Date: 20070620
Docket:
T-1502-00
Citation: 2007 FC 659
Ottawa, Ontario, June 20, 2007
PRESENT: The Honourable Mr. Justice Harrington
BETWEEN:
MICROSOFT
CORPORATION
Plaintiff
and
9038-3746 QUEBEC INC.,
9014-5731 QUEBEC INC.,
ADAM CERRELLI and
CARMELO CERRELLI
Defendants
REASONS FOR
ORDER AS TO COSTS
[1]
Microsoft obtained judgment against the defendants, and now
seeks an order as to costs. It asks for a lump sum award calculated on a solicitor-client
basis. The figure approaches $2,500,000.
[2]
The defendants concede that Microsoft is entitled to costs,
but argue they should be calculated in accordance with the Tariff which
accompanies the Federal Courts Rules. They oppose an award on a lump sum
basis as the proceedings stretched out over some six years. They submit that they
are entitled to receive an affidavit, to cross-examine and to argue such items
as they see fit before a taxation officer.
[3]
They also submit that a number of other factors should be
taken into account. They say that the time spent on the file and the number of
lawyers involved was excessive considering what was in issue. They also submit
that Microsoft was not fully successful in that the permanent injunction it
obtained was not as broad as the one it had sought. As well, certain offers of
settlement, although not better than the judgment obtained, are relevant.
THE JUDGMENT
[4]
It was found that the defendants, with the exception of
Adam Cerrelli, infringed subsisting copyright and trade-marks pertaining to
certain computer programs and related material. Microsoft was awarded statutory
damages in the amount of $500,000 as well as an additional $200,000 in punitive
damages, $100,000 from the two corporate defendants jointly and severely and a
further $100,000 from Carmelo Cerrelli. Pre-judgment and post-judgment interest
were awarded on the damages, and a permanent injunction issued.
[5]
In virtue of a settlement reached with Adam Cerrelli, no
conclusions were sought against him save that it was agreed that if a permanent
injunction issued against Carmelo Cerrelli, the same injunction would issue
against him. Microsoft also agreed it would not seek costs against him.
THE LAW OF COSTS
[6]
Costs are governed by Rules 400 and following of the Federal
Courts Rules. Costs normally follow the event, so that on the facts of this
case Microsoft, as the successful party, is entitled to costs. The Court has
full discretion and may, in appropriate circumstances, both award costs on a
solicitor-client basis and for a lump sum in lieu of formal taxation by an
assessment officer.
[7]
The Rules set out a number of factors which the Court may
consider such as the amount claimed and the amount recovered, the importance
and complexity of the issues, the outcome of interlocutory motions and offers
to settle. The premise of most of these factors is that unless the Court orders
otherwise, party and party costs are assessed in accordance with Tariff B which
accompanies the Rules.
[8]
The granting of costs on a party and party basis assumes a
partial, not a complete, indemnity. Solicitor-client costs are allowed when it
is appropriate to completely indemnify the successful party, or at least on a
very substantial basis. Costs are not usually granted on a solicitor-client
basis. Thus the first issue is whether the behaviour of the defendants was such
that they should be sanctioned by this type of order.
[9]
The second issue is whether costs should be awarded on a
lump sump basis. Although an award of lump sum costs is desirable, and
certainly simplifies matters, there were several stages to this case which
extended over a number of years. In addition, Microsoft submits, and the
defendants dispute, that Mr. Cerrelli’s post-judgment testimony is relevant.
[10]
Finally, the other factors raised by the defendants should
be taken into account as well as certain items they specifically dispute.
SOLICITOR-CLIENT COSTS
[11]
Solicitor-client costs are saved for those occasions when a
party has displayed reprehensible, scandalous or outrageous conduct (see: Young
v. Young, [1993] 4 S.C.R. 3 at pp. 134-135; Baker v. Canada (Minister of Citizenship and
Immigration), [1999] 2 S.C.R. 817 at p. 864 and Apotex
Inc. v. Canada (Minister of National Health and Welfare) (2000), 9 C.P.R.
(4th) 289 (F.C.A.)).
[12]
Any award of costs should be against Carmelo Cerrelli and
the two numbered companies on a joint and several basis. Not only was Mr.
Cerrelli found liable personally, but he was the directing mind of both
corporations. The conduct to be assessed is his.
[13]
I have already found that the three defendants acted in bad
faith, which was a factor in awarding maximum statutory damages of $20,000 for
each of the 25 copyright infringements. I said at paragraph 113 of the reasons
for judgment that “their conduct both before and during these proceedings has
been dismissive of law and order, and their failure to provide appropriate
records, despite court order, demonstrates the necessity of deterring other
infringements of the copyrights in question.”
[14]
I also awarded punitive damages, which are awarded against
defendants in exceptional cases for malicious, oppressive and high handed
misconduct that offends the Court’s sense of decency (see: Whiten v. Pilot
Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, at paragraph 36).
[15]
However, those awards do not preclude the award of costs on
a solicitor-client basis. Indeed, in cases where statutory damages were
awarded, solicitor-client costs were awarded as well. In this regard, see the decision of Mr. Justice Nadon in Wing v. Van Velthuizen
(c.o.b. Gratitude Press Canada) (2000), 9
C.P.R. (4th) 449 and the decision of Mr. Justice Lemieux in Telewizja Polsat
S.A. v. Radiopol Inc. (2006), 52 C.P.R. (4th) 445, 2006 FC 137.
[16]
“Reprehensible” behaviour is that deserving of censure or
rebuke; blameworthy. “Scandalous” comes from scandal which may describe a
person, thing, event or circumstance causing general public outrage or
indignation. Among other things, “outrageous” behaviour is deeply shocking,
unacceptable, immoral and offensive (see: Oxford Canadian Dictionary).
[17]
Mr. Cerrelli’s behaviour was all of those things, as
mentioned throughout my reasons for judgment, more particularly at paragraphs
26, 34, 56-64, 70, 72, 84 (e), 111, 113 and 114.
[18]
Mr. Cerrelli had little regard for the truth at discovery
and at trial, and failed to produce documents despite court order. The case is
somewhat similar to Logiudice v. Her Majesty the Queen (1997), 97 D.T.C.
1462, a decision in which Mr. Justice Bowie of the Tax Court of Canada awarded
solicitor-client costs. He said of the applicant at page 1466:
She gave conflicting
answers at the trial on a number of occasions, and her answers to a number of
questions on crucial issues varied from the answers given by her on discovery.
She frequently took refuge during her evidence in the statement that she forgot,
or that she was confused. It is very clear that the Appellant has no respect
for the oath that she took, and that her evidence was governed not by any
desire to tell the truth, but by her view of what story would best serve the
interest of herself and her son.
[19]
It is Mr. Cerrelli’s conduct as a whole which must be
assessed. While not backing down from the defendants’ principal contention that
costs should only be awarded on a party and party basis, counsel raised two
subsidiary points. One was that if solicitor-client costs were to be awarded,
they should not run before the date in 2002 when the defendants were provided
with the first affidavit from Robert Friedman. Mr. Friedman had been called by
Microsoft as an expert witness and in a clear and convincing manner established
that 394 of the 397 CDs he examined were counterfeit. No expert evidence was
called in an attempt to rebut him.
[20]
The record does not indicate what expert advice, if any,
the defendants sought after receiving Mr. Friedman’s opinion. What it does
show, however, is that after the Montreal police returned other CDs, and related items, which had been seized, Microsoft
asked that they be made available for Mr. Friedman’s inspection. What happened
is explained at paragraph 55 and following of the reasons for judgment. First
he told his lawyers they were not available for inspection because he had sold
them. Then he said he had thrown them in the garbage. Then, and after a court
order had been issued to produce them, he said he realized that his
instructions had not been followed and so he instructed a new employee to throw
out the material in question. As I said at paragraph 64, “however, no matter
how this is analyzed, the items had not been destroyed when the lawyer said
they were, and, to Mr. Cerrelli’s knowledge were available for inspection after
Prothonotary Lafrenière’s order”.
[21]
Instead of admitting that the items were counterfeit, which
still would have left open the issue of his personal liability because he was
not the importer of the copyrighted works, he tried to cover up.
[22]
There is no room for argument here that at times Mr.
Cerrelli’s behaviour was less scandalous than at others. Nor is there any merit
in the point that there was cooperation between counsel. This is not a case
where the liability of a solicitor for costs is in issue pursuant to rule 404.
[23]
The other point arises from the decision of Mr. Justice
O’Keefe in Abbott Laboratories v. Canada (Minister of Health), 2007 FC 50, currently under
appeal. Abbott obtained an order for costs against Pharmascience Inc. in
respect to an application pursuant to the Patented Medicine (Notice of
Compliance) Regulations. Mr. Justice O’Keefe’s decision was based on issue
estoppel, a branch of res judicata. Although he awarded party and party
costs rather than solicitor-client costs, he awarded a lump sum which was far
above the Tariff. He awarded about 52% of solicitor-client costs.
[24]
He took note of the decision of the Federal Court of Appeal
in Consorzio del Prosciutto di Parma v. Maple Leaf Meats Inc., [2003] 2
F.C. 451, 2002 FCA 417, where Mr. Justice Rothstein pointed out that the
discretionary power of the Court means the Court may fix costs by referring to
the Tariff or may depart from it, and that the objective of party and party
costs is to award an appropriate contribution toward solicitor-client costs.
[25]
In this case what is appropriate is not a contribution
towards solicitor-client costs, but rather actual solicitor-client costs, save
some deductions which I shall detail.
[26]
To conclude on this point, Microsoft is entitled to costs
on a solicitor-client basis.
LUMP SUM COSTS
[27]
In the cases which admit of it, lump sum costs should be
awarded. It saves the time and expense of what could be protracted accounting
and taxation. The administration of justice is better served if the time of
designated officers is not unnecessarily taken up (see: Barzelex Inc. v. “EBN
Al Waleed” (The), [1999] F.C.J. No. 2002 (T.D.) (QL); Eli Lilly and Co.
v. Novopharm Ltd. (1998), 83 C.P.R. (3d) 31 (F.C.T.D.); and Consorzio
del Prosciutto di Parma v. Maple Leaf Foods Inc., previously cited.
Although speaking of damages, rather than costs, I ascribe to the view
expressed by Winn, L.J. of the English Court of Appeal in Doyle v. Olby (Ironmongers)
Ltd., [1969] 2 All E.R. 119 at page 124:
I think myself with
confidence that there is already sufficient evidentiary material available to
enable this court to make a jury assessment in round figures. It would be wrong
and indeed an intolerable expenditure of judicial time and money of the parties
to embark on any detailed consideration of isolated items in the account on
which a balance must be struck.
[28]
During a scheduling conference, I expressed some concern as
to the appropriateness of awarding costs on a lump sum basis given all that had
been involved over a six-year period. To bolster its position, Microsoft asked
that I take into account the examination of Carmelo Cerrelli in aid of
execution of judgement. Counsel for the defendants objected as post-judgment
behaviour should not be relevant in terms of awarding solicitor-client costs up
to and including trial.
[29]
However, I allowed the transcript, as I was assured by
Microsoft that its only point was to prove that Mr. Cerrelli had testified that
neither he nor the two numbered companies was in position to satisfy the
judgment, and hence any award of costs. A tedious taxation could well be a
waste of time and effort, and delay matters.
[30]
An award of lump sum costs would deprive the defendants of
the opportunity of testing the amounts claimed. However, the draft bill of
costs accompanying the motion is extremely well detailed and what happened,
including examinations for discovery, objections, rulings and the trial, is
already in the record. Microsoft argues that it is the principle which is
important here. It wants a clear message that the Court will not sanction
cavalier disregard of intellectual property rights. An award of solicitor-client
costs on a lump sum basis, goes as Voltaire would put it, “pour encourager les
autres”.
[31]
Furthermore, to avoid any appearance that the defendants
were being deprived of their rights, they would be prepared to discount the fee
by 25%.
[32]
On the facts of this case, I think that it is appropriate
to take this circumstance into account, and will award lump sum costs.
DEDUCTIONS
[33]
The legal fees claimed are in the amount of $1,950,947.55.
They include fees which relate to a number of interlocutory motions on which costs
have already been awarded. Microsoft submits that it is important to “top up”
those costs awards so as to provide full indemnity. It is submitted that it is
appropriate to do so now since it is only now that the full extent of the
defendants’ misconduct is known. Reference was made in particular to the
decision of Mr. Justice Muldoon in Maison des Pâtes Pasta Bella Inc. v. Olivieri
Foods Ltd. (1999) 163 F.T.R. 252, [1999] F.C.J. No. 213 (QL). As I
understand it, Mr. Justice Muldoon was speaking of costs awarded on a party and
party basis. I agree that in this case it would be unfair to deny Microsoft the
remaining costs from such interlocutory orders. However, specific amounts were already
awarded on four motions. The awards were above Tariff and reflected the Court’s
displeasure. In at least one instance the order was satisfied in full.
[34]
It seems to me that if a party seeks and obtains an order
above Tariff on an interlocutory motion, that order should not be reassessed at
a later date.
[35]
The fees on those motions were about $150,000. To round
matters off, the fees are thus reduced to $1,800.000. It bears mentioning that
as part of the discount in order to get a quick lump sum order, Microsoft had
also offered to waive this $150,000, quite apart from the 25% discount.
However, I want to make it clear that I would not have awarded the “topping
off” in any event.
[36]
Although a 25% discount appears to be reasonable, the
defendants argue that the plaintiff was overzealous in the total amount of time
spent, and in the number of lawyers and other legal personnel utilized. No
doubt Microsoft wanted to get it right. Some of the issues were novel. Taking
into account that the possibility that probing during a taxation might have
turned up something, my decision is to discount the fees of $1,800,000 by 30%
rather than 25%.
[37]
It should not be thought that the amount sought, or
awarded, in damages constitutes a ceiling on costs. The amount in issue is but
one of many factors to take into account, quite apart from the fact Microsoft
also sought, and was granted, equitable relief.
[38]
The disbursements claimed, apart from Mr. Friedman’s fees
and disbursements, are in the amount of $198,143.61 plus the cost of
photocopying which has not yet been calculated. There were 37,194 photocopies.
[39]
The defendants expressed particular concern over some of
the fees incurred. For instance, the plaintiff incurred some $40,000 in witness
fees and disbursements of non-experts, who could have been subpoenaed and paid
little or nothing. They also paid over $22,000 to a note taker during trial,
notwithstanding evidence was being transcribed by an official court reporter.
Furthermore, Microsoft has not yet been billed for the costs of photocopies.
[40]
Rather than a taxation, I consider it fair and reasonable
to fix the disbursements, other than Mr. Friedman’s account, at $150,000.
[41]
Mr. Friedman’s fees and disbursements total US$175,715.23.
I allow them in full. They should be converted into Canadian dollars as of the
date liability was incurred, which I will take to be the date of the various
invoices (see: Capitol Life Insurance Co. v. Canada (1988), 87 N.R. 153,
[1988] F.C.J. No. 579 (F.C.A.) (QL); and N.V. Bocimar S.A. v. Century
Insurance Co. of Canada (1984), 53 N.R. 383, overruled on other points,
[1987] 1 S.C.R. 1247).
OTHER FACTORS
[42]
The defendants made reference to three settlement offers,
two by them and one by Microsoft. The offers by the defendants are not relevant
in that they did not include a permanent injunction. The offer by Microsoft is
more relevant in terms of damages; however, the permanent injunction it sought
was wider than the one which was granted. I do not consider the settlement
offers relevant as to costs.
[43]
The defendants submit that Microsoft only obtained divided
success in that the injunction it obtained was narrower than the one it sought.
However, it is well established that as long as a plaintiff obtains judgment,
it is still entitled to costs. In Liquilassie Shipping Ltd. v. M.V. “Nipigon Bay” (The), [1975]
2 Lloyd’s Rep. 279, [1975] F.C.J. No. 209 (QL), the plaintiff’s ship was
crowded in a seaway and went aground. Mr. Justice Walsh found the plaintiff’s
ship 20% to blame and the defendant ship, which suffered no damage, 80%. As to
costs being divided on the same basis as the division of fault, Mr. Justice
Walsh noted that the cases relied on by the defendant dealt with collisions in
which the two ships had suffered damage. The trial only served to reduce the
amount of the plaintiff’s claim without avoiding liability all together, and so
there should be no proportionate reduction in costs.
[44]
In Sunrise Co. v. “Lake Winnipeg” (The), [1988] F.C.J. No. 1009
(F.C.A.) (QL), Mr. Justice Hughessen stated:
While it is true that the
appeal on liability, though unsuccessful, occupied the greater part of the time
of the hearing, I do not think that that is any reason for departing from the
general rule and depriving the successful appellants of their costs. To do so
would be to set an unfortunate precedent, which might result in much lost
judicial time making fine distinctions. Unless there has been an abuse of the
court's process, a successful appellant, like a successful plaintiff, should
not be penalised simply because not all the points he has taken have found
favour with the court. I would accordingly give the appellants the costs of
their appeal in the ordinary way, subject only to the exception which follows.
The point upon which the
appellants succeeded was, as has been indicated, a pure question of law. Since
the factual background had been admitted, no part of the evidence at trial was
necessary for this court's disposition of the matter. The transcription and
reproduction of that evidence was wholly unnecessary and it would be unjust to
make the respondents pay for them. Accordingly, judgment should be entered in
the terms agreed by the parties with an order as to costs giving the appellants
the costs of the appeal (excluding the costs of transcription and reproduction
of the evidence at trial). I would make no order for costs on the present
motion.
[45]
In this case, the issues which did not find favour such as
grey market activities and the extension of the permanent injunction to
copyrights which had not been alleged, were pure questions of law, and did not
add in any meaningful way to the time and material before the Court.
SUMMATION
[46]
The plaintiff is awarded costs against 9038-3746 QUEBEC
INC., 9014-5731 QUEBEC INC. and Carmelo Cerrelli jointly and severely,
comprising legal fees of $1,260,000, ordinary disbursements of $150,000, and
the Canadian equivalent of US$175,715.23 covering the fees and disbursements of
Robert Friedman. These costs cover the motion for directions on costs,
pre-hearing conferences, and the hearing. They also cover the award of costs on
all interlocutory motions except those granted by order of Prothonotary
Lafrenière on 23 November 2004, 19 July 2005 and 7 November 2005, as well as
the order of Mr. Justice Kelen dated 23 August 2005. They do not cover the
courtroom rental charge, or the efforts to execute judgment.
“Sean
Harrington”
Email this Content