Date: 20090911
Docket: T-724-08
Citation: 2009 FC 896
Ottawa, Ontario, September 11,
2009
PRESENT: The Honourable Mr. Justice Barnes
BETWEEN:
MULTI FORMULATIONS LTD.,
IML FORMULATIONS LTD.,
PUMP FORMULATIONS LTD. and
MTOR FORMULATIONS LTD.
Plaintiffs
and
ALLMAX NUTRITION INC.,
HEALTHY BODY SERVICES INC.,
RON TORCH and MICHAEL KICHUK
Defendants
AND
BETWEEN:
ALLMAX NUTRITION INC. and
HEALTHY BODY SERVICES INC.
Plaintiffs by Counterclaim
and
MULTI FORMULATIONS LTD.,
IML FORMULATIONS LTD.,
PUMP FORMULATIONS LTD.,
MTOR FORMULATIONS LTD.,
IOVATE HEALTH SCIENCES INTERNATIONAL
INC.,
IOVATE HEALTH SCIENCES INC., TERRY BEGLEY
and PAUL TIMOTHY GARDINER
Defendants by Counterclaim
REASONS FOR ORDER AND ORDER
[1]
This
is an appeal by the Plaintiffs from a decision of Prothonotary Kevin Aalto in
which he declined to strike certain paragraphs from the Defendants’ Defence and
Counterclaim (Counterclaim). The Plaintiffs assert that the Prothonotary erred
by refusing to strike allegations by which damages are claimed for the economic
torts of inducing breach of contract and interference with economic relations.
These causes of action are said to be outside of this Court’s jurisdiction and,
therefore, cannot be permitted to stand. The Plaintiffs also argue that the
Prothonotary erred by refusing to strike allegations made against two of their corporate
officers in their personal capacities. This is an argument based on the
sufficiency of the pleadings not going to the Court’s jurisdiction.
I.
Background
[2]
The
background to this litigation and to this motion to strike is thoroughly
canvassed by Prothonotary Aalto and need not be repeated here. Similarly, the
legal principles that apply to a motion under Rule 221(1) are well-known and
correctly cited in the decision under review. Suffice it to say that the burden
on the party moving to strike a pleading is onerous and the discretion to do so
will only be exercised where the Court “is satisfied beyond doubt that the
allegation cannot be supported and is certain to fail at trial because it
contains a radical defect”: see Apotex Inc. v. Syntex Pharmaceuticals
International Ltd., 2005 FC 1310 at para. 31, 44 C.P.R. (4th) 23, affirmed
at 2006 FCA 60, 47 C.P.R. (4th) 328.
II. Issues
[3]
(a) Standard
of review;
(b)
Striking
the tort claims; and
(c)
Striking
the claims against corporate officers.
III. Analysis
A. Standard of
Review
[4]
The
Plaintiffs argue that the standard of review applicable to an appeal from a
Prothonotary’s decision refusing to strike a pleading is de novo. This is
a discretion which they say has been held by the Court of Appeal to involve an
issue vital to the resolution of a case and that no deference is owed on
appeal. For this they rely upon Merck & Co. v. Apotex Inc., 2003 FCA
488, [2004] 2 F.C.R. 459, Canada v. Aqua-Gem Investments Ltd., [1993] 2
F.C. 425, [1993] F.C.J. No. 103 (C.A.) (QL), and Fieldturf Inc. v. Winnipeg Enterprises Corp., 2007 FCA 95, 58 C.P.R. (4th)
15.
[5]
It should
be first recognized that much of the analysis in Merck, above, about
what may be vital to the resolution of a case was concerned with significant
amendments to pleadings and not to motions to strike. Although the Court found
that the motion to amend raised a vital issue, it also observed that it would
be imprudent to attempt any kind of formal categorization of cases and that the
issue of what is vital should generally be resolved on a case by case basis:
see paragraph 25.
[6]
Similarly,
the discretion exercised in Canada v. Aqua-Gem Investments Ltd., above,
involved a motion to strike an action in its entirety for want of prosecution.
In determining whether this was an issue which was vital to the case the Court
was naturally concerned by the potential outcome which, whatever it was, would
be vital to one or the other of the parties.
[7]
The
decision in Fieldturf Inc., above, also involved a potential for the
dismissal of the action in its entirety on the basis of delay. This was a
matter of sufficient consequence to the parties that it was found to constitute
an issue vital to the case.
[8]
It seems
to me that the above cases raise very different considerations from those which
arise from a decision like this one, which concerns a refusal to strike out
isolated allegations in a pleading. Other considerations may well apply where
the challenged allegations in a pleading would be fundamental to the
prosecution of a claim or, more obviously, where important or central
allegations are struck from a pleading. In this situation, however, I am not
satisfied that the impugned pleadings are vital to the resolution of the
action. Even in the absence of these allegations, the action would go forward
with the Counterclaim and its principal allegations substantially intact. This
is a distinction which I think was recognized in Peter G. White Management Ltd.
v. Canada, 2007 FC 686, 158 A.C.W.S. (3d) 696, Apotex Inc. v.
AstraZeneca Canada Inc., 2009 FC 120, [2009] F.C.J. No. 179 (QL), and Horseman
v. Horse Lake First Nation, 2009 FC 368, [2009] F.C.J. No. 476 (QL) and
which seems to me to be consistent with the approach recognized by the Court of
Appeal in Merck, above, to examine such matters on a case by case basis.
In the result, the standard of review which will be applied to the exercise of
Prothonotary Aalto’s discretion is whether it was clearly wrong and, for errors
of law including jurisdiction, it is correctness.
B. Striking
the Tort Claims
[9]
I
see no problem whatsoever in the Defendants’ allegations concerning the
commission of the nominate economic torts insofar as those pleadings may serve
as a foundation for a claim brought under section 45 and section 36 of the Competition
Act. To the extent that tortious conduct may help to establish a statutory
cause of action and resulting damages it may be a matter which is necessarily
incidental to this Court’s jurisdiction as conferred by subsection 36(3) of the
Competition Act. I would add that these allegations of tortious conduct,
when linked to the assignment of the patents in issue, may represent the
“something more” that is required to establish a breach of section 45 of the Competition
Act: see Eli Lily and Company v. Apotex Inc., 2005 FCA 361, [2006] 2
F.C.R. 477. This is not the stage to resolve such an arguable, albeit perhaps
novel, point of law. These are also allegations which are relevant to the
Defendants’ assertion at paragraph 33 of the Counterclaim that the Plaintiffs
are, as a consequence of their impugned conduct, disentitled to equitable
relief. I also agree with the Prothonotary that these pleadings are adequate to
permit the Plaintiffs to know and to plead to the case advanced against them.
[10]
The
problem with the Defendants’ Counterclaim is that it does not restrict the tort
allegations to the statutory claim for relief or raise them as a simple bar to
the grant of equitable relief. This is clear from paragraph 38(d) of the
Counterclaim by which the Defendants seek “damages for inducing breach of
contract and tortious interference with economic relations”. This is an
impermissible pleading because the subject matter falls well outside of the
jurisdiction of this Court as recognized in cases like Stoney Band v. Canada
(Minister of Indian Affairs and Northern Development), 2005 FCA 220, [2006]
1 F.C.R. 570, Concept Omega Corp. v. Logiciels KLM Ltée (1987), 21
C.P.R. (3d) 77, 12 F.T.R. 291 (F.C.T.D.), Nike Canada Ltd. v. Jane Doe et.
al. (2001), 11 C.P.R. (4th) 69, 199 F.T.R. 55 (F.C.T.D.), Gracey v. Canada
Broadcasting Corporation, [1991] 1 F.C. 739, [1990] F.C.J. No. 1155
(F.C.T.D.) (QL), and Quebec Ready Mix Inc. v.
Rocois Construction Inc., [1989] 1 S.C.R. 695, [1989] S.C.J. No. 29
(QL).
[11]
I
do not agree with the Prothonotary that, insofar as these allegations are
brought to support a common law claim to damages, they are merely incidental to
the enforcement of the patents. This type of conduct may, if proven, be a bar
to the enforcement of a patent and it may run afoul of the Competition Act,
but I can see no basis for this Court entertaining such matters as stand-alone
causes of action which could support a separate claim to common law damages.
Here I rely upon the decision in Innotech Pty. Ltd. v. Phoenix Rotary Spike
Harrows Ltd. (1997), 74 C.P.R. (3d) 275, 215 N.R. 397 (F.C.A.) which
involved a motion to strike pleadings in a patent infringement action.
Under consideration was an allegation of
breach of a contract contained in both a defence and counterclaim. In holding
that the counterclaim pleading should be struck, Justice Barry Strayer stated
at paragraphs 4-5:
With respect, it appears to us that
although it is the same licence which is involved in both the statement of
defence and the counterclaim, it is invoked for a different purpose in each
pleading. In the statement of defence it is being used as a shield against a
claim of infringement. In the counterclaim it is being used as a sword, a basis
for obtaining remedies against the appellant for its enforcement. The
counterclaim, when viewed by itself, would stand alone as an action for breach
of contract and as such is not within the jurisdiction of this Court. Using the
language of Kellogg v. Kellogg the main action is primarily for the
enforcement of a patent. That claim can be decided on the basis of the
statement of claim and the statement of defence, and incidental to that
determination the license, its existence, terms, and validity may well have to
be considered. But the counterclaim which must be viewed as a distinct action
primarily involves a claim for an alleged breach of contract.
It may well be, as counsel for the
respondent ably demonstrated, that this result will lead to inconvenience. But
that is not, of itself, a basis for this Court assuming jurisdiction.
Also see Titan Linkabit Corp. v. S.E.E.
See Electronic Engineering Inc. (1992), 44 C.P.R. (3d) 469 at
473-474, 58 F.T.R. 1 (F.C.T.D.).
[12]
I
can see nothing in the ITO-International Terminal Operators Ltd. v. Miida
Electronics Inc., [1986] 1 S.C.R. 752, [1986] S.C.J. No. 38 (QL) decision
which supports the Defendants’ argument that Federal Court jurisdiction extends
as far as they contend. ITO-International Terminal Operators Ltd.,
above, was an admiralty case which engaged in pith and substance this Court’s
statutory jurisdiction and the consideration of provincial law was said to be
incidentally necessary to resolve the issues presented by the parties. Similarly,
the decision in Areva NP GmbH v. Atomic Energy of Canada Ltd., 2006 FC
952, [2006] F.C.J. No. 1208 (QL) is distinguishable. Although that case
involved breach of contract allegations, the record was insufficient to
determine whether the contract was one which fell into the sphere of federal or
provincial law. The Court concluded its analysis at paragraph 28 by saying that
“[w]ithout the contract, and perhaps other evidence that goes to jurisdiction,
the Statement of Claim must stand”. I do not have the same problem here because
the allegations of tortious liability made against the Plaintiffs fall
indisputably into the realm of provincial common law.
[13]
It
follows from the above that paragraph 38(d) of the Defendants’ Counterclaim
must be struck out because it contains a claim which does not fall within the
jurisdiction of this Court.
C. Claims
Against Corporate Officers
[14]
The
Prothonotary found that the Defendants’ pleadings against the Plaintiffs’
corporate officers were sufficient to withstand a motion to strike under Rule 221(1)
and I can identify no error in that finding. The law is very clear that the
directing minds of a corporation can be personally liable were there has been a
knowing, deliberate or wilful quality to the impugned conduct, where the conduct
exhibits a separate identity or interest from the corporation, or where a tort
is committed personally: see Petrillo v. Allmax Nutrition Inc., 2006 FC
1199, 54 C.P.R. (4th) 319 and Anger v. Berkshire Investment Group Inc. (2001),
102 A.C.W.S. (3d) 1067, [2001] O.J. No. 379 (C.A.) (QL).
[15]
Among
other things it is alleged that the Plaintiffs’ corporate officers embarked on
a campaign of anti-competitive behaviour and conspired to violate section 45 of
the Competition Act. The pleaded particulars include an alleged strategy
of anti-competitive litigation, the unlawful acquisition of patents through
assignments, and interference with supplier and customer relationships.
[16]
Paragraph
56 of the Counterclaim asserts that the two named officers “are the principal architects”
of the asserted campaign of anti-competitive activity. These allegations are
sufficiently particularized to support causes of action for personal liability
under the Competition Act and the Prothonotary did not err in refusing
to strike them from the Counterclaim. Even if these allegations were
insufficiently pleaded this would be an appropriate situation to allow the
Defendants to amend their Counterclaim in accordance with the principles
expressed in VISX Inc. v. Nidek Co. (1998), 84 A.C.W.S. (3d) 662, 234
N.R. 94 (F.C.A.).
[17]
Because
success on this appeal was divided costs are awarded in the cause.
ORDER
THIS COURT
ORDERS that this appeal is allowed in part with paragraph 38(d) to be
struck from the Defendants’ Counterclaim.
THIS COURT
FURTHER ORDERS that the costs of this appeal be costs in the cause.
“ R. L. Barnes ”
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