Date:
20071123
Docket:
T-1502-00
Citation:
2007 FC 1235
[ENGLISH
TRANSLATION]
Montréal, Quebec, November 23, 2007
PRESENT:
Richard Morneau, Esq., Prothonotary
BETWEEN:
MICROSOFT
CORPORATION
Plaintiff
and
9038-3746 QUEBEC INC.
and
9014-5731 QUEBEC INC.
and
ADAM CERRELLI
and
CARMELO
CERRELLI
Defendants
REASONS
FOR ORDER AND ORDER
[1]
The
reasons for order and this order are pursuant to the objection raised at the
hearing on November 19, 2007, by counsel for the defendant Carmelo Cerrelli and
a corporation, VSOP WEB INC. (the defendants) against the contents of three
counts in a motion by the plaintiff (Microsoft) under rules 466 et seq.
of the Federal Courts Rules (the Rules) to have the defendants appear
before a judge of this Court to respond to the counts of contempt of court.
Essential
context
[2]
Although
the parties present seem to have had problems for some time with the rights
held by Microsoft to certain computer programs and the related trade-marks, we
can simply note here that, on December 18, 2006, Harrington J. of this Court
issued a judgment following the trial in this case (the Judgment) in which the
Court ordered the various defendants listed in the style of cause to pay
statutory and punitive damages and eventually costs, totalling more than two (2)
million dollars.
[3]
The
Judgment also contained two key paragraphs in this case, paragraphs 12 and 13,
which set out two injunctive conclusions that it is appropriate to reproduce
here:
12. PERMANENTLY
ENJOINS AND RESTRAINS the defendants 9038-3746 Quebec Inc., 9014-5731
Quebec Inc., Carmelo Cerrelli and Adam Cerrelli from directly, or indirectly,
as well as the officers and directors of 9038-3746 Quebec Inc. and 9014-5731
Quebec Inc., and the servants, employees or agents of any of them and any other
person, corporation or entity acting under their instructions or control, from
making, selling, distributing, advertising, exposing for sale, offering for
sale, or possessing for the purposes of the foregoing, or importing into
Canada, counterfeit copies of the twenty-five computer programs and related
materials identified herein [identified in paragraph 2 of the Judgment], and
from ordering, abetting, authorizing or assisting others to do any of the
foregoing;
13. PERMANENTLY
ENJOINS AND RESTRAINS the defendants 9038-3746 Quebec Inc., 9014-5731
Quebec Inc., Carmelo Cerrelli and Adam Cerrelli from directly, or indirectly,
as well as the officers and directors of 9038-3746 Quebec Inc. and 9014-5731
Quebec Inc., and the servants, employees or agents of any of them and any other
person, corporation or entity acting under their instructions or control, from
infringing in any matter whatsoever the ten Microsoft trade-marks identified
herein [identified in paragraph 5 of the Judgment], passing off any wares or
services, including CD-ROMs or other media containing copies of any Microsoft
program, or related material, as and for those of Microsoft, using any of the
said Microsoft trade-marks in a manner that is likely to have the effect of
depreciating the value of the goodwill attaching thereto, or using any of the
said Microsoft trade-marks to direct public attention to wares, including
CD-ROMs or other media containing copies of Microsoft programs, or related
components or importing into Canada in such a way as to cause, or be likely to
cause, confusion in Canada between such wares and the wares of Microsoft, and
from ordering, abetting, authorizing or assisting others to do any of the
foregoing.
[4]
In
summary, for better understanding, those paragraphs 12 and 13 have the following
general scope, as established in paragraph 1 of the written submissions by
Microsoft:
1.
At
paragraphs 12 and 13 of the Judgement and Permanent Injunction, dated December
18, 2006 (hereinafter referred to as the « Judgement »),
Mr. Justice Harrington issued two permanent injunctions, restraining the
Defendants from directly or indirectly;
(a)
dealing
in counterfeit copies of the twenty-five (25) Microsoft software programs
identified at paragraph 2 of the Judgement (paragraph 12);
(b)
infringing
in any way the ten (10) registered Microsoft trade-marks identified at
paragraph 5 of the Judgement, and from passing off any wares, including
CD-ROMs containing copies of any Microsoft software program, or related
material, as and for those of Microsoft (paragraph 13).
[5]
Microsoft
now considers that it has certain and sufficient proof for this Court to
conclude that, in the time between the Judgment and the current date, the
defendants acted against the letter and spirit of paragraphs 12 and 13 of the
Judgment or showed conduct that leads Microsoft to file three counts of
contempt of court against the defendants, collectively or individually, under
Rules 466(b) and (c).
[6]
Rules
466 and 467 read as follows:
|
466. Contempt ‑ Subject
to rule 467, a person is guilty of contempt of Court who
(a) at a hearing fails to
maintain a respectful attitude, remain silent or refrain from showing
approval or disapproval of the proceeding;
(b) disobeys a process or
order of the Court;
(c) acts in such a way as
to interfere with the orderly administration of justice, or to impair the
authority or dignity of the Court;
(d) is an officer of the
Court and fails to perform his or her duty; or
(e) is a sheriff or
bailiff and does not execute a writ forthwith or does not make a return
thereof or, in executing it, infringes a rule the contravention of which
renders the sheriff or bailiff liable to a penalty.
|
466. Outrage ‑ Sous
réserve de la règle 467, est coupable d’outrage au tribunal quiconque :
a)
étant présent à une audience de la Cour, ne se comporte pas avec respect, ne
garde pas le silence ou manifeste son approbation ou sa désapprobation du
déroulement de l’instance;
b)
désobéit à un moyen de contrainte ou à une ordonnance de la Cour;
c)
agit de façon à entraver la bonne administration de la justice ou à porter
atteinte à l’autorité ou à la dignité de la Cour;
d)
étant un fonctionnaire de la Cour, n’accomplit pas ses fonctions;
e)
étant un shérif ou un huissier, n’exécute pas immédiatement un bref ou ne
dresse pas le procès-verbal d’exécution, ou enfreint une règle dont la
violation le rend passible d’une peine.
|
|
467. (1)
Right to a hearing ‑ Subject to rule 468, before a person may be found
in contempt of Court, the person alleged to be in contempt shall be served
with an order, made on the motion of a person who has an interest in the
proceeding or at the Court’s own initiative, requiring the person alleged to
be in contempt
(a) to appear before a judge at
a time and place stipulated in the order;
(b) to be prepared to
hear proof of the act with which the person is charged, which shall be
described in the order with sufficient particularity to enable the person to
know the nature of the case against the person; and
(c) to be prepared to
present any defence that the person may have.
(2) Ex parte
motion ‑ A motion for an order under subsection (1) may be
made ex parte.
(3) Burden of proof ‑ An order may be made
under subsection (1) if the Court is satisfied that there is a prima facie
case that contempt has been committed.
(4) Service of
contempt order ‑ An order under
subsection (1) shall be personally served, together with any supporting
documents, unless otherwise ordered by the Court.
|
467. (1) Droit à une audience ‑
Sous
réserve de la règle 468, avant qu’une personne puisse être reconnue coupable
d’outrage au tribunal, une ordonnance, rendue sur requête d’une personne
ayant un intérêt dans l’instance ou sur l’initiative de la Cour, doit lui
être signifiée. Cette ordonnance lui enjoint :
a) de
comparaître devant un juge aux date, heure et lieu précisés;
b)
d’être prête à entendre la preuve de l’acte qui lui est reproché, dont une
description suffisamment détaillée est donnée pour lui permettre de connaître
la nature des accusations portées contre elle;
c)
d’être prête à présenter une défense.
(2)
Requête ex parte ‑ Une requête peut être présentée
ex parte pour obtenir l’ordonnance visée au paragraphe (1).
(3)
Fardeau de preuve ‑ La Cour peut rendre l’ordonnance visée au
paragraphe (1) si elle est d’avis qu’il existe une preuve prima facie
de l’outrage reproché.
(4)
Signification de l’ordonnance ‑ Sauf ordonnance contraire de la
Cour, l’ordonnance visée au paragraphe (1) et les documents à l’appui sont
signifiés à personne.
|
[7]
As
provided in Rule 467(2), Microsoft initially filed its motion on an ex parte
basis to have a first-stage order issued under subsection 467(1) (the first Microsoft
motion).
[8]
In
late October 2007, when other orders were issued in this case against the
defendants, including an Anton Piller injunction and a Mareva injunction,
Harrington J. required that the first Microsoft motion be served on the
defendants. That was done. It was that service that led the defendants to raise
the objection under review, on November 19, 2007.
[9]
For
greater understanding, it must be noted that, on November 14, 2007, Microsoft
filed a motion against the respondents, and served it on them, similar to the
first Microsoft motion (hereinafter the second Microsoft motion). Essentially,
that second motion covers very recent events not covered in the first motion,
but similar to those alleged in the first Microsoft motion.
[10]
Those
two Microsoft motions were before the Court for adjudication on November 19,
2007. However, the parties essentially limited their submissions to the
contents of the three counts contained in the first Microsoft motion given the
very similar approach of the two motions. It is understood that, if the Court
is satisfied that it has prima facie evidence of the contempt alleged in
any of the three counts in the first Microsoft motion, the Court will issue the
desired orders on both motions.
Analysis
[11]
As
mentioned above, the first Microsoft motion contains three counts. Each of
those counts (counts 2a) to 2c)) must be examined to see if the Court finds,
based on the challenges raised by the defendants regarding each count, that it
nonetheless has prima facie evidence of the alleged contempt.
1st
count
[12]
This
is count 2a) from the notice of motion. it reads as follows:
a) in the case of Carmelo
Cerrelli and VSOP Web, disobeying paragraph 13 of the Judgment and Permanent
Injunction of the Honourable Mr. Justice Harrington, dated December 18, 2006,
which constitutes contempt of Court under Rule 466(b) F.C.R., and/or under Rule
466(c) F.C.R. in the case of VSOP Web, by accomplishing the following acts, in
the case of VSOP Web directly and under the instructions and control of Carmelo
Cerrelli, and in the case of Carmelo Cerrelli through VSOP Web directly or
indirectly through intervening entities or persons under his control,
(i) on January 31, 2007,
selling a counterfeit copy of Microsoft SQL Server 2000 Standard Edition CD-ROM
with a counterfeit End User License Agreement and counterfeit disc case liner;
(ii) on February 5, 2007,
selling a copy of Microsoft SQL Server 2000 Enterprise Edition CD-ROM with a
counterfeit End User License Agreement;
(iii) on April 17, 2007,
selling a counterfeit copy of Microsoft Exchange 2000 Enterprise Server CD-ROM
with counterfeit Client Access Licenses and counterfeit disc case liner;
(iv) on April 17, 2007,
selling a counterfeit copy of Microsoft SQL Server 2000 Standard Edition CD-ROM
with a counterfeit End User License Agreement and counterfeit disc case liner;
(v) on April 20, 2007,
selling a counterfeit copy of Microsoft SQL Server 2000 Standard Edition CD-ROM
with a counterfeit End User License Agreement;
(vi) on April 24, 2007,
selling a counterfeit copy of Microsoft SQL Server 2000 Standard Edition
CD-ROM;
(vii) On May 11, 2007,
selling a counterfeit copy of Microsoft Exchange 2000 Enterprise Server CD-ROM;
each of which amounts to
(i) using the trade-mark
MICROSOFT, or a trade-mark confusingly similar thereto, in association with
counterfeit copies of Microsoft computer software programs and associated
material, which constitutes an infringement of Microsoft’s rights under
Canadian Trade-mark Registrations TMA 309,288 and TMA 520,594, in violation of
Section 19 or 20 of the Trade-marks Act, and of paragraph 13 of the
Judgment and Permanent Injunction of the Honourable Mr. Justice Harrington;
(ii) using the trade-mark
MICROSOFT, which is the subject-matter of Canadian Trade-mark Registrations TMA
309,288 and TMA 520,594 in the name of Microsoft, in association with
counterfeit copies of Microsoft computer software programs and associated
material, which is likely to have the effect of depreciating the value of the
goodwill attaching to the trade-mark MICROSOFT, in violation of Section 22 of
the Trade-marks Act, and of paragraph 13 of the Judgment and Permanent
Injunction of the Honourable Mr. Justice Harrington;
(iii) using the trade-mark
MICROSOFT to direct public attention to counterfeit copies of Microsoft
computer software programs and associated material, which causes or is likely
to cause confusion between such counterfeit products and genuine Microsoft
products, in violation of Section 7(b) of the Trade-marks Act, and of
paragraph 13 of the Judgment and Permanent Injunction of the Honourable Mr.
Justice Harrington;
(iv) passing-off
counterfeit copies of Microsoft computer software programs and associated
material as and for genuine Microsoft products, in violation of Section 7(c) of
the Trade-marks Act, and of paragraph 13 of the Judgment and Permanent
Injunction of the Honourable Mr. Justice Harrington;
[13]
Regarding
this count, the defendants noted that the wording in fact refers to two
products that are not in the list of 25 items that Harrington J. referred to
indirectly in paragraph 12 of the Judgment. The following must be noted
regarding that reference.
[14]
First,
the list of 25 items referred to by the defendants is included, by way of
reference, in paragraph 12, not paragraph 13. However, count 2a) refers to
paragraph 13 of the Judgment.
[15]
Moreover,
the following wording from paragraph 13 allows Microsoft to refer to any
software or related material using any Microsoft trade-mark:
(…)
including CD-ROMs or other media containing copies of any Microsoft program,
or related material, as and for those of Microsoft, using any of the said
Microsoft trade-marks (…)
(Emphasis
added.)
[16]
This
argument by the defendants therefore cannot succeed.
[17]
The
defendants also denounced the fact that all evidence from Microsoft in its
motion record is directly or indirectly from people on Microsoft’s payroll, not
independent experts.
[18]
That
argument by the defendants certainly cannot succeed in defeating the orders
sought by Microsoft.
[19]
Indeed,
it seems more than normal to me in this type of investigation, which is lengthy
and full of obstacles, for a corporation like Microsoft to rely on its own
investigators and experts. In this regard, Microsoft relied on, among others,
the affidavit from Michelle Boyes, who was recognized by Harrington J. as an
expert during the proceeding that led to his Judgment.
[20]
Regarding
this count 2a), I also consider that Microsoft met the requirements set out in
the relevant rules and jurisprudence for the Court to consider that it has prima
facie evidence of the contempt set out in count 2a).
2nd
count
[21]
This
count, count 2b), reads as follows in the notice of motion:
b) in the case of Carmelo
Cerrelli and VSOP Web, circumventing, evading and frustrating the permanent
injunction provided for at paragraph 12 of the Judgment and Permanent
Injunction of the Honourable Mr. Justice Harrington, which constitutes contempt
of Court under Rule 466(c) F.C.R., by:
(i) dealing in
counterfeit copies of more recent Microsoft computer software programs and
associated material, which are not listed among the titles that are the
subject-matter of the aforementioned injunction;
(ii) attempting to conceal
such activities, and Carmelo Cerrelli’s involvement therein, by:
a) using a third party to
this proceeding, namely VSOP Web, acting under Carmelo Cerrelli’s instructions
and control;
b) moving the operation
to other premises;
c) transferring the
ownership of the shares in VSOP Web from the Cerrelli Trust to a person named
Shelly-Ann Gray who appears to be Carmelo Cerrelli’s wife;
d) substituting an
employee, namely Daniel Perpetuo, and the aforementioned Shelly-Ann Gray, in
lieu of Carmelo Cerrelli, as director and president of VSOP Web;
[22]
Here,
the defendants cited the very text of subparagraphs 2b)(ii) a) to d) to claim
that each of these actions in itself certainly cannot be seen as constituting
the offence alleged at the beginning of count 2b).
[23]
That
is an unacceptable attack, as this exercise by the defendants is a surgical and
isolated reading that fails to consider the introductor wording of paragraph
2b)(ii), which indicates the mens rea behind each of the following
actions.
[24]
That
same paragraph 2b)(ii) itself refers to the illegal activities described in
paragraph 2b)(i). Read as a whole, paragraphs (i) and (ii) certainly give prima
facie support to the introductory wording of count 2b).
[25]
Regarding
that same count, the defendants claim that Microsoft’s motion record did not contain
any evidence in the affidavits to support the allegations in subparagraphs
2b)(ii)a) to d).
[26]
Although
it is true that paragraph 34 of the written submissions by Microsoft do not
refer to in that part to the evidence sought by the defendants, a reading, inter
alia, of paragraphs 25 and 26 of the same submissions reveals an abundant
reference to various paragraphs of the affidavit by Mr. Steve E.
Studhalter, including paragraphs 37 to 41.
[27]
The
defendants’ grounds for challenging count 2b) also cannot succeed. Moreover,
the conclusions expressed by the Court in paragraph [20], above, apply here mutatis
mutandis.
3rd
count
[28]
The
text of this third count, count 2c), reds as follows in the notice of motion:
c) in the case of Carmelo
Cerrelli, reorganising his business to avoid paying the monies that the
defendants were ordered to pay pursuant to Mr. Justice Harrington’s Judgment
and Permanent Injunction, and Order as to Costs, which constitutes contempt of
Court under Rules 466(b) and 466(c) F.C.R., by:
(i) having the
first-named numbered company defendant, 9038-3746 Quebec Inc., file for
bankruptcy protection shortly before its bookkeepers were scheduled to be
deposed after judgment regarding its assets;
(ii) while the
second-named numbered company defendant, 9014-5731 Quebec Inc., had been struck
from the Quebec Enterprises Registry since May 8, 1999;
(iii) transferring his
residential property at 299 Matisse St., Dollard-des-Ormeaux, Quebec, Canada,
valued at $645,900 for tax assessment purposes, to his sister Lydia Cerrelli,
for the reported sum of $1 after the institution of this proceeding, on May 3,
2002, which sister the first-named numbered company defendant had sued in
Superior Court of Quebec file no. 500-05-056639-006 in 2000 for refusing to be
supplied with counterfeit Microsoft software products for resale, and which
residential property was re-transferred to Carmelo Cerrelli’s wife, Shelly-Ann
Cerrelli for the reported sum of $750,000 on July 10, 2007;
while he continues to
profit from infringing Microsoft’s rights by dealing in counterfeit copies of
Microsoft computer software programs and associated material through a third
party, namely VSOP Web;
[29]
Regarding
this count, the defendants again adopt an exercise similar to what they
proposed for count 2b). Citing the wording of paragraphs 2c)i) to (iii),
the defendants argue that the facts described therein are, in short, common
events in a commercial reality and that those facts were not at all prohibited
by Harrington J. in his Judgment.
[30]
Microsoft,
however, notes that paragraphs 2c)(i) to (iii) are facts that demonstrate
the actions described and alleged in the text above and below those paragraphs,
namely, in short, that the defendant Carmelo Cerrelli has, since the Judgment,
maintained a reorganization of his affairs to continue what has to date been
prohibited by this Court, while avoiding having the damages and costs awarded
in the Judgment taken from the corporate defendants or the personal assets of
defendant Cerrelli.
[31]
As
well, and more specifically, it is clear that paragraphs 2c)(i) and (ii) must
be read as a whole and it is the choice in time to transfer assets in paragraph
2c)(i) and the result of that choice, i.e. a total disappearance of the
corporate defendants, that are denounced by Microsoft.
[32]
I
do not feel, as suggested by the defendants, that Microsoft is prevented,
before this Court, from raising what it alleges because it has not yet taken
any formal action before the bankruptcy division of the Superior Court of
Quebec to denounce or oppose the bankruptcy in question.
[33]
Regarding
paragraph 2c)(iii), the defendants are wrong to focus solely on the transfer of
property in May 2002 to denounce the fact that Microsoft is claiming contempt
regarding an event that dates well before the date of the Judgment.
[34]
A
reasonable reading of this paragraph at this stage instead supports the fact
that the transfer of property by the defendant Carmelo Cerrelli to get it out
of his patrimony clearly occurred in 2002, after and because of the action
launched in this case and that, since the Judgment, another apparent transfer
has involved the same property. At all relevant times, or at least at this
time, Mr. Cerrelli and his spouse nonetheless live in that property.
[35]
Microsoft
also referred to the basic teaching in Canadian Imperial Bank of Commerce
v. Sayani (1998), 2 C.P.C. (4th) 54 (C.S.C.B.) (Hall J.).
[36]
Although
the facts that form the basis of that decision differ from those in the case at
hand, the fact remains that, in my view, the excerpts above support Microsoft’s
position, in particular, that Mr. Cerrelli contravened Rule 466(c):
17 Counsel for the defendant points out correctly that mere
failure to pay money is not generally a contempt of court. In connection with
that argument, reference was made to a judgment of our Court of Appeal, in Royal
Bank of Canada v. McLennan (1918), 25 B.C.R. 183. However, Huddart J. (as
she then was), noted in Manolescu v. Manolescu (1991), 31 R.F.L. (3d) 421 at p. 433:
Wilful breach of a court order will always be a contempt of court.
A deliberate refusal to pay money pursuant to a court order when one has the
ability to pay will constitute a civil contempt of the court. It is also a
private injury or wrong to the person who is the beneficiary of the order.
That case concerned a husband who had consistently refused to obey
court orders concerning arrears and support. Counsel for the defendant
suggested that case was distinguishable but I believe it to be a correct
statement of legal principle. The learned judge in that case found that the
conduct was a deliberate contempt going beyond a mere failure to pay money. I
believe likewise that this case involves much more than a simple failure to
satisfy a judgment debt by paying money to a judgment creditor. As I perceive
the circumstances, the activity of the defendant undertaken in the month of
March 1995 was intentional activity designed to put beyond the reach of any
creditor the money she then held on deposit in the Swiss bank. By simply
transferring the asset to her brother, she erected an impenetrable and opaque
wall between the funds and the plaintiff here. The purpose was to render
nugatory any judgment that might be rendered against her, the likelihood of
which judgment was becoming extremely imminent. This was conduct calculated and
designed to interfere with the due administration of justice in this country
and I have no hesitation in characterizing it as contempt.
(Emphasis
added.)
[37]
The
defendant’s arguments regarding this count 2c) are also dismissed. Here again,
the conclusions stated by the Court in paragraph [20], above, apply, mutatis
mutandis.
ORDER
The
defendants’ challenge is dismissed, with costs, and the Court considers that it
is justified under Rule 467(3) in approving, separately, the two draft
first-stage orders for contempt submitted by Microsoft.
“Richard Morneau”
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