Date: 20000529
Docket: T-2351-93
BETWEEN:
PEPPER KING LTD.
Plaintiff
- and -
SUNFRESH LIMITED
LOBLAWS INC.
LOBLAW COMPANIES LIMITED
Defendants
REASONS FOR ORDER
LEMIEUX J.:
[1] These reasons reflect the substance of the oral pronouncement I made on Wednesday, the 17th of May, 2000 at the conclusion of a telephone hearing in which I denied the defendants" motion, pursuant to Rule 416(1)(b) of the Federal Court Rules, 1998 (the "Rules") for an order that the plaintiff give security for the defendants" costs.
[2] The defendants" motion was made on the eve of trial which is set for June 12th , 2000; the security for costs asked by them was twenty thousand dollars ($20,000) but without having submitted a bill of costs. I based my ruling on the discretion provided the Court in the Rules when considering making an order for security for costs.
[3] The plaintiff is a very small Canadian corporation having one director, shareholder and officer, Mrs. Nellie Small, whose husband died in 1996 and who had originally formed the company in the early 1990's and formulated its products. The company engaged in the sale of hot pepper sauces under the trademark VOLCANO in respect of which Mr. Small made a trade-mark application on August 26, 1992 and obtained registration on August 20, 1993.
[4] Pepper King Ltd. does not have very many customers. The evidence before me suggests that its hot pepper sauces are homemade; its sales are limited to a market in southwest Ontario and to a limited number of restaurants and taverns; sales are also made directly to consumers and some sales may have been made to one retail establishment for resale to the general public.
[5] The defendants are all related companies. Loblaw Companies Limited ("Loblaw") is Canada"s largest food distributor operating at retail and wholesale. The defendant Loblaw has sold, since May, 1992 to date, salsa with labels which include the term volcano based on the assumption that the term "volcano" was available for use and would not infringe anyone"s trademarks.
[6] The plaintiff commenced this action by way of statement of claim filed in this Court on October 1, 1993 and this action came under status review. During the status review proceedings, counsel for the plaintiff wrote to the Court on September 11, 1998 indicating that he believed the plaintiff had a good cause of action and "that the plaintiff is unable to pay further fees". The action was allowed to continue under case management.
[7] A complicating factor arose out of a lengthy request to admit facts filed by the defendants on February 25, 2000. The request to admit facts was comprehensive; it contained seventy-nine paragraphs covering twenty-six pages.
[8] On the 4th day of April, 2000, the defendants moved the case management judge for an order, pursuant to Rule 256, deeming the plaintiff to having admitted facts. On the 17th of April, 2000, Mr. Justice McKeown ordered that the plaintiff was deemed to have admitted the facts set out in the notice to admit because the plaintiff did not set out the grounds for denial and limited its comments to a general denial after having been granted an extension of time.
ANALYSIS:
[9] Counsel for the defendants, as noted, based its motion for security for costs on paragraph 416(1)(b) which reads:
| 416. (1) Where, on the motion of a defendant, it appears to the Court that
...
| (b) the plaintiff is a corporation, an unincorporated association or a nominal plaintiff and there is reason to believe that 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.
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416. (1) Lorsque, par suite d'une requête du défendeur, il paraît évident à la Cour que l'une des situations visées aux alinéas a) à h) existe, elle peut ordonner au demandeur de fournir le cautionnement pour les dépens qui pourraient être adjugés au défendeur:
| b) le demandeur est une personne morale ou une association sans personnalité morale ou n'est demandeur que de nom et il y a lieu de croire qu'il ne détient pas au Canada des actifs suffisants pour payer les dépens advenant qu'il lui soit ordonné de le faire; |
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[10] Counsel for the plaintiff conceded during the hearing that Pepper King Ltd. was a corporation and had insufficient assets in Canada available to pay the costs of the defendants if ordered to do so.
[11] Counsel for the plaintiff then invoked the impecuniosity rule, Rule 417, which reads:
| 417. The Court may refuse to order that security for costs be given under any of paragraphs 416(1)(a) to (g) if a plaintiff demonstrates impecuniosity and the Court is of the opinion that the case has merit.
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417. La Cour peut refuser d'ordonner la fourniture d'un cautionnement pour les dépens dans les situations visées aux alinéas 416(1)a) à g) si le demandeur fait la preuve de son indigence et si elle est convaincue du bien-fondé de la cause.
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[12] There are two requirements under Rule 417: first, the plaintiff must demonstrate impecuniosity and second, the Court must be of the opinion that the case has merits. The onus is on the plaintiff to make out impecuniosity and to demonstrate to the Court that the case has merits.
[13] Counsel for the defendants argued the plaintiff had not established either element under Rule 417. First, on impecuniosity, he argued based on the case of 1056470 Ontario Inc. v. Goh (1997), 34 O.R. (3d) 92, a decision of Borins J. of the Ontario Court (General Division) impecuniosity means more than insufficient assets in Ontario to pay costs of the defendant pursuant to rule 56.01(1)(d) of the Rules of Civil Procedure, R.S.O. 1990 (Reg. 194) and, in the case of a corporate plaintiff, requires that it establish the monies are not available from its shareholders or other sources by way of security. Counsel for the defendants suggested the plaintiff had presented no evidence meeting this requirement.
[14] Moreover, counsel for the defendants argued the case had no merits now that important facts were deemed to be admitted which had the effect of undercutting the essence of the plaintiff"s action.
[15] I was not satisfied the plaintiff had made out a case for impecuniosity. Simply put, there was no evidence led by the plaintiff before me whatsoever on the point. Counsel for the plaintiff said I should take his admission the plaintiff was impecunious. I was not prepared to do that. In my view, the plaintiff must bring forward to the Court evidence of impecuniosity; it offered none.
[16] Whether the plaintiff"s case has merit is open to debate. Counsel for the defendants said the case had no merits and invited me to analyse in detail the deemed admitted facts in the notice to admit. Such a determination would require an extensive analysis of trademark law in the context of lengthy admitted facts but without having the benefit of the plaintiff"s other evidence and submissions on the law. In the circumstances, the action is, in my view, best left for determination after trial.
[17] I asked counsel for the defendants why they waited until now to seek security for costs. They knew as far back as September 11th, 1998, the plaintiff may not have assets in Canada to satisfy its costs if so ordered. Yet, they delayed until mid May, 2000 to make their motion knowing that a trial date of June 12, 2000 had been previously fixed.
[18] Counsel for the defendants said that up until the deemed admitted facts order made by Mr. Justice McKeown, the plaintiff would likely be able to show that its case had merit within the meaning of those words in rule 417. However, now with admitted facts, it has become clear the plaintiff"s case is unmeritorious.
[19] As I see it, counsel for the defendants" argument means, in effect, he had as far back as September 11, 1998 believed the plaintiff was impecunious but would be able to demonstrate that his case had merits if he had moved earlier. In this context, the defendants" motion was designed to insulate itself from a successful rule 417 motion had the defendants moved earlier, that is, shortly after September 11, 1998.
[20] I am not questioning the bona fides of the defendants but, in my view, they should have moved the Court for security for costs much earlier than they did. An urgent and last minute motion for security for costs is not conducive to a proper resolution of the issue raised including whether, in the circumstances, rule 417 is applicable; such a late motion is also disruptive of trial preparation.
[21] The factor of laches is a factor which I can take into account in the exercise of my discretion. Moreover, I am unable to conclude, on this motion, the plaintiff does not have a case to put forward leading me to conclude that this motion should be denied considering access to the Courts is the underlying principle against which a motion for security for costs should be gauged.
"François Lemieux"
| _________________________ |
JUDGE
OTTAWA, ONTARIO
May 29, 2000
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