Date: 20090123
Docket: T-279-07
Citation: 2009FC70
Edmonton, Alberta, January 23, 2009
PRESENT: The Honourable Mr. Justice Blanchard
BETWEEN:
ZERO SPILL SYSTEMS (INT’L)
INC.,
KATCH KAN HOLDINGS LTD.,
QUINN HOLTBY and
KATCH KAN RENTALS LTD.
Plaintiffs
and
614248 ALBERTA LTD. dba
LEA-DER
COATINGS, BILL HEIDE dba CENTRAL
ALBERTA PLASTIC PRODUCTS
RAT PLASTIC LTD. and
1284897 ALBERTA LTD.
Defendants
AND
BETWEEN:
614248 ALBERTA LTD and
1284897 ALBERTA LTD.
Plaintiffs by Counterclaim
(Defendants)
and
ZERO SPILL SYSTEMS (INT’L) INC.,
KATCH KAN HOLDINGS LTD., and
QUINN HOLTBY
Defendants by Counterclaim
(Plaintiffs)
REASONS FOR ORDER AND ORDER
I. Introduction
[1]
This is a
motion on behalf of the Plaintiffs appealing Prothonotary R. Lafrenière’s order
of December 3, 2008 granting a motion to strike all references to the
Defendants Derwin Joelson and Leah Joelson (the Joelsons) from the amended statement
of claim. The motion also seeks costs to the Plaintiffs on a solicitor-client
basis.
II. Background
[2]
The
Plaintiffs commenced this action by way of a statement of claim issued February
9, 2007 alleging, inter alia, that the corporate Defendants, and the
Joelsons in their personal capacity, infringed certain claims of four Canadian patents
and design (the Patents).
[3]
The
Joelsons served and filed a statement of defence, and 614248 Alberta Ltd.
(614248) served and filed a statement of defence and counterclaim, all dated
April 16, 2007.
[4]
The
Plaintiffs filed an amended statement of claim September 21, 2007 wherein it is
alleged that the Joelsons knew of, or were wilfully blind or reckless of, the
fact that the Patents and inventions existed, and that they personally
directed, ordered, induced and authorized the infringing acts. It is useful to
reproduce the two pertinent paragraphs of the amended statement of claim,
namely paragraphs 38 and 39:
38. The Defendants Derwin Joelson and
Leah Joelson knew that Lea-Der, and those entities it controls, had no licence,
permission or consent of Zero Spill, KKHL or Quinn Holtby. Further Derwin
Joelson and Leah Joelson knew of or were wilfully blind or reckless of the fact
that said Patents and inventions existed.
39. The Defendants Derwin Joelson and
Leah Joelson personally directed, ordered and authorized the infringing acts of
Lea-Der (and those entities it controls). Derwin Joelson and Lea Joelson
induced Lea-Der (and those entities it controls) to infringe said Patents, and
their associated claims, rights, privileges and liberties as set out more fully
above.
[5]
In their
defence, the Joelsons and 614248 denied the allegations of wilful blindness,
recklessness, and infringement, and argue that the Plaintiffs failed to
disclose a cause of action against the Joelsons personally.
[6]
The
Joelsons and 614248 brought a motion to strike which was heard on October 10, 2008.
On the motion they argued:
…the Amended Statement of Claim alleges
no facts concerning the deliberate, wilful and knowing pursuit of a course of
conduct that was likely to constitute infringement or reflected an indifference
to the risk of it. There are no pleaded facts from which it is reasonable to
conclude that the purpose of either of the Joelsons was anything other than the
direction of the manufacturing and selling activity of the corporation in the
ordinary course of business.
The Amended Statement of Claim does not
disclose any allegation of conduct on the part of the Joelsons which is tortious
in itself, or which exhibits a separate identity of interest form that of
614248 Alberta Ltd. Such as to make the act of patent infringement that of the
Joelsons.
[7]
In reply
to this motion to strike, the Plaintiffs allege that the Joelsons were, at all
material times, the directors, officers, shareholders and directing minds of
Lea-Der; that the Joelsons knew that they had no license, permission or consent
from the Plaintiffs; that the Joelsons personally directed, ordered and
authorized the infringing acts; and that the Joelsons deliberately infringed
the listed patents and designs. Furthermore, they argue that the Joelsons
defended the original statement of claim in which they were named and did not
seek particulars of the allegations against them, they produced detailed
affidavits, and Derwin Joelson has been cross-examined on his affidavit. It was
only five (5) months after the first round of discovery of Mr. Joelson and one
month after the delivery of the Plaintiffs’ notice of motion seeking answers to
questions improperly refused on examination for discovery that the motion to strike
was filed. The Plaintiffs argue that the answers to these questions go to the
root of the allegations made against the Joelsons.
[8]
By order
dated December 3, 2008, Prothonotary Lafrenière granted the Defendants’ motion
to strike with costs.
III. Standard of Review
[9]
A
discretionary decision of a prothonotary should be reviewed de novo if
the questions raised in the motion are vital to the final issue in the case (Merck
& Co. v. Apotex Inc., 2003 FCA 488). The parties agree that this appeal
should proceed on a de novo basis. There is no question that striking a
party from a proceeding is a question that is vital to the final issue in the
case. I will, therefore, proceed to consider this appeal on a de novo
basis.
IV. Analysis
[10]
In
addition to reiterating the arguments made before the Prothonotary on the
motion to strike, the Plaintiffs advance the following arguments on this
appeal:
(1) The
discovery process has revealed material facts relating to the Joelsons’
involvement with the alleged infringing acts. It is argued that the timing of
the motion is pre-mature since the discovery process is far from complete. A
second round of examinations for discovery is scheduled and will provide
answers to many answers to undertakings provided by Mr. Joelson on the first
round.
(2) The Joelsons
had obtained a legal opinion on infringement that they neglected to produce.
The Prothonotary should have drawn a negative inference as a result.
(3) The
question of whether the Joelsons are personally liable for the infringing acts
of 614248 is one of mixed fact and law and ought to be dealt with by the trial
judge.
(4) That
the Prothonotary was clearly wrong in finding that it was “plain and obvious”
that the amended statement of claim discloses no reasonable cause of action.
[11]
I will
turn first to the question of what evidence, if any, can be considered on such
an appeal. The Plaintiffs seek to rely on the affidavit of Quinn Holtby (the
Affiant) sworn December 10, 2008 in support of their appeal. Mr. Holtby, a
named plaintiff in the action, annexes to his affidavit true copies of the
compressed examinations for discovery of Mr. Derwin Joelson and Mr. Darrell
Demers which was before the Court in related motions to compel answers. The Affiant
also gave evidence in relation to the second round of discoveries, particularly
in respect to the timing and reason for postponement of the discoveries. The
Plaintiffs essentially argue that this evidence was on the record of the Court
and therefore it is appropriate that it be considered on this appeal.
[12]
It is
clear that the affidavit of Quinn Holtby was not before the Prothonotary at the
hearing of the motion to strike. A review of the contents of the affidavit
indicates that the facts sworn therein could have been put before the
Prothonotary at the hearing of the motion to strike. For this reason alone, it
would be improper to consider the affidavit on appeal. In any event, pursuant
to Rule 221(2), on a motion to strike under Rule 221(1)(a), no evidence
shall be heard. The jurisprudence also makes it clear that on such a motion,
the reviewing court is limited to the language of the pleadings and is not to
consider any evidence: see Coca-Cola Ltd. v. Pardhan (1999), 85 C.P.R.
(3d) 489 at 493 (F.C.T.D.), [1999] F.C.J. No. 484 at paragraph 8 (QL). The Holtby
affidavit is therefore not properly before the Court on this appeal and
shall not be considered.
[13]
The Coca-Cola
case also resolves the issue raised by the Plaintiffs regarding the timeliness
of the motion of strike. The Court of Appeal stated that while normally an
application to strike a pleading should be brought before pleading over it, it
is permissible to bring a motion to strike at any time on the basis that the
pleading discloses no reasonable cause of action: see paragraph 8 of
Coca-Cola, above.
[14]
In respect
to the negative inference the Plaintiffs ask be drawn on the failure of the Joelsons
to adduce a legal opinion obtained on infringement, no authority was submitted
in support of this proposition. Suffice it to say that I cannot imagine a negative
inference being drawn against a party by reason of its failure to disclose
information that is essentially protected by privilege.
[15]
I now turn
to the substantive argument of the Plaintiffs that the Prothonotary was clearly
wrong in finding that it was “plain and obvious” that the amended statement of
claim discloses no reasonable cause of action.
[16]
The
applicable test on a motion to strike out a pleading is whether it is “plain
and obvious” that the claim discloses no reasonable cause of action: see Hunt
v. Carey, [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93 at paragraph 32
(QL). In doing so, the facts pleaded are to be taken as proven (ibid,
at paragraph 30).
[17]
The issue
here is whether the claim set out in the amended statement of claim discloses a
personal cause of action against the Joelsons. In the circumstances, the legal
issue relates to directors’ liability. A succinct summary of the personal
liability of directors of corporations is found in Petrillo v. Allmax
Nutrition Inc., 2006 FC 1199 at paragraphs 27-36. As a general rule, incorporated businesses have a legal
personality separate and distinct from those of its directors and officers who
will ordinarily enjoy the benefits of the limited liability that incorporation
provides.
[18]
In Mentmore Manufacturing Co. Ltd. v.
National Merchandising Manufacturing Co. Inc. (1978), 89 D.L.R.
(3d) 195, 22 N.R. 161, at paragraph 28, the Federal Court of Appeal determined
that to attract personal liability on the part of a corporate director or
officer:
[T]here must be circumstances
from which it is reasonable to conclude that the purpose of the director or
officer was not the direction of the manufacturing and selling activity of the
company in the ordinary course of his relationship to it but the deliberate, wilful
and knowing pursuit of a course of conduct that was likely to constitute
infringement or reflected an indifference to the risk of it.
[19]
The
jurisprudence teaches that personal liability will only attach when the actions
of the director or officer are either such that the director’s own behaviour is
tortious or when the corporation is used as a cloak for the personal activities
of the director such that the director’s conduct serves an interest other than that
of the corporation: see Dimplex North America Ltd. v. Globaltec Distributors
Ltd. 2005 FC 298, (2005), 270 F.T.R. 310 at paragraph 13 and Halford v.
Seed Hawk Inc. 2004 FC 88 at paragraphs 317-339, (2004), 31 C.P.R. (4th)
434 at pages 554-556 (F.C.T.D.) affirmed with respect to the trial judge’s finding
of no personal liability 2006 FCA 275 at paragraphs 51-55, (2006) 54 C.P.R. (4th)
130 (F.C.A.) at 148-149.
[20]
It is not
enough for the Plaintiffs to assert personal liability on the part of an
officer or director of a company in a statement of claim in the hope that
evidence to support the allegation will be uncovered during the discovery
process. A lawsuit is not a fishing expedition, and to do so is an abuse of the
court's process: see Painblanc v.
Kastner, [1994] F.C.J. No. 1671, 58 C.P.R. (3d) 502.
[21]
The
impugned paragraphs of the statement of claim quoted above use the very same
words employed by the Court of Appeal in the Mentmore case. They do not,
however, state any facts upon which it could be concluded that the Joelsons “deliberately,
wilfully and knowingly” caused or directed the alleged infringement. There must
be sufficient facts pleaded to indicate to the individual defendants the kind
of control over the company or the kind of personal conduct being complained
of. Mentmore rejects the proposition that individuals who are officers
and directors of corporations are ipso facto responsible for
infringement allegedly committed by their corporations. The Plaintiffs in their
amended statement of claim have not alleged against the individual defendants
specific facts to show that their conduct was tortious in and of itself, as
required by Mentmore.
V. Conclusion
[22]
For
the above reasons the appeal will be dismissed. I am satisfied that it is plain
and obvious that the amended statement of claim discloses no reasonable cause
of action. Prothonotary Lafrenière was not wrong in granting the motion and
striking all
references to the Defendants Derwin Joelson and Leah Joelson from the amended statement
of claim.
ORDER
THIS COURT ORDERS that:
1. The appeal
of the December 3, 2008 Order of Prothonotary R. Lafrenière is dismissed with
costs.
“Edmond
P. Blanchard”
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