Date: 20020201
Docket: T-491-00
Neutral Citation: 2002 FCT 124
BETWEEN:
CANPLAS INDUSTRIES LTD.
Plaintiff
- and -
NOVIK INC.
Defendant
REASONS FOR ORDER
HANSEN J.
Introduction
[1] This proceeding arises from the October 2, 2000 Order of the Court requiring the defendant, Novik Inc. ("Novik") to appear before the Court to answer the allegations of contempt made by Canplas Industries Ltd. ("Canplas").
[2] Canplas alleges that Novik has disobeyed the terms of an Order issued by the Court on July 14, 2000 and has acted in such a way as to interfere with the orderly administration of justice, or to impair the authority or dignity of the Court.
Background
[3] Since 1992, Canplas has been manufacturing and selling a roof vent with a distinctive truncated pyramid-shaped cap under its registered trade-mark DURAFLO.
[4] Novik manufactures and sells plastic products used in construction. In 1999, Novik started manufacturing two new roof vents: a 45 sq. in. model, the AIRFLO 45, and a 50 sq. in. model, the AIRFLO 50. The cap shape of the AIRFLO 50 is similar in design to the cap shape of Canplas' DURAFLO roof vent.
[5] In order to fully understand the positions taken by the parties in these proceedings, it is necessary to review in some detail the settlement negotiations that resulted in the Order of July 14, 2000.
[6] Canplas first became aware of Novik's new AIRFLO 50 roof vent in the fall of 1999. On January 26, 2000, Canplas wrote to Novik alleging that the sale of the AIRFLO 50 roof vent infringed its rights and required Novik to substantially modify its product's design and name. In response, Novik took the position that its product did not violate Canplas's intellectual property rights.
[7] On March 9, 2000, Canplas commenced an action against Novik alleging trade-mark infringement and passing-off. Additionally, a draft Notice of Motion seeking an interlocutory injunction was forwarded to counsel for Novik.
[8] On March 28, 2000, Novik's lawyer wrote to Canplas's lawyer advising of Novik's willingness to modify the appearance of its roof vent and to discontinue the use of the name AIRFLO. A drawing of Novik's proposed new roof vent was attached. Of significance for the purpose of this proceeding is the following statement in the letter "... since Novik Inc. has not yet delivered any of the impugned cap, this proposal should be fully satisfactory to Canplas Industries Ltd. ...".
[9] On April 11, 2000 Canplas responded stating its willingness to settle the dispute on certain terms. The relevant terms of the proposal are as follows:
1) That Novik immediately and permanently stop using the trade-mark AIRFLO and will instead adopt the trade-marks NOVIK 45 and NOVIK 50 for use in association with its roof vents;
2) That Novik immediately and permanently stop using the truncated pyramid shape cap and will instead adopt the design shown in the attachment to the March 28, 2000 letter;
3) That prior to beginning to offer for sale, display or sell or advertise the new roof vent Novik will either permanently modify, destroy, or deliver up to Canplas all of the moulds used to make the infringing product and provide a sworn statement that the moulds have either been modified or destroyed;
4) That Novik will agree not to display, offer for sale, or otherwise dispose of any existing inventory of the infringing product and will insure that any infringing product that has been shipped is recovered and destroyed under oath or delivered up to Canplas and that Novik will destroy all trade literature depicting the infringing product.
5) That Novik will consent to judgement including a requirement that Novik will comply with the terms of the Settlement Agreement. The judgement to include a declaration as requested in paragraphs 1 a) and b) of the Statement of Claim and the injunctive relief requested in paragraphs 1 f) and g) of the Statement of Claim.
[10] The solicitors for Novik responded on April 14, 2000 as follows:
Further to our telephone conversation of April 12, 2000 we have finally heard from our instructing principal with respect to your April 11, 2000 proposal, as corrected during our phone conversation.
Our client is in agreement with said proposal, as amended, namely:
· at paragraph 2, the word "permanently" will be replaced by the word "immediately".
· at paragraph 5, the judgement to be rendered by consent will only cover conclusions 1(f) and 1(g). The defendant will recognize the exclusive right of plaintiff in the trade-mark DURAFLO as well as in the "truncated pyramid" shape and will undertake to never challenge the validity or ownership of these rights.
However, with respect to paragraph 4, defendant requests that, at the third line, the words "that has been shipped is recovered and" be deleted and replaced by the words "in its possession is".
[11] Canplas' lawyer prepared a settlement agreement and consent to judgment to which a copy of the settlement agreement and draft order were appended. Michel Gaudreau executed the documents on behalf of Novik on May 23, 2000. Jeff Bayley, on behalf of Canplas, executed the settlement agreement on June 16, 2000. And, as noted earlier, judgement on consent was obtained on July 14, 2000.
[12] The Order provides that Novik shall comply with the terms of the settlement agreement appended to the Order and permanently restrains Novik from using the trade-marks AIRFLO and AIRFLO 50 and from using a product shape confusing in appearance with Canplas' roof vent including the shape used by Novik for the AIRFLO 50. The preamble of the settlement agreement contains the following statement:
And whereas Novik has represented that, as of the date of this Settlement Agreement, it has not sold any units of the Novik vent shown in the Schedule "B" [AIRFLO 50];
[13] The settlement agreement provides, among other things, that the preamble shall form part of the agreement; that Novik will not display, offer for sale, sell or otherwise dispose of any existing inventory of the AIRFLO 50; and, that the agreement is effective upon its execution by both parties.
Canplas' Evidence of the Acts of Contempt
[14] On May 26, 2000, Eric Jakob, one of Canplas' independent sales agents, made a routine call at the Materiaux Bonhomme Inc. store in Hull, Quebec. The store in Hull is one of eight outlets owned by Les Entreprises P. Bonhomme Ltée. Mr. Jakob testified he noticed Novik roof vents mixed in with DURAFLO roof vents. The Novik vents had a new cap shape, however, the UPC sticker on the underside of the vent indicated Novik Inc. and AIRFLO 50. As his understanding at the time was that Novik had changed both the shape and name of its roof vents and the product he saw was at odds with his understanding, he purchased two of the Novik vents and delivered them a few days later to James McKee, Canplas' general manager of ventilation products.
[15] On August 15, 2000, Mr. Jakob saw two Novik roof vents displayed on the wall at Maple Building Products in Richmond Hill, Ontario. One of the roof vents was a 45 sq. in. model and the other was a 50 sq. in. model. He identified the latter as being the AIRFLO 50 product at issue in these proceedings. Mr. Jakob asked if he could purchase one of the AIRFLO 50 vents, however, he was told none were in stock. On cross-examination Mr. Jakob testified he was told by an employee that Maple Building Products was not selling the AIRFLO 50 model. He did not make any inquiry regarding the AIRFLO 45.
[16] On cross-examination, Mr. Jakob acknowledged that in February 2000 he saw an AIRFLO 50 roof vent on display at Materiaux Bonhomme in Hull, Quebec. He stated he did not make any inquiry as to the source of the vent nor did he attempt to purchase one. He did, however, report to Mr. McKee that the vent was on display. Mr. Jakob also acknowledged he saw the AIRFLO 50 on display at Maple Building Products at some point during the first four months of 2000.
[17] On September 20, 2000 during a sales call at Prefab Homes & Garden Sheds in Stittsville, Ontario, Mr. Jakob noticed a number of cartons containing approximately 600 to 1000 roof vents. He recognized the vents as being the AIRFLO 50 product.
[18] Greg Oakley, a sales agent for Canplas, testified he purchased two AIRFLO 50 roof vents at S & S TIM-BR Mart in Flesherton, Ontario on July 17, 2000.
[19] James McKee, Canplas' general manager, entered into evidence a Home Hardware flyer he received in September 2000. In the flyer, "AIRFLO ROOF VENTS" are advertised for sale. Illustrations of AIRFLO 50 and 45 roof vents are shown in the advertisement.
Novik's evidence
[20] Mr. Gaudreau, the president and owner of Novik, testified that in the spring of 1999, in response to market demand, Novik developed two new models of plastic roof vents: one having a square shape, the AIRFLO 50, and one having a pentagonal shape, the AIRFLO 45.
[21] Novik's new roof vents were first displayed and offered for sale at a trade show in Toronto in the fall of 1999. On December 15, 1999, Novik made its first delivery of the AIRFLO 50 to a distributor. The last delivery of the AIRFLO 50 product occurred on April 7, 2000. During this period of time, Novik sold 6540 AIRFLO 50 roof vents. Additionally, Novik sent out approximately 2000 samples of the AIRFLO 50 to various distributors. At the hearing, Mr. Gaudreau produced the purchase orders, packing and delivery slips, and invoices for all of Novik's sales of this product.
[22] Upon receipt of the January 26, 2000 letter from Canplas's lawyer, Mr. Gaudreau referred the matter to his company's solicitor for reply. In mid-March when he received the Statement of Claim and draft Notice of Motion for an interlocutory injunction, his lawyer referred him to another lawyer having expertise in intellectual property matters. After discussing the matter with his new lawyer on March 27, 2000, Mr. Gaudreau concluded that it would be less expensive to modify the shape of the cap of the AIRFLO 50 and to change the name of Novik's roof vent products than to be involved in litigation. On March 28, 2000, he advised his lawyer of his decision and that he was stopping production of the AIRFLO 50.
[23] On March 29, 2000, Mr. Gaudreau placed an order with Italcan Precision Moulds Ltd. to modify the existing mould for the AIRFLO 50. The modifications included a change to the shape of the cap and the removal of the AIRFLO 50 and CSA® moulded into the plastic on the underside of the vent. New brochures were ordered on April 3, 2000 and on April 13 and 26, 2000 Novik sent letters to its distributors announcing the change of name of its roof vent products to NOVIK 50 and NOVIK 45 and the new product design.
[24] Mr. Gaudreau testified that when he received the letter of April 11, 2000 he was in substantial agreement with the terms of the settlement proposed by Canplas since he no longer had any inventory of the AIRFLO 50. However, he was not willing to agree to recover any product that had already been shipped.
[25] Mr. Gaudreau received a draft copy of the settlement agreement in early May and reviewed the agreement with his lawyer by telephone. He advised his lawyer that the statement in the preamble "[w]hereas Novik has represented that, as of the date of this Settlement Agreement, it has not sold any units of the Novik vent shown in Schedule "B";" was incorrect and that the statement should be removed. At the hearing, he produced his copy of the draft agreement bearing his marginal notes. He testified the marginal notes reflect his instructions to his lawyer. Mr. Gaudreau wrote in the margin of his copy of the agreement next to the above noted paragraph from the preamble the word "non". Additional marginal notes appear next to other paragraphs in the body of the agreement which are not relevant to this proceeding.
[26] Two weeks later, Mr. Gaudreau received the final copy of the settlement agreement. He testified he telephoned his lawyer to confirm that the final agreement reflected their earlier discussions. His lawyer advised him that it did and he executed the agreement and consent to judgment without rereading the agreement. Mr. Gaudreau stated that at this point in time he believed the dispute had been resolved and that the execution of the settlement agreement simply formalized what had already been done. He no longer had any AIRFLO 50 vents in inventory, the product shape and name had been changed, his customers had been advised of the changes, and production of the NOVIK 50 had started in early May.
[27] Daniel Bissonnette, a buyer for Les Entreprises P. Bonhomme Ltée., testified that prior to 2000 his company purchased roof vents from Canplas. In early January 2000, a decision was taken to purchase roof vents from Novik rather than Canplas. This decision, according to Mr. Bissonnette, was communicated to Eric Jakob. Mr. Bissonnette placed three orders with Novik for the AIRFLO 50. He stated he placed the three orders to space delivery times. In mid-February, the first shipment of the AIRFLO 50 was received. In mid-April, he received a notification from Novik regarding the changes to the AIRFLO 50.
[28] Mr. Bissonnette testified the first shipment of Novik's new roof vent was received in mid-May. At this point in time, the Materiaux Bonhomme store in Hull had Canplas roof vents from the previous year, Novik's AIRFLO 50, and Novik's new roof vent in inventory.
[29] Dino Giancola is the manager of Maple Building Products in Richmond Hill, Ontario. He testified that Maple Building Products had purchased AIRFLO 45 vents, however, they had not purchased any AIRFLO 50 vents. He stated he had received a sample of the AIRFLO 50 vent from one of Novik's sales representatives sometime in late 1999 or early 2000. The sample was on display in his store.
[30] John Dyksterhous, Home Hardware's product manager, also testified. He stated that although the advertisement in the flyer is for "AIRFLO" roof vents and the illustration depicts the AIRFLO 45 and 50 vents, Home Hardware only carried the new Novik 50 vents. He and one of his colleagues from the advertising department were responsible for the advertisement's content. He testified the advertisement was prepared without Novik's authorization and was an error on his part.
Analysis
[31] Subsections (b) and (c) of Rule 466 of the Federal Court Rules, 1998 provide that a person who "disobeys a process or order of the Court" or "acts in such a way as to interfere with the orderly administration of justice, or to impair the authority or dignity of the Court" is guilty of contempt. In Bhatnager v. Canada (Minister of Employment and Immigration), [1990] 2 S.C.R. 217 at 225, Sopinka J. characterized an allegation of contempt as "a matter of criminal (or at least quasi-criminal) dimension...". Accordingly, "the constituent elements of contempt" must be "proved beyond a reasonable doubt". Rule 469 codifies the common law requirement of proof beyond a reasonable doubt.
[32] Canplas put forward a number of arguments at the hearing. The first concerns Novik's acts of contempt in relation to the sale of AIRFLO 50 vents. It can be summarized in the following way.
[33] Since Novik represented that it had not sold any AIRFLO 50 vents prior to its execution of the settlement agreement, any vents found in the marketplace must have been sold after May 23, 2000. If they were sold between the signing of the settlement agreement and consent to judgment and the date the order issued, Novik acted in such a way as to interfere with the orderly administration of justice or to impair the authority or dignity of the Court. If the vents were sold after the order issued, Novik disobeyed an order of the court. In either circumstance, Novik is guilty of contempt.
[34] Canplas argues that a breach of the terms on the settlement agreement or order after the execution of the consent to judgment and settlement agreement but before an order of the court has issued is analogous to the facts in Baxter Laboratories of Canada Ltd. et al. v. Cutter (Canada) Ltd. 75 C.P.R. (2d) 1 where the conduct found to be contempt occurred after reasons were delivered and before the formal judgment was issued by the court. Canplas submits that upon the execution of a consent to judgment, an individual is fully aware that an order will issue in due course. Any contravention of the provisions of an order the individual knows will issue, is acting in such a way as to interfere with the orderly administration of justice, and impairs the authority and dignity of the court. Having regard to the evidence tendered by the parties, as will be discussed later in these reasons, a consideration of whether the reasoning in Baxter, supra, applies to the period of time between a consent to judgment and the issuance of a formal order is not necessary.
[35] One further observation is required before turning to a consideration of the evidence. Canplas' argument is based on the assumption that the relevant date is May 23, 2000, the date Novik signed the settlement agreement. In my opinion, this is incorrect. Since the settlement agreement provides that it takes effect upon its execution by both parties, the relevant date would be June 16, 2000.
[36] Canplas' argument is premised on its assertion that any AIRFLO 50 vents in the marketplace must have been sold after May 23, 2000. However, the evidence led in this proceeding does not support this assertion. In fact, there is ample evidence to the contrary.
[37] Mr. Gaudreau testified that sales of the AIRFLO 50 began in December 1999. He also testified that no sales or deliveries of the AIRFLO 50 occurred after April 7, 2000. Given that Novik falsely represented in the letter of March 28, 2000 and in the settlement agreement that it had not sold any of the offending product, Canplas maintains that Mr. Gaudreau's evidence that no sales were made after April 7, 2000 should not be regarded as trustworthy. I disagree.
[38] Mr. Gaudreau's evidence regarding the steps he took following his decision to discontinue the AIRFLO 50 was internally consistent. As well, he produced the relevant business records and invoices from other firms that corroborate his account of the various steps he took to resolve the dispute with Canplas. Other witnesses also corroborated his evidence. Both Mr. Dyksterhous and Mr. Bissonnette stated they had received the announcement from Novik regarding the change of name and design of its vents. Mr. Bissonnette's testimony that Les Entreprises P. Bonhomme Ltée. received its first delivery of the newly designed Novik vent in mid-May corroborates Mr. Gaudreau's evidence and is of particular significance. If in mid-May 2000, Novik still had AIRFLO 50 vents in inventory, one would expect that any outstanding orders for the AIRFLO 50 would have been filled with existing inventory rather than with the newly designed vent. Furthermore, the evidence led by Canplas regarding the AIRFLO 50 vents found at various locations during July, August and September 2000 is not inconsistent with nor does it contradict Mr. Gaudreau's evidence.
[39] Even if Mr. Gaudreau's evidence that no sales or deliveries of the AIRFLO 50 vents occurred after April 7, 2000 is disbelieved, Canplas has failed to prove beyond a reasonable doubt that Novik displayed, offered for sale, or sold any AIRFLO 50 vents after June 16, 2000. Canplas led no evidence regarding the date of acquisition or the source of the vents found at S & S TIM-BR Mart and Prefab Homes & Garden Sheds. With respect to the vent on display at Maple Building Products, the only evidence before the Court is that Maple Building Products received the vent from a sales representative in late 1999 or early 2000. As to the Home Hardware flyer, the evidence is clear that Novik was not involved in the preparation of the flyer nor did authorize the advertisement.
[40] Canplas also alleges that the roof vents with AIRFLO 50 on the UPC sticker purchased on May 26, 2000 evidences conduct amounting to contempt. Again, I must disagree. Given that the effective date of the settlement agreement is June 16, 2000, any use of the trade-mark prior to that date does not contravene the terms of the settlement agreement nor the Order.
[41] Canplas also submits that just as a breach of an undertaking given to the court is contempt of court, similarly, where the terms of a settlement agreement are incorporated into the terms of a court order, a breach of the terms of the settlement agreement constitutes contempt of court.
[42] Canplas relies on the following statement by Reed J. in Williams Information Services Corp. v. Williams Telecommunications Corp. (1998), 142 F.T.R. 76 at 79, aff'd (1999), 250 N.R. 67 (F.C.A.):
I do not see how an agreement between the parties, signed on their behalf by their counsel, that has never been communicated to the Court can be defined as an undertaking given to the Court. Nor can it be seen as an interference with the orderly administration of justice or an impairment of the authority or dignity of the Court. While the parties each agreed to give an undertaking to the Court, they never did so. An analogy can be drawn to a settlement agreement, signed by counsel on behalf of their clients, which is not honoured. If the terms of the settlement are never made part of a Court order, either directly or indirectly by incorporation by reference, a breach of those terms does not become a ground for a finding that contempt of Court has occurred.
I quote from Halbury's Laws of England, 4th ed., v. 9, para. 75:
An undertaking Given to the court by a person or corporation in pending proceedings, on the faith of which the court sanctions a particular course of action or inaction, has the same force as an injunction made by the court and a breach of the undertaking is misconduct amounting to contempt.
[43] Canplas argues that Novik's statement in the preamble to the settlement agreement is an undertaking that it had not sold AIRFLO 50 vents prior to its execution of the agreement. Since the agreement provides that the preamble shall form part of the agreement, the undertaking is a term of the agreement. As the terms of the settlement agreement were incorporated into the July 14, 2000 Order, Novik's undertaking in the agreement is an undertaking given to the Court. Novik's breach of its undertaking is conduct amounting to contempt.
[44] Central to this argument is Canplas' characterization of the statement in the settlement agreement as being an undertaking in the sense contemplated in Williams, supra. In my opinion, this statement may be more accurately characterized as a representation. However, regardless of what term is used to describe the statement, it is no more than a statement as to what has not occurred in the past.
[45] An undertaking as contemplated in Williams, supra, is a pledge or a promise to do or refrain from doing a certain act in the future. Where the court grants an order on the strength of the undertaking, it is the failure to honour the undertaking after the order has issued that gives rise to liability for contempt. In my view, the reasoning in Williams, supra, does not apply to the statement at issue in the present case. Accordingly, this argument fails.
[46] Canplas also maintains that a false representation to opposing counsel to secure not only a settlement but also to secure a judgment of the Court incorporating the false representation constitutes acting in such a way as to interfere with the orderly administration of justice, or to impair the authority or dignity of the Court. Canplas argues that by signing the consent to judgment Novik knew the Court would be relying on the contents of the attached settlement agreement when it issued the requested order. Further, Canplas argues that it is not necessary to prove that Novik intended to commit an act of contempt. Careless, reckless, negligent, inadvertent and casual conduct can give rise to contempt. Canplas states that Mr. Gaudreau's execution of the agreement without verifying that the changes he instructed his counsel to make were in fact made is at least careless, negligent, or reckless conduct.
[47] Novik submits that Canplas was fully aware before the Order issued on July 14, 2000 that Novik had sold AIRFLO 50 roof vents prior to its execution of the settlement agreement. Novik points to the following evidence in support of this assertion: Canplas sales agents saw AIRFLO 50 vents on display and for sale at various locations prior to May 23, 2000; Mr. Bissonnette told Eric Jakob in January 2000 of his decision to order Novik vents instead of Canplas's vents; one of the terms of settlement proposal put forward by Canplas on April 11, 2000 required Novik to recover all AIRFLO 50 vents that had been shipped; Novik's refusal to agree to recover shipped product; and, Novik's acknowledgement in the July 7, 2000 letter that there had been sales of the AIRFLO 50 vent. Novik argues that Canplas should not be permitted to invoke the Court's contempt power since it knew prior to the Order being granted that the representation at issue was incorrect.
[48] Although Canplas acknowledges its sales agents saw samples of the AIRFLO 50 on display at various locations prior to May 23, 2000, it maintains that it did not know Novik had sold any of these vents. While I accept Canplas' argument that Novik's refusal to recover any AIRFLO 50 vents previously shipped is equally consistent with Novik not having sold any of the offending product at the time of the negotiations, on July 7, 2000 Canplas became aware of the earlier sales. At that point in time, Canplas had a number of options open to it. It could have withdrawn its motion for the consent judgment and pursued the action commenced earlier and it could have brought an action for misrepresentation.
[49] I also wish to add I do not find Canplas' argument that Novik's misrepresentation with the knowledge that the Court would rely on the representation when issuing the order constitutes an act of contempt to be persuasive. Where a motion is brought for an order on consent, upon the Court being satisfied that it has the jurisdiction to grant the requested relief, the order issues on the basis of the consent of the parties and not on any representations the parties have made to each other to resolve their dispute. This should not be construed, in any way, as the Court condoning misrepresentations by a party, rather it goes to the nature of the relief being sought.
[50] For these reasons, I conclude that Canplas has failed to prove beyond a reasonable doubt that Novik is guilty of contempt.
[51] Both parties asked for an award of solicitor and client costs. Given the particular circumstances underlying this contempt proceeding, I am not satisfied that either party should be awarded costs on a solicitor and client basis. However, costs are awarded to Novik as the successful party.
"Dolores M. Hansen"
J.F.C.C.
Ottawa, Ontario
February 1, 2002
Email this Content