Date: 20090212
Docket:
T-1804-07
Citation: 2009 FC 154
Ottawa, Ontario, February 12, 2009
PRESENT: The Honourable Mr. Justice Russell
BETWEEN:
TRACTOR SUPPLY CO. OF TEXAS,
LP AND TRACTOR SUPPLY COMPANY
Plaintiffs
and
TSC
STORES LP
Defendant
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
This
application is an appeal of Prothonotary Milczynski’s order on June 9, 2008
dismissing the Plaintiffs’ motion to strike portions of the Statement of
Defence and Counterclaim.
[2]
In
the main action, the Plaintiffs, Tractor Supply Co. of Texas, LP and
Tractor Supply Company (Tractor Supply) are seeking a declaration that they own
certain trade-marks in Canada that were wrongfully registered by the Defendant,
TSC Stores LP (TSC). Tractor Supply claims under the Trade-marks Act that
it owns trade-marks, including “TSC STORES”, which TSC and its predecessors
have used since 1967 and registered in 1990. TSC runs 36 retail outlets
specializing in farming and general household goods in Ontario using “TSC
STORES” and other marks at issue in the action.
[3]
Tractor
Supply brought a motion pursuant to Rule 221 of the Federal Court Rules seeking
an order to strike the impugned pleadings on the grounds that TSC had failed to
plead the necessary elements of the tort of abuse of process and that the
Federal Court does not have jurisdiction over the tort of abuse of process. The
motion came before Prothonotary Milczynski.
BACKGROUND
[4]
Between
1966 and 1987, a predecessor of Tractor Supply (TSC Industries Inc.) owned
shares in a predecessor of TSC. This was the only business that TSC Industries
Inc. carried on in Canada. TSC Industries Inc. sold all of its shares in
TSC Stores Ltd. to predecessor of TSC Stores L.P. 715292 Ontario Limited.
[5]
TSC
alleges that the intention of the parties in the 1987 Purchase Agreement was
that TSC Stores Ltd. would continue operating independently of TSC Industries
Inc. (or any successors).
[6]
From
1987-2007, TSC claims that it used the name and marks continuously and
extensively for its growing chain of stores. It applied for and registered the
trade-mark TSC STORES without any opposition from Tractor Supply. Moreover, Tractor
Supply never asserted any rights to the TSC marks in Canada.
[7]
In
or about 2004, Tractor Supply expressed interest in buying the TSC businesses
in Canada and met with
some of the TSC executives for negotiations, but no purchase was concluded
because the parties could not agree on a price.
[8]
TSC
alleges that, starting in 2007, Tractor Supply began directing confusing
advertisements for their U.S. business toward Canadian consumers. After
20 years of not opposing TSC’s use of TSC Stores Trade-mark and name, Tractor
Supply started this action which attacks the right of TSC to continue to use
the TSC Marks, which TSC claims are essential to its business, and which has
lowered the value of TSC.
[9]
TSC
alleges that the action is an abuse of process because the “predominate”
purpose of the action is to reduce the value of TSC’s business in the context
of a takeover bid.
[10]
On
June 9, 2008, Tractor Supply brought a motion before the Court in Toronto for an order
to strike out portions of the Statement of Defence and Counterclaim and
requiring TSC to provide particulars of other allegations in the Statement of
Defence and Counterclaim. Tractor Supply sought an order: (1) striking out
paragraphs 66-75(c) and (d) and 77 of the Statement of Defence and
Counterclaim; (2) requiring TSC to provide particulars of allegations in
paragraphs 4, 7 and 44 of the Statement of Defence and Counterclaim; (3) granting
leave to Tractor Supply to file their Reply and Defence to Counterclaim within
30 days of the receipt of the Particulars; (4) granting Tractor Supply costs
for the motion on a solicitor-client basis; and (5) any further relief the
Court found just.
Motion to
Strike
[11]
TSC
Stores L.P. argued that in paragraphs 66-73, 75(c), 75(d) and 77 of the
Statement of Defence and Counterclaim, Tractor Supply’s wrongful motive was
made clear. TSC Stores L.P. alleged that Tractor Supply started the action in
order to devalue the Plaintiffs’ business in the context of a takeover bid.
[12]
Further,
Tractor Supply argued that the impugned provisions did not disclose a
reasonable cause of action or defence and were “immaterial, scandalous,
frivolous, and vexatious.”
[13]
The
impugned provisions are as follows:
Abuse of Process
66.
This
action is an abuse of process and should be dismissed, or in the alternative,
the plaintiffs should be denied equitable relief.
67.
The
plaintiffs have brought this action in bad faith, without justification, and
with an extraneous and improper purpose, namely, to use this litigation to
reduce the valuation of TSC Stores in the context of a takeover bid.
Particulars follow.
68.
The
plaintiffs have not previously asserted rights in Canada in the TSC STORES name
or the Canadian Trade-marks. In about 2004, the plaintiffs expressed interest
in TSC Stores and visited some of the defendant’s stores and met with some of
the defendant’s executives. Nothing further came of that initial expression of
interest, until in about April of 2007, the parties entered into discussions
regarding the possible acquisition of TSC Stores by the plaintiffs to enable
the plaintiffs to expand their operations into Canada. The parties were unable
to reach agreement regarding the valuation of the TSC Stores business for such
an acquisition, and the negotiations were discontinued. Subsequently, the
present action was commenced.
69.
For more
than 20 years following the 1987 transaction, the plaintiffs did not object to
TSC Stores’s extensive and continuous use of the Canadian Trade-marks in Canada. The plaintiffs did not
oppose the use or registration of the trade-marks TSC STORES & Design
(early logo, TMA373,477), TSC Stores & Design (updated logo, TMA607,763) or
TSC VILLAGER (TMA608,177) for the operation of retail outlets for the sale of
farm supplies, hardware, clothing and related goods. The plaintiffs did not
oppose the use or registration of the trade-mark TRAVELLER (TMA661,173) for
batteries and various other automotive tools and parts.
70.
The
plaintiffs do not believe, and have no reason to believe, that TSC Stores’ use
in Canada of the Canadian Trade-marks in association with its retail store
services and wares will wrongfully interfere with the plaintiffs’ business in
the United States, or in any way damage such
business.
71.
The
plaintiffs’ predominate purpose in bringing this action is not to preserve or
defend any allege rights under the Trade-marks Act in the Canadian
Trade-marks, or to obtain proper compensation for the violation of any such
rights. Rather, their predominate purpose is to use the litigation in order to
coerce acceptance of a lower valuation for the TSC Stores business in the
context of a takeover bid by the Plaintiffs. The Plaintiffs seek to do so by
using this action to try to cast a pall over TSC Stores’ natural and legitimate
use in Canada of its Canadian Trade-marks,
such use being at the core of TSC Stores’ business.
72.
The
wrongful impugning of TSC Stores’ rights to the continued and unfettered use of
its Canadian Trade-marks through this action has lowered the value of TSC
Stores as a going (sic) concern.
73.
The
plaintiffs’ unlawful conduct described above is reprehensible, and deserves
this Honorable Court’s condemnation.
Counterclaim
75.
(c) an
order declaring that the plaintiffs’ action constitutes an abuse of process;
(d)
damages
for abuse of process, including exemplary damages;
Abuse of Process
77. As pleaded above, this action is an
abuse of process, and the defendant claims damages, including exemplary
damages, arising therefrom against the plaintiffs.
DECISION UNDER REVIEW
[14]
On
June 9, 2008, Prothonotary Milczynski dismissed the Plaintiffs’ motion to
strike the impugned pleadings on the grounds that “[i]t is not plain and
obvious that the Defendant cannot succeed or that the Impugned Pleadings are
beyond the jurisdiction of this Court to consider either in the Statement of
Defence or Counterclaim.” Prothonotary Milczynski concluded that there was
“sufficient nexus plead between the trade-mark matters in issue and the abuse
alleged for this Court to consider the matter on its merits.”
[15]
Prothonotary
Milczynski’s Order relied on Levi Strauss & Co. v. Roadrunner Apparel
Inc. (1997), 76 C.P.R. (3d) 129 (FCA), where the Federal Court made the
following comment on p. 134:
…I for one, would be very loath to deny a
litigant the right to raise the issue in its Statement of Defence and seek our
protection against such an abuse when there is a factual basis to support the
claim…
…the difficulties for a defendant of
proving a misuse, or perversion of the process on the part of a plaintiff
seeking to enforce its trade-mark through the legal process cannot be
underestimated. However, this is not a valid legal ground for denying a
defendant such a possibility.
ISSUES
[16]
The
issues raised in this appeal are as follows:
1. Should the
Prothonotary’s Decision be reviewed de novo?
2.
Is
the “Plain and Obvious” threshold for striking pleadings met?
3. Did the Prothonotary misapply Levi Strauss & Co. v.
Roadrunner Apparel?
4. Is the tort of abuse of process within the jurisdiction of the
Federal Court?
STATUTORY PROVISIONS
[17]
Under
Rule 221 of the Federal Courts Rules, 1998 a pleading can be struck if
the moving party establishes one of the following:
|
221. (1) On motion, the Court may, at any
time, order that a pleading, or anything contained therein, be struck out,
with or without leave to amend, on the ground that it
(a) discloses no reasonable cause of action or defence, as the
case may be,
(b) is immaterial or redundant,
(c) is scandalous, frivolous or vexatious,
(d) may prejudice or delay the fair trial of the action,
(e) constitutes a departure from a previous pleading, or
(f) is otherwise an abuse of the process of the Court,
and may order the action be dismissed or judgment entered accordingly.
|
221. (1) À tout moment, la Cour peut, sur requête, ordonner
la radiation de tout ou partie d’un acte de procédure, avec ou sans
autorisation de le modifier, au motif, selon le cas :
a) qu’il ne révèle aucune cause d’action ou de défense
valable;
b) qu’il n’est pas pertinent ou qu’il est redondant;
c) qu’il est scandaleux, frivole ou vexatoire;
d) qu’il risque de nuire à l’instruction équitable de
l’action ou de la retarder;
e) qu’il diverge d’un acte de procédure antérieur;
f) qu’il constitue autrement un abus de procédure.
Elle peut aussi ordonner que l’action soit rejetée ou
qu’un jugement soit enregistré en conséquence.
|
ARGUMENTS
Plaintiffs
[18]
Tractor
Supply submits that Prothonotary Milczysnki erred in dismissing its motion to
strike the impugned pleadings. It argues that it met the test for striking out
pleadings, as it was plain and obvious that (1) the necessary elements to
support an independent claim for a civil tort for abuse of process cannot
succeed as pleaded, and (2) it is not within the jurisdiction of the Federal
Court in the context of this proceeding to adjudicate the TSC civil claim for
abuse of process.
[19]
Tractor
Supply asserts that its purpose in commencing the action was the result of an
unresolved dispute with TSC concerning trade-mark rights. Further, Tractor
Supply was motivated to begin the action after receiving a demand letter from TSC
alleging trade-mark infringement. Tractor Supply submits that the affidavit of
Anthony F. Crudele, its Chief Financial Officer, provides the factual context for
the ongoing dispute.
[20]
Tractor
Supply denies the allegations of abuse of process in which TSC alleges that it
commenced the action in order to devalue the business of TSC.
[21]
Tractor
Supply argues that the Prothonotary erred in law when she dismissed its motion
to strike the impugned pleadings:
(a)
In finding
that it is not plain and obvious that the Defendnat cannot succeed with its
assertion of the tort of abuse of process, in circumstances where the Defendant
has not pleaded the supporting factual basis essential for the tort of abuse of
process;
(b)
In finding
that it is not plain and obvious that the Court lacks jurisdiction to consider
the tort of abuse of process in the context of this proceeding; and
(c)
In
interpreting and applying Levi Strauss & Co. v. Roadrunner Apparel Inc.
(1997), 76 C.P.R. (3d) 129 as support for the dismissal of the Plaintiffs’
motion.
i.
Should
the Prothonotary’s Decision be reviewed de novo?
[22]
Tractor
Supply submits that the Court has the jurisdiction to replace a Prothonotary’s
decision with its own pursuant to Rule 51(1) of the Federal Court Rules and
that a discretionary order of a Prothonotary should be assessed de novo
where:
(a)
The
questions raised in the motion are vital to the final issue of the case; or
(b)
The
order is clearly wrong in the sense that the exercise of discretion by the
Prothonotary is based upon a wrong principle or upon a misapprehension of the
facts.
Canada v.
Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (F.C.A.) at 462-463 and Merck
& Co. v. Apotex Inc. (2003), 30 C.P.R. (4th) 40 at (F.C.A.)
at paras. 17-19, leave to appeal to S.C.C. refused 30 C.P.R. (4th)
[23]
Tractor
Supply argues that the Prothonotary’s Order was based on a wrong principle of
law.
ii.
The
“Plain and Obvious” Threshold for Striking Pleadings is Met
[24]
Tractor
Supply argues that the impugned pleadings should have been struck in accordance
with Rule 221 because it is plain and obvious that the pleadings have no chance
of succeeding. Tractor Supply submits that the pleadings will fail for
the two following reasons:
(a)
TSC
has not pleaded the required elements of the tort of abuse of process.
Therefore, even if the allegations as set out in the Impugned Pleadings are
accepted (and can be established at trial), TSC cannot succeed with this cause
of action; and
(b)
The
Federal Court clearly lacks jurisdiction to consider the tort of abuse of
process in the context of this proceeding.
[25]
Tractor
Supply submits that the tort of abuse of process can only succeed if it can be
proven both that: (1) the party initiated the legal process for a purpose other
than it was designed to serve; and (2) the party has committed some definite,
overt act in furtherance of that purpose, apart from commencement of the
impugned proceeding.
[26]
The
requirement for an overt act to further an alleged improper purpose has
resulted in the tort of abuse of process only succeeding in very rare
circumstances. In Ontario, Tractor Supply submits that the requirement of
an overt act has been strictly adhered to in order to prevent the misuse of the
action. There must be, according to Atland Containers Ltd. v. Macs Corp.
Ltd. et al. (1974), 17 C.P.R. (2d) 16 at 19-20, a “definite act or
threat in furtherance of such a purpose,” otherwise, “every plaintiff would be
open to such a claim.”
[27]
Tractor
Supply says that both elements of the two-part test for the tort of abuse of
process are also required in the Federal Court and that the Federal Court is
only entitled to find a tort of abuse of process where there is both an
improper purpose and a definite act or threat to further that purpose. See Amsted
Industries Inc. v. Wire Rope Industries Ltd. (1988), 23 C.P.R. (3d) 541, Levi
Strauss & Co. v. Timberland Co. (1997), 74 C.P.R. (3d) 49 (F.C.T.D.),
and Levi Strauss.
[30]
Tractor
Supply submits that the Prothonotary misunderstood and misapplied Levi
Strauss and also failed to distinguish the case from the facts in the
present case.
[31]
In
Levi Strauss, a plaintiff brought an action for breach of a trade-mark.
The defendant pleaded that the action was “frivolous and vexatious and intended
only to try to harass and intimidate the defendant.” On a motion to strike, the
Court determined that the plaintiff had committed the tort of abuse of
process. Most importantly, Tractor Supply points out that Justice Letourneau
found that there was a factual basis to support the pleading that is missing in
the present case. Justice Letourneau found that the plaintiff in Levi Strauss
committed overt acts to further its improper purpose by commencing multiple
actions against the defendant for infringement of the trade-mark.
[32]
In
the present case, Tractor Supply submits that the facts are clearly
distinguishable because:
(a)
The
tort of abuse of process is pleaded as an independent actionable tort for which
the Defendants seeks a separate head of damages, not as a procedural defence;
and
(b)
There
is no factual basis pleaded to support the assertion of the tort of abuse of
process.
iv. Is the tort of
abuse of process within the jurisdiction of the Federal Court in this
proceeding?
[33]
Tractor
Supply further argues that the jurisdiction of the Federal Court is restricted
in matters related to intellectual property rights by Section 20 of the Federal
Court Act and points to the annotations in the Act for justification:
…it is essential that an action under
section 20 be founded on applicable federal law and not be an action in
contract or tort arising incidentally to a trade mark, patent, or copyright
action…In every case, it will be a question of whether the matter is founded or
rooted in the federal legislation as opposed to being principally a claim
between subjects in contract or tort.
Saunders et al., Federal Courts
Practice 2008 (Toronto: Thomson Canada,
2008) at 188.
This is an action for infringement of the
plaintiff’s copyright. The plaintiff’s allegations in the impugned paragraphs
of the Statement of Claim relating to breach of contract and breach of
fiduciary duty and the like are not advanced for the purpose of establishing
infringement. Rather, they are advanced for the purpose of obtaining relief in
respect of those breaches themselves. As such, this Court lacks jurisdiction
to entertain them.
[36]
According
to Rule 189 of the Federal Court Act, the Federal Court only has jurisdiction
to deal with an allegation in a counterclaim that is capable of standing on its
own as a separate action. See Innotech Pty. Ltd. v. Phoenix Rotary
Spike Harrows Ltd. (1997), 74 C.P.R. (3d) 275 at 276-77 (F.C.A.); Castlemore
Marketing Inc. v. Intercontinental Trade and Finance Corp. (1996), 66
C.P.R. (3d) 147 (F.C.T.D.) at 149-150; and Nike Canada Ltd. v. Jane Doe (2001),
11 C.P.R. (4th) 69 at 75-77 (F.C.T.D.)
[37]
Similar
pleadings have been struck by the Federal Court in similar cases: Nintendo
of America Inc. v. Battery Technologies Inc. (2001), 13 C.P.R. (4th)
102 (F.C.T.D.); LifeGear, Inc. v. Urus Industrial Corp., (2001),
15 C.P.R. (4th) 142 (F.C.T.D.); and Concept Omega Corp. v.
Logiciels KLM Ltee (1987), 21 C.P.R. (3d) 77 (F.C.T.D.).
[38]
In conclusion, Tractor Supply submits that the Prothonotary misapplied
the scope of the jurisdiction of the Federal Court, and the tort of abuse of
process is beyond the Court’s jurisdiction as a defence and a counterclaim in
the present proceedings.
The Defendant
[39]
TSC
states that the parties’ understanding of the 1987 Purchase Agreement was that
TSC in Canada would continue to operate independently of TSC Industries in the United
States.
[40]
From
1987 to 2007, TSC used the TSC STORES name, trade-mark, and other marks
continuously and extensively in Canada for its growing retail
store chain. In fact, TSC applied for and was granted the trade-mark TSC
STORES and other marks without any opposition from Tractor Supply. Tractor
Supply has never asserted any rights to any of the TSC Marks in Canada until commencing
the present action.
[41]
All
of this changed in 2004 when Tractor Supply expressed an interest in acquiring
TSC in Canada. Tractor
Supply visited the stores and met with TSC’s executives, but when negotiations
were unsuccessful in 2007, Tractor Supply started running advertisements for its
U.S. business in Canada that were confusing to TSC’s customers.
[42]
After
20 years of acquiescing in TSC’s use of the name and marks, Tractor Supply has
commenced this action that interferes with TSC’s right to use the marks that
are closely associated with its business in an attempt to lower the value of TSC’s
business.
[43]
The
action is an abuse of process because its predominate purpose is to reduce the
valuation of TSC’s business in the context of a takeover bid.
Should the
Prothonotary’s Order be reviewed de novo?
[44]
TSC
submits that the Prothonotary’s order should not be reviewed de novo by
the Court because it was not based upon a wrong principle of law and should not
be disturbed.
[45]
TSC
argues that Tractor Supply’s Notice of Motion and Written Representations are
unclear in that they fail to set out the specific grounds under Rule 221 to
strike out TSC’s pleadings. As a result, TSC argues that it is prejudiced
because it is unclear how it can respond to Tractor Supply’s arguments.
[46]
The
lack of clarity in Tractor Supply’s Written Representations leads TSC to
believe that Tractor Supply may have abandoned its arguments under Rule 221(1)(b),
(c) and (d), which failed before Prothonotary Milczynski. Tractor
Supply may be attempting to make a new argument under 221(1)(a) after
the fact. According to Justice Hugessen in Greens At Tam O’Shanter Inc. v.
Canada, [1999] F.C.J. No. 260 (F.C.T.D.) at paragraph 4, written
representations must be adequate:
First, it is intended that the moving
party should fairly inform the opposite party of the legal and factual basis of
the motion that is being brought. Such information is not only a requirement
of fairness but may also in fact contribute to a saving of the Court’s time…
ii. The
Court should only strike pleadings if they will clearly fail
[49]
TSC
submits that the threshold test for striking pleadings is high and pleadings
should only be struck if it is plain and obvious that they disclose no
reasonable cause of action or defence, beyond a reasonable doubt. TSC argues
that, where there is a chance that a claim or defence might succeed, it should
not be struck: Trans-Pacific Shipping Co. v. Atlantic & Orient Trust Co.
2005 FC 311 (Proth.) at paragraph 12.
[50]
The
decision of Prothonotary Milczynski should stand because she properly found
that it was not plain and obvious that TSC could not succeed.
iii.
Jurisdiction
ANALYSIS
[61]
It
is well settled that the discretionary order of a Prothonotary should only be
reviewed de novo if the questions raised in the motion are vital to the
final issue of the case, or the order is clearly wrong, in the sense that the
exercise of a discretion by the Prothonotary was based upon a wrong principle
or upon a misapprehension of the facts. See Merck & Co., Inc. v. Apotex
Inc., [2004] 2 F.C.R. 459, 30 C.P.R. (4th) 40, 315 N.R. 175,
2003 CarswellNat 4080, 2003 FCA 488.
[62]
Tractor
Supply says that Prothonotary Milczynski was clearly wrong in her decision of
June 9, 2008 in refusing to strike portions of TSC’s Statement of Defence and
Counterclaim (Impugned Pleadings) because that decision was based upon a wrong
principle of law.
[63]
Before
Prothonotary Milczynski, Tractor Supply argued that TSC’s allegations regarding
abuse of process do not disclose a reasonable cause of action or defence within
the Court’s jurisdiction, and cannot possibly succeed and are immaterial,
scandalous and vexatious.
[64]
Prothonotary
Milczynski did not think it plain and obvious that TSC could not succeed on its
abuse of process claims and defence, or that such claims were beyond the
jurisdiction of this Court to consider either in the Statement of Defence or in
the Counterclaim. She said there is “a sufficient nexus between the trade-marks
matters in issue and the abuse alleged for this Court to consider the matter on
its merits.”
[65]
In
coming to that conclusion, Prothonotary Milczynski cited and relied upon the
Federal Court of Appeal decision in Levi Strauss at p. 134:
…I, for one, would be very loath to deny
a litigant the right to raise the issue in its Statement of Defence and seek
out protection against such an abuse when there is a factual basis to support
the claim …
…the difficulties for a defendant of
proving a misuse or perversion of the process on the part of a plaintiff
seeking to enforce its trademark through the legal process cannot be
underestimated. However, this is not a valid ground for denying a defendant
such a possibility.
[66]
It
is not clear from Prothonotary’s decision how the principles set out in Levi
Strauss arise on the facts of the present case. Justice Letourneau’s
decision not to strike in Levi Strauss appears to have been based upon
abuse of process either as a procedural defence that results in a stay of
proceedings (for which every court has an inherent jurisdiction to consider and
protect against) or upon an established factual basis that, in the Levi
Strauss case,
included an improper purpose as well as the commencement of numerous actions
against specified manufacturers/vendors of jeans in Canada that were not
diligently pursued and prosecuted.
[67]
In
the present case, TSC appears to target both a procedural abuse of process
(“66. This action is an abuse of process and should be dismissed, or in the
alternative, the plaintiffs should be denied equitable relief,”) as well as the
tort of abuse of process for which TSC claims “damages for abuse of process,
including exemplary damages.”
[68]
In
so far as TSC is raising procedural abuse, it is merely saying that Tractor
Supply’s claim should be dismissed because it is not really about trade mark
infringement. I see nothing wrong with such an allegation and it will be
examined and resolved as part of the proceedings. Hence, I do not see any problem
with Prothonotary Milczynski’s decision in so far as it deals with procedural
abuse.
[69]
But
TSC is also claiming “damages for abuse of process, including exemplary
damages, which suggests that it intends to rely upon the tort of abuse of
process. This is also suggested by the pleadings. TSC makes it clear in its Counterclaim
that it intends to use abuse of process as a sword as well as a shield and that
damages, “including exemplary damages,” are claimed.
[70]
The
decision in the Levi Strauss case suggests that the Federal Court of
Appeal considered the impugned pleadings in that case from the perspective of
both procedural abuse and the tort of abuse of process:
For
its part, the Respondent basically submitted to us that what it alleges in its
Statement of Defence is that the Appellants, under the guise of a valid
enforcement of their trademark, are in fact abusing the process of the Court.
The Respondent wants to establish that the abuse of process resides in the
Appellants' action or course of conduct which is designed to harass him and
other users of the trademark and also to avoid by all means a determination of
the validity of their registration.
I think that the validity of paragraph 21 and
the relevant portion of paragraph 18 stands to be decided on the principles
applicable to an abuse of process of the Court and that, in this context,
motive is highly relevant.
The concept of abuse of process has developed
both in substantive and procedural law. It is well settled law, from the point
of view of substantive law, that an abuse of process is an actionable tort. As
Henry J. stated in Tsiopoulous v. Commercial Union Assurance Co. when
dealing with a counterclaim for damages for abuse of process:
“This cause of action arises when the processes
of law are used for an ulterior or collateral purpose. It is defined as the
misusing of the process of the courts to coerce someone in some way entirely
outside the ambit of the legal claim upon which the court is asked to
adjudicate. It occurs when the process of the court is used for an improper
purpose and where there is a definite act or threat in furtherance of such
purpose.”
In Fleming’s The Law of Torts, the learned
author distinguishes between certain forms of abuse of legal procedure such as
malicious arrest and execution and the concept of abuse of process:
“Quite
distinct, however, are cases where a legal process, not itself devoid of
foundation, has been perverted for some extraneous purpose, such as extortion
or oppression. Here an action will lie at the suit of the injured party for
what has come to be called “abuse of process”.”
A review of the authorities shows that the
essential element of the tort of abuse of process is that the abuser must have
used the legal process for a purpose other than that which it was designed to
serve, in other words for a collateral, extraneous, ulterior, improper or
illicit purpose. The gist of the tort is the misuse or perversion of the Court’s
process and there is no abuse when a litigant employs regular legal process to
its proper conclusion, even with bad intentions.
Abuse of process has also been invoked as a
procedural defence, especially in criminal law when the proceedings were
oppressive or vexatious or offensive to the principles of fundamental justice
and fair play. When successful, the defence has resulted in a stay of the
proceedings.
However, the procedural defence of abuse of
process knows of no legal barrier in the sense that its application is not
limited to the field of criminal law, but extends to other fields such as
civil, constitutional or administrative law. There is nothing to prevent its
application to an infringement lawsuit. The abuse of process notion proceeds
from a rationale unconnected with the various segments of the law in which it
can be invoked. It is a request to a Court to vindicate its process and protect
it from abuse by litigants and I, for one, would be very loath to deny a
litigant the right to raise the issue in its Statement of Defence and seek our
protection against such an abuse when there is a factual basis to support the
claim.
Again, I think the motions judge properly
exercised his discretion when he came to the conclusion that there was a
supporting factual basis for the allegation made by the Respondent and refused
to strike paragraph 21 and the relevant portion of paragraph 18.
[71]
The
jurisdictional issue raised by Tractor Supply in the motion before me does not
appear to have concerned the Federal Court of Appeal in Levi Strauss,
which considered the impugned pleadings in that case from the perspective of
“the principles applicable to an abuse of process of the Court” and then went
on to address both the tort as well as the procedural defence of abuse of
process.
[72]
As
Tractor Supply itself points out, the Federal Court of Appeal “discusses the
applicability of the tort of abuse of process in [the] Federal Court, and cites
numerous Ontario cases that
confirm the two-element test …”.
[73]
It
seems to me that such a discussion by the Federal Court of Appeal at least
suggests the Court felt there was jurisdiction to deal with the tort of abuse
of process on the facts of that case. Hence, I think I must assume that the
Federal Court may have jurisdiction to deal with the tort as part of
infringement or passing off proceedings. At the very least, I think I
must assume that the jurisdiction issue has yet to be settled.
[74]
Tractor
Supply also cites several cases to support its contention that the tort of
abuse of process requires a “two-element test” that is not satisfied on the
facts of this case.
[75]
As
with the jurisdiction issue, Tractor Supply may be able to establish that the
tort of abuse of process has not been made out on the facts of this case.
However, in the Levi Strauss case, the Federal Court of Appeal summed up
the authorities as follows:
A review of the authorities shows that
the essential element of the tort of abuse of process is that the abuser must
have used the legal process for a purpose other than that which it was designed
to serve, in other words for a collateral, extraneous, ulterior, improper or
illicit purpose.
[76]
I
understand that, in TSC’s Statement of Defence and Counterclaim, the allegation
regarding abuse of process is that Tractor Supply has brought this action in
bad faith and “with an extraneous and improper purpose, namely, to use this
litigation to reduce the valuation of TSC Stores in the context of a takeover
bid. Particulars follow.” TSC also pleads as follows:
72. The wrongful impugning of TSC Stores’
right to the continued and unfettered use of its Canadian Trade-marks through
this action has lowered the value of TSC Stores as a going concern.
[77]
It
may be that, at the end of the day, TSC will not be able to establish that the
Federal Court has the jurisdiction to hear its defence or counterclaim in so
far as they are based upon the tort of abuse of process and/or that the
constituents of the tort are not present in this case. But based upon the
Federal Court of Appeal decision in Levi Strauss which, at least by
implication, appears to assume there is jurisdiction, and which uses general
wording (“the abuser must have used the legal process for a purpose other than
that which it was designed to serve …”) to describe the tort, I do not think at
this stage that it is plain and obvious that TSC cannot succeed on its abuse of
process allegations.
[78]
That
being the case, I cannot say that Prothonotary Milczynski was clearly wrong in
that she based her decision upon a wrong principle or upon a misapprehension of
the facts, or that she misunderstood or misapplied the Levi Strauss
case. It seems to me that there is sufficient scope in the Levi Strauss
case for TSC to use abuse of process as both a shield and a sword in this
litigation and that Prothonotary Milczynski was correct in her conclusion that,
from the point of view of the pleadings in this case and the state of the
jurisprudence in the Federal Court regarding abuse of process claims or
counterclaims, the Court cannot say “that the high standard on such a motion
has been met” and that TSC should be denied the right to raise the issue.
[79]
It
is well recognized that the Court may strike pleadings under Rule 221 for want
of jurisdiction. See MIL Davie Inc. v. Hibernia Management and Development Co. (1998), 226
N.R. 369, 85 C.P.R. (3d) 320, 1998 CarswellNat 814 (F.C.A.). However, the lack
of jurisdiction must be “plain and obvious” to justify a striking out of
pleadings at this preliminary stage. See Sokolowska v. Canada, 2005 FCA
29.
[80]
Given
the Federal Court of Appeal decision in Levi Strauss where the Court
appears to consider impugned pleadings from the perspective of both the
procedural defence of abuse of process and an actionable tort, I cannot say
that the jurisdiction issue is plain and obvious at this stage. I recognize, of
course, that in Levi Strauss the Federal Court of Appeal was not asked
to consider a counterclaim seeking a declaration and damages for abuse of
process. However, I can find nothing in the decision that makes it “plain and
obvious” that abuse of process can only be used as a shield in the Federal Court
and cannot be used as a sword.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that
1.
The
appeal is dismissed;
2.
The
Defendant’s (TSC Stores) shall have the costs of this appeal in any event of
the cause;
3.
The
Plaintiffs (Tractor Supply) shall serve and file their Reply and Defence to
counterclaim within 20 days of the date of this Judgment.
“James
Russell”
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