provide an Amended Statement of Claim as allowed by the Orders of Prothonotary Milczynski and Justice Gibson, dated February 15, 2005 and April 12, 2005, respectively.
1. This motion is brought by the Defendants for an Order:
...
(e) Requiring the Plaintiff to provide the Defendants with an Amended Statement of Claim which complies with the February 15, 2005 Order of Prothonotary Milczynski and the April 12, 2005 Order of Justice Gibson.
[10] In her Order of June 10, 2005, following the hearing of the Defendants' motion, the Prothonotary said the following at paragraphs 5 and 6:
5. The motion is granted in respect of the relief sought by the Defendants in paragraph 1(e) of the Notice of Motion. In the event the Plaintiff is successful on the issue of copyright infringement, the Court may order the injunctive relief sought in paragraphs 1(b)(i),(ii) and (iii) of the Amended Statement of Claim. The Defendants, including Sean Eren, may be subject to an order restraining them from reproducing or authorizing the reproduction of the Plaintiff's copyrighted works, from infringing the exclusive rights of the Plaintiff to reproduce and authorize the reproduction of the Plaintiff's copyrighted works, and from reproducing, copying or in any way using the Plaintiff's copyrighted works. The relief sought in paragraphs 1(a)(i) and (ii) of the Amended Statement of Claim (restraining Sean Eren from competing with the Plaintiff, and imposing a confidentiality order) "in order to prevent Sean Eren from further infringing the Plaintiff's copyrights" is not in substance, advanced for the purposes of establishing copyright infringement, but is intended to engage this Court to obtain relief for causes of action that are beyond the jurisdiction of this Court. Simply making reference to copyright infringement is insufficient and only attempts to do indirectly what was earlier attempted in a more direct fashion.
6. The costs of this motion shall be paid to the Defendants in the event of the cause.
SUBMISSIONS
[11] The Plaintiff argues that the Prothonotary's Order is reviewable on the standard of correctness since the question of the amendments to the Statement of Claim raise issues that are vital to the final disposition of the action; see Merck & Co. v. Apotex Inc. (2003), 30 C.P.R. (4th) 40 (F.C.A.). It also submits that the Prothonotary erred in principle in awarding costs to the Defendants since the Defendants achieved only limited success on their motion.
[12] The Defendants submit that the appeal should be struck out on the grounds that it is res judicata since the Order of the Prothonotary did not strike the impugned paragraphs but only required the Plaintiff to comply with the outstanding Orders, most recently in the Order of Justice Gibson. They argue that the Plaintiff is effectively seeking to appeal the Order of Justice Gibson after the time limited for doing so has expired.
[13] Alternatively, the Defendants argue that the Prothonotary correctly struck out the purported amendments to the Statement of Claim since paragraphs 1(a)(i) and 1(a)(ii) relate to causes of action arising from control, not copyright, and do not come within the statutory jurisdiction of the Federal Court.
[14] Insofar as the award of costs is concerned, the Defendants argue that, pursuant to the Rules, an award of costs is wholly within the discretion of the Prothonotary and there is no basis for reversing that Order.
DISCUSSION AND DISPOSITION
[15] Rule 51 of the Federal Court Rules, 1998, SOR/98-106 (the "Rules") governs appeals from orders of prothonotaries. The applicable standard of review in this regard is set out in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (F.C.A.) and reaffirmed in Z.I. Pompey Industrie v. ECU-Line N.V. , [2003] 1 S.C.R. 450. The test was adapted by the Federal Court of Appeal in Merck, supra where the Court said the following:
19. To avoid the confusion which we have seen from time to time arising from the wording used by MacGuigan J.A., I think it is appropriate to slightly reformulate the test for the standard of review. I will use the occasion to reverse the sequence of the propositions as originally set out, for the practical reason that a judge should logically determine first whether the questions are vital to the final issue: it is only when they are not that the judge effectively needs to engage in the process of determining whether the orders are clearly wrong. The test would now read:
Discretionary orders of prothonotaries ought not be disturbed on appeal to a judge unless:
a) the questions raised in the motion are vital to the final issue of the case, or
b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts.
[16] In other words, the reviewing Court should apply a de novo standard in an appeal from a prothonotary if the question raised is vital to the final disposition of the case or where the prothonotary was clearly wrong in having exercised discretion on the basis of an error in principle or upon a misapprehension of the facts.
[17] In any event, in Society of Composers, Authors and Music Publishers of Canada v. Landmark Cinemas of Canada Ltd. (2004), 316 N.R. 387 (F.C.A.), the Federal Court of Appeal applied the de novo standard to an appeal from a prothonotary which involved the question of amendments to the pleadings. At paragraph 12, the Court said as follows:
12. The learned judge applied to the review of the Prothonotary's decision the standard of review determined by this Court in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425, namely that a prothonotary's order ought not to be disturbed on appeal to a judge unless:
a) the questions raised in the motion are vital to the final issue of the case, or
b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts.
I have used the new wording as reformulated in Merck & Co. v. Apotex Inc.(2004), 315 N.R. 175; 2003 FCA 488 which reverses the sequence of the propositions as originally set out and makes it clear that the "question vital to the final issue of the case" refers to the subject matter of an order issued by the prothonotary, not the effect of such order : see paragraphs 18 and 19 of that decision. As our colleague Décary, J.A., pointed out, there is from time to time some confusion on this last issue because the reviewing judge puts the emphasis on the effect of the prothonotary's order itself. In the context of an amendment, the judge has to look at the amendments themselves to see if they raised a question vital to the final issue of the case, not at the decision or order of the prothonotary refusing or granting the amendments.
Accordingly, the de novo standard will be applied.
[18] The Defendant argues that the subject matter of this appeal is res judicata on the basis that in her Order of June 10, 2005 the Prothonotary did not strike paragraphs 1(a)(i) and 1(a)(ii) but only required the Plaintiff to comply with previous Orders. They characterize the present appeal as an attempt to appeal from the Order of Justice Gibson since that is the last Order which struck out the paragraphs in issue.
[19] I do not agree with this argument. The paragraphs here in question are not exactly the same as those considered by Justice Gibson. Further, in my opinion, the effect of the Prothonotary's Order was to strike paragraphs 1(a)(i) and 1(a)(ii) of the Amended Statement of Claim, notwithstanding the fact that she did not use the word "strike" in her Order. She clearly granted the relief sought in paragraph 1(e) of the Defendants' motion and the spirit of that paragraph is a request for an order to strike the said paragraphs.
[20] I turn now to the rationale for the Prothonotary's Order. She found that the allegedly "new"paragraphs were no more than an attempt to camouflage the original pleadings in order to bring the prayers for relief set out in paragraphs 1(a)(i) and 1(a)(ii) within the statutory jurisdiction of the Court relative to protection of copyright. She concluded that by making the amendments to these paragraphs and introducing paragraph 36, the Plaintiff was attempting to circumvent the prior Orders.
[21] The Plaintiff argues that paragraphs 1(a)(i) and 1(a)(ii) are not allegations but merely prayers for broad injunctive relief and that there is no authority to show that the injunctive relief that is otherwise available, as a remedy for breach of copyright, cannot encompass these specific orders. It submits that paragraph 36 serves only to link together the allegations in the Statement of Claim and to clarify the basis upon which the relief described in paragraphs 1(a)(i) and 1(a)(ii) is sought.
[22] This is an ingenious argument, in my opinion. It seems to me that the essence of paragraph 36, when viewed in the context of the entire Statement of Claim, raises allegations of breach of contract and breach of fiduciary duty. There is no inherent jurisdiction in this Court over claims arising from contracts; this Court's jurisdiction flows form its constating statute, that is the Federal Courts Act, R.S.C. 1985, c. F-7, as amended and in my opinion, its jurisdiction in respect of copyright as set out in section 20 does not encompass the claim advanced in paragraph 36. It follows that this Court lacks jurisdiction to grant the relief sought in paragraphs 1(a)(i) and 1(a)(ii).
[23] I agree with the submissions of the Defendants that, in putting forward the amended paragraphs 1(a)(i), 1(a)(ii) and 36, the Plaintiff failed to heed the admonition of Justice Gibson in paragraph 24 cited earlier in these Reasons. I see no error in the manner in which the Prothonotary dealt with these paragraphs, effectively striking them out.
[24] I turn now to the Plaintiff's submissions concerning the Prothonotary's award of costs to the Defendant.
[25] The parties agree that the Rules accord a high degree of discretion in the matter of costs; see Rule 400(1) which provides as follows:
| 400. (1) The Court shall have full discretionary power over the amount and allocation of costs and the determination of by whom they are to be paid
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400. (1) La Cour a le pouvoir discrétionnaire de déterminer le montant des dépens, de les répartir et de désigner les personnes qui doivent les payer.
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[26] Rule 400(3) provides a non-exhaustive list of factors that may be considered in awarding costs. Subsection 400(3)(k)(i) may be relevant here:
| 400(3) In exercising its discretion under subsection (1), the Court may consider
...
(k) whether any step in the proceeding was
(i) improper, vexatious or unnecessary, or
...
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400(3) Dans l'exercice de son pouvoir discrétionnaire en application du paragraphe (1), la Cour peut tenir compte de l'un ou l'autre des facteurs suivants :
...
k) la question de savoir si une mesure prise au cours de l'instance, selon le cas :
(i) était inappropriée, vexatoire ou inutile,
...
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[27] The Prothonotary did not refer to any particular factor as identified in Rule 400(3) in making the costs award in favour of the Defendants. However, she did say that the Plaintiff was trying to do indirectly that which it could not do directly. I share that view. I am not persuaded that the Prothonotary failed to properly and judicially exercise her discretion over costs.
[28] In the result, the Plaintiff's appeal is dismissed. In the exercise of my discretion, costs are awarded to the Defendants, in the usual course, that is costs in the cause.
ORDER
The appeal is dismissed. The Defendants shall have their costs, in the cause.
"E. Heneghan"
J.F.C.
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2289-03
STYLE OF CAUSE: NETBORED INC.
Plaintiff
and
AVERY HOLDINGS INC., SEAN EREN, SUSAN EREN,
SUSAN KATZ, COREY KATZ and BINARY ENVIRONMENTS
LTD.
Defendants
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: JUNE 27, 2005
REASONS FOR ORDER
AND ORDER BY: HENEGHAN J.
DATED: JUNE 30, 2005
APPEARANCES:
JOHN H. SIMPSON FOR THE PLAINTIFF
ALLISON KUNTZ FOR THE DEFENDANTS
SOLICITORS ON THE RECORD:
AIRD & BERLIS
BARRISTER & SOLICITOR
TORONTO, ONTARIO FOR THE PLAINTIFF
OGILVY RENAULT
BARRISTER & SOLICITOR
TORONTO, ONTARIO FOR THE DEFENDANTS
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