Date: 20000911
Docket: T-753-99
Ottawa, Ontario, September 11, 2000
Present: The Honourable Mr. Justice Muldoon.
Between:
MERCK & CO. INC., and
MERCK FROSST CANADA & CO.,
Plaintiffs,
- and -
NU-PHARM INC., BERNARD SHERMAN, and
RICHARD BENYAK,
Defendants.
ORDER ON APPEAL
UPON this appeal, joint and several, from the November 16, 1999 decision of a learned prothonotary which dismissed the defendants' various applications for relief in regard to the status of the statement of claim in its various aspects, having come on for hearing in Ottawa, on May 23, 2000, in the presence of the respective parties' counsel, now
[1] THIS COURT ORDERS AND ADJUDGES that the divers appeals be, and they are, hereby dismissed, and
[2] THIS COURT FURTHER ADJUDGES that the learned prothonotary's said decision was correct in law, and
[3] COSTS of this appeal shall be in the cause.
Judge
Date: 20000911
Docket: T-753-99
Between:
MERCK & CO. INC., and
MERCK FROSST CANADA & CO.,
Plaintiffs,
- and -
NU-PHARM INC., BERNARD SHERMAN, and
RICHARD BENYAK,
Defendants.
REASONS FOR ORDER ON APPEAL
Muldoon, J.
[1] These reasons are in respect of an appeal, by the defendants in the main action in case no. T-753-99, from an order of Madam the Prothonotary Aronovitch dated November 16, 1999 dismissing, in large part, a number of motions by the defendants to strike several of the paragraphs in the plaintiffs' statement of claim dated April 29, 1999. The appeal is brought by way of motion pursuant to rule 51 of the Federal Court Rules, 1998 SOR/106-98. As the moving parties in this motion, the defendants together and individually seek extensive relief against the prothonotary's order and the plaintiffs' statement of claim. The respondents in this motion are the plaintiffs in the main action, that is, Merck Frosst Canada & Co. and Merck & Co., Inc.
Facts
[2] This motion arises from an action initiated by the respondents in which they allege that the three moving parties had breached an injunction issued by Mr. Justice MacKay, on December 22, 1994, against Apotex Inc. in suit no. T-2408-91. That injunction reads, in part:
| 3. The Defendant [Apotex], by its officers, directors, servants, agents, employees, or otherwise, is hereby restrained and enjoined from infringing claims 1 to 5 and 8 to 15 inclusive of Canadian Letters Patent No. 1,275,349, and in particular from manufacturing, using, offering for sale and selling [...] any tablets [...] containing enalapril maleate as an active ingredient [...] |
As counsel for Nu-Pharm Inc. pointed out at the hearing of this matter, the injunction does not enjoin the moving parties in their individual capacities, that is, when they are not acting as officers, directors, servants, agents, employees (or otherwise) of Apotex.
[3] In the main action, the respondents claimed that the moving parties, by the acquisition and sale of Nu-Enalapril tablets, not only infringed patent no. 1,275,349 (the `349 patent) but did so knowingly and willfully. They allege that, aside from Nu-Pharm being liable for this alleged infringement, Messrs Benyak and Sherman are personally liable, too. They also allege that the moving parties have infringed in full knowledge of the injunction issued against Apotex for similar activities.
Legal Issues
[4] There are three broad issues which were dealt with by the prothonotary and to which the moving parties now take exception. The first issue has to do with whether a breach of the T-2408-91 injunction is properly pleaded by the respondents in their statement of claim. The second issue concerns whether the respondents can plead that Messrs Benyak and Sherman are personally liable for the potentially infringing activities of Nu-Pharm. The third issue contested by the moving parties concerns whether the prothonotary was correct in finding that certain of the respondents' pleadings in their statement of claim are relevant to their claim.
[5] To begin with, Nu-Pharm submits that the prothonotary erred in law and principle in allowing the respondents' statement of claim to advance allegations characterizing Nu-Pharm's conduct as a breach of the injunction issued in suit no. T-2408-91. As the respondents, the prothonotary and Madam Justice Reed in Apotex v. Merck & Co., Inc. and Merck Frosst Canada Inc. (T-294-96, March 5, 1999) at paragraph 5 all note, however, allegations of a breach of an injunction are permitted in a suit for patent infringement, such as the present one, where the alleged breach may support an award of punitive or exemplary damages. What if the moving parties, however, are all non-parties to the injunction? Are the allegations still properly pleaded?
[6] Nu-Pharm submits that the prothonotary erred in law in relying on MacMillan Bloedel Ltd. v. Simpson, [1996] 2 S.C.R. 1048 to conclude that the injunction in T-2408-91, which has not put the public at large on notice, could bind each of the moving parties, assuming they are all non-parties to the suit in T-2408-91. Nu-Pharm relies for its position, inter alia, on the "fact" that the decision in MacMillan Bloedel does not deal with whether non-parties to an injunctive proceeding can be bound by the resulting injunction. The following passages from the decision at 1062 and 1063 illustrate this interpretation:
| How is the fact that non-parties can be found guilty of violating court orders and sent to prison therefor to be reconciled with the assertion of the English authorities that only parties to the litigation can be bound by court orders? On the level of theory, these apparently contradictory positions are reconciled by the distinction between being bound by an injunction as a party to the action and being guilty of contempt of court by obstructing justice. Only parties are "bound" by the injunction. But anyone who disobeys the order or interferes with its purpose may be found to have obstructed the course of justice and hence be found guilty of contempt of court. Thus in Seaward v. Paterson, [1897] 1 ch. 545 (C.A.), Lindley L.J. wrote (at p. 555): |
| A motion to commit a man for breach of an injunction, which is technically wrong unless he is bound by the injunction, is one thing; and a motion to commit a man for contempt of Court, not because he is bound by the injunction by being a party to the cause, but because he is conducting himself so as to obstruct the course of justice, is another and a totally different thing. |
* * *
| It thus emerges that Wood J.A. correctly asserts the existence of the English rule that injunctions bind only parties to the action. The assertion, however, is of little consequence because third parties who violate or interfere with the injunction may be prosecuted for contempt of court. The case at bar does not raise the issue whether non-parties are bound by an injunction in the technical sense discussed by Wood J.A.; it does raise the issue whether non-parties can be found in contempt of court for violating an injunction. On the English authorities, the answer to that question is indubitably affirmative. |
| Canadian judges considering the problem of mass violations of private rights have made less of the distinction between being bound by an injunction (confined to parties) and being bound to obey an injunction (not confined to parties). In Bartle & Gibson Co. v. Retail, Wholesale and Department Store Union, Local 580, [1971] 2 W.W.R. 449 (B.C.C.A.), Tysoe J.A., considering a submission that non-parties should not be described in an order, stated (at p. 455): |
| I find it a little difficult to understand why, if it is true - and it is, of course, quite true that persons who, with knowledge of an order, take any steps to assist in contravening it, may be proceeded against for contempt of court - why the order should not provide that it covers somebody who, having knowledge of the order, disobeys it. |
[7] In light of the above conclusion, the Court can find only that the prothonotary did not err in suggesting that MacMillan Bloedel is a modifying influence on Performed Line Products Co. v. Payer Electrical Fittings Co. Ltd., [1965] 1 Ex.C.R. 371, 42 C.P.R. 199, where the old English rule against non-parties being bound was adopted early in the reasons. Madam Justice McLachlin's decision supervenes the earlier Exchequer Court case, at least concerning injunctions such as the one in T-2408-91, which ignore the Jane Does, John Does and Persons Unknown of this world.
[8] If it be "well settled" that non-parties cannot be bound by the injunction as the moving parties stoutly maintain, it is not so clear that, in the case of Mr. Benyak, the respondents have failed even to assert that he is bound by the injunction. As for this last allegation, it is wrong, as is shown by paragraph 39 of the respondents' statement of claim. In respect of the rest of the submission, this Court notes generally the allegations contained in the statement of claim and enumerated by the respondents at paragraph 29 of their written submissions. Also noted are the respondents' factual allegations made in paragraph 34 of their statement of claim. These latter allegations provide, for instance, that Mr. Sherman, acting as an officer of Apotex, has been directing the business affairs of Nu-Pharm directly and indirectly through Mr. Benyak. The suggestion here is that Mr. Sherman may be, therefore, bound (as an officer of Apotex) and that the others may also be bound (as agents): respondents' written submissions at paragraph 29. As counsel for Mr. Sherman pointed out, these allegations of a breach are somewhat more nebulous than those which the respondents were able to advance against his client in the earlier proceedings in case no. T-2408-91 (where Mr. Sherman was alleged to have breached the injunction against Apotex by blatantly filling orders for Nu-Enalapril after the reasons for the injunction had been published). The Court does not, however, consider that the prothonotary erred in finding that the issue of whether Nu-Pharm and Messrs Benyak and Sherman are caught by the injunction was a contentious one. As such, the facts pleaded in respect of the injunction in paragraphs 1(b), 1(c), 1(g), 14 to 19, 26, 31, 34 and 38 to 40 of the statement of claim disclose a reasonable cause of action and are material they must be taken to be proved, according to MacGuigan, J.A. who, for the unanimous Court of Appeal, in Hirsch Co. v. Minshall et al (1988) 22 C.P.R. (3d) 268, 268-69, wrote:
| In the words of Wilson J. in Operation Dismantle Inc. v. The Queen (1985), 18 D.L.R. (4th) 481 at p. 515, [1985] 1 S.C.R. 441 at p. 486, 13 C.R.R. 287, : "The facts pleaded are to be taken as proved. When so taken, the question is: do they disclose a reasonable cause of action, i.e., a cause of action 'with some chance of success'." The view of Estey J., in A.-G. Can. v. Inuit Tapirisat of Canada (1980), 115 D.L.R. (3d) 1 at p. 5, [1980] 2 S.C.R. 735">[1980] 2 S.C.R. 735 at p. 740, 33 N.R. 304, is to the same effect: "On a motion such as this a Court should of course, dismiss the action or strike out any claim made by the plaintiff only in plain and obvious cases and where the Court is satisfied that "the case is beyond doubt." |
Also cited was Mentmore Mfg. Co. v. National Merchandise Mfg. Co. (1978) 40 C.P.R. (2d) 164 at p. 174, 89 D.L.R. (3d) 195, 22 N.R. 161.
[9] Two further points related to the above issue need only to be briefly commented on. First, as will be clear in light of this Court's findings, the absence of any allegation that Apotex has breached the injunction cannot be considered significant. Having cited the three moving parties for a breach of the injunction, the respondents need only to have pleaded that the moving parties, acting as Apotex, breached the injunction. This they have, in substance, done.
[10] Second, the fact that the injunction was not made in rem, something Mr. Benyak suggests is of some import, is immaterial as far as the relevant law is concerned.
[11] The next set of submissions by the moving parties has to do with the pleadings of the respondents to the effect that Messrs. Benyak and Sherman should be held personally liable for Nu-Pharm's alleged infringing activities. Mr. Benyak, for instance, submits that insufficient material facts have been pleaded by the respondents to support the suggestion that he may be personally liable. In respect of this issue, both sides agree that the prothonotary correctly relied on Mentmore Manufacturing Co. v. National Merchandise Manufacturing Co., supra in deciding on the issue of personal liability. Mr. Benyak takes exception only with her interpretation of the principles enunciated in that case and the manner in which she related the facts to them. Mr. Justice Wetston wrote in Smithkline Beecham v. Interpharm Inc. (1993) 52 C.P.R. (3d) 400 at p. 407: "In my view there is no basis under rule 419 to strike the paragraphs which allege personal liability." The Court does not, however, share the moving party's apprehensions. In particular, the Court disagrees with his interpretation of Mr. Justice Le Dain's reasons to the effect that officers and directors must act outside the scope of their corporate duties before being fixed with personal liability for patent infringement. As Le Dain wrote in Mentmore, at 174:
| The precise formulation of the appropriate test is obviously a difficult one. Room must be left for a broad appreciation of the circumstances of each case to determine whether as a matter of policy they call for personal liability. |
[12] The simple test for personal liability offered up by Mr. Benyak does not reflect the multiplicity of ways in which an officer or director could make a corporation's tortious act his or her own. Nor is the decision of Mr. Justice Martin in Harnishfeger Corp. of Canada Ltd. v. Kranco Material Handling Ltd. (1988), 23 C.P.R. (3d) 431 (F.C.T.D.) much support for such a circumscribed test. That activities which appear to be in the normal course of a president's or director's duties relied on by the respondents are, in essence, sufficient. This is so in particular since Mr. Benyak has, or so it is pleaded, breached the injunction in carrying out his normal duties.
[13] In light of these findings, the fact that the prothonotary ignored whether Mr. Benyak and Mr. Sherman acted outside the scope of their respective corporate duties cannot be interpreted as an error. The Court is also satisfied that the respondents pleaded sufficient material facts (illustrated at paragraph 42 of the respondents' written submissions) to ground the allegation that the two individual moving parties are personally liable for Nu-Pharm's alleged infringing. That the prothonotary stated this conclusion at paragraph 33 of her reasons, expressing words associated with the reasonable-cause-of-action test, cannot serve to impugn the finding.
[14] Mr. Sherman also submits that insufficient material facts have been pleaded by the respondents in order to link him, as an officer of Apotex, to the actions of Nu-Pharm. The facts and allegations which he alleges are missing, however, are either not necessary or have, in fact, been included in the statement of claim by the respondents. It is sufficient to refer to paragraph 42 of the respondents' written submissions, which illustrates the relevant allegations, in support of this finding.
[15] The next set of submissions by the moving parties has to do with certain paragraphs which the prothonotary declined to strike. For instance, the prothonotary did not strike out paragraphs 20 to 25, 35 and 36 of the statement of claim, which contain allegations in respect of Nu-Pharm's corporate history and its general activities. Nu-Pharm and Mr. Benyak suggest that Nu-Pharm's corporate structure, - what it did prior to the allegedly infringing acts or how it manufactures its enalapril maleate tablets - is not relevant to the question of whether it has infringed the `349 patent. Any course of conduct of those alleged to have induced others to infringe, however, if shown to be knowing and willful, could indeed be relevant, to a claim for exemplary damages in an infringement proceedings. That the moving parties' knowledge and willfulness have been allegedly identified through activities in the field of corporate structuring, reorganizations or manufacturing is moot. Not that the moving parties' activities in these fields are necessarily clearly relevant. As the prothonotary stated at paragraph 25 of her reasons, it is simply a matter of their activities not being clearly irrelevant.
[16] Nor was the prothonotary's reliance on Eli Lilly & Co. v. Apotex (1999), 87 C.P.R. (3d) 83 (F.C.T.D.) misplaced when she invoked it to support her finding that allegations concerning the manner in which Nu-Pharm wound its way through the regulatory process with Nu-Enalapril could be advanced in the context of an action for patent infringement. Though Mr. Justice Teitelbaum, in that case, dealt only with a misleading notice of allegation, it is clear that other regulatory misdeeds, perhaps even the ones alleged by the respondents, could equally speak to the issue of infringement. As Teitelbaum J. wrote at paragraph 34, what counts is that infringement may have occurred:
| In the final analysis, what is of most concern in this type of proceeding is the issue of infringement. |
[17] Nu-Pharm also alleges that the prothonotary erred in law in not striking paragraphs 11 to 13 of the statement of claim. Though the Court does not necessarily disagree with Nu-Pharm's statement of the law on this point, it can identify no good reason for disturbing her findings. As the respondents submit, the paragraphs in question disclose Merck Frosst's interest in the `349 patent and its right to claim damages. The paragraphs, therefore, cannot be said to contain irrelevant information. As such, they were properly allowed by the prothonotary.
[18] The final submission by Nu-Pharm concerns particulars which it had sought but which the prothonotary declined to order. Nu-Pharm submits that the prothonotary erred in law in this matter but the Court, respectfully, can see no error in the her handling of it. The decisions in Dow Chemical Co. v. Kayson Plastics & Chemicals Ltd., [1967] 1 Ex.C.R. 71, 47 C.P.R. 1 and Windsurfing International Inc. v. Novaction Sports Inc. (1987), 18 C.P.R. (3d) 230 (F.C.T.D.) were rightly cited and their legal principles correctly applied. True, the claims in paragraphs 34 and 39 of the respondents' statement of claim are, to a degree, imprecise but that is acceptable in pleadings at this stage. What Nu-Pharm really seeks is a detailed roadmap going beyond the laying out of the particular cause of action and the defining of the nature of the case it has to meet. The prothonotary made no error in law in recognizing this and in refusing to order particulars. That is not to say that the case for particulars could not still be particularized and honed to greater precision with yet more professional assistance.
Conclusion
[19] The moving parties having failed in their submissions, the motion is dismissed. The learned prothonotary's decision is correct.
Ottawa, Ontario
September 11. 2000
Judge
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