Date: 20160830
Docket: T-653-13
Citation:
2016 FC 987
Ottawa, Ontario, August 30, 2016
PRESENT: The
Honourable Mr. Justice Martineau
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BETWEEN:
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CHANEL S. DE
R.L.,
CHANEL LIMITED
AND
CHANEL INC.
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Plaintiffs
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and
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LAM CHAN KEE
COMPANY LTD.,
ANNIE PUI KWAN
LAM AND SIU-HUNG LAM,
COLLECTIVELY
DOING BUSINESS AS LAM CHAN KEE AND 2133694 ONTARIO INC.
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Defendants
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JUDGMENT AND REASONS
[1]
As directed by the Federal Court of Appeal, this
is a redetermination of the motion for summary trial presented by the
plaintiffs, Chanel S. de R.L., Chanel Limited and Chanel Inc.
THE
ORIGINAL JUDGMENT
[2]
On September 18, 2015, the plaintiffs obtained
judgment [the original judgment] against Lam Chan Kee Company [LCK Company] and
2133694 Ontario Inc. [‘694 Inc.] [collectively, the corporate defendants], and
Annie Pui Kwan Lam [Mrs. Lam], while their action against Mrs. Lam’s husband,
Mr. Siu-Hung Lam, was dismissed: Chanel S de RL v Kee, 2015 FC 1091 [FC Reasons].
[3]
Indeed, the Court accepted the plaintiffs’
uncontradicted evidence with respect to the following four instances, where
counterfeit Chanel merchandise had been offered for sale or sold in the
conventional retail store operating under the name LAM CHAN KEE [the Business] at
Unit B25, Pacific Mall, 4300 Steeles Avenue East, Markham, Ontario [the
Premises]:
(a) offering
for sale 20-25 counterfeit Chanel cellular phone cases, at least one (1) small
wallet, and a few plastic bracelets and hair clips on or about October 23,
2011;
(b) offering
for sale five (5) counterfeit Chanel wallets on or about December 9, 2011;
(c) offering
for sale six (6) pairs of counterfeit Chanel earrings, and three (3)
counterfeit Chanel cellular phone cases, and the purchase of counterfeit Chanel
earrings on April 26, 2012; and
(d) offering for sale 100 counterfeit Chanel items including
cellular phone covers, necklaces, hair clips and fake nail stickers on or about
June 2, 2013 and the purchase of an iPhone cover, a necklace, and a set of fake
nail stickers [the June 2, 2013 infringement].
[4]
The corporate defendants and Mrs. Lam
[collectively, the subject defendants] were found by the Court to have
infringed the rights of both Chanel Inc., which holds the license to use the
Chanel Trade-marks in Canada, and Chanel Limited, which owns the rights to the
Chanel Trade-marks (FC Reasons at para 22). Given the fact that the infringing
activities of the subject defendants were ongoing until at least June 2, 2013,
and given the nature of the activities involved, pursuant to section 53.2 of
the Trade-marks Act, RSC 1985, c T-13 [the Act], the Court
granted:
(a) declaratory
relief confirming the validity and ownership of the Chanel Trade-marks;
(b) injunctive
relief precluding the subject defendants from continuing their infringing
activities; and
(c) injunctive relief requiring the delivery up and
destruction of any remaining infringing goods within twenty-one (21) days of
the original judgment.
[5]
In addition to making the declarations and
issuing the injunctive relief sought in the plaintiffs’ motions for default
judgment and summary trial, the Court also ordered the subject defendants to
pay the following sums to the plaintiffs: $64,000 in damages [the compensatory damages
award]; $250,000 in punitive and exemplary damages [the punitive damages award];
and $66,000 in lieu of assessed costs [the costs award].
THE FEDERAL COURT OF APPEAL
[6]
The plaintiffs did not appeal the part of the original
judgment of the Court that dismissed their motion for summary trial against
Mrs. Lam’s husband, nor did the two corporate defendants appeal the default
judgment rendered against them. However, as far as she had been condemned,
jointly and severally with the corporate defendants, to pay damages, as well as
punitive damages, Mrs. Lam sought to set aside the original judgment on several
grounds. On April 11, 2016, Mrs. Lam’s appeal was allowed, on limited
grounds and without costs, by the Federal Court of Appeal, who directed that
the summary trial motion be remitted to the trial judge for redetermination in
accordance with its reasons in Kwan Lam v Chanel S de RL, 2016 FCA 111
[FCA Reasons].
[7]
First, the Federal Court of Appeal found no
merit in the submissions of Mrs. Lam to the effect that the Court had erred in
proceeding by way of summary trial (FCA Reasons at paras 15 and 16).
Furthermore, the Federal Court of Appeal found that the Court did not err in
making a nominal damages award, in setting the nominal damages amount for each
act of infringement at the level of $8,000, or in awarding damages to both the
trade-mark owners and the licensee for each act of infringement (FCA Reasons at
paras 18 and 19). Thus, none of these findings can be revisited today by Mrs.
Lam.
[8]
Second, while the Federal Court of Appeal noted
that the quantum of punitive and exemplary damages awarded to the plaintiffs “is significant and outstrips awards in many previous cases”
(FCA Reasons at para 23), when the quantum of punitive damages is compared to
the quantum of compensatory damages, it nonetheless held that this would not
necessarily render the award vulnerable to being set aside, depending on the
findings and the reasons given to support the award (FCA Reasons at paras 23
and 25). Nevertheless, the Federal Court of Appeal found that “an award of this
magnitude” called for an explanation founded upon the applicable legal tests
and the specific facts of the case that was “more expansive” than the
explanation given by the trial judge (FCA Reasons 23). In this respect,
consideration should be given to the relevant factors indicated by the Supreme
Court of Canada in Whiten v Pilot Insurance Co, 2002 SCC 18 at paras 112-113
[Whiten], so as to ensure that the amount awarded is no higher than
necessary to achieve the Court’s objective in imposing punitive damages (FCA
Reasons at para 24).
[9]
Third, as noted by the Federal Court of Appeal
(FCA Reasons at para 13), the Court premised its compensatory and punitive
damages awards on the basis that the subject defendants should be held liable
of all four acts of infringement (October 23, 2011, December 9, 2011, April 26,
2012 and June 2, 2013 [the infringement dates]) mentioned in the FC Reasons, as
it made them jointly and severally liable (FC Reasons at paras 5, 6, 16, 20, 22
and 24). However, the Federal Court of Appeal found that there was an ambiguity
with respect to the finding that Mrs. Lam was personally liable of the June 2,
2013 infringement (FCA Reasons at paras 5, 8-13, 20 and 21). The ambiguity
flows from the fact that many paragraphs of the FC Reasons can be read as a clear
finding that Mrs. Lam is liable for all four instances of infringement (FC
Reasons at paras 5, 18, 19, 20 and 22), but two other paragraphs seem to
indicate that this Court found the appellant responsible for the infringing
activities only up to May 28, 2013 (FC Reasons at paras 7 and 16).
[10]
In particular, the Federal Court of Appeal made
reference (FCA Reasons at paras 9 and 10) to what this Court wrote in
paragraphs 7 (last sentence) and 16 of the FC Reasons, and which read as
follows:
[7] […] On a balance of probabilities, the
Court finds that despite any transfer of shares to Justin and Jessica Lam, LCK
Company and Madam Lam continued to operate and control the Lam Chan Kee
business until at least May 28, 2013.
[…]
[16] The Court finds on a balance of
probabilities that LCK Company continued to operate the Lam Chan Kee business
until at least May 28, 2013, after which ‘694 Inc must be held responsible for
the infringing activities on the Premises. The Court further finds that Madam
Lam continued to use the property as her own after the alleged transfer. There
is also clear evidence on record suggesting that Madam Lam continued to control
the business. Moreover, it is not clear whether staff were notified of the
change in ownership. Furthermore, Madam Lam continued to be the owner and
landlord of the Premises. It was Madam Lam who hired counsel, not Justin Lam,
when the present action was taken by the plaintiffs. Nor did Madam Lam talk to
her children regarding the cease and desist letter that was delivered on
December 9, 2011 to the operator of the Lam Chan Kee business on the Premises.
While the Court comes to the conclusion that Madam Lam must be held personally
liable for infringing activities on the Premises up and until May 28, 2013,
together with the two corporate defendants, there is not enough evidence to
support such a conclusion against the other individual defendant, S. Lam, as I
am not satisfied the latter was the controlling mind of the two corporate
defendants or was personally involved in the infringing activities.
[11]
In conclusion, assuming that the quantum may be
different if Mrs. Lam is to be held liable for three instances instead of four
instances of infringement, the Federal Court of Appeal concluded that this
ambiguity in the original judgment tainted the compensatory damages award, the punitive
damages award and the costs award (FCA Reasons at paras 21 and 22). Accordingly,
the Court is to resolve today the ambiguity with respect to Mrs. Lam’s
involvement in the June 2, 2013 infringement and redetermine, with adequate
reasons, the quantum of damages and costs (FCA Reasons at para 28).
POSITION OF THE PARTIES WITH
RESPECT TO REDETERMINATION
[12]
The parties agree that the scope of the present
redetermination is limited and must be conducted in accordance with the FCA
reasons. In a nutshell, the plaintiffs take the position that there are no
reasons to sever the compensatory damages award and to reduce the amounts of
the punitive and costs awards. On the other hand, Mrs. Lam asks this Court to
sever the compensatory damages award and to reduce the amounts of the punitive
and costs awards.
Plaintiffs position
[13]
Firstly, the plaintiffs submit that the
“ambiguity” noted by the Federal Court of Appeal is only apparent, and that in
the FC’s Reasons, the intended finding of fact of this Court was that Mrs. Lam
was, at all relevant times, personally liable for all four instances of
infringement referenced in the reasons, including the infringement that took
place on June 2, 2013.
[14]
While the evidence of Mrs. Lam’s husband’s
direct participation or involvement in the alleged infringing activities may
have been lacking – he no longer resided in Canada and had been living in China
– the plaintiffs assert once again that, as the controlling mind of the
corporate defendants, and the landlord of the Premises and owner of the
Business, Mrs. Lam aided and abetted, authorized, and sanctioned the
importation, advertisement, offer for sale and/or sale of fashion accessories
bearing the Chanel Trade-marks at the Premises. Therefore, the Court should not
disturb its previous findings and should pronounce the same declarations and
condemnations against the subject defendants.
[15]
Secondly, with respect to punitive damages, the
plaintiffs assert that because the FC’s Reasons and the evidence in the summary
trial both support liability for the June 2, 2013 infringement, the Court
should uphold the entire damages assessment set out in the FC’s Reasons,
including the award of punitive damages. Indeed, the Federal Court of Appeal stated
that an award of punitive damages in the amount of $250,000 might be a
reasonable remedy in a case like the present, even though it is proportionally
higher than awards made in earlier cases (FCA Reasons at paras 24-26). Thus,
given that the purported ambiguity relating to the June 2, 2013 infringement
should be resolved as set out above, the bases for the punitive damages award
may be relied upon to affirm the amounts set out in the FC’s Reasons.
[16]
The plaintiffs further state that several of the
Whiten factors are reflected in the conduct of the subject defendants,
including the fact that the sales of counterfeit goods and later attempts to
obscure Mrs. Lam’s involvement were “planned and deliberate”; the sale of
counterfeit goods was lengthy and ongoing; the motive for Mrs. Lam was profit,
and later, the avoidance of liability; Mrs. Lam continued to derive a financial
benefit from the sale of the counterfeit merchandise; there is no question that
Mrs. Lam was aware the conduct was unlawful; Mrs. Lam attempted to avoid
liability by presenting evidence of a purported 2011 transfer; and the kind of
theft in question constitutes a very serious offence (FCA’s Reasons at para
25).
[17]
Thirdly, with respect to the costs award of $66,000,
the plaintiffs note that in remitting this matter for redetermination, the
Federal Court Appeal did not find any errors with the Federal Courts
determination of costs in the summary trial. In addition, while the
determination of liability for the June 2, 2013 infringement may affect
compensatory damages, it does not affect the basis for the costs award in the
FC Reasons.
[18]
With respect to the present redetermination, the
plaintiffs seek their solicitor and client costs of $22,000 in lieu of assessed
costs and disbursements, given Mrs. Lam’s ongoing attempts to avoid liability,
or in the alternative, the sum of $6,025.59, reflecting, double costs of $5,600
and $425.59 in disbursements arising from an offer to settle made by the
plaintiffs, which can be produced upon request.
Mrs. Lam’s position
[19]
Firstly, Mrs. Lam interprets the FC Reasons at
paragraph 16 as meaning that she has not been found to be associated with the
LCK Company after May 28, 2013. Therefore, it would be inconsistent to render
her personally liable for the incident of the June 2, 2013 infringement.
Accordingly, the compensatory damages award of $64,000 must be severed in two
distinct condemnations: (1) Mrs. Lam should be ordered to pay the amount of
$48,000, jointly and severally with the corporate defendants; and (2) the
corporate defendants should be condemned to pay, jointly and severally, a
further sum of $16,000.
[20]
Secondly, Mrs. Lam submits today that the
Court’s determination of $250,000 in punitive damages against all three subject
defendants is unreasonable and neither in line with the rules of
proportionality, nor with the precedents set out in other trade-mark or
copyright cases in Canada, even if all four instances of alleged infringement
are considered (Louis Vuitton Malletier SA v Lin Pi-Chu Yang, 2007 FC
1179 [Yang]; Louis Vuitton Malletier SA et al v 486353 BC Ltd et al,
2008 BCSC 799 [486353 BC Ltd]; Louis Vuitton Malletier SA v Singga
Enterprises (Canada) Inc, 2011 FC 776 at paras 168-170 [Singga]; and
Chanel S de RL and Chanel Inc v Jiang Chu, 2011 FC 1303 [Chu]).
[21]
It is not challenged by Mrs. Lam that an award
of punitive and exemplary damages should be substantial enough to get the
attention of the defendant (Singga at para 169). However, Mrs. Lam
asserts that while punitive damages are meant to deter the behaviour of
potential new infringers, the present punitive damages award creates a new
threshold, despite more egregious behaviour on the part of other defendants.
Mrs. Lam submits that she was not deemed to be a manufacturer or importer, and
she was not charged with multiple counts of infringement under the Act, nor was
she charged under the Copyright Act, RSC 1985, c C-42. Mrs. Lam asks the
Court to reduce the punitive damages award by $175,000 and asserts that an
award of $75,000 would be reasonable in the circumstances.
[22]
Mrs. Lam notably submits that she did not engage
in the full range of activities and infringement in which other defendants in
other trade-mark infringement cases engaged. Moreover, her conduct should not
be deemed to be planned or deliberate as she was not the seller at the time of
the alleged infringing acts, nor was she present when the plaintiffs’
investigators attended the retail establishment and witnessed the trinkets
bearing the Chanel Trade-marks. She also submits that she had no motive or
intent, nor did she persist or carry out outrageous conduct over a lengthy
period of time. Indeed, she submits that she had no control over the products
that were being sold by the new corporation after she sold her interests in the
company. Mrs. Lam also submits that the Court should take into account the fact
that she was allegedly retailing trinkets and merchandise that the plaintiffs
do not produce in their product line. She also submits that the she did not
conceal or attempt to conceal her identity.
[23]
Thirdly, Mrs. Lam submits that the legal costs
granted to the plaintiffs in the original judgment were higher than the nominal
damages awarded, calling proportionality into question. Mrs. Lam submits that
the legal fees on a solicitor-client basis were awarded on a sum that is not
consistent with actual costs for a summary judgment trial that occurred swiftly
and in a timely fashion. The costs award of $66,000 against the subject
defendants is unreasonable and should be reduced to $32,000 in lieu of assessed
costs and payable forthwith. Furthermore, the plaintiffs should be condemned by
the Court to pay forthwith to Mrs. Lam the sum of $32,000 inclusive of
disbursements in lieu of assessed costs for this summary trial motion and
redetermination by the Court.
REDETERMINATION
OF THE MOTION FOR SUMMARY TRIAL
[24]
Having reconsidered the matter and reviewed the
totality of the evidence previously submitted by the parties at the hearing of
the motion for summary trial held in Vancouver on August 2, 2015 (FC Reasons at
paras 3 and 4), in light of the earlier findings of the Court and the reasons
of the Federal Court of Appeal, and considered the additional submissions made
by counsel in their new materials and at the hearing held in Vancouver on
August 3, 2016, it is the judgment of this Court that the findings, declarations,
orders and condemnations pronounced or made against the corporate defendants
and Mrs. Lam in the original judgment, including the compensatory damages
award, the punitive damages award and the costs award, be confirmed and remain
unchanged. In all respects and at all relevant times, Mrs. Lam is personally
liable of the infringing activities that have taken place in the Business or at
the Premises on October 23, 2011, December 9, 2011, April 26, 2012 and June 2,
2013.
PERSONAL LIABILITY OF MRS. LAM
[25]
The Court earlier found, and further finds and
confirms today, that Mrs. Lam was at all relevant times the controlling mind of
the two corporate defendants. She must be held personally liable in the ongoing
infringing and illegal activities that have taken place for a number of years in
the Business or at the Premises.
[26]
In its original judgment, the Court dismissed Mrs.
Lam and Mrs. Lam’s husband’s [the individual defendants] objection that this
was not a proper case to render judgment following a summary trial, and notably
found Mrs. Lam personally liable, while exonerating Mrs. Lam’s husband (FC
Reasons at para 5). Despite the alleged transfer of shares in August or
September 2011 to Justin and Jessica Lam (FC Reasons at para 13), the Court
accepted the plaintiffs’ arguments (FC Reasons at para 14) and found that the
defendants’ evidence was self-serving, inconclusive and contradictory (FC
Reasons at para 15).
[27]
The corporate changes, including the replacement
in May 2013 of Mrs. Lam by her daughter as President of ‘694 Inc., did not
affect, and should not affect today, the personal liability of Mrs. Lam. To
hold otherwise would grant protection to individuals or corporations seeking to
avoid liability by preparing corporate filings when they would otherwise clearly
be responsible for infringing and illegal activities (see Fraudulent
Conveyances Act, RSO 1990, c F 29 ss 2; Prodigy Graphics Group
Inc v Fitz-Andrews,[2000] OJ No 1203, 2000 CarswellOnt 1178 (SCJ) at para
152).
[28]
But for the ambiguity concerning Mrs. Lam’s involvement
in the June 2, 2013 infringement (FCA Reasons at para 19), the Federal Court of
Appeal also stated that there is no ground to set aside the other
determinations made by the Court concerning Mrs. Lam’s involvement and
responsibility in this matter (FCA Reasons at para 27). There is therefore no
basis today to reconsider the joint and several liability of the corporate
defendants (LCK Company and ‘694 Inc.) for any of the four instances of
infringement, nor is there any argument that the remaining factual and legal
findings already rendered in this case are not binding on all parties.
[29]
Perhaps, the apparent ambiguity noted by the
Federal Court of Appeal could have been clarified by the Court much earlier
through the presentation by a party of a motion pursuant to Rule 397(1) of
the Federal Courts Rules, SOR/98-106, to reconsider or clarify the
conclusions of the original judgment – since the original judgment seemed not
accord with part of the reasons. Moreover, Rule 397(2) allows the Court to
correct at any time clerical mistakes, errors or omissions in a judgment or
order. Be that as it may, there should be no confusion and no misunderstanding
today. The Court wholly takes responsibility for any misuse in the impugned
paragraphs of its reasons of the May 28, 2013 date, or its conjunctive use with
the June 2, 2013 date (paras 8 and 16), and stands with its earlier finding
that the subject defendants, including Mrs. Lam, are liable of all four
instances of infringement, including the June 2, 2013 infringement (FC Reasons
at paras 5, 18, 19, 20 and 22).
[30]
The corporate defendants did not appear or made
an appeal with respect to the findings made by the Court in the original
judgment. To make it clear, the May 28, 2013 date is only relevant with the
issue of the weight to be given by the Court to the corporate documents invoked
by the individual defendants. At the risk of repeating itself, the Court
already found that the individual defendants’ evidence was self-serving and
should be afforded very little weight (FC Reasons at para 15). The corporate
documents concerning ‘694 Inc., which was a shell company incorporated in 2007
by Mrs. Lam, were apparently completed in May 2013 by Suiwai (Ronald) Mak
[Ronald Mak] who acted as the individual defendants’ accountant and assisted
them in the alleged sale of the Business (FC Reasons at para 13). On May 2,
2013, Justin Lam and Jessica Lam were recorded as Directors, Jessica Lam was
listed as Secretary, and Justin Lam was recorded as Treasurer of ‘694 Inc. On
May 28, 2013, Jessica Lam was recorded as President of ‘694 Inc. However,
neither Mrs. Lam nor her witnesses can dearly explain to the Court the reason
for the long delay before filing the corporates changes to the Registry or
before notifying the plaintiffs. While theses corporate changes were said to be
approved and signed by Mrs. Lam and her children on or about August or
September 2011, the signed documents were only filed and brought to the
plaintiffs’ notice on May 2013, which occurred after the serving of the
plaintiffs’ Statement of Claim. Furthermore, the personal addresses for the
individual defendants, Justin Lam and Jessica Lam indicated on the corporate
documents of ‘694 Inc. were identical at all material time: 119 Boake Trail,
Richmond Hill, Ontario (FC Reasons at para 8).
[31]
Be that as it may, regardless of the corporate
changes, after May 28, 2013, Mrs. Lam continued to use the property as her own
and continued to control the Business. According to the evidence on the record,
it is still uncertain and inconclusive whether there had been a complete and
effective sale of the ’694 Inc. At both hearings, Mrs. Lam failed to provide
any evidence to support or corroborate her assertion that her children had completely
paid the balance of the $30,000 for the sale of ‘694 Inc. (FC Reasons at para
13). Also, it is not clear whether staff were notified of the change in
ownership. Mrs. Lam continued to be the owner and landlord of the Premises. Mrs.
Lam also stated, in her testimony, there was no need to notify Pacific Mall of the
change of corporation since the sale of the Business was done between her children.
Furthermore, Mrs. Lam was still benefitting from the ongoing profits of the Business
after the corporate sale, since she was receiving ongoing financial support for
her living expenses and for the reimbursement of the management fee that she
was paying for the Premises (cross-examination of A. Lam at p 64 ln 10 to p 65
ln 1; Cross-examination of J. Lam at page 87 ln 3 to p 88 ln 8). Moreover, it
was Mrs. Lam who hired counsel implicated in the present case, not Justin Lam
or Jessica Lam, when the present action was taken by the plaintiffs. Additionally,
Mrs. Lam did not talk to her children regarding the cease and desist letter
that was delivered on December 9, 2011 to the operator of the Business conducted
in the Premises. Indeed, the Court notes that accordingly to Justin Lam’s
testimony, he had no memory of Mrs. Lam advising him to take any steps to
respond to the suit at any time, nor did he speak to a lawyer about the lawsuit.
I give very little weight to the affidavits of Mrs. Lam and Justin Lam (March
16, 2015) in view of the contradictory or confusing answers provided at their
cross-examinations (June 8, 2015 and June 9, 2015 respectively).
[32]
Thus, the motivation behind the corporate
changes and transfer of ownership alleged by the individual defendants is
highly questionable (FC Reasons at para 15). The Court finds that they are
fraudulent, insofar as they appear to be specifically directed to avoid the negative
consequences arising from the recidivist and contemptible infringing and
illegal activities of LCK Company and Mrs. Lam. All the surroundings factual
circumstances must be taken into account, including the fact that the price of
the sale was $30,000 but Mrs. Lam’s children apparently only paid $3,000 at the
time (FC Reasons at para 13) and there is no third party document corroborating
Mrs. Lam’s assertion that, subsequently to the sale of the Business,
unspecified sums of money were effectively paid by the children. On the other
hand, infringing activities continued to take place at the Premises after the
service of the 2011 cease and desist letter, and even after the service of the
Statement of Claim in April 2013, which forces this Court to question Mrs.
Lam’s good faith and address the contentious issue of her personal liability at
all relevant times.
[33]
Despite any ambiguity in the original judgment,
this Court is satisfied today that:
(a)
The continued control and profit derived by Mrs.
Lam in the Business and as the landlord of the Premises;
(b)
Mrs. Lam’s personal knowledge of the infringing
and illegal activities at the Premises; and
(c)
The absence of proper means taken by Mrs. Lam after
the personal serving of the Statement of Claim to her on April 18, 2013 to
prevent that infringing and illegal activities continue to take place in the
rented Premises,
constitute sufficient
basis for condemning Mrs. Lam, with the corporate defendants, to pay
compensatory and punitive damages, jointly and severally, as a result of the
illegal and infringing activities conducted by the Business or occurring at the
Premises, including the June 2, 2013 infringement.
[34]
As asserted by the plaintiffs in this
proceeding, there is ample evidentiary base in the record and compelling legal
reasons to find Mrs. Lam personally liable of all four instances of
infringement:
(a)
Liability for an officer, director, principal
employee or controlling and directing mind may be found where such party makes
the unlawful act their own (Singga at paras 112-114; 486353 BC Ltd
at para 45). The governing case in this respect is Mentmore Manufacturing Co
Ltd v National Merchandising Manufacturing Co Inc, (1978), 40 CPR
(2d) 164 at 174 (FCA). The conduct of an individual in controlling and
directing a corporation does not depend on a formal employment relationship or
the designation of officer or director, as such artificial distinction would
inappropriately act to insulate controlling and directing individuals who would
otherwise be liable for their actions. Mrs. Lam was clearly the controlling
mind of the Business and derives financial benefit from its ongoing activities.
While she was aware that the advertising and the selling of counterfeit product
was contrary to both the law and the previous order rendered against her, Mrs.
Lam failed to prove that she took sufficient steps to halt this unlawful
practice.
(b)
Vicarious liability may exist where, taking into
account the dual purposes of such liability – fair and effective compensation
and deterrence of future harm – there is a sufficient rationale to do so.
Liability will be imposed where the relationship between the tortfeasor and the
person against whom liability is sought is sufficiently close as to make the
claim for vicarious liability appropriate. The proximity between Mrs. Lam and
the corporate defendants is well established during all four acts of
infringement, notwithstanding the alleged sale (see Bazley v Curry,
[1999] 2 S.C.R. 534 at para 15; 671122 Ontario Ltd v Sagaz Industries Canada
Inc, [2001] 2 S.C.R. 983 at paras 26-28; KLB v British Columbia [2003]
SCC 51 at paras 18-20; Van Hartevelt v Grewal, 2012 BCSC 658 at paras
64-65).
(c)
In continuing to treat the Business as her own,
deriving financial benefit from the Business, and failing to take any or
sufficient steps to halt the sale of counterfeit Chanel merchandise (despite
being the party primarily involved in the 2006 Orders, the party in receipt of
the communication of this action, and the party apparently instructing legal
counsel), Mrs. Lam aided and abetted ongoing infringement at the Premises.
[35]
For the reasons mentioned in the following
paragraphs, there is also no cause to reduce the compensatory and the punitive
awards, as this Court is also satisfied today that the subject defendants
should be condemned to pay, jointly and severally, nominal damages of $64,000 and
punitive damages of $250,000, while the costs award of $66,000 should be not be
altered.
COMPENSATORY DAMAGES AWARD
[36]
The Court is also satisfied that the plaintiffs
have suffered damages and that the subject defendants have made a profit. With
respect to damages, the precise extent of the subject defendants’ activities
are not known to the plaintiffs, but there is clear evidence on the record that
the illegal and infringing activities were conducted at the Premises from
October 2011 to June 2013, and at least, according to the uncontradicted
evidence, on October 23, 2011, December 9, 2011, April 26, 2012 and June 2,
2013.
[37]
At the hearing for remittance, Mrs. Lam did not
seek leave to file additional credible documentation that could have guided the
Court toward assessing more accurate compensatory damages instead of awarding
$32,000 to each of the two interested plaintiffs (see paragraph 40 below). Since
no such evidence was provided to assess the true value of profit gained from
the infringements and since the personal liability of Mrs. Lam has been
confirmed for all four infringements, the Court is justified today to rely on
the minimum compensatory rule, described in the following paragraphs.
[38]
As already noted in the reasons supporting the
original judgment (FC Reasons at para 21), in 1997, the Court determined
that, in the circumstances before the Court at that time and in relation to an
Anton Piller order seizure, damages of $6,000 per plaintiff for trade-mark
infringement should be applied as nominal damages against retail establishments
selling counterfeit goods, where it would be difficult to prove actual damages
or profits based on a lack of documentation regarding sales. More recently in Yang,
the Court awarded a minimum compensatory damage of $7,250 per infringement
against a retail establishment by adjusting the $6,000 value for inflation.
[39]
In this respect, following the submissions made
by the plaintiffs, the Court already determined that in the present
circumstances, the proper base amount of nominal damages is $8,000, as adjusted
for inflation from 1997 to each of the three relevant years, per instance of
infringement. Accordingly, nominal damages are appropriately assessed as $8,000
multiplied by four instances (i.e. October 23, 2011, December 9, 2011, April
26, 2012 and June 2, 2013), equaling $32,000. Furthermore, the activities of
the subject defendants have infringed the rights of both Chanel Inc., which
holds the license to use the Chanel Trade-marks in Canada, and Chanel Limited,
which owns the rights to the Chanel Trade-marks. In accordance with the
established jurisprudence, each of these plaintiffs is entitled to an award of
damages for the four instances of infringement, for a total of $32,000 per
plaintiff, or $64,000 in total, and which amount is payable jointly and
severally by the subject defendants (FC Reasons at para 22). There is no reason
to find otherwise today.
[40]
Indeed, the Federal Court of Appeal already confirmed
in its judgment the Court’s method of awarding compensatory damages at the
present level of $8,000 per act of infringement and to both the trade-mark
owner and Canadians licensee in a case like the present (FCA Reasons paras
17-18). Nonetheless, the Court further reconsidered today the overall impact of
the defendants’ unlawful business on the reputation of the plaintiffs’ trade-mark.
Chanel Inc. and Chanel Limited both suffered prejudice. Similarly to the case
of Singga, which dealt with the Louis Vuitton and Burberry Trade-marks,
the defendants’ sale of substantially inferior quality counterfeit Chanel
merchandise caused serious damage, and indeed irreparable harm, to the
reputation and goodwill of the plaintiffs. Indeed, the worldwide brand of
Chanel, which has been developed through decades, is commercializing a high
quality of fashion products which attracts a specific clientele. At great
expense, Chanel has developed and marked products that are associated with the
most luxurious materials. Consumers who could purchase the defendants lower
quality of counterfeit products will be likely to be disappointed, which could
result by detrimentally affect the sale of authentic Chanel products.
Therefore, the defendants’ infringements affect directly the superior quality of
the products bearing the Chanel trade-marks (see Singga at para 12). Likewise,
the availability of cheaper counterfeit Chanel products tarnishes the brand
image associated to the plaintiffs’ trade-mark. Although, this aspect of the
infringement may not seem so serious for the defendants, the erosion of the
brand’s reputation for which the plaintiffs have worked very hard is a serious
consequence of the continuing behaviour of the defendants and any others who
may also be infringing the Chanel trade-mark (see Chu at para 25).
[41]
Accordingly, the Court is satisfied today that
there are no reasons to reduce or to sever the sum of $64,000 previously awarded
to the plaintiffs as compensatory damages.
PUNITIVE DAMAGES AWARD
[42]
At the hearing of the motion for summary trial
in August 2015, as noted in the reasons in support of the original judgment (FC
Reasons at para 17), the submissions made by the individual defendants were
minimal and did not really address the arguments made by the plaintiffs in
their comprehensive submissions. Thus, the Court had no reason at the time to
not endorse the plaintiffs’ general reasoning and arguments.
[43]
In the original judgment, the Court notes at
paragraphs 23 and 24:
[23] Additionally, it is submitted by the
plaintiffs that punitive and exemplary damages, in the amount of $250,000, are
appropriate in these circumstances. The prior Actions were only settled when
Madam Lam and LCK Company agreed in the Settlement to consent to the Order, and
additionally the Second Order, both of which unambiguously required, inter
alia, that Madam Lam and LCK Company cease sales of all counterfeit Chanel
merchandise. In breach of both the Settlement and the Orders, and in further
breach of the plaintiffs’ rights, the subject defendants nevertheless continued
their unlawful activity.
[24] The Court is satisfied that such
blatant disregard for the rights of the plaintiffs, as well as the blatant
disregard for the process and Orders of this Court, are clearly circumstances
under which the subject defendants should be ordered to pay significant
punitive and exemplary damages. Given the egregious nature of the subject
defendants’ activities, the amount of nominal damages awarded above is simply
not sufficient to denounce and deter the subject defendants’ activities. Having
considered the awards of punitive and exemplary damages granted in the past,
the Court is satisfied that an additional award of $250,000 in punitive and
exemplary damages, payable jointly and severally, is appropriate and warranted
in the circumstances.
[44]
In the present redetermination, the Court has
considered, with a fresh look, the totality of the evidence on record in light
of the reasons of the Federal Court of Appeal (FCA Reasons at paras 23-26),
the applicable legal principles mentioned by the Supreme Court of Canada in Whiten,
the previous awards of punitive damages in trade-marks (or copyright)
infringement cases in Canada, and the submissions made by counsel both in the
materials and oral arguments made at the hearing of the motion for summary
trial in August 2015 and its redetermination in August 2016, following the
written submissions made on behalf of the parties in May 2016. For ease of
reference, the Court will not come back on the evidence respecting the finding
of personal liability of Mrs. Lam in all four instances of infringement (see
paragraphs 25 to 35 above).
[45]
On October 23, 2011, the plaintiffs became aware
that illegal and infringing activities continued to take place at the Premises.
On December 9, 2011, the plaintiffs served LCK Company, Mrs. Lam and Mrs. Lam’s
husband with a letter demanding that they immediately cease and desist from
such illegal and infringing activities. They were uncooperative and refused to
relinquish counterfeit items in their possession and control. On April 17,
2013, the plaintiffs commenced the present action against LCK Company, and the
individual defendants. While the corporate defendants did not file an
appearance, the individual defendants alleged that LCK Company had ceased
carrying on business on or around September 30, 2011, and had sold its business
assets to ‘694 Inc. The action was amended on July 2, 2013 to add ‘694 Inc. as
a co-defendant and to allege that the offering for sale and counterfeit items
continued at the Premises on several occasions after the cease and desist
letter of October 23, 2011, including most recently, on June 2, 2013.
[46]
It is not the first time that LCK Company, Mrs.
Lam, and Mrs. Lam’s husband, collectively doing business as LAM CHAN KEE, are sued
for infringement of the Chanel Trade-marks. On February 13, 2006, two separate
actions were commenced in the Court by Chanel S. de R.L. and Chanel Inc. in
relation to their offering for sale, selling, importing, distributing,
manufacturing, printing, advertising, promoting, shipping, storing, displaying
or otherwise dealing in merchandise bearing any or one or more of the Chanel
Trade-marks (T‑257‑06 and T‑313-06). As early as August 2,
2005, a pair of earrings bearing an unauthorized or counterfeit reproduction of
one or more of the Chanel Trade-marks was purchased at the Premises and a cease
and desist letter was served upon these defendants.
[47]
On December 18, 2006, following the settlement
reached between the parties, two judgments of the Court were issued by consent.
As a result, LCK Company, Mrs. Lam and Mrs. Lam’s husband were ordered to pay
damages in the amount of $6,000, jointly and severally, and were permanently ordered
and restrained from: (1) offering for sale, displaying, advertising, selling,
manufacturing, distributing or otherwise dealing in merchandise bearing any of
the Chanel Trade-marks; and (2) directing public attention to their wares in
such a way as to cause or be likely to cause confusion in Canada those wares
and the wares of the plaintiffs contrary to the provisions of section 7(b) of
the Act [the 2006 Orders].
[48]
Incidentally, as appears from a research in the
records of this Court, the plaintiffs were not the only ones to bring an action
against Mrs. Lam, Mrs. Lam’s husband and, LCK Company for infringement of
trade-marks. On February 13 2006, Mrs. Lam, her husband, LCK Company and
J&A Accessories were the subject of two separate lawsuits for infringements
of Paul Frank Intellectual Property by virtue of the manufacture, the sale and
the distribution of counterfeit merchandise bearing Paul Frank Industries’
trade-mark. Similarly to the 2006 orders, a settlement was reached by the
parties and, on December 18, 2006, upon the consent of the parties, the Court
rendered two judgments which ordered Mrs. Lam, the LCK Company and the J&A
Accessories to pay, jointly and severally, the amount of $6,000 for damages and
costs to Paul Frank Industries. The Court also ordered the defendants to
permanently restrain themselves from offering for sale, displaying,
advertising, selling, manufacturing, distributing or otherwise dealing in merchandise
bearing any of the Paul Frank Intellectual Property.
[49]
Therefore, the subject defendants, including
Mrs. Lam, were at all relevant times aware of their obligations under the Act
and have no legal excuse to escape the consequences of any wilful infringement
of the Act, the terms of settlement and the 2006 Orders, whether or not they
have been actually sued in contempt of Court. LCK Company and Mrs. Lam were
previously ordered to pay nominal damages of $6,000 by the 2006 Orders without
an associated award of punitive damages. However given their recidivist
conduct, it is apparent that those compensatory damages were insufficient and
amounted to no more than a “licence fee” which encouraged the subject
defendants to pursue their infringing and illegal activities for a number of
years.
[50]
In a commercial context, this Court has to also
keep in mind that the four infringement dates recorded between October 23, 2011
and June 2, 2013 are only showing a small part of the whole infringement
committed by the subject defendants during this 20 month period. Indeed, it is
materially impossible for a major business such as Chanel to control the daily
sales of the defendants nor to establish the full extent of their infringement.
Therefore, when uncontradicted evidence of different occasions of infringements
is presented, the Court may rightfully or reasonably presume that this unlawful
practice has taken place on daily basis for a continuous period of time.
[51]
In Entral Group International Inc v MCUE
Enterprises Corp, 2010 FC 606 [Entral], this Court went further in
this assumption by inferring negative conclusions from the default of defendant
to fully disclose their corporate documentation:
The Defendants have deliberately refrained
from filing materials that will show the extent of the profit they have made
from their infringing activities. The Court must draw a negative inference
from this fact, and it must be assumed that there could be no reason for the
Defendants continued use and exploitation of the Plaintiffs’ rights in the
conduct of their business over a number of years if they were not making a
profit (Entral at para 51).
[52]
In this case, the defendants have not submitted
any counterevidence reasonably suggesting this Court that the four events of
infringement listed above were isolated events and not part of an overall
business scheme designed to distribute and sell counterfeit merchandise on a
daily basis. Consequently, the Court can make a negative inference regarding
the daily activities of the Business and on the amount of profit the subject
defendants gained from this unlawful practice, especially in a commercial
context where the inventory varies from day to day.
[53]
Although the submissions made in respect of
remedies by the defendants at the trial hearing were minimal, Mrs. Lam now
suggests that an amount of $75,000 as punitive damages, payable jointly and
severally by the subject defendants, would achieve the Court’s objective in
imposing punitive damages and would be more in line with the case law. In light
of the subject defendants’ conduct, both before and after the institution of
the plaintiffs’ action, the Court cannot accept Mrs. Lam’s late suggestion
which does not take into account all relevant factors.
[54]
Punitive and exemplary damages have been awarded
in trade-mark infringement cases where, for example, the conduct of the
defendant has been outrageous or highly reprehensible, or in cases where the
defendant’s actions constituted a callous disregard for the rights of the
plaintiff or for injunctions granted by the court. Punitive and exemplary
damages have also been awarded in cases where a defendant demonstrates little
regard for the legal process and requires the plaintiff to expend additional time
and money in enforcing its rights (Yang at paras 48-51; 486353 BC Ltd
at para 86; Singga at para 168; Nintendo of America Inc et al v COMPC
Canada Trading Inc, (22 September 2009) Vancouver S082517 (BCSC) at paras
37-38; Chu at paras 85-88).
[55]
In Whiten at paragraphs 112-113, the
Supreme Court of Canada has set out the following factors relating to the
inquiry into a defendant’s blameworthiness:
• Whether misconduct was planned and deliberate;
• The intent and motive of the defendant;
• Whether the defendant persisted in the outrageous conduct over
a lengthy period of time;
• Whether the defendant concealed or attempted to cover up its
misconduct;
• The defendant’s awareness that what he or she was doing was
wrong;
• Whether the defendant profited from its misconduct; and
• Whether the interest violated by the misconduct was known to
be deeply personal to the plaintiff or a thing that was irreplaceable.
[56]
One of the most fundamental aspect of punitive
damages is to ensure that the defendant does not treat compensatory damages
merely as a licence to get its way irrespective of the legal or other rights of
the plaintiff (Whiten at para 124). Where a compensatory award is lower
and would not achieve the purposes of retribution, denunciation and deterrence,
greater punitive damages may be necessary (Profekta International Inc v Lee
(Fortune Book & Gift Store), 1997 CanLII 16699 (FCA)). As stated by the
Supreme Court of Canada, it is perfectly acceptable to use punitive damages to
relieve a wrongdoer of its profits where compensatory damages would amount to
nothing more than an expense paid to earn greater profits while flouting the
law (Cinar Corporation v Robinson, 2013 SCC 73, [2013] 3 S.C.R. 1168 at
para 136 [Robinson]).
[57]
On the other hand, punitive damages should be awarded
“if, but only if” compensatory damages are inadequate to punish the defendant (i.e.
means that punitive damages are a “topping up” award and a remedy of last
resort). The test thus limits the award to an amount that is no greater than
necessary to rationally accomplish their purpose (Whiten at para 50).
[58]
As noted by the Federal Court of Appeal (FCA
Reasons at para 24), factors relevant to the rationality assessment include the
degree to which the amount awarded is proportionate to the level of the defendant’s
blameworthiness, the extent of the plaintiff’s vulnerability, the nature and
extent of the harm suffered by the plaintiff, and the need for general and
specific deterrence. In addition, the quantum awarded should be considered in
context, which includes the scope and magnitude of other remedies awarded or
likely to be awarded against the defendant, so as to ensure that the amount
awarded is no higher than necessary to achieve the court’s objective in
imposing punitive damages.
[59]
In this respect, the Federal Court of Appeal
further observed at paragraphs 25 and 26:
[25] Bearing these factors in mind, it is
entirely possible that an award of punitive damages in the amount of
$250,000.00 might be a supportable remedy in a case like the present, even though
the award is proportionally higher than the awards made in earlier cases.
Violation of trade-mark rights through the repeated sale of counterfeit goods
is serious misconduct worthy of sanction and justifies damages awards that are
high enough so as to deter the defendant and others from engaging in such
reprehensible conduct. As was noted in Singga, where the Federal
Court cited with approval from R. v. Chui Lau, (16 November 2006),
Richmond 48082-1-48984-2C (B.C.P.C.):
this kind of theft constitutes a very
serious offence, more serious than a theft of some other material or property
because it strikes at the heart of what differentiates a progressive, creative
society [that protects intellectual property rights] from one that is [and
does] not.
[26] The need for deterrence is
therefore very real and may require a significant punitive damages award where
compensatory damages can only be calculated on a nominal basis due to the
nature of the defendant’s infringing acts. Moreover, the repeated nature of the
violations, flouting of court orders and attempts of the appellant to obscure
her involvement through the alleged sale of her business to the numbered
company are all factors that could legitimately be relied upon to support a
significant punitive damages award.
[60]
Furthermore, Mrs. Lam referred the Court to
different decisions in order to establish a certain precedent for punitive
damages in this area of intellectual property for more egregious behaviour
(notably on the part of other defendants which have been involved in the
importation and the manufacturing of counterfeit product). While the amount of
$250,000 sought in this action by the plaintiffs against the subject defendants
looks somewhat higher than some prior cases, the Court is satisfied that it is
no higher than necessary to deter the subject defendants’ misconduct in these
specific circumstances. Furthermore, the original judgment with regard to the
punitive and exemplary damages is neither a new threshold nor inconsistent with
prior case law.
[61]
In the past years, this Court has developed “a
very dim view” of defendants who continue to infringe intellectual property
rights after being duly notified of the infringement. In Entral, this
Court granted the plaintiff’s claim by ordering the award of $100,000 as
punitive damages. This Court found that such amount of punitive damages was
appropriate to punish the defendant and deter similar conduct in the future
where a defendant would flagrantly disregard the plaintiff’s intellectual
property rights, despite express notice of such rights in numerous cease and
desist letters.
[62]
In Singga, this Court ordered the
defendants Singga to pay $200,000 and ordered the defendants Alec to pay
$250,000 as punitive damages for their recidivist action against the Louis Vuitton
and Burberry trade-marks and for their blatant disregard of the Court process.
The Court also noted that the defendants intentionally sold a large number of
counterfeit and infringing items while attempting to conceal their wrongdoing (Singga
at para 179-180).
[63]
More recently, this Court rendered a default
judgment against defendants who were involved in an extensive network of
wholesale distribution and retail sale of counterfeit merchandise. The
defendants were involved in many Flea Markets and warehouse locations in
Ontario. A major investigation session revealed that, on at least 24 occasions,
the defendants were distributing and selling many counterfeit merchandise like
Gucci and other important fashion brand, despite the service of numerous cease
and desist letters and notwithstanding the seizure of their counterfeit Gucci
merchandise by the police following the execution of a criminal search warrant.
This Court then ordered those defendants to pay $696,000 to the plaintiff as
punitive damages, being $29,000 (minimal compensatory damages for wholesaler)
for each of the 24 occasion of infringements, in addition a $1,392,000 as
compensatory damages (Guccio Gucci SPA and Gucci America Inc v Bobby Bhatia
et al (Unreported) Federal Court File No T-1556-14).
[64]
The same defendants were also ordered by this
Court, in a separate default judgment, to pay the plaintiffs $609,000 in
punitive damages, in addition to compensatory damages of $2,436,000 for
trade-mark infringement and passing off, and additional damages of copyright
infringement (Louis Vuitton Malletier SA and Louis Vuitton Canada Inc v
Bobby Bhatia et al (Unreported) Federal Court File No. T-1536-14).
[65]
The quantification of punitive damages is far
from an exact science. Indeed, none of the common law jurisdictions have
adopted (except by statute) a formulaic approach, such as a fixed cap or fixed
ratio between compensatory and punitive damages (Whiten at para 73).
Indeed, under common law jurisdiction where the gravity of the conduct warrants
it, punitive damages reaching $1,000,000 or more have been granted (Robinson
at para 138; Whiten at para 141; National Bank Financial Ltd v Barthe
Estate, 2015 NSCA 47). On the other hand, under Civil law, punitive damages
can only be awarded where they are provided under section 1621 of Civil Code
of Québec, SQ 1991, c 64, and upon the specific enabling enactment of a
law, like section 38.1 of Copyright Act or section 53.2 of Trade-Mark
Act. Before the Robinson decision where the Supreme Court of Canada
granted $500,000 as punitive damages, the typical range for punitive damages
regarding trade-mark and/or copyright infringement used to be between $5,000
and $250,000, especially for recidivist misconduct (Robinson at para 138 citing
France Animation, sa c Robinson, 2011 QCCA 1361 at para 249). In other
cases, the Quebec Courts have granted important amount of punitive damages for
serious misconduct toward vulnerable parties, reaching $1,500,000 or more (see Letourneau
v JTI-Macdonald Corp, 2015 QCCS 2382 (Class action); Markarian c Marches
mondiaux CIBC inc, 2006 QCCS 3314; Agence du revenu du Québec c Groupe
Enico inc, 2016 QCCA 76).
[66]
Moreover, the different
superior courts in common law provinces have also recognized the need to allow for a higher calculation of damages in situations of
recidivist counterfeiting activities over a period of time. For example, in 2008, the British
Columbia Supreme Courts severely condemned the fact that the plaintiff had clearly
disregarded the Anton Pillar order in 2004 and the judgment from the Federal
Court since they continued their sales activities. The Court then awarded a
total of $300,000 in punitive damages comprised $200,000 against the individual
that was the principal of the enterprise in question and $100,000 against the
remainder of the defendants, in addition to much higher compensatory damages,
totalling $580,000 for trade-mark infringement (486353 BC Ltd at paras 90-91).
[67]
In the present case, instead of providing credible
evidence or explanations to counter the finding of their deliberate and planned
infringement, the corporate defendants have chosen not to appear, while Mrs.
Lam now asks this Court to fix the punitive damages to $75,000 according to her
own interpretation of prior decisions. However, representations made by the
parties with respect to punitive damages are not a negotiation where the Court
is called to split the difference between their respective bargaining
positions. Each party must come with clean hands and be willing to enter in a
frank and candid dialogue with the Court. Transparency is essential and the
parties’ respective positions must be consistent with the particular
circumstances of the case, including mitigating factors, and as the case may
be, the patrimonial situation of the offender, where evidence has been adduced
in this regard.
[68]
The subject defendants simply failed to provide
any credible evidence to prove their good faith and their effort to stop or
halt the distribution of counterfeit merchandise in their premises. Moreover,
Mrs. Lam has not shown any sense of repentance whatsoever, which would have
justified a lower award of punitive damages (see Singga at para 172,
180). Bearing in mind all the relevant factors, the Court is satisfied today that
an amount of $250,000 in punitive damages is justified in the particular
circumstances of this case and the quantum awarded is sufficient to adequately
prevent the defendants’ activities from continuing in the future, without
exceeding the bounds of rationality.
[69]
It would normally suffice for the trial judge
who has granted a default judgment or has received minimal submissions by a
defendant on the issue of punitive damages to refer to the case law and the
applicable law and applicable legal tests. Yet, in view of the fact that the
Federal Court of Appeal specifically noted that “[a]n
award […] of this magnitude […] calls for an explanation […] more expansive”
than found in the original judgment (see paras 23 and 24 of the FC reasons
already cited above), the Court finds it necessary today to list the following
key aggravating factors justifying an increased award of $250,000 in punitive
and exemplary damages in this case.
[70]
First, there is significant evidence on record regarding
the bad faith conduct of the subject defendants over a lengthy period of time (at
least from October 2011 to June 2013). Also, it must not be forgotten that Mrs.
Lam herself had previously consented to permanently restrain herself and her
company from infringing the Chanel trade-marks as a result of the 2006 Orders.
Therefore, it is incontestable that the subject defendants acted with full
knowledge of the plaintiffs’ rights and the Chanel Trade-marks, and that their
misconduct was planned and deliberate.
[71]
Second, the subject defendants’ motivation was
for profit as they well knew that the counterfeit merchandise which they
imported, advertised, offered for sale or sold at the Premises differed from
Chanel’s legitimate products in material respects, in that the counterfeit
Chanel merchandise is of lower quality, and lacked the high standard quality
control associated with genuine Chanel products (FC Reasons at para 12). The
present compensatory damages award of $64,000 is not likely to affect the
behaviour of the subject defendants unless they are condemned, jointly and
severally, to pay a significant amount of money in punitive damages.
[72]
Third, instead of admitting their guilt and
promptly correcting the situation, the defendants LCK Company and Mrs. Lam
attempted to disclaim any responsibility by putting the blame on Mrs. Lam’s
children and transferring assets to the defendant ‘694 Inc. The defendant ‘694
Inc. provided its full support and cooperation in this scheme and continued to
offer for sale or sell counterfeit Chanel merchandise even after the Statement
of Claim had been served to LCK Company, Mrs. Lam and Mrs. Lam’s husband.
[73]
Fourth, it is only after the Statement of Claim
was filed and served that Mrs. Lam asserted as a defence that a yet-undisclosed
transfer of assets from LCK Company to ‘694 Inc. had occurred years earlier,
allegedly in 2011. The defendants, LCK Company and ‘694 Inc., failed to file
Statements of Defence, nor any independent documentary evidence of the alleged
transfer of ‘694 Inc., which is a further indication of the little regard they
have for the legal process.
[74]
Fifth, the kind of theft in question constitutes
a very serious offence (FCA’s reasons at para 25). As stated by the
Supreme Court of Canada regarding trade-mark and copyright infringements,
conduct of this nature threatens one of the fundamental goals of Canadian
copyright law, namely “to prevent someone other than
the creator [of a work] from appropriating whatever benefits may be generated”
(Robinson at para 139). Since this offending conduct was lucrative to
the defendants, the Court is satisfied that the punitive damages associated
with it should be significant.
[75]
Sixth, the plaintiffs were forced to spend a
considerable sum of money to obtain judgment from the Court while the subject
defendants have shown no sign of remorse whatsoever. Mrs. Lam and LCK Company
are recidivist offenders who were not only in violation of the 2006 Orders of
the Court but continued to infringe the plaintiffs’ rights after the 2011 cease
and desist letter and the institution of the present action in April 2013.
[76]
Seventh, Mrs. Lam also made attempts to
materially mislead the Court regarding her involvement, which required
additional effort and expense on the part of the plaintiffs, while concurrently
failing to adduce evidence regarding the scope of the defendants’ infringement of
the plaintiffs’ rights.
[77]
Eighth, the plaintiffs’ vulnerability stands on the
impossibility for them to control daily unauthorized distribution of
counterfeit merchandise in the defendants’ Premises. As described in the Whiten
decision, the courts must assess what sum would be proportionate to the need
for deterrence. Consequently, the financial or other vulnerability of the
plaintiff, and the consequent abuse of power by a defendant, is highly relevant
where there is a power imbalance, as it was clearly the case in Robinson.
Even if the financial capacity of the plaintiffs is not a concern in the
present case, the plaintiffs remain vulnerable for the control of the standard
of quality of products bearing the Chanel trade-mark. Where licensees have to
comply with the Chanel’s strict norms of control, plaintiffs have no control
over the quality and design of counterfeit merchandise bearing Chanel
trade-mark sold by unauthorized vendors in flea markets or in fixed retail
establishments. Therefore, the vulnerability of the plaintiffs lies on their
incapacity to control the daily sale of counterfeit merchandise which
diminishes the value of the goodwill associated with the Chanel trade-marks.
[78]
Finally, the subject defendants have failed to
produce any records which relate to their purchases of counterfeit Chanel
merchandise and/or their sale of counterfeit merchandise, making it virtually
impossible to determine what precise amount of punitive damages would be
required to relieve the subject defendants of profits in excess of the damages
assessed above (see Harley Davidson at para 51). This illustrates again
the bad faith of the subject defendants and their attempt to conceal the real
extent of their profit from the infringements of the plaintiffs’ trade-mark.
[79]
When considered in this complete context, the
Court finds that the malicious, oppressive and high-handed misconduct of the subject
defendants warrants a condemnation to pay $250,000 in punitive damages, jointly
and severally. This award of punitive damages respects the boundaries of
rationality. It is not excessive in the Court’s opinion considering the case
law and the particular facts of the case. Again, it is very important to eradicate
the recidivist misconduct of the subject defendants and send a strong message to
other offenders who are likely to engage or have engaged in similar conduct or
likely attempts to obscure or conceal their misconduct through the sale of
their business or a corporate makeover. Thus, there are no reasons today to
reduce the amount of $250,000 originally awarded to the plaintiffs’ in punitive
damages.
[80]
Furthermore, the subject defendants shall also
pay to the plaintiffs post judgment interest on the amounts awarded above as
damages and punitive and exemplary damages, calculated from the date of this
judgment at the current rate of 2.00% and at future rates determined according
to the Courts of Justice Act, RSO 1990, c C-43 and the Publication of
Postjudgment and Prejudgment Interest Rates, O Reg 339/07. This leaves the
issue of costs which will be addressed below.
COSTS AWARD
[81]
With respect to costs, the Court noted in the
original judgment at paragraphs 26 and 27:
[26] Finally, the plaintiffs also submit
that given the deliberate and knowing infringement of the Chanel Trade-marks
and the obstructive conduct of the defendants in deliberately delaying this
proceeding, along with the substantial additional fees incurred by the
plaintiffs as a result of such actions, they should be awarded their solicitor
and client costs in a lump sum to be determined by this Court (approximately
$110,000). In the alternative, it is submitted that the plaintiffs ought to be
awarded the tariffed costs of this proceeding, the total amount of $13,007.57
reflecting tariffed fees in the amount of $8,190 plus disbursements of
$4,817.57.
[27] The Court is satisfied that the
plaintiffs have incurred higher legal fees and disbursements partly as a result
of the unresponsiveness of the individual defendants who ignored repeated
requests for documents, resulting in their counsel being removed from the
record as well as further delays. On the other hand, in awarding $250,000 as
punitive damages, the Court has already taken into account the deliberate and
knowing infringement of the Chanel Trade-marks. Thus, the Court will reduce by
a factor of 40% the amount calculated by the plaintiffs on a solicitor-client
basis. The Court will award to the plaintiffs the sum of $66,000 in lieu of
assessed costs, which shall be payable forthwith by the subject defendants in
view of their reprehensible conduct in the proceeding.
[82]
In remitting this matter for redetermination,
the Federal Court Appeal did not find any error with the Court’s determination
of costs. The only reason for setting aside the costs award was pragmatic: in
redetermining the matter of damages, perhaps the Court may come to a different
result and should ask itself if it has any impact on costs.
[83]
Be that as it may, I agree with the plaintiffs’
counsel that what has a direct impact on costs is not the amount of
compensatory or punitive damages awarded by the Court, but the extent of work
and disbursements incurred by the plaintiffs to obtain judgment against the
subject defendants. In any event, considering the present result, which remains
unchanged, I see no basis today to reduce the amount of $66,000 originally
awarded to the plaintiffs in lieu of assessed costs.
[84]
Finally, considering that the present
redetermination of the motion in summary trial has been conducted as a result
of the judgment rendered by the Federal Court of Appeal, allowing Mrs. Lam’s
appeal without costs, and that neither party should be held responsible of the
ambiguity or lack of adequate reasons in the original judgment, there shall be
no additional costs with respect to the redetermination of the motion for
summary trial.
[85]
Accordingly, the subject defendants shall pay
forthwith to the plaintiffs the sum of $66,000 in lieu of assessed costs
relating to costs up and including the original judgment of the Court and the
present redetermination.
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