Date: 20080618
Docket: T-139-06
T-140-06
Citation: 2008 FC 759
Vancouver, British Columbia, June
18, 2008
PRESENT: The Honourable Mr. Justice Russell
T-139-06
BETWEEN:
J2 GLOBAL COMMUNICATIONS, INC.
Plaintiff
and
PROTUS IP SOLUTIONS INC.
Defendant
AND
BETWEEN:
PROTUS IP SOLUTIONS INC.
Plaintiff by counterclaim
and
J2 GLOBAL COMMUNICATIONS, INC. and
CATCH CURVE INC.
Defendants by counterclaim
T-140-06
BETWEEN:
CATCH CURVE INC.
Plaintiff
and
PROTUS IP SOLUTIONS INC.
Defendant
AND
BETWEEN:
PROTUS IP SOLUTIONS INC.
Plaintiff by counterclaim
and
CATCH CURVE INC. and
J2 GLOBAL COMMUNICATIONS, INC.
Defendants by
counterclaim
REASONS FOR JUDGMENT AND JUDGMENT
THE MOTION
[1]
This
motion by Catch Curve Inc. and J2 Global Communications Inc. (Plaintiffs) is an
appeal of the Order of Prothonotary Tabib dated February 8, 2008 which granted Protus
IP Solutions Inc. (Protus) leave to further apply to amend its Statements of
Defence and Counterclaim in Federal Court File Nos. T-139-06 and T-140-06,
subject to a procedure whereby, prior to the filing of its amended pleadings, Protus
must provide further particulars of certain allegations contained in its
Statements of Defence and Counterclaim, and whereby the Plaintiffs shall assert
their objections to the proposed amendments by way of motion to dismiss and/or
for further and better particulars.
[2]
The
amendments in issue before Prothonotary Tabib related primarily to allegations
regarding unlawful conduct of the Plaintiffs contrary to sections 32 (abuse of
the patents), 45 (conspiracy to prevent or unduly lessen competition) and
61(1)(a) (price maintenance through misuse of patents) of the Competition
Act, as a result of, inter alia, the Plaintiffs’ acquiring,
controlling, and asserting/enforcing patents so as to prevent or limit the
entry of competitors into the market for Internet-based facsimile services, and
their preventing or limiting competitors from competing effectively in that
market. The alleged unlawful conduct is asserted as a defence to both actions
as well as a basis for a counterclaim (pursuant to section 36 of the Competition
Act) for damages allegedly suffered by Protus as a result of the unlawful
conduct.
BACKGROUND
[3]
J2
and Catch Curve are related corporations holding Canadian Patents which they allege
have been infringed by Protus’ internet-based fax services MYFAX and VIRTUAL
FAX. In Court File T-139-06, J2 alleges the infringement of Patent No.
2,232,397 (the ‘397 patent) and in T-140-06, Catch Curve alleges infringement
of Patent No. 2,101,327 (the ‘327 patent) and Patent No. 1,329,852 (the ‘852
patent).
[4]
Protus
has counterclaimed in the underlying actions, alleging, among other things,
that the three patents at issue are invalid for anticipation, obviousness and
overbreadth. Protus further asserts that J2 and/or Catch Curve have conspired
together and/or have acted on behalf of each other and have made false or
misleading statements in violation of
paragraph 7(a) of the Trademarks Act and section 52 of the Competition
Act.
[5]
The
two actions have not been joined. In fact, the Plaintiffs resisted a motion to
join brought by Protus. However, they are being jointly case managed. Also, a
Bifurcation Order issued in both actions on November 23, 2006, which
essentially held that issues related to the extent of infringement, the amount
of damages or the apportionment of profits should be decided separately after
the determination of the infringement actions and the counterclaims on their
merits.
THE MOTION BELOW
[6]
On
the motion below, Protus sought an order pursuant to Rule 75 for leave to serve
and file the amended Statements of Defence and Counterclaim attached as
Schedules “A” and “B” to the Notice of Motion (as revised on January 21, 2008).
The amendments in issue on that motion related to:
a)
Allegations
that J2 and Catch Curve have breached sections 32, 45 and 61(1)(a) of
the Competition Act which give rise to a defence to the actions and a
counterclaim in respect of the breaches of sections 45 and 61(1)(a) of
the Competition Act (paragraphs 23 to 39, 42(c.1), (c.2), (f), 47, 49,
50, 51(a) & 52 in T-139-06; and paragraphs 26 to 42, 45 (c.1), (c.2), (f),
50, 52, 53, 54(a) & 55 in T-140-06);
b)
Additional
allegations regarding false and misleading statements made by J2 and Catch
Curve contrary to section 52 of the Competition Act and section 7(a) of
the Trade-marks Act (paragraphs 34, 35, 46, 47, 48, 51(b) & (c) in
T-139-06; and paragraphs 37, 38, 49, 50, 51, 54(b) & (c) in T-140-06; and
c)
The
defence of abuse of process in view of the alleged anti-competitive conduct of
J2 and Catch Curve (paragraphs 23 to 32 in T-139-06; and paragraphs 26 to 35 in
T-140-06).
[7]
The
substance of the amendments in issue is identical in both actions.
[8]
Prothonotary
Tabib concluded as a fact on the evidence before her that the Plaintiffs would
not suffer prejudice that could not be compensated by costs if the amendments
were allowed.
[9]
Prothonotary
Tabib granted leave to amend paragraphs 20, 23, 34, 35, 46, 48 and 51 of Protus’
Draft Statements of Defence and Counterclaim.
[10]
In
terms of the allegations that the Plaintiffs have acted contrary to sections
32, 45 and/or 61(1)(a) of the Competition Act, and in particular
paragraphs 24 to 33 and 36 to 39 of the Draft Statements of Defence and
Counterclaim, Prothonotary Tabib held that it was not plain and obvious that
the facts alleged in the amendments could not give rise to a reasonable
argument. However, she concluded that certain allegations in the amendments
required further particulars. Accordingly, Prothonotary Tabib did not grant
leave to amend these allegations in the form presented on the motion but rather
imposed a procedure whereby further particularized pleadings would be served
and filed. The procedure provided the Plaintiffs with an opportunity to request
further particulars prior to the filing of the amended pleadings and was
without prejudice to the Plaintiffs’ ability to bring a motion to dismiss and/or
for further particulars of the allegations contained in the further
particularized pleadings.
STANDARD OF REVIEW
[11]
A
prothonotary’s decision to allow amendments to a pleading is a matter of
discretion. A discretionary order of a prothonotary should not to be disturbed
on appeal to a judge and considered de novo unless:
a)
The
questions raised on 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
was based upon a wrong principle or upon a misapprehension of the facts.
See Merck & Co. v. Apotex Inc.
(2003), 30 C.P.R. (4th) 40 at 53 (F.C.A.)
[12]
The
Federal Court of Appeal has cautioned that a judge hearing an appeal of a
prothonotary’s decision should not come too hastily to the conclusion that a
question, however important it might be, is a vital one. Accordingly, on
appeals from a prothonotary’s decision on motions to amend pleadings, the
Federal Court of Appeal has stated that it would be imprudent to attempt any
kind of formal categorization. The preferable approach is to determine the
point on a case-by-case basis. See Apotex at 53 and 54.
[13]
Rule
75 of the Federal Courts Rules provides the Court with discretion to
permit amendments “on such terms as will protect the rights of all parties.” In
addition, rule 385 of the Federal Courts Rules provides a case
management prothonotary with a broad discretion to manage the procedural steps
in a proceeding, including, inter alia, making any directions that are
necessary for the just, most expeditious, and least expensive determination of
the proceeding on its merits.
[14]
The
Federal Court of Appeal and this Court have stated on numerous occasions that
because of their knowledge of the facts and procedural history of the
proceeding, a case management judge/prothonotary must be given latitude in
their management of cases. As such, an appellate court will only interfere with
interlocutory orders in the clearest case of misuse of that judicial
discretion. See Sawridge Band v. Canada, 2001 FCA 338 at paragraph 11; Montana
Band v. Canada, 2002 FCA 331 at paragraph 7; and Apotex Inc. v. Canada,
2006 FC 850 at paragraph 15.
GROUNDS OF APPEAL
[15]
The
Plaintiffs say that the amendments that are the subject of the appeal are vital
to a final issue in the case because they cause a radical shift in the position
of Protus in its Statements of Defence and Counterclaim and go to the heart of
the matters in dispute in a way that affects the final resolution of both
actions.
[16]
The
Plaintiffs raise numerous grounds of appeal which I will deal with in the order
set out in the Plaintiffs’ Written Representations:
1.
Do
the proposed amendments raise questions vital to the final issue?
[17]
The
Plaintiffs say that the amendments that are the subject of this appeal are
vital to the final issue in the case because they would, if allowed, bring
about a radical shift in the position of Protus that goes to the heart of the
matters in dispute between the parties.
[18]
Generally
speaking, I believe the Plaintiffs are correct in this assertion and thus I should
consider the issues raised de novo. However, I am also mindful that the
Plaintiffs raise a wide range of objections to the order under appeal and each
ground will need to be examined separately to decide whether it does raise
matters vital to the final issue in the case. Where I do not regard the issue
as vital, I have indicated as such, and I have considered whether that part of
the Prothonotary’s decision is clearly wrong.
2.
Was
the order appealed from in error because the Prothonotary applied the wrong
standard, namely that she applied the test for a motion to strike as opposed to
a motion for leave to amend?
[19]
A
review of the Order and reasons clearly indicates that the Prothonotary applied
the usual principle that amendments should be allowed unless they would cause
prejudice to the other party that cannot be compensated through costs. She also
considered whether the amendments failed to disclose a reasonable defence or
cause of action, or were frivolous, vexatious or otherwise an abuse of the
process of the Court.
[20]
This
approach appears to me to be in accordance with the applicable jurisprudence.
[21]
The
Prothonotary found as a fact that if the proposed elements were allowed, the
Plaintiffs would not suffer prejudice that could not be compensated through
costs. I see no reason to disturb this finding.
[22]
As
regards frivolous, vexatious or abusive issues, the Prothonotary applied the
standard that is applicable in motions to strike and asked herself whether it
was plain and obvious that the allegations made in the proposed amendments
could not form the basis of a successful defence or counterclaim.
[23]
In
my view, Prothonotary Tabib was entirely correct in this approach and it
accords with the governing case law. See Apotex at paragraphs 56, 59 to
61; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at 980; and Volkswagen
Canada Inc. v. Access international Automotive Ltd., 2001 FCA 79 at paragraph
12.
[24]
The
Plaintiffs’ point is that “If an amendment would not be struck under Rule 221
it does not follow that it should be favourably considered by the Court.” In
other words, even if a proposed amendment would not be struck it is still
necessary for the Court to consider whether it should be allowed in accordance
with the rules that govern amendments.
[25]
I
agree with the Plaintiffs, but I also think that this is what Prothonotary
Tabib did. She considered whether the proposed amendments satisfied the Rule
221 criteria and whether they were also – subject to the procedure she imposed
to correct deficiencies over particulars – allowable under the general rule
regarding amendments.
[26]
I
think the Plaintiffs are merely saying that, in considering the amendment
criteria, Prothonotary Tabib was clearly wrong in the factors she considered,
or failed to consider, and this Court should now reverse her decision. I will
be dealing with the Plaintiffs’ views of where she went wrong on an
issue-by-issue basis. However, I think the Prothonotary was clearly correct in
her general approach to examining the proposed amendment under the Rule 221
criteria and then, on the basis that it was not plain and obvious that the
allegations could not form the basis of a successful defence or counterclaim,
acting in accordance with her view of the general rule regarding amendments:
Amendments to pleadings ought to be
allowed, no matter how late they are sought, unless doing so would cause
prejudice to the other party that cannot be compensated by costs or that the
proposed amendments fail to disclose a reasonable defence or cause of action,
are frivolous, vexatious or otherwise an abuse of the process of the Court.
[27]
The
Plaintiffs take issue with the Prothonotary’s conclusions that the Rule 221
criteria were satisfied in this instance and that all she had to consider
regarding amendment principles was whether any prejudice caused could be
compensated by costs. But Prothonotary Tabib clearly looks at the proposed
amendments from both the perspective of Rule 221 criteria and the jurisprudence
concerning amendments generally. In my view, she does not, as the Plaintiffs
intimate, grant the amendments on the basis of Rule 221 criteria alone without
considering the proposals as amendments.
[28]
I
cannot say in a general sense, that Prothonotary Tabib applied a wrong
principle or that her approach was misconceived. The real issues arise over the
Prothonotary’s detailed handling of the two aspects of the task before her (the
Rule 221 criteria and the criteria for amendments) and her imposition of a
procedure that would allow Protus to remedy the deficiencies regarding
particulars that she identified in the proposed materials while, at the same
time, giving the Plaintiffs full scope to state their objections by way of
motion once the particulars were known.
3.
Did
the Prothonotary err in law as to whether the allegations pleaded could
constitute a defence at law?
[29]
The
Plaintiffs say they are seeking both equitable and legal remedies against
Protus. Protus has pleaded that, by reason of the Plaintiffs’ unlawful conduct,
the Plaintiffs have no entitlement to enforce the patents at issue, to
prosecute their actions or to any of the remedies they are seeking.
[30]
The
Plaintiffs say that the Prothonotary neglected to determine whether the facts
pleaded by Protus could constitute a defence at law to the actions.
[31]
They
say that unlawful behaviour such as a violation of the Competition Act can
only be pleaded as a defence “where it relates to the acquisition of the title
of the patent or to a claim for equitable relief or both.” They rely upon Sanofi-Aventis
Canada Inc. v. Apotex Inc., 2007 FC 907 at paragraph 35 for this
proposition.
[32]
The
Plaintiffs say they can seek a remedy at law even if they come to the Court
with unclean hands. Hence, Protus is trying to prevent them from seeking relief
both in equity and at law based upon an unfounded allegation of unclean
hands.
[33]
My
review of the Prothonotary’s decision suggests to me that she took the view
that, if properly pleaded, Protus’ allegations could constitute a defence in
equity and that it was unnecessary and inappropriate for her to pronounce on
whether they could also give rise to a defence at law. This is because, as Prothonotary
Tabib points out, allegations that merely relate to legal consequences on
conclusions to be drawn from alleged facts are not an essential part of the
pleadings and so do not constrain a party’s ability to argue at trial such
conclusions as may reasonably flow from or apply to facts that have been
proven.
[34]
Protus
points out that the allegations of anti-competitive behaviour in the Draft
Amended Statements of Defence and Counterclaim did include allegations related
to the acquisition of the patents in issue. Even the Sanofi-Aventis case
relied upon by the Plaintiffs establishes that it is a triable issue as to
whether such allegations can give rise to a defence in both law and equity.
This further supports the Prothonotary's conclusion that she did not need to
consider at this stage in the proceedings whether a defence at law was also
available to Protus.
[35]
Considering
this issue de novo, I agree with Prothonotary Tabib’s handling of this
issue and her conclusions:
To the extent the allegations are
susceptible, if properly pleaded and taken to be proven, of constituting a
reasonable defence to J2/Catch Curve’s claim for equitable remedies, then the
factual allegations must be allowed. It makes no difference whether Protus can
or cannot also raise these facts, if proven, as an additional ground of
defence. Allegations which merely plead a legal consequence or conclusion to
be drawn from alleged facts are not an essential part of pleadings, do not
constrain a party’s ability to argue at trial such conclusions of law as may
reasonably flow or apply to the facts proven, and it is accordingly neither necessary
nor appropriate for the Court to pronounce on their propriety on a motion to
strike.
[36]
This
position is amply supported by Volkswagon at paragraph 21 and Johnson
& Johnson v. Boston Scientific Ltd., 2004 FC 1672 at paragraphs 53-54.
4.
Did
the Prothonotary err in fact and in law by failing to address, consider and
resolve the following grounds of opposition put forward by the Plaintiffs:
a.
U.S.
patents, applications and activities occurring outside of Canada are
irrelevant to the Canadian action and cannot form the basis in law for any
alleged anti-competitive behaviour in Canada.
[37]
The
Plaintiffs argue that Protus is attempting to add allegations of
anti-competitive behaviour that refer to activities occurring entirely in the U.S. and which involve
correspondence sent by U.S. counsel to third party companies in the U.S. and in
respect of a U.S. action and U.S. patents.
[38]
The
Plaintiffs say that the Prothonotary misdirected herself on this issue, which
misdirection can be inferred because she merely rejected the issue without much
explanation and dealt with it “not quite in the correct way.”
[39]
The
Plaintiffs say that activities in the U.S. are not the subject of
section 7 of the Trade-Marks Act or section 21 of the Competition Act
and do not support a cause of action based upon that legislation.
[40]
The
Plaintiffs also say that pleading a cause of action beyond the Court’s
jurisdiction is a clear abuse of process. See Weider v. Beco Industries Ltd.,
[1976] 2 F.C. 739 at 742 (F.C.T.D.).
[41]
In
addition, they say that any alleged violations of the Trade-Marks Act
and the Competition Act can only apply to issued patents and not patent
applications.
[42]
There
is no evidence before me that the Prothonotary Tabib failed to address this
issue. Her decision sets out what she sees as the determinative issues before
her and her resolution of those issues. She is not obliged to address every
argument raised by one of the parties.
[43]
In
my view, all the Plaintiffs are saying here is that they think that their objection
to the amendments is sound and the Prothonotary should have affirmed their
position in this regard and disallowed the amendments on this basis.
[44]
If
I look at the matter de novo, it is by no means clear at this stage in
the proceedings that U.S. patent, patent applications and activities
occurring outside of Canada can have no relevance for these actions.
[45]
Protus
is alleging conduct on the part of the Plaintiffs that has affected competition
and pricing in the Canadian market for Internet-based facsimile services. The
principle allegation appears to be that there is some overall anti-competitive
scheme whereby J2 has set out to acquire and control patent rights in order to
engage in anti-competitive conduct that has impacted the Canadian market.
Hence, in my view, it is not possible to say at this stage that activities
outside of Canada are
irrelevant to this broad anti-competitive scheme which includes the patents in
issue and which has had an impact on the Canadian market. I cannot say that it
is plain and obvious at this stage that the amendments in question are
irrelevant to Canada and have no chance of succeeding.
[46]
In
any event, as I read Prothonotary Tabib’s order, and the streamlined procedure
she has devised to have Protus provide particulars and to allow the Plaintiffs
to raise their objections by motion, I think it is obvious that this particular
objection can be raised by the Plaintiffs and dealt with at the appropriate
time and in the appropriate manner. I do not think that I should interfere with
that process at this stage.
b. Canadian
patent applications are not relevant in respect of claims under the Trade-Marks
Act and Competition Act
[47]
The
Plaintiffs say that only an issued patent can be enforced against third parties
in an infringement action and that any alleged violations of the Trade-Marks
Act or the Competition Act can only apply to an issued patent.
[48]
My
reading of the pleadings suggest that the references to patent applications are
part of Protus’ allegations concerning a broad anti-competitive scheme
conducted by J2 to acquire and control patent rights that will affect the
Canadian market. Patent applications may well eventually issue as patents so
that applications may be relevant to the overall anti-competitive scheme that
is alleged by Protus. At this stage, therefore, I cannot say that it is plain
and obvious that the references to patent applications are irrelevant and have
no chance of succeeding. Hence, considering this issue de novo and for
much the same reasons as in (a) above, I do not think they can be struck or
disallowed at this stage.
5.
The
Defendant cannot plead that the Plaintiffs are not entitled to enforce their patent
rights nor prosecute the actions and seek their remedies at law as opposed to
equity.
[49]
As
noted above, and considering this issue de novo, I agree with the
Prothonotary’s conclusions. Allegations regarding legal consequences are not an
essential part of the pleadings and do not constrain at trial such conclusions
as may flow from the facts. In addition, the allegations of anti-competitive
behaviour include allegations related to the acquisition of the patents in
issue. Thus it is at least arguable at this stage that the allegations do not
offend the case law relied upon by the Plaintiffs, including Sanofi-Aventis.
6.
Section
32 of the Competition Act does not apply in respect of services.
[50]
The
Plaintiffs point out that in Regina v. J.J. Beamish Construction Co. Ltd.,
[1968] 1 O.R. 5 at page 11, the Ontario Court of Appeal held that section 32 of
the Anti-Combines Investigation Act (the precursor of the current Competition
Act) did not prohibit anti-competitive behaviour regarding services.
[51]
The
Plaintiffs have also drawn the Court’s attention to Parliamentary proceedings
that dealt with certain amendments to the Competition Act and in which
section 32 is specifically identified as being limited in its application to
services.
[52]
The
Plaintiffs’ point is that the anti-competitive allegations made by Protus are
all aimed at Internet-based facsimile services. If section 32 does not apply
with respect to services, then Protus’ allegations with regards to section 32
cannot disclose a reasonable cause of action or defence. Pleading a civil cause
of action to recover damages under section 36 of the Competition Act
requires the demonstration of conduct contrary to Part VI of that Act. Section
32, which deals with intellectual property, is in Part IV and not part VI of
the Act.
[53]
The
Plaintiffs also say that Protus has not pleaded the material facts necessary to
establish a cause of action under section 32.
[54]
Protus
relies upon several Supreme Court of Canada decisions for the proposition that
contentious legal issues of statutory interpretation should not be dealt with on
motions to strike a pleading, and the Prothonotary applied the plain and
obvious criteria under Rule 221 in her decision. On this basis, Protus says
that the Prothonotary was correct not to exclude amendments on the basis of a
contentious legal issue of statutory interpretation and, in any event, she did
not have before her a sufficient evidentiary record to permit such an analysis.
[55]
Protus
also says that the Beamish case is old law and that the Competition
Act has undergone significant amendments in the past 30 years.
[56]
Consequently,
Protus says it cannot be said that it is “plain and obvious” that section 32 of
the Competition Act does not apply to the Internet-based facsimile
services that are the subject of the anti-competitive allegations contained in
paragraphs 24 to 36 of its Draft Amended Statements of Defence and
Counterclaim.
[57]
This
is a difficult point to resolve at this stage in the proceedings. Prothonotary
Tabib’s solution is clear from reading her decision as a whole. She allowed
some amendments and set in place a fair and efficient procedure that would lead
to particularization and possible further amendments. At the same time she made
it clear that, in allowing this procedure, she was not precluding the
Plaintiffs from moving to have the amendments dismissed. She makes it clear
that the particularization process is “without prejudice to [the Plaintiffs’]
right to object to the amendments” and that any objection to the amendments
that the Plaintiffs may have “shall be made by way of motion to dismiss … .”
[58]
In
other words, in the face of the disagreement between the parties and her
finding that some of the amendments lacked particulars (so that Protus was again
free to move to amend, having provided further particulars), Prothonotary Tabib
decided it was better to streamline the process and to have the particulars in
place, and thus the full scope of the proposed amendments known, before she
addressed any arguments or challenges that the Plaintiffs might wish to make
regarding dismissal.
[59]
The
Federal Court of Appeal and this Court have stated on numerous occasions that,
due to their knowledge of the facts and the procedural history of the
proceedings, a case-management judge or Prothonotary must be given the
discretion and the latitude to manage cases effectively. See Sawridge
Band, Montana Band, and Apotex.
[60]
It
seems to me that Prothonotary Tabib decided that additional steps were needed
before she could decide this section 32 issue between the parties. First of
all, she wanted full particulars for the proposed amendments to be placed
before the Plaintiffs and the Court. She would then be in a position to deal
with any grounds that the Plaintiffs might raise (by way of a full motion on
point) regarding amendments that the Plaintiffs wanted dismissed.
[61]
This
strikes me as an approach that is entirely in accord with case management
objectives and obligations under the rules.
[62]
It
is true that, in considering the proposed amendments, the Prothonotary was
bound to apply Rule 221 criteria. But until the particulars are placed before
the Plaintiffs and the Court there is really no point in dealing with
contentious points until the full scope of any objections to those particulars,
and the issue they raise, are known.
[63]
In
considering this issue de novo, I believe that Prothonotary Tabib took
the correct approach to streamlining. Dismissal should be considered as part of
a full motion that is brought once the full particulars for the amendments are
provided.
c.
Have
the Defendants failed and/or neglected to plead the material facts necessary to
establish a cause of action:
1.
For
abuse of process;
2.
Under
sections 32, 45 and 61 of the Competition Act; and
3.
In
the proposed amended counterclaim
[64]
Obviously,
as Prothonotary Tabib’s decision as a whole makes clear, she could not accept
the Plaintiffs’ position on these points: “I cannot conclude that the facts
alleged could not give rise to a reasonable argument.” She required further
particulars to address this issue and put in place a procedure that would both
allow both a determination based upon particulars and the Plaintiffs to raise
their various objections in a full motion on particulars and/or to dismiss. The
proposed amendments could not be allowed in their present form but Protus was
free to again move to amend, having provided further particulars, and an
efficient procedure was required to allow the necessary steps to be taken.
[65]
Reviewing
the relevant provisions de novo, I believe that Prothonotary Tabib was
correct in this regard. It cannot be said that the Plaintiffs have shown that
it is plain and obvious that the allegations cannot form the basis of a
successful defence or counterclaim. On the other hand, the proposed amendments
are not acceptable in the form presented. Both sides need to do more before a
final determination can be made on their respective positions. Protus needs to
particularize its allegations and the Plaintiffs needs to bring its objections
forward in a full motion once particularization has occurred.
[66]
The
Plaintiffs say that Prothonotary Tabib was wrong to conclude that further
particulars could fix the process because there were no material facts to
support the anti-competition allegations.
[67]
In
my view, however, this is not really the point. The Prothonotary has not said
that particulars will necessarily fix the problems. She has said that
particulars are needed before she considers whatever objections the Plaintiffs
may wish to raise regarding the amendments. All that was granted was “leave to
further apply to amend” and, before this is done, Protus is required to address
the particularization problem so that the Plaintiffs and the Court will know
whether the allegations cover a multitude of sins” or “specific acts which,
when eventually particularized, could not be strung together in any combination
to add up to the constituent elements of any of the infractions created by the Competition
Act.” Prothonotary Tabib did not allow the further amendments, but she
could not determine from what was before her that the Plaintiffs had
established that it was plain and obvious that the allegations could not form
the basis of a successful defence or counterclaim. Her findings left Protus
free to move to amend again, if the particulars were provided.
[68]
This
does not mean that the amendments will be allowed, even with the particularized
allegations. It means that the final decision on the Plaintiffs’ objections
should follow the provision of particulars by Protus. I see nothing wrong with
that conclusion and, bearing in mind Prothonotary Tabib’s intimate knowledge of
these actions to date, I do not believe that I should set aside a process that
has been put in place to allow a full determination of the points of dispute
between the parties concerning the anti-competitive allegations that require
further particulars.
7.
Did
the Prothonotary err in law when she allowed identical relief in two separate
counterclaims based on identical facts?
[69]
My
reading of the Prothonotary’s decision is that she has not allowed Protus
identical relief in the two actions. She has acknowledged that the issue will
need to be addressed, and can be addressed, by various procedural means in
order to avoid contradictory judgments or double recovery.
[70]
Protus
has already conceded that it is not entitled to double recovery in these
actions. The Plaintiffs have resisted consolidation of both actions and so they
are at least partially responsible for the present state of affairs. Protus was
compelled to respond to both actions in the way it has. Any anomalies that
arise as a result will be dealt with at a more opportune time. The Plaintiffs
know that Protus is not seeking double recovery and that it is simply a matter
of rationalizing two separate actions that raise the same issues. Considering
the matter de novo, I do not believe that the proposed amendments should
be refused on this ground. Neither counterclaim has yet been decided on the
merits so that, as yet, no abuse of process has occurred.
8.
Did
the Prothonotary err in law when she failed to refuse outright amendments that
were a radical departure from the original defence and counterclaim and
inserted her own form of relief?
[71]
The
Plaintiffs’ fundamental complaint about the amendments is that they constitute
a “radical departure” from what is, from the Plaintiffs’ perspective, the real
basis of these actions: infringement of the patents in issue. The Plaintiffs
feel that Protus is attempting to swamp the basic action by raising
anti-competitive issues that are simply a means of avoidance and are irrelevant
to the main claims.
[72]
The
simple answer to this is that the Plaintiffs have chosen to commence these
actions and Protus is entitled to both defend and counterclaim in any way that
grows out of the facts of this dispute. Provided Protus provides the material
facts to support its defence and counterclaim, the amendments cannot be refused
simply because they will take these actions in a direction that the Plaintiffs
do not want them to go or did not expect them to go.
[73]
The
Plaintiffs have chosen and asserted the context within which to assert their
patent rights against Protus. Naturally, they would like the dispute to be
decided on the basis of the issues as they have defined them. But Protus is
entitled to defend itself and raise counterclaims. What the Plaintiffs see as a
“radical departure” is, from Protus’ perspective, a legitimate defence and
counterclaim, provided of course it is not plain and obvious that the defence
or counterclaim has no chance of success and so should be struck and provided
the defence or counterclaim is not frivolous, vexatious or otherwise an abuse
of the process of the Court.
[74]
This
Court has consistently asserted that amendments to pleadings should be allowed
provided that doing so will not cause prejudice to the other party that cannot
be compensated by costs.
[75]
Prothonotary
Tabib expressly followed this approach and found that the Plaintiffs would not
suffer prejudice that could not be compensated in costs.
[76]
Protus
has complained that the Plaintiffs have not properly challenged this finding
and have belatedly raised the prejudice issue at the hearing when it is not
really a part of their written submissions.
[77]
I
do not think I need to decide that procedural issue because the Plaintiffs have
presented me with no real foundation for their allegation that they will be
prejudiced in a non-compensable way by the amendments.
[78]
It
is certainly true that the introduction of the anti-competitive allegations
into these actions will complicate them further and require additional
discovery. But that can all be addressed through costs. Behind the Plaintiffs’
complaints about a “radical departure” lies the assumption that Protus is not
sincere in its anti-competitive allegations and is attempting to raise a
further defence and counterclaim in an attempt to distract the Court from the
Plaintiffs’ infringement allegations. But the safeguards against this are the
ones that Prothonotary Tabib has articulated and used. She demanded sufficient
material facts to support the allegations, requested further particulars from
Protus, and satisfied herself that the Plaintiffs would not suffer a prejudice
that could not be compensated in damages. She has also left room for the
Plaintiffs to challenge the proposed amendments once particulars have been
provided by Protus.
[79]
The
Plaintiffs’ attempts before me to raise “radical departure” as some kind of
separate ground to refuse amendments cannot, in my view, be reconciled with the
established jurisprudence of this Court of allowing amendments that do not
cause non-compensable prejudice, provided they disclose a reasonable defence or
cause of action and are not frivolous, vexatious or an abuse of process.
[80]
The
Plaintiffs may now find themselves confronted by allegations that they do not
think they should have to confront. But the Plaintiffs chose to assert their
patent rights in a highly competitive market and they cannot be surprised by
the strong resistance put up by Protus or Protus’ anti-competitive allegations
that express its views of what is really occurring in this market. It is not
plain and obvious to me at this stage that Protus’ allegations are without any
real basis or relevance to the claims that the Plaintiffs have chosen to
initiate. The Plaintiffs will have the opportunity to challenge those
allegations by motion once the particulars are known. Hence, I feel that
Prothonotary Tabib’s approach was the correct one and should not be
countermanded on appeal.
9.
Did
the Prothonotary err in law when she failed to recognize that the proposed
amendments were an attempt to circumvent a previous order dated July 4, 2007?
[81]
Prothonotary
Tabib was fully alive to this issue and specifically dealt with it in her
decision. In my view, her conclusions were entirely correct and, in considering
the issue de novo, I see no reason to change her approach on appeal.
10.
Did
the Prothonotary err in law in the following ways:
a.
By
ruling that particulars could resolve the deficiencies in the Defendant’s
proposed amended pleadings in respect of sections 32, 45 and 61 of the Competition
Act?
b.
By
putting the onus on the Plaintiffs to advise what particulars may be necessary
to sustain the Defendant’s proposed allegations, thereby reversing the onus on
a motion for leave to amend?
c.
By
ordering that any amended defence and counterclaim with particulars would be
allowed without Court scrutiny prior to its acceptance for filing with the
Court?
d.
By
disregarding the principle of natural justice and denying the Plaintiffs the
right to be heard in respect of the Defendant’s proposed amendments?
e.
By
allowing certain paragraphs of the proposed amended defences and counterclaims
when the paragraphs referred to a relief upon paragraphs which were not
allowed?
[82]
The
Plaintiffs point out that the usual procedure when amendments are not allowed
is to deny the amendments without leave to amend if there is no reasonable
cause of action, or to allow the amending party to move to amend its pleadings
currently on the record.
[83]
The
Plaintiffs complain that, in her approach to particulars, Prothonotary Tabib
has departed from accepted practice in a way that is wrong in law and
prejudicial to the Plaintiffs because it offends rules of natural justice and
the right to a fair hearing and constitutes an excess of jurisdiction in its
arbitrariness.
[84]
I
believe that the Plaintiffs complaints concerning Prothonotary Tabib’s rulings
and her particularization procedure are based upon a misconception of her
findings and the impact of her order.
[85]
Prothonotary
Tabib’s principle finding as regards the allegations of anti-competitive
behaviour contrary to sections 32, 45 and/or 61(1)(a) of the Competition
Act was that “I cannot conclude that the facts alleged could not give rise
to a reasonable argument.” In other words, she concluded that the Plaintiffs
had not established plain and obvious grounds to refuse the proposed amendments
and that more was required from both sides before she could make any such
determination. She perceived that a reasonable argument could be made by
Protus, but that “the allegations of paragraphs 23 to 33 and 36 to 39 of the
proposed amendments in T-139-06 and their counterpart in T-140-06, and by
extension, paragraphs 42 (c.1), 42 (c.2), 42(f), 49 and 50 of T-139-06 and
their counterpart, do not contain sufficient particulars to grant leave to
include these amendments in their present form.”
[86]
Without
those particulars, Prothonotary Tabib could not assess the Plaintiffs’
arguments for refusing the amendments because of unreasonable claims under the Competition
Act and insufficient particulars. She could see that Protus was in a
position to again move to amend and she wanted to prevent “further protracted
interlocutory proceedings” over whether the anti-competitive allegations should
rightly become part of the actions. She knew that more was needed to resolve
this issue and she wanted “to streamline the process.”
[87]
In
my view, I do not think that she did so in any way that prejudices the
Plaintiffs or that was outside her authority as a case-management Prothonotary,
and in particular pursuant to Rules 75 and/or 385. Rule 385 (1)(a)
specifically empowers a Prothonotary to “give any directions that are necessary
for the just, most expeditious and least expensive determination of the
proceedings on its merits.”
[88]
On
the issue of particulars and the procedural order put in place by Prothonotary
Tabib, I do not believe I am dealing with a matter that is vital to a final
issue in the case so that, in this instance, I should not interfere with the
Prothonotary’s decision unless I think she was clearly wrong and based her
discretion on a wrong principle or upon a misapprehension of the facts as
defined in Apotex at 53.
[89]
The
Plaintiffs say that Prothonotary Tabib should simply have denied the amendments
in question. But she herself explains that she could not do this because she
could not say “that the facts alleged could not give rise to a reasonable
argument.” She needed further particulars to make the correct decision and to
allow her to assess the well-foundedness of the Plaintiffs’ arguments for
denying the proposed anti-competitive amendments.
[90]
She
devised what she regarded as the most just, expeditious and efficient way to
bring out the particulars needed and to allow the Plaintiffs to make their
objections once those particulars were known. I do not see anything unfair or
inappropriate about that procedure and, as an exercise of her discretion under
the Rules, I cannot say it was clearly wrong.
[91]
The
procedure requires Protus to properly particularize its proposed amendments and
it allows the Plaintiffs to decide whether that has occurred before the matter
comes back before the Court. Once the parties have taken the matter as far as
they can between themselves, Protus has to serve and file its “proposed”
Amended Statements of Defence and Counterclaim.
[92]
The
Plaintiffs are then perfectly free to attack the amendments by way of a motion
to dismiss and/or a motion for further and better particulars. Obviously,
Prothonotary Tabib felt that if the Plaintiffs wanted to attack the
anti-competitive allegations for some of the reasons raised before her (e.g.
that section 32 of the Competition Act does not apply to services) then
this was more appropriately done by way of a full-blown motion to dismiss once
all of the particulars were known, rather than as part of an amendment
application in which she could not say “that the facts alleged could not give
rise to a reasonable argument.”
[93]
In
my view, this procedure does not deprive the Plaintiffs of a fair hearing and
is not a breach of natural justice. Prothonotary Tabib was simply devising the
most efficient and appropriate way for both sides to do what they needed to do.
Protus wants to bring anti-competitive allegations contrary to the Competition
Act into the proceedings; the Plaintiffs want to assert that this cannot be
done for a variety of reasons that cannot be finally assessed until Protus has
provided the particulars for its anti-competitive allegations.
[94]
I
cannot say that Prothonotary Tabib was clearly wrong in her approach, and even
if I were considering the procedure she imposed de novo I would not
interfere with it.
11.
Miscellaneous
[95]
Besides
the formal framework of objections provided by the Plaintiffs, there are a
number of points raised in their materials that require some further comment:
a.
Horizontal
Entities
[96]
The
Plaintiffs complain that Prothonotary Tabib failed and/or neglected to address
their submissions that 61(1)(a) does not apply because the case at bar
is dealing with horizontal entities rather than a vertical distribution
network.
[97]
As
I read the Prothonotary’s decision, although this issue or argument is not
mentioned specifically it is addressed in her general conclusion that she
“cannot conclude that the facts alleged could not give rise to a reasonable
argument” and, in accordance with the procedure for further particulars, it is
one of the matters that the Prothonotary felt should be dealt with by way of
motion in the event that the Plaintiffs may wish to take objection once further
particulars are provided.
b. No
Material Facts for Counterclaim
[98]
The
Plaintiffs complain that by moving the material facts that support its
Counterclaim to the Statement of Defence Protus has deprived itself of any
material facts to support any counterclaim. The Plaintiffs also say that the
reference to the material facts in the Statement of Defence does not cure this
defect in the Counterclaim.
[99]
This
appears to me to be a desperate argument based upon a formality. As
Prothonotary Tabib points out in her decision “it is perfectly permissible for
a party to plead facts material to a counterclaim by reference to allegations
made in the defence part of its pleadings.”
[100] The
Plaintiffs provide no authority that suggests Prothonotary Tabib was wrong in
this conclusion and it would indeed be strange if a counterclaim were struck
merely because, instead of simply repeating the material facts set out in the
defence, it referenced them as a basis for the counterclaim.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that
1.
The
appeal is dismissed;
2.
If
the parties cannot agree on costs either party is free to address the Court on
the matter.
“James
Russell”
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