Date: 20021024
Docket: T-2799-96
Ottawa, Ontario, Thursday, the 24th of October 2002
Present: THE HONOURABLE MR. JUSTICE GIBSON
BETWEEN:
KIRRBI AG and LEGO CANADA INC.
Plaintiffs/
Defendants by counterclaim
- and -
RITVIK HOLDINGS INC. / GESTIONS RITVIK INC.
(now carrying on business as Mega Bloks Inc.)
Defendant/
Plaintiff by counterclaim
SUPPLEMENTARY JUDGMENT - COSTS
FURTHER to the judgment herein dated the 24th of May, 2002 and filed the 30th of May, 2002 which included the following paragraphs:
170. At the level of principle, I am satisfied that costs of the action should follow the event. I am not satisfied that any order as to costs in respect of the counterclaim is warranted. Counsel agreed that questions as to the scale of costs should be left for another day, unless they are able to reach agreement.
171. I will defer my decision regarding costs on Ritvik's counterclaim and regarding the scale of costs arising out of the dismissal of the plaintiffs' action. Judgment will issue and these reasons for judgment will be distributed. Counsel will be provided a reasonable opportunity to review the judgment and reasons and to make written submissions on the question of costs, assuming they cannot agree on the issue, following which, if necessary, a supplementary judgment as to costs will issue.
AND counsel having advised the Court that they were enable to reach agreement on all costs issues, and having made submissions to the Court on that issue in accordance with an agreed schedule;
AND UPON taking into account the submissions on costs on behalf of the parties and the following provisions of the Federal Court Rules, 1998: Rule 400(1); Rule 400(3) and more particularly paragraphs (a), (c), (e), (g) and (k) of that Rule; Rules 400(5), (6) and (7); Rule 403; Rule 405; Rule 407 and Rule 420(2);
AND counsel not having specifically requested a hearing on the issue of costs;
NOW THEREFORE, WITHOUT APPEARANCE OF COUNSEL, IT IS ORDERED, ADJUDGED AND DIRECTED THAT:
1. Except as hereinafter provided, the Defendant Ritvik Holdings Inc. / Gestions Ritvik Inc. (now carrying on business as Mega Bloks Inc.) is entitled to its costs of this action to be assessed in accordance with the directions that follow.
2. Each party shall bear its own costs of the counterclaim of Ritvik Holdings Inc. / Gestions Ritvik Inc. (now carrying on business as Mega Bloks Inc.).
3. The assessment of the Defendant's costs shall take place in accordance with the following directions:
a) the Defendant's costs shall be assessed in accordance with the upper end of column IV of the table to Tariff B of the Federal Court Rules, 1998 on the basis of one (1) first counsel and two (2) second counsel for preparation and attendance at trial and one (1) first counsel and one (1) second counsel for preparation and attendance at discoveries;
b) the Defendant is entitled to reimbursement for all reasonable travel, accommodation and related expenses of Mr. Brahm Segal, in-house counsel to the Defendant, incurred in connection with discovery and preparation for and attendance at trial;
c) no special allowance shall be made in favour of the Defendant by reason of its offer to settle served on the plaintiff on the 17th of August, 1999;
d) each party shall bear its own costs in relation to the Defendant's second motion for summary judgment delivered to the Plaintiff on the 21st of July, 2000; and
e) the Defendant is entitled to reimbursement for all fees and disbursements and reasonable travel, accommodation and related expenses of all of its six (6) expert witnesses.
4. Each party shall bear its own costs of a motion for scheduling proceedings for the first summary judgment motion, as provided by Order of this Court dated the 15th of December, 1997, and of a motion to amend pleadings as provided by Order of this Court dated the 9th of January, 2002.
5. The Plaintiffs are entitled to their costs of the first summary judgment motion, as provided by Order of this Court dated the 23rd of June, 1998, such costs to be assessed in accordance with the following directions:
a) the Plaintiffs' costs shall be assessed in accordance with the upper end of column III to Tariff B of the Federal Court Rules, 1998 on the basis of one (1) first counsel and one (1) second counsel for preparation and attending on cross-examinations related to and on the hearing of the said motion; and
b) the Plaintiffs are entitled to reasonable fees and disbursements for their expert witness Mr. Alex Manu for preparation of his expert affidavit, for attendance for his cross-examination on that affidavit and for his attendance at the cross-examination of the Defendant's witness Mr. Barber.
6. The plaintiffs are entitled to their costs with respect to a motion dated the 10th of May, 2000, as provided by Order dated 15th of May, 2000.
___________________________________
J.F.C.C.
Date: 20021024
Docket: T-2799-96
Neutral citation: 2002 FCT 1109
BETWEEN:
KIRRBI AG and LEGO CANADA INC.
Plaintiffs/
Defendants by counterclaim
- and -
RITVIK HOLDINGS INC. / GESTIONS RITVIK INC.
(now carrying on business as Mega Bloks Inc.)
Defendant/
Plaintiff by counterclaim
REASONS FOR A SUPPLEMENTARY JUDGMENT
RELATING TO COSTS
GIBSON J.:
INTRODUCTION
By judgment dated the 24th of May, 2002 and filed the 30th of May, 2002, I dismissed this action and the related counterclaim and provided that a supplementary judgment as to costs would issue if required. Not surprisingly, counsel for the parties were unable to reach agreement on all aspects of the costs issues. In the result, on the basis of written submissions on behalf of the parties, I determined to issue a supplementary judgment relating to costs. A copy of the supplementary judgment is attached to these reasons.
Counsel were able to reach agreement, or at least were not in substantial disagreement, on a number of aspects reflected in my costs judgment. These reasons relate only to five (5) of the costs judgment issues in respect of which there was substantial disagreement. Those issues are the following:
a) the scale at which the defendant's costs should be assessed;
b) reimbursement to the defendant for all travel, accommodation and related expenses of in-house counsel for the defendant, incurred for discovery and for preparation and attendance at trial;
c) double costs, excluding disbursements, as a result of an offer to settle;
d) costs in relation to the defendant's second summary judgment motion which was eventually discontinued; and
e) fees and disbursements in respect of the defendant's expert witnesses.
Each of the foregoing issues will be separately addressed.
ANALYSIS
a) The scale at which the defendant's costs should be assessed
Counsel for the defendant urged that its costs of the action should be assessed in accordance with the upper end of Column V of the Table to Tariff B of the Federal Court Rules, 1998 on the basis of one (1) first counsel and two (2) second counsel for preparation and attendance at trial and one (1) first counsel and one (1) second counsel for preparation and attendance at discoveries.
Counsel for the plaintiffs urged that such costs should be assessed in accordance with the upper end of Column III of the Table to Tariff B of the Federal Court Rules, 1998.
Rule 400(1) of the Federal Court Rules, 1998[1] (the "Rules") provides that this Court shall have full discretionary power over the amount and allocation of costs and the determination of by whom they are to be paid. Rule 400(3) sets out an extensive, but not exclusive, range of factors that may be considered by the Court in exercising its discretion under Rule 400(1). On the facts of this matter, I consider the following factors to be of particular importance: first, the result of the proceeding. As noted at paragraph [170] of my earlier reasons in this matter, I concluded:
170. At the level of principle, I am satisfied that costs of the action should follow the event. ...
Secondly, the importance and complexity of the issues, and I am satisfied that the issues canvassed during the nineteen (19) days that the Court sat to hear this matter were both important and complex; thirdly, the fact that a written offer to settle was made on behalf of the defendant; fourthly, the amount of work involved which was, I am satisfied, substantial; and finally, whether any step in the proceeding was improper, vexatious or unnecessary, or taken through excessive caution.
In Apotex Inc. v. Syntex Pharmaceutical International Ltd.[2], Justice Reed, at page 372 and under the heading "Scale of Costs", wrote:
The plaintiff seeks an increase above Column III of Tariff B level costs (the level at which costs are assessed unless otherwise ordered by the Court). Column III level costs are designed to address a case of average complexity. Roger Hughes notes in the looseleaf, Federal Court of Canada Service, that "Column III was intended to cover approximately half of a modest bill." The plaintiff proposes a number of alternatives to Column III level costs: ... [including] the maximum rate in Column V of the Table to Tariff B. If a Tariff B level is found to be the appropriate level, the plaintiff seeks a direction that the allowable costs include fees for two senior and one junior counsel.
Justice Reed then went on to consider a number of the factors set out in Rule 400(3), including, but not limited to, each of those to which I have earlier referred. She concluded that the circumstances of the case before her justified costs assessed at the maximum end of the Column V level. She was also persuaded that fees for two (2) senior counsel and one (1) junior counsel, at trial, should be allowed bearing in mind that the unsuccessful party itself was represented by three (3) counsel in Court. She stated: "The nature of the case justified this number."
By contrast, Justice MacKay in Monsanto Canada Inc. v. Schmeiser[3], once again after considering a number of the factors set out in Rule 400(3), reached a different conclusion. At paragraph 17 of his reasons, and with particular reference to the volume of work involved, he wrote:
In my opinion, those considerations in this case do not warrant higher than normal party-and-party costs which are represented in Tariff B by column III. To the extent that the volume of work was higher than usual, and actual expenses were much greater than recoverable under column III, those factors were in substantial part the necessary consequences of the nature of the patent-in-suit and the problems of evidence inherent from it to establish infringement. Costs reflecting these consequences should not be expected to be borne by the defendants in this case. In my opinion, they are an aspect of the plaintiffs' overall business expenses. Some inventions may be inherently more expensive to defend than others. ...
On the facts of this matter, at the level of principle, I prefer the position of Justice Reed. I might have reached a different conclusion had the plaintiffs been successful, as they were before both Justice Reed and Justice MacKay. That being said, I determine to adopt a compromise position between that settled on by Justice Reed and that adopted by Justice MacKay. The factors that influence me in this regard are the following: first, I am not satisfied that the defendant's written offer to settle should work in its favour, and I will have more to say about that later in these reasons; and secondly, I cannot agree with counsel for the defendant that this proceeding was in any sense improper, vexatious or unnecessary or taken out of excessive caution. Put another way, I am not satisfied that the plaintiffs could be said to have been seeking through this action to "abuse" intellectual property rights by extending expired patent protection in the guise of trade-mark protection.
In the result, I determine to direct that the defendant's costs be determined on the basis of the upper end of Column IV of the Table to Tariff B of the Rules, a compromise position between those advocated on behalf of the parties.
As in the Apotex v. Syntex decision, supra, I am satisfied that the claim for more than one (1) counsel both at trial and on discoveries is justified. As in that case, at least before me at trial, each side was represented by at least three (3) counsel. This aspect of the costs issues was not substantially in dispute.
b) Reimbursement to the defendant for all travel, accommodation and related expenses of in-house counsel for the defendant, incurred for discovery and for preparation and attendance at trial
Counsel for the plaintiffs urged that there is substantial and relevant authority against awarding costs for participation by a party's in-house counsel. He cited Beloit Canada Ltée. v. Valmet-Dominion Inc.[4] where Justice Mahoney wrote:
In my opinion, he [U.S. counsel] is very much in the shoes of his employer. I am aware of no authority for the proposition that a party-and-party award of costs embraces the travelling and living expenses of the successful party in instructing counsel and attending the hearing, however necessarily they may have been incurred. Those expenses should not be allowed.
To the same effect, see TWR Inc. v. Walbar of Canada Inc.[5]
Since the foregoing authorities issued, the Rules of the Federal Court have been substantially rewritten and, of particular importance for the purpose of these reasons, both the philosophy and the substance of the Rules, as they relate to costs, have been modified. The quotation from the reasons of Madame Justice Reed in Apotex v. Syntex, supra, that appears earlier in these reasons reflect that "sea change". I am satisfied that the current provisions of the Rules are in fact more consistent with the following provision extracted from the Solicitors Act[6] of Ontario:
36. Costs awarded to a party in a proceeding shall not be disallowed or reduced on assessment merely because they relate to a solicitor or counsel who is a salaried employee of the party.
Based upon the foregoing brief considerations, I determine to allow reimbursement of the defendant for reasonable travel, accommodation and related expenses incurred by the defendant's in-house counsel in relation to discovery and for preparation and attendance at trial.
c) Double costs, excluding disbursements, as a result of an offer to settle
The opening words of Rule 420(2) and paragraph b) of that Rule read as follows:
420.(2) Unless otherwise ordered by the Court, where a defendant makes a written offer to settle that is not revoked,
...
b) if the plaintiff fails to obtain judgment, the defendant shall be entitled to party-and-party costs to the date of the service of the offer and to double such costs, excluding disbursements, from that date to the date of judgment.
420.(2) Sauf ordonnance contraire de la Cour, lorsque le défendeur présente par écrit une offre de règlement qui n'est pas révoquée et que le demandeur:
...
b) n'obtient pas gain de cause lors du jugement, le défendeur a droit aux dépens partie-partie jusqu'à la date de signification de l'offre et au double de ces dépens, à l'exclusion des débours, à compter du lendemain de cette date jusqu'à la date du jugement.
Counsel for the defendant noted that, shortly after the defendant obtained an admission on behalf of LEGO on discovery that the upper surface of its basic LEGO brick is, and more particularly the studs on that upper surface are, functional, it offered to settle this action on the basis of a discontinuance without costs. Counsel for the defendant relied on Visx, Inc. v.
Nidek Co.[7] as support for the position that such an offer did not amount to a mere offer to waive costs but rather amounted to a "legitimate compromise" and therefore fell within the ambit of Rule 420(2)(b).
I determine not to adopt the position presented on behalf of the defendant. I am satisfied that an admission of functionality was not of such great import as to render an offer to forego costs on discontinuation, a "legitimate compromise". Evidence of this can be found in the fact that, approximately one (1) year after the offer was made on behalf of the defendant, the defendant brought a second motion for summary judgment based on the issue of functionality. In the final analysis, that motion for summary judgment was not pursued. Rather, it was discontinued. Once again, based upon the foregoing brief summary of my considerations, I determine not to award the defendant double party-and-party costs for the period following the making of the written offer to forego costs on discontinuance of the action.
d) Costs in relation to the defendant's second summary judgment motion which was eventually discontinued
The defendant submit that its second summary judgment motion, as indicated earlier in these reasons, brought on the basis of an admission of functionality, could well have been determinative of this action and was only discontinued when counsel for the plaintiff estimated that substantial time would be required for the hearing of the motion and thus abandonment of the motion was justified when expedited trial dates were offered on behalf of the Court. In the circumstances, counsel for the defendant urged that the defendant was entitled to solicitor-client costs on the discontinued motion. By contrast, counsel for the plaintiffs urged that its time estimate for the hearing of the summary judgment motion was not unreasonable and that at the time in question, it was not at all clear that the motion would be successful.
I am satisfied the position adopted on behalf of the plaintiffs should prevail on this issue. There is no basis on which I can reasonably conclude that counsel for the plaintiffs overestimated, let alone grossly overestimated, the time that would be taken for the hearing of the summary judgement motion on the issue of functionality. That issue was central in the trial before me and required the evaluation of substantial expert evidence from both sides. I conclude that each side should bear its own costs of the defendant's second motion for summary judgment that was discontinued.
e) Fees and disbursements in respect of the defendant's expert witnesses
Both sides adduced substantial expert testimony during trial. Although the plaintiffs relied on the evidence of fewer experts than the defendant, at at least two stages prior to trial, the plaintiffs sought from the Court leave to adduce the evidence of more expert witnesses than would normally be allowed at trial. While such leave was denied, the urgings of the plaintiffs in this regard demonstrate that they well recognized the importance that expert evidence would play in the end result.
As my reasons for judgment demonstrate, I found the expert evidence adduced on behalf of the defendant to be relevant, persuasive and, to a significant extent, determinative when weighed against the expert evidence adduced on behalf of the plaintiffs. The fact that the fees and disbursements incurred to provide the Court with the benefit of such evidence were substantial should not be determinative. It was common ground between the parties that much was at stake for both parties. I conclude that it should not, therefore, be held against the defendant that it determined to put its best foot forward at trial by bringing forward relevant, credible and competent expert witnesses, notwithstanding the expense which I am satisfied was small in relation to the amounts at stake.
In Rothmans, Benson & Hedges Inc. v. Imperial Tobacco Ltd.[8], Justice Rouleau wrote at page 65:
...the court should not disallow the costs of a witness as unnecessary unless it is satisfied that the party could not reasonably have considered the witness' evidence to be relevant to and supportive of the case. The court must consider what would have appeared rational to the parties at the time of the trial.
Against the foregoing test, and I adopt it as entirely appropriate in relation to the defendant's expert witnesses whose evidence, I am satisfied, was both relevant to and supportive of the defendant's case, the evidence of those witnesses, and thus their attendance at trial for cross-examination, would have appeared entirely rational to the defendant, notwithstanding the cost.
In the result, I am satisfied that the defendant is entitled to reimbursement for all fees and disbursements and reasonable travel, accommodation and related expenses of all of its six (6) expert witnesses.
CONCLUSION
In the result, a supplementary judgment regarding costs, in the form attached hereto, issues.
_________________________________
FEDERAL COURT OF CANADA
TRIAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-2799-96
STYLE OF CAUSE:Kirkbi Ag and Lego Canada Inc. -v- Ritvik Holdings
Inc./Gestions Ritvik Inc. (now carrying on business
as Mega Bloks Inc.)
MATTER CONCERNING COSTS DEALT WITH IN WRITING
Reasons for a Supplementary Judgment - Relating to Costs :The Honourable Mr.
Justice Gibson
DATED: October 24, 2002
WRITTEN REPRESENTATIONS BY:
Daniel Bereskin
Robert H. C. MacFarlane
Michael E. Charles
Christine M. Pallotta FOR PLAINTIFF
Ronald E. Dimock
Dino P. Clarizio
Henry Lue FOR DEFENDANT
SOLICITORS OF RECORD:
Bereskin Parr
Toronto Ontario FOR PLAINTIFF
Dimock Stratton Clarizio LLP
Toronto Ontario FOR DEFENDANT
[2] (1999), 2 C.P.R. (4th) 368 (F.C.T.D.); aff'd in part, (2001), 12 C.P.R. (4th) 413 (F.C.A.).
[3] (2002), 19 C.P.R. (4th) 524 (F.C.T.D.); appeal as to costs order outstanding.
[4] (1991), 39 C.P.R. (3d) 90 (F.C.A.).
[5] (1992), 43 C.P.R. (3d) 449 at 460 (F.C.A.).
[6] R.S.O. 1990, c. s. 15.
[7] (2001), 16 C.P.R. (4th) 350 (F.C.T.D.).
[8] (1993), 50 C.P.R. (3d) 59 (F.C.T.D.).
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