Date: 20071102
Docket: T-174-06
Citation: 2007
FC 1134
Ottawa, Ontario, November 2, 2007
PRESENT: The Honourable Mr. Justice Hugessen
BETWEEN:
MGM
WELL SERVICE, INC.
Plaintiff
(Defendant by Counterclaim)
and
MEGA
LIFT INCORPORATED
Defendant
(Plaintiff by Counterclaim)
REASONS FOR ORDER AND ORDER
INTRODUCTION
[1]
This
is an appeal by a non-party, Mega Lift Systems LLC (MLS), against paragraphs 2
and 3 of an Order made by the prothonotary following a status review. The whole
Order reads as follows:
1. The action
shall continue as a specially managed proceeding.
2. Mega Lift Systems LLC shall
forthwith, and no later [sic] July
16, 2007, take the appropriate and required steps to obtain standing to carry on the
proceeding by or on behalf of the Defendant.
3. The Plaintiff is dispensed
from the requirement to serve and file a reply and defence to counterclaim
pending further order or directions of the Court.
THE FACTS
[2]
MLS is
a 50% shareholder of the defendant Mega Lift Incorporated (MLI). On January 31,
2006, the plaintiff MGM Well Service, Inc. (MGM) filed a statement of claim in
this action alleging that MLI had infringed a number of claims of its Canadian
Patent No. 2,425,573. A statement of defence and counterclaim on behalf of MLI
were filed April 18, 2006. Although ordered, particulars of this latter
pleading were never supplied. There is parallel litigation in the United States
in which MGM has now obtained final judgment in its favour.
[3]
On November 15, 2006, on consent the Alberta Court of Queen's Bench
ordered MLI wound up. Two individuals were appointed as joint liquidators, one
being the principal of MLS and the other being the holder of the remaining 50%
of the shares of MLI. The Order purported to give MLS leave to intervene in the
present action and “to defend, compromise or discontinue the
Federal Court Action as it deems advisable in its sole and absolute
discretion”.
ANALYSIS
[4]
MLS argues
that the prothonotary's decision is subject to review both because it in part
decides the final issue in the case and because it is based on a wrong
principle of law. Both submissions are sadly misconceived. The Order is purely
procedural in nature and does no more than indicate to MLS that if it wishes to
exercise the powers purported to have been given to it by the Alberta Court it
must take steps to become a party to this action. That can have no more than a
peripheral impact upon the final outcome of the action which, as indicated, is
for alleged patent infringement. The suggestion, apparently argued seriously in
the reply submissions, that non-compliance with the Order might put MLS at risk
of being found in contempt of Court, is quite simply ludicrous; the Order does
not require MLI to do anything and, in my view the most serious consequence to
which non-compliance would expose MLS is that the action against its subsidiary
or affiliate, MLI, might continue to judgment by default. It is up to MLS as to
whether or not it wishes to exercise control over the conduct of MLI's defence
and counterclaim, but if it does it must do so in the manner specified by the
Order.
[5]
The proposition that MLS has “directorial control” (whatever that
may mean) over MLI's conduct of its defence of the action without itself having
to take any steps herein appears to me to be very dubious; it would seem to me
that the use of the conjunctive “and” in the Alberta Order linking the power to
intervene with the exercise of control over the conduct of the action has the
effect of making the latter conditional upon the former. Any other view would
have the strange effect of allowing MLS to conduct litigation in the name of a
company in liquidation without the intervention of the liquidators and without
itself being exposed to any costs consequences in the event of failure. Since
MLI is now in liquidation it would seem probable that it is a mere shell; MLS,
as a non-resident, may of course be subject to a requirement to post security
for costs but only if and when it becomes a party.
[6]
Finally, to suggest as does MLI in its submissions, that the prothonotary
erred in law by wrongly holding that Rule 117 applied to the position of MLS
is, again, quite simply wrong; while the Reasons do indeed refer to Rule 117 it
is neither clear that the latter is inapplicable in the circumstances nor, more
crucially still, that the Order itself precludes reference to other possibly
applicable provisions, notably Rule 109. The Order only requires MLS to take
steps to obtain standing without specifying what those steps must be.
[7]
There are a number of other technical and procedural points taken
by the solicitors acting for MLS and MLI which I must mention for the sake of
completeness. First it is said that MLS did not receive notice of the status
review; those same solicitors had themselves written to the Court
previously stating that they acted for both MLI and MLS pursuant to the Alberta
Order. It ill-behoves them now to contend that MLS did not have notice of the
status review. In any event, since MLS has participated fully through those
same solicitors in the proceedings leading up to the Order and in the present
motion it has clearly suffered no prejudice from any alleged lack of notice.
[8]
The same consideration applies to the argument
by those solicitors to the effect that the responding motion record herein was
improperly served and filed out of time. To the extent necessary I would remedy
such alleged defect and order that the responding motion record shall for all
purposes be deemed to have been properly and timely served and filed, the
moving party having suffered no prejudice from any alleged defects.
[9]
I said at the outset that the present motion was
brought by a non-party. That is the reality. To hold otherwise would be a
triumph of form over substance and would allow MLS to participate actively in
the defence of the action without its engaging any potential liability toward
the plaintiff. The Court will not tolerate that. In my view the conduct of MLS
and its solicitors herein has been devious and not in accordance with the
spirit of the Rules generally and of Rule 3 in particular. The present motion
should not have been brought. MLS should bear the costs of this motion fixed in
the amount of $2,500 payable forthwith and in any event of the cause.
ORDER
THIS COURT ORDERS that
The motion is dismissed with costs payable by MLS in the amount of
$2,500 forthwith and in any event of the cause.
“James
K. Hugessen”
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