Supreme Court of Canada
MacDonald et al. v. Vapor Canada Ltd., [1977] 2 S.C.R. 134
Date: 1976-01-30
John A. MacDonald and Railquip Enterprises Ltd. Appellants;
and
Vapor Canada Limited Respondent;
and
Attorney General for Canada, Attorney General for Ontario and Attorney General for Quebec Intervenors.
1975: February 25, 26 and 27; 1976: January 30.
Present: Laskin C.J. and Martland, Judson, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.
ON APPEAL FROM THE FEDERAL COURT OF APPEAL
Constitutional law—Federal Act dealing with dishonest trade practices and providing a civil remedy—Not within the powers of Parliament in relation to the criminal law, the regulation of trade and commerce or implementation of the obligations arising out of an international treaty—Legislation in relation to property and civil rights—Jurisdiction of the Federal Court—Trade Marks Act, R.S.C. c. T-10, ss. 7, 53 and 55—British North America Act, ss. 91(2) (27), 92(13), (16) and 101.
Appellant MacDonald worked for several years for respondent Vapor Canada, which was in the heating equipment business. While in respondent’s employ, MacDonald caused appellant Railquip Enterprises Ltd. to be incorporated and he has controlled Railquip at all relevant times. After ceasing to work for respondent, MacDonald submitted a tender in Railquip’s name to supply heaters. Respondent contends that, in order to do so, MacDonald made use of knowledge which he had acquired as an employee of respondent, and that he also used confidential information in breach of his contract of employment, contrary to s. 7(e) of the Trade Marks Act.
In the Trial Division of the Federal Court, respondent based its argument on s. 7(e) of the Trade Marks Act, obtaining an interlocutory injunction which restrained appellants from using or communicating to third parties confidential information or documents which appellant MacDonald had acquired while he was in respondent’s employment. Other conclusions of the injunction related to patent infringement and are not in issue before this Court. In its principal action respondent also sought
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relief by way of damages, an accounting of profits and delivery up of the allegedly misappropriated materials. The injunction was upheld by the Federal Court of Appeal with certain variations, since the Court considered that s. 7(e) was intra vires the Parliament of Canada. Hence the appeal to this Court. Appellants and the Attorneys General of Quebec and Ontario content that s. 7(e) is ultra vires the Parliament because it constitutes legislation concerned with property and civil rights, and the Federal Court did not have jurisdiction in the case.
Held: The appeal should be allowed.
Per Laskin C.J. and Spence, Pigeon, Dickson and Beetz JJ.: The Federal Court, being a Court established pursuant to s. 101 of the British North America Act, can only be endowed with such jurisdiction as flows from laws competently enacted by Parliament. It seems that s. 101 does not enable Parliament to set up a Court competent to deal with matters purely of civil right as between subject and subject. However, questions on the validity of ss. 7(e) 53 of the Unfair Competition Act would arise even if the provincial superior courts were charged with enforcement of these provisions.
Section 7(e) cannot be justified as legislation relating to the criminal law. Even though the federal criminal law power enables preventive legislation to be enacted, that does not in any way give encouragement to federal legislation which, in a situation unrelated to any criminal proceedings, would authorize independent civil proceedings for damages and an injunction. Although s. 115 of the Criminal Code provides a penalty for disobedience of a federal statute, it is really not possible to mount the civil remedy of s. 53 of the Trade Marks Act on the back of the Criminal Code. This section of the Criminal Code is merely a “default” provision and can certainly not be a base upon which to support the validity of a completely independent civil remedy to which the injured parties may have recourse.
Section 7(e), whether it is taken alone or as part of a limited scheme reflected by s. 7 as a whole, constitutes an overlaying or an extension of civil causes of action recognizable in the provincial courts and falling within provincial legislative competence. In the absence of any federal regulatory administration to oversee the prescriptions of s. 7, there is no basis in federal power to justify such legislation. It is not a sufficient peg on which to support the legislation that it applies every-
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where in Canada when there is nothing more to give it validity.
Section 7(e) cannot be based on federal jurisdiction with respect to patents and trade marks. The legislation has no generality. No administrative body is established and no criminal offence is created. The provision is not concerned with trade as a whole, nor does it establish a scheme of regulation. Therefore, the law cannot be justified under s. 91 (2) of the B.N.A. Act.
In the absence of an express declaration in the Trade Marks Act that the Act as a whole, including s. 7 or s. 7 itself, was enacted in implementation of the obligations of the International Convention for the Protection of Industrial Property (the Union Convention of Paris), it cannot be argued that there had been a valid exercise in this case of the federal treaty or convention implementing power, assuming such a power exists in the present case.
Per Martland, Judson and de Grandpré JJ.: At first sight, respondent’s argument that s. 7 (e) is a legislative measure enacted by Parliament pursuant to the power of Canada to sign treaties seems to have some merit. However, on close examination, it cannot be accepted for the simple reason that the Union Convention of Paris for the Protection of Industrial Property does not deal with unfair competition in the abstract but only in a context not found in the case at bar. One must read art. 10bis of the Convention which refers to unfair competition in the context of other articles, none of which deals with contractual relations between employers and employees.
[R. v. Hume, Consolidated Distilleries Ltd. v. Consolidated Exporters Corp. Ltd., [1930] S.C.R. 531 applied; The Kitchen Overall & Shirt Co. Ltd. v. Elmira Shirt and Overall Co. Ltd., [1937] Ex. C.R. 230; Good Humor Corp. of America v. Good Humor Food Products Ltd., [1937] Ex. C.R. 61; A.C. Spark Plug Co. v. Canadian Spark Plug Service, [1935] Ex. C.R. 57; Booth v. Sokulsky (1953), 13 Fox Pat. Cas. 145; Kellogg Company v. Helen Kellogg, [1941] S.C.R. 242; Goodyear Tire and Rubber Co. of Canada Ltd. v. R., [1956] S.C.R. 303; International News Service v. Associated Press (1918), 248 U.S. 215; A.L.A. Scheckter Poultry Corp. v. U.S. (1935), 295 U.S. 495; Corbeil v. Dufresne (1933), 40 R.L.N.S. 40; Giguère Automobile Ltée v. Universal Auto Ltd. (1941), 70 Que. Q.B. 166; Eagle Shoe Co. Ltd. v. Slater Shoe Co. Ltd. (1929), 46 Que. K.B. 121; Canadian Converters Co. Ltd. v. Eastport Trading Co. Ltd. (1968), 70 D.L.R. (2d) 149; Breeze Corp. v. Hamilton Stamp Clampings
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Ltd. (1961), 37 C.P.R. 153; Building Products Ltd. v. B.P. Canada Ltd. (1961), 21 Fox Pat. Cas. 130; Green-glass v. Brown (1962), 24 Fox Pat. Cas. 21; The Noshery Ltd. v. The Penthouse Motor Inn Ltd. (1969), 61 C.P.R. 207; Eldon Industries Inc. v. Reliable Toy Co. Ltd. (1965), 54 D.L.R. (2d) 97; Clairol International Corp. v. Thomas Supply & Equipment Co. Ltd., [1968] 2 Ex. C.R. 552; S. & S. Industries Ltd. v. Rowell, [1966] S.C.R. 419; Citizens Insurance Co. v. Parsons (1881), 7 App. Cas. 96; Attorney-General for Ontario v. Attorney-General for Canada, [1937] A.C. 405; Attorney-General for Ontario v. Attorney-General for Canada, [1896] A.C. 348; Attorney-General for Canada v. Attorney-General for Alberta, [1916] 1 A.C. 588; Hodge v. R. (1883), 9 App. Cas. 117; In Re Board of Commerce Act, [1922] 1 A.C. 191; Proprietary Articles Trade Association v. Attorney-General for Canada, [1931] A.C. 310; R. v. Eastern Terminal Elevator Co., [1925] S.C.R. 434; Reference re Natural Products Marketing Act, [1937] A.C. 377; Murphy v. C.P.R., [1958] S.C.R. 626; Shannon v. Lower Mainland Dairy Products Board, [1938] A.C. 708; Reference re the Ontario Farm Products Marketing Act, [1957] S.C.R. 198; Reference re Alberta Statutes, [1938] S.C.R. 100; Reference re the Natural Products Marketing Act, [1936] S.C.R. 398; Johnson v. The Attorney-General of Alberta, [1954] S.C.R. 127; Reference re the Dominion Trade and Industry Commission Act, 1935, [1936] S.C.R. 379; Attorney-General for Canada v. Attorney-General for Ontario, [1937] A.C. 326; Francis v. R., [1956] S.C.R. 618; In re The Regulation and Control of Aeronautics in Canada, [1932] A.C. 54. In re The Regulation and Control of Radio Communications in Canada, [1932] A.C. 304; References re The Weekly Rest in Industrial Undertakings Act, The Minimum Wages Act and The Limitation of Hours of Work Act, [1936] S.C.R. 461; Reference re Legislative Jurisdiction over Hours of Labour, [1925] S.C.R. 505, referred to.]
APPEAL from a decision of the Federal Court of Appeal varying the interlocutory injunction granted by Walsh J. of the Federal Court. Appeal allowed.
Malcolm E. McLeod and J. Nelson Landry, for the appellants.
G.F. Henderson, Q.C., and E. Binavince, for the respondent.
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G.W. Ainslie, Q.C., and W. Lefebvre, for the Attorney General of Canada.
J.D. Hilton, Q.C., for the Attorney General of Ontario.
Jean LeFrançois, for the Attorney General of Quebec.
The judgment of Laskin C.J. and Spence, Pigeon, Dickson and Beetz JJ. was delivered by
THE CHIEF JUSTICE—This appeal, brought here by leave given by the Federal Court of Appeal pursuant to s. 31(2) of the Federal Court Act, 1970 (Can.),c. 1, concerns three paragraphs of an interlocutory injunction order which, as varied by the Federal Court of Appeal upon an appeal thereto from the order as originally made by Walsh J. of the Federal Court, reads as follows:
Defendants John A. MacDonald and Railquip Enterprises Ltd. and each of them, their servants and agents and anyone on their behalf are restrained from
(1) Using in the business of Railquip Enterprises Ltd., or in any other business in which either of them may be in any way associated or concerned, either by communication to third persons or otherwise, any confidential information or knowledge acquired by reason of the employment with plaintiff of defendant MacDonald, or making any tenders for the manufacture or sale of products in respect of which such confidential information acquired by MacDonald is used or useful;
(2) Using in the business of Railquip Enterprises Ltd., or in any other business in which either of them may be in any way associated or concerned, any plans, specifications, reports, letters or other documents belonging to plaintiff acquired by reason of the employment with the plaintiff of defendant MacDonald or conniving with any employee of plaintiff to obtain any such plans, specifications; letters or other documents;
(3) Defendants John A. MacDonald and Railquip Enterprises Ltd. are required to deliver up forthwith to the plaintiff all plans, specifications, reports, letters and other documents belonging to the plaintiff that are in his or its possession as a result of having been acquired for use in the business of Railquip Enterprises Ltd. by reason of the employment with the plaintiff of the defendant MacDonald and all copies
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or reproductions of any such documents that are in his or its possession.
Two other paragraphs of the injunction, each relating to patent infrigement have not been challenged and are not in issue before this Court.
The action out of which the interlocutory injunction arose was brought in the Federal Court by the respondent complaining of patent infringement by a former employee, the personal appellant herein, and by the appellant Railquip, a company incorporated by and controlled by the personal appellant, and complaining also of unlawful disclosure, in breach of contract, of trade secrets and unlawful business use of such trade secrets (including certain plans, specifications and letters) to the damage of the respondent and contrary to honest industrial and commercial usage in Canada. Relief by way of damages, an accounting of profits and an injunction, and delivery up of the allegedly misappropriated materials, was sought in the action.
Unlike the proceedings before Walsh J., the main issue before the Federal Court of Appeal and before this Court is a constitutional one, involving the jurisdiction of the Federal Court, as a Court established pursuant to s. 101 of the British North America Act, to entertain the plaintiff’s claims for civil redress by way of damages and injunction and ancillary relief; and this issue in turn involves the question whether the statutory basis for such relief, under ss. 7(e), 53 and 55 (as amended by s. 64(2) of the Federal Court Act, 1970 (Can.), c. 1) of the Trade Marks Act, R.S.C. 1970,c. T-10 is one that the Parliament of Canada may prescribe.
It is trite law that the Federal Court, being a Court established pursuant to s. 101 aforesaid “for the better administration of the laws of Canada”, can only be endowed with such jurisdiction as flows from laws competently enacted by Parliament. In R. v. Hume, Consolidated Distilleries
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Ltd. v. Consolidated Exporters Corp. Ltd., the point is well made by Anglin C.J.C. who said (at p. 535) that “while there can be no doubt that the powers of Parliament under s. 101 are of an overriding character when the matter dealt with is within the legislative jurisdiction of the Parliament of Canada, it seems equally clear that they do not enable it to set up a court competent to deal with matters purely of civil right as between subject and subject”. Over and above this, the question of validity of ss. 7(e) and 53 would arise even if it were the provincial superior courts that were charged with enforcement of the substantive provisions of s. 7(e). Legislation sought to be enforced in provincial courts must, of course, be legislation which it was competent for the enacting legislature to pass.
I would note at this point that if the conclusion be that s. 7(e) is valid federal legislation, competently committed to the Federal Court for its enforcement, I would not interfere with the determination of the courts below that, on the facts, the interlocutory injunction order in issue here was a proper one in the light of the prescriptions of s. 7(e).
The constitutional issue raised in this case, one of high importance as to the scope of federal legislative power, especially as it arises under s. 91(2) of the British North America Act, has brought the Attorneys-General for Canada, for Ontario and for Quebec into this case as intervenors, pursuant to Rules of Court governing notice of constitutional issues and opportunity for intervention. The Attorney-General for Canada supports the judgment in appeal but the Attorneys-General for Ontario and Quebec support the appelants’ contention that ss. 7(e) and 55 are ultra vires and that s. 53 must fall with them.
Proper perspective requires a reference to the whole of s. 7 and, indeed, to the scheme of the Trade Marks Act and to some legislative history. I
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reproduce here ss. 7, 53 and 55 before proceeding to examine their context and the constitutional issue arising upon the whole of the case. They are as follows:
7. No person shall
(a) make a false or misleading statement tending to discredit the business, wares or services of a competitor;
(b) direct public attention to his wares, services or business in such a way as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his wares, services or business and the wares, services or business of another;
(c) pass off other wares or services as and for those ordered or requested;
(d) make use, in association with wares or services, of any description that is false in a material respect and likely to mislead the public as to
(i) the character, quality, quantity or composition,
(ii) the geographical origin, or (iii) the mode of the manufacture, production or performance of such wares or services; or
(e) do any other act or adopt any other business practice contrary to honest industrial or commercial usage in Canada.
53. Where it is made to appear to a court of competent jurisdiction that any act has been done contrary to this Act, the court may make any such order as the circumstances require including provision for relief by way of injunction and the recovery of damages or profits, and may give directions with respect to the disposition of any offending wares, packages, labels and advertising material and of any dies used in connection therewith.
55. The Federal Court of Canada has jurisdiction to entertain any action or proceeding for the enforcement of any of the provisions of this Act or of any right or remedy conferred or defined thereby.
Section 7 of the Trade Marks Act is the first of five sections of the Act (ss. 7 to 11) that are subsumed under the sub-title “Unfair Competition and Prohibited Marks”. It stands alone, however, among those sections in not being concerned with
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trade marks or trade names. It alone gives any substance to the “Unfair Competition” portion of the sub-title. Section 7 had a forerunner in s. 11 of the Unfair Competition Act, 1932 (Can.),c. 38. That Act, like the present Trade Marks Act, which replaced it, was concerned with the regulation of the use of trade marks and with a scheme of registration and protection therefor; and although it contained a sub-title “Unfair Competition”, covering ss. 3 to 11 thereof, the only provision that related to unfair competition was s. 11. This section was in these words:
11. No person shall, in the course of his business,
(a) make any false statement tending to discredit the wares of a competitor;
(b) direct public attention to his wares in such a way that, at the time he commenced so to direct attention to them, it might be reasonably apprehended that his course of conduct was likely to create confusion in Canada between his wares and those of a competitor;
(c) adopt any other business practice contrary to honest industrial and commercial usage.
It is evident from a comparison of s. 7 of the present Trade Marks Act and s. 11 of the Act of 1932 that the former has expanded the acts proscribed by the latter and indeed has added in s. 7(c) and (d) provisions not found in s. 11. Section 7(e) differs from its predecessor equivalent s. 11(c) in three respects. It has added the words “do any other act” to what is proscribed, it has introduced the disjunctive in place of the conjunctive when referring to “honest industrial or commercial usage” and it has added the qualifying words “in Canada”. There is, however, a more significant difference between the old s. 11 and the present s. 7. There was no provision in the 1932 Act for civil enforcement of the proscriptions of s. 11 at the suit-of persons injured by their breach. There was, of course, provision there, as in the present Trade Marks Act, for enforcement of its trade mark provisions at the suit of an injured person. The provisions of s. 20 of the 1932 Act giving the then Exchequer Court of Canada “jurisdiction to entertain any action or proceeding for the enforcement of any of the rights conferred or defined by this
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Act” were not urged in this Court in this case as providing a civil remedy in support of s. 11 equivalent to that expressly ordained by s. 53 of the present Trade Marks Act in support of s. 7 as well as in support of other substantive provisions of the Act. I note, however, that in The Kitchen Overall & Shirt Co. Ltd. v. Elmira Shirt & Overall Co. Ltd., Maclean P. looked upon s. 11 as giving “a statutory right of action for the same wrongs for which a remedy was given at common law in passing off cases”.
Section 11 has had but a modest exposure to judicial scrutiny. In only one of the few cases in which it was considered did its constitutionality come into question, and that was in Good Humor Corp. of America v. Good Humor Food Products Ltd., a case involving alleged trade mark infringement. There Angers J. dealt with an objection that ss. 3, 7 and 11 of the Unfair Competition Act were ultra vires and that consequently the Exchequer Court had no jurisdiction to entertain the action. Sections 3 and 7 dealt with trade marks and trade names respectively and, as to those sections, the trial Judge was of opinion that they fell within federal competence under the trade and commerce power. He made no pronouncement as to s. 11 (despite what the headnote to the report says) because (to use his words, at p. 75) “section 11 applies to acts of unfair competition and has no relevance to the present case”.
In the other cases in which s. 11 was considered, the questions in them concerned the application of that provision in the various situations that were said to bring it into play. In A.C. Spark Plug Co. v. Canadian Spark Plug Service, it appeared to
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be the opinion of the Court that s. 11 did nothing more than codify the tort of passing off, and the same view was apparent in the Kitchen Overall case. The Spark Plug case concerned an alleged infringement of a registered trade mark and there was also an allegation of contravention of s. 11 of the Unfair Competition Act. Maclean J. concluded his reasons for dismissing the action as follows (at p. 69):
Inasmuch as I find that there has been no infringement and no passing off, I cannot see how it can be said that the business carried on by any one of the defendants offends sec. 11 of the Act or is contrary to honest industrial and commercial usage.
The Kitchen Overall case, in deciding that s. 11 gave a statutory cause of action as at common law in passing off cases, may have proceeded on the basis that it was enough to sustain s. 11 that jurisdiction was vested in the Exchequer Court. If so, this is an unacceptable proposition. There is reference in the reasons for judgment of Maclean J. to the international convention, to which I refer later in these reasons, and it was said by him that s. 11 was intended to implement Canada’s obligation thereunder. He did say as well that no question was raised as to the jurisdiction of the Exchequer Court to entertain actions contemplated by s. 11. The action in the Kitchen Overall case was for an injunction to restrain use of an unregistered trade mark or trade name, and it succeeded.
Booth v. Sokulsky, gave effect to s. 11(c) in an action brought in the Exchequer Court under the Unfair Competition Act, 1932, and based on an alleged misuse of plaintiffs unregistered trade mark and trade name on wares sold by the defendant which were similar to those of the plaintiff. Although it was a passing off action, it was held that the Exchequer Court had jurisdiction under s. 22(c) of the Exchequer Court Act because, within the terms of that provision, the action was one
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“respecting any trade mark”. I do not regard this case as being at all helpful on the question in issue here, which does not concern trade mark litigation.
Kellogg Company v. Helen Kellogg, was another case touching the jurisdiction of the Exchequer Court as a matter of construing legislation conferring jurisdiction but again without touching constitutionality, a point that was made expressly in that case.
The contention of the appellants and of the supporting intervenants, briefly put, was that s. 7(e), if not also the whole of s. 7, was legislation in the relation to property and civil rights in the province or, alternatively, legislation in relation to matters of a local or private nature in the province, within s. 92(13) or (16) of the British North America Act. The respondent and the Attorney-General for Canada supported s. 7(e) as being (1) legislation in relation to the regulation of trade and commerce within s. 91(2) of that Act; (2) supportable “as legislation in implementation of a Canadian international obligation arising out of a treaty or convention, and thus falling within federal power for the peace, order and good government of Canada in relation to a matter not coming within s. 92; and (3) legislation in relation to the criminal law within s. 91(27).
This last mentioned basis of validity deserves no more than a brief statement of reasons for rejecting it. Assuming that s. 7(e) (as, indeed, the other subparagraphs of s. 7) proscribe anti‑social business practices, and are thus enforceable under the general criminal sanction of s. 115 of the Criminal Code respecting disobedience of a federal statute, the attempt to mount the civil remedy of s. 53 of the Trade Marks Act on the back of the Criminal Code proves too much, certainly in this case. The principle which would arise from such a result would provide an easy passage to valid federal legislation to provide and govern civil relief in
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respect of numerous sections of the Criminal Code and would, in the light of the wide scope of the federal criminal law power, debilitate provincial legislative authority and the jurisdiction of provincial Courts so as to transform our constitutional arrangements on legislative power beyond recognition. It is surely unnecessary to go into detail on such an extravagant posture. This Court’s judgment in Goodyear Tire and Rubber Co. of Canada Ltd. v. The Queen, upholding the validity of federal legislation authorizing the issue of prohibitory order in connection with a conviction of a combines offence, illustrates the preventive side of the federal criminal law power to make a conviction effective. It introduced a supporting sanction in connection with the prosecution of an offence. It does not, in any way, give any encouragement to federal legislation which, in a situation unrelated to any criminal proceedings, would authorize independent civil proceedings for damages and an injunction.
I point out also that s. 115 of the Criminal Code is, so to speak, a “default” provision, coming alive when no “penalty or punishment” is expressly provided, and I cannot subscribe to the proposition that s. 115 can be a base upon which to support the validity, under the federal criminal law power, of a completely independent civil remedy, which lies only at the behest of private parties claiming some private injury.
I did not understand counsel to urge that s. 7, or s. 7(e) alone, should be supported under the criminal law power by excluding s. 53 as a means of enforcement. If that had been the argument, it would have meant a concession by the respondent and the intervening Attorney‑General for Canada that s. 53 should be regarded as inapplicable to s. 7(e). No such concession was made.
The contentions of the appellants and the remaining two contentions of the respondent, supported as they are by the intervenors, require a more extensive canvass of the scope of legislative power than I have made in disposing of the submission under the criminal law power. I approach this canvass by examining first what it is that the legislation in question does, and what the legal
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position (not the constitutional position necessarily) was and would be apart from the challenged legislation.
I think it fair to look upon s. 7 as embodying a scheme, one limited in scope perhaps but nonetheless embodying an array of connected matters. I shall come later to what appeared to be a fundamental underpinning of the respondent’s position and that of the Attorney-General for Canada, namely, that s. 7 or at least s. 7(e) must not be construed in vacuo, but must itself be brought into account as a segment or a piece of a tapestry of regulation and control of industrial and intellectual property.
It was not disputed that the common law in the provinces outside of Quebec and the Civil Code of Quebec governed the conduct or aspects thereof now embraced by s. 7 and embraced earlier by s. 11 of the Act of 1932. To illustrate, s. 7 (a) is the equivalent of the tort of slander of title or injurious falsehood, albeit the element of malice, better described as intent to injure without just cause or excuse, is not included as it is in the common law action: see Fleming on Torts (4th ed. 1971), at p. 623. Section 7(b) is a statutory statement of the common law action of passing off, which is described in Fleming on Torts, supra, at p. 626 as “another form of misrepresentation concerning the plaintiffs business… which differs from injurious falsehood in prejudicing the plaintiffs goodwill not by deprecatory remarks but quite to the contrary by taking a free ride on it in pretending that one’s own goods or services are the plaintiff’s or associated with or sponsored by him”. It differs from injurious falsehood in that “it is sufficient that the offensive practice was calculated or likely, rather than intended, to deceive”.
Section 7(c) is a curious provision to be armed with a civil sanction by way of damages when one already exists in the ordinary law of contract. The provision refers to substitution of other goods for those ordered or requested, but there is always the right to reject upon discovery of the substitution, and if the substituted goods are knowingly accept-
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ed there would appear to be no relief. If s. 7(c) purports to give additional relief even if the substituted goods are knowingly accepted, where are the damages? Or does the provision envisage damages arising from failure to deliver the proper goods in time? If so, there is the usual remedy for breach of contract. I can see s. 7(c) in the context of a regulatory regime subject to supervision by a public authority, but its presence under the sanction of a private civil remedy merely emphasizes for me federal intrusion upon provincial legislative power.
Section 7(d) appears to be directed to the protection of a purchaser or a consumer of wares or services, in contrast with s. 7(a) which involves slander of title or injurious falsehood qua a competitor in business. It involves what I would term deceit in offering goods or services to the public, deceit in the sense of material false representations likely to mislead in respect of the character, quality, quantity or composition of goods or services, or in respect of their geographic origin or in respect of their mode of manufacture, production or performance. If any aggrieved person would have a cause of action under s. 53 in respect of damages suffered by him by reason of a breach of s. 7(d), it would ordinarily be expected to arise through breach of contract. One can envisage, of course, a statutory tort of deceit under s. 7(d), but this hardly adds to its constitutional propriety as federal legislation. Whether sounding in contract or in tort, it is not limited to those bases of relief in respect of enterprises or services that are otherwise within federal legislative competence. Again, the issue of a violation of s. 7(d) could as easily arise in a local or intraprovincial transaction as in an interprovincial one; there is nothing in s. 7(d) that emphasizes any interprovincial or transprovincial scope of the prohibition in s. 7(d) so as to establish some connection with federal legislative authority under s. 91(2) of the British North America Act.
Section 7(e) is, in terms, an additional proscription to those enumerated in subparagraphs (a) to
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(d) of s. 7. Its vagueness is not, of course, a ground of constitutional invalidity, but I am satisfied that it does have subject matter, as the facts of this very case demonstrate. It would encompass breach of confidence by an employee by way of appropriating confidential knowledge or trade secrets to a business use adverse to the employer. So too, it would appear to be broad enough to cover the fruits of industrial espionage. Counsel for the respondent referred the Court to the judgment of the Supreme Court of the United States in International News Service v. Associated Press, as exemplary of the thrust of s. 7(e). It recognized as enjoinable unfair competition the “pirating” of news by one news service from another and selling it while its commercial value as news was still evident, although the appropriation was effected by lawful means, e.g., through the reading of bulletin boards and early editions of the complainant’s newspapers. I note only that this result, albeit not without dissent, was reached on grounds which included equitable considerations; and it was reached without reliance on statute. In a later case, A.L.A. Schecter Poultry Corp. v. U.S., at pp. 531‑2, Hughes C.J. saw the Associated Press case as an extension of the passing off cases (which, as the main instance of unfair competition at common law, involved the palming off of one’s goods as those of a rival trader). The scope of the tort has been extended, he said, “to apply to misappropriation as well as to misrepresentation, to the selling of another’s goods as one’s own—to misappropriation of what equitably belongs to a competitor”.
The fact that s. 7(e) has subject matter, whether as embodying claims cognizable at common law or as providing a statutory basis for a civil cause of action, does not differentiate it, in constitutional terms, from s. 7(a) (b) (c) and (d). As a class of prescriptions, additional to those in the preceding catalogues, it appears to me to be simply a formulation of the tort of conversion, perhaps writ large and in a business context.
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As does the common law, as applied in the provincial courts in the common law provinces, so does the Quebec Civil Code comprehend civil actions for relief in respect of matters covered by s. 7. The causes of action are founded largely on the general fault provision, art. 1053: see, for example, Corbeil v. Dufresne (a slander of title situation as understood at common law); Giguère Automobile Ltée v. Universal Auto Ltd. (false and misleading advertisements, amounting to deceit); Eagle Shoe Co. Ltd. v. Slater Shoe Co. Ltd. (passing off in use of trade name).
The similarity of what is covered by the Quebec Civil Code to what is dealt with in s. 7 is underlined by the following extract from Nadeau, Traité Pratique de la Responsibilité Civile Délictuelle (1971) at p. 221:
Civil Code.—Unlawful or unfair competition injustly causing injury to others comes within the civil responsibility contemplated in Art. 1053 of the Civil Code. Actions for damages for unfair competition lie not only under federal law, but also under the general principles of civil delictual responsibility. Accordingly, an act of unfair competition will be a cause of action for damages only for a competitor who can prove actual damage. It should also be noted that federal law does not cover all possible cases of unfair competition, since the latter may border on defamation, if there is disparagement of a competitor.
Forms of unfair competition.—It may generally be stated that competition is unfair if it goes against the “accepted practice” of industry or business. It then oversteps the bounds of fairness. Our courts require an element of bad faith or at least of malicious intent in order to constitute unfair competition. While one’s desire to benefit from the misfortune of a competitor, whose factory has been partly destroyed by fire, by inviting some of the latter’s customers and salesmen to place their orders with him, betrays an obvious lack of magnanimity, it is not in itself an act of unfair and unlawful competition, any more than a mere inaccurate statement would support a judgment, if no damage has been caused. The same holds true for sensational or even malicious advertising that is not directed at a particular person.
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P. Cousineau J. in Corbeil defined unfair competition as [TRANSLATION] “an act done in bad faith for the purpose of causing confusion between the products of two manufacturers or tradesmen, or an act which without causing confusion, casts discredit on a rival firm”. Unfair competition may accordingly take various forms. It may refer to passing off, fraudulent copying, resorting to fraudulent practices to create difficulties for a competitor by hiring away his staff, using highly deceptive advertising, such as offering for sale at extremely low prices automobiles of the same make as a competitor’s when none are available, stealing secrets, and, finally, assuming a trade name without authorization.
Turning to the cases which have dealt with s. 7, I know of none in which the constitutionality of that provision or of any of its parts has been passed upon prior to the present case. Some at least of the cases may be said or thought to assume the validity of s. 7 or the part thereof involved, as for example Canadian Converters Co. Ltd. v. Eastport Trading Co. Ltd.. The cases are instructive, however, for revealing the scope of s. 7, and how it either squares with or overlays or extends, where it does so at all, the common law and the civil law on the matters with which that section deals.
The references that I now make are illustrative rather than exhaustive. Breeze Corp. v. Hamilton Clamp Stampings Ltd., a judgment of Donnelly J. of the Ontario Supreme Court, concerned an alleged breach of confidence in violation of an agreement and the use of the confidential information outside the limits permitted by the agreement. The only interest of the case here is in the observation that s. 7, as was evident from clause (c) thereof, was not limited to the common law action for passing off.
A long line of cases, both in the Exchequer Court and in the provincial courts, exhibit either direct or alternate reliance on s. 7(b) to support claims for relief to protect trade names. Examples
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are Building Products Ltd. v. B.P. Canada Ltd. and Greenglass v. Brown, both Exchequer Court cases which agree that s. 7(b) goes beyond the old s. 11 of the Unfair Competition Act in not requiring that the likelihood of confusion be between competitors, but appear to disagree on whether ss. 2 and 6, which relate to the meaning and application of “confusing” for trade mark and trade name purposes, apply when s. 7(b) is invoked. In The Noshery Ltd. v. The Penthouse Motor Inn Ltd., Addy J., then in the Ontario Supreme Court, differed from both of the foregoing cases in holding that s. 7(b) applied only as between competitors.
Two cases in particular which canvassed s. 7 show how much it reflects well known common law and civil law causes of action between private persons. The two cases are Eldon Industries Inc. v. Reliable Toy Co. Ltd., and Clairol International Corp. v. Thomas Supply & Equipment Co. Ltd.. I cite these cases not for what they actually decided but for the view that they take of s. 7. Thus, in the Eldon Industries case, which involved claims for relief in respect of the copying of a toy by a competitor of the plaintiffs, Schroeder J.A., speaking for the Ontario Court of Appeal, had this to say (at pp. 105-106, 107-108):
It has not been suggested that the defendants’ conduct was brought within the prohibition of s. 7(a) of the Act nor has it been claimed that they offended in any respect against the provisions of s. 7(d). Paragraphs (b) and (c) of s. 7 declare in codified form the common law tort of passing off one person’s wares for those of another. Paragraph (b) relates to the wrongful act of passing off one’s wares as and for those of another by directing public attention to the wares (not necessarily in compliance with an order or request) as, e.g., by giving one’s products a particular marking, shape or appearance which has become recognized in the public eye as indicative of another source, and thereby creating confusion or a likelihood of confusion in the minds of the public. Paragraph (c), on the other hand, points to a particular kind of passing off—substituting wares or
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services for those ordered or requested, as when a product manufactured by A is ordered and the vendor supplies a product made by B as answering the description.
A claim founded on the alleged marking or appearance of wares contrary to s. 7(b) is doomed to failure unless the claimant establishes that the marking or appearance has become recognized by the public as having a particular origin…
…
Considerable argument was addressed to us as to the effect to be given to s. 7(e) of the Trade Marks Act. I am in agreement with the conclusion of the learned Judge of first instance that s. 7(e) must be read in conjunction with paras. (a), (b), (c) and (d) of that section: A.C. Spark Plug Co. v. Canadian Spark Plug Service, [1935] Ex.C.R. 57, [1935] 3 D.L.R. 84; Kitchen Overall & Shirt Co. v. Elmira Shirt & Overall Co., [1937] Ex.C.R. 230, [1938] 1 D.L.R. 7. These cases were decided under s. 11 of the Unfair Competition Act, 1932 (Can.)c. 38, which had codified the common law of passing off, and s. 7 of the Trade Marks Act is substantially a re-enactment of s. 11 of the Unfair Competition Act with some additions thereto. Section 7(e), therefore, must be read ejusdem generis with s. 7(a), (b), (c) or (d). The principles governing cases of product simulation have been carefully evolved both at common law and in equity and are now stated in statutory form in s. 7(a) to (d). They were never intended to yield to a subjective or unknown standard embraced in the words “any other business practice contrary to honest industrial or commercial usage in Canada”, which would be the effect of the provisions in s. 7(e) if removed from the contextual influence of the foregoing clauses of the section…
In the Clairol case, which was a trade mark infringement action, with the plaintiff also invoking s. 7(d) and (e), Thurlow J. found on the facts that there was no violation of either s. 7(d) or (e). In addressing himself to s. 7(e), he said this (at p. 561):
…The particular statutory provision does not stand by itself but is the last of at least five separate prohibitions comprised in the section as a whole. It is, moreover, by its terms, applicable only to acts or practices of the nature prohibited other than those mentioned in the
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preceding paragraphs. The first of these preceding paragraphs is an express prohibition against making a false or misleading statement tending to discredit the business, wares or services of a competitor. In this the key words in my opinion are “false or misleading” and it is the falseness or deceptiveness of the statement which renders the statement dishonest and unfair. The corollary to this as I see it is that to make a statement that is neither false nor misleading is not prohibited even though it may tend to discredit the business, wares or services of a competitor. That this is the legal situation becomes plain I think when one considers that it never has been regarded, at least so far as I am aware, as dishonest or wrong for a business man to seek by any honest means to attract the customers of his competitors and thus to reduce the custom which they have theretofore enjoyed. The same thread appears to me to pervade paragraphs (b), (c) and (d), as well, of section 7, since each by its terms is limited to conduct which is deceptive or likely to result in deception and is in that sense dishonest. When therefore one comes to paragraph (e) and finds it prohibiting any other act or business practice contrary to honest industrial or commercial practice in Canada it seems clear that acts or practices that are dishonest in the sense of their being in some way deceptive or calculated to result in deception would fall within its purview. Acts or conduct involving some breach of trust or confidence may well be considered to fall within that purview as well. But I do not think that in the context of the section as a whole the language used can properly be extended to prohibit conduct which can be regarded as dishonest only in the much more refined sense of taking advantage of a market situation even though that situation has been created, as in this case, largely by the efforts and expenditures of another so long as the means used to take advantage of the situation are not in themselves dishonest. The view of the scope of section 7(e) expressed by Schroeder J.A., speaking for the Court of Appeal of Ontario in Eldon Industries Inc. v. Reliable Toy Co. Ltd. is, I think, to the same effect…
Whether there is in fact a consonance between the Eldon Industries case and the Clairol case on the position of s. 7(e) in relation to the other parts of s. 7 is not of importance here.
There is one judgment of this Court, S. & S. Industries Inc. v. RowelI, which is of particular
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importance in any assessment of the scope of s. 7 and, especially of s. 7(a) and (e), as it bears on validity. There was no constitutional question raised in that case which involved two points first, whether the appellant’s patent was invalid and second, whether the respondent was entitled to damages for what was in essence slander of title or injurious falsehood. In delivering the judgment of the Court, Martland J. said this (at pp. 422-3):
The appellant’s submission was that the respondent, in order to recover damages, must bring his claim within the requirements of the common law action, which has been described as “injurious falsehood”, “slander of goods”, and “trade libel”. This assumes, probably correctly, that the respondent’s cause of action, if one existed, arose in the Province of Ontario and would be governed by the laws of that Province. I will deal with the appellant’s argument upon that basis, although, as will appear later, my opinion is that the respondent’s claim for damages in this case can properly be founded upon a federal statute, and, accordingly, it is not necessary to decide that point in this case.
That a claim could be made at common law, provided the necessary conditions of liability were established, for damages resulting from the threat of legal proceedings in respect of alleged infringement of an invalid patent or trade mark has been established by English authorities…
After noting the appellant’s submission that malice (in the sense of want of just cause or excuse for making the untrue statements) was a necessary ingredient of the cause of action, Martland J. continued as follows:
In England the matter of threats of proceedings for alleged patent infringement was dealt with by statute, in s. 32 of the Patents Act of 1883, but no similar provision is included in the Canadian Act. The respondent, however, relies upon the provisions of s. 7(a) of the Trade Marks Act, c. 49, Statutes of Canada 1952-53, as creating a statutory cause of action, similar in nature to the action for injurious falsehood, limited to claims in respect of statements made by a competitor, but in which malice is no longer an ingredient…
…
There is no express requirement that the false or misleading statements be made with knowledge of their
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falsity, or that they be made maliciously. To interpret these provisions as though such elements were implied would be to construe them as merely restating rules of law which already existed. I do not think this approach is a proper one. The Unfair Competition Act was a statutory code to provide for fair dealing in trade. Section 11 was based upon Article 10bis of the International Convention for the Protection of Industrial Property, made at the Hague, November 6, 1925, to which Canada was a party…
…
In my opinion, the natural meaning of s. 7(a) is to give a cause of action, in the specified circumstances, in respect of statements which are, in fact, false, and the presence or absence of malice would only have relevance in relation to the assessments of damages.
The circumstances of this case bring the respondent within the provisions of s. 7(a) and accordingly, in my opinion, the appeal should be dismissed with costs.
Spence J. in a concurring judgment held that even if malice was necessary, there was evidence thereof upon which the trial judge could act.
The Court in the S. & S. Industries case did not pronounce upon s. 7(e), and its concern with damages under s. 7(a) was in the context of a patent issue, and hence in respect of a matter on which Parliament is expressly authorized to legislate.
Overall, whether s. 7(e) be taken alone or, more properly, as part of a limited scheme reflected by s. 7 as a whole, the net result is that the Parliament of Canada has, by statute, either overlaid or extended known civil causes of action, cognizable in the provincial courts and reflecting issues falling within provincial legislative competence. In the absence of any regulatory administration to oversee the prescriptions of s. 7 (and without coming to any conclusion on whether such an administration would in itself be either sufficient or necessary to effect a change in constitutional result), I cannot find any basis in federal power to sustain the unqualified validity of s. 7 as a whole or s. 7(e) taken alone. It is not a sufficient peg on which to support the legislation that it applies throughout Canada when there is nothing more to give it validity.
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The cases to which I have referred indicate some association of s. 7(a), (b) and (d) with federal jurisdiction in relation to patents and copyrights arising under specific heads of legislative power, and with its jurisdiction in relation to trade marks and trade names, said to arise (as will appear later in these reasons) under s. 91(2) of the British North America Act. If, however, this be enough to give a limited valid application to those subparagraphs it would not sweep them into federal jurisdiction in respect of other issues that may arise thereunder not involving matters that are otherwise within exclusive federal authority. Certainly, it would not engage s. 7(e) which, as interpreted in the cases which have considered it, does not have any such connection with the enforcement of trade marks or trade names or patent rights or copyright as may be said to exist in s. 7(a), (b) and (d). Even if it be possible to give a limited application to s. 7, in respect of all its subparagraphs, to support existing regulation by the Parliament of Canada in the fields of patents, trade marks, trade names and copyright, the present case falls outside of those fields because it deals with breach of confidence by an employee and appropriation of confidential information.
It was emphasized again and again by counsel for the respondent that s. 7(e) deals with predatory practices in competition, in a competitive market, that it postulates two or more aspirants or competitors in business and that it involves misappropriation and a dishonest use, in competition, of information or documents so acquired. This may equally be said of the tort of conversion where it involves persons in business or in competition. The fact that Parliament has hived off a particular form of an existing tort or has enlarged the scope of the liability does not determine constitutionality. The relevant questions here are whether the liability is imposed in connection with an enterprise or an activity, for example, banking or bills of exchange, that is itself expressly within federal legislative power; or, if not, whether the liability is dealt with in such a manner as to bring it within the scope of some other head of federal legislative power.
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This depends not only on what the liability is, but as well on how the federal enactment deals with its enforcement. What is evident here is that the predatory practices are not under administrative regulation of a competent federally-appointed agency, nor are they even expressly brought under criminal sanction in the statute in which they are prohibited. It is, in my opinion, difficult to conceive them in the wide terms urged upon the Court by the respondent and by the Attorney-General of Canada when they are left to merely private enforcement as a private matter of business injury which may arise, as to all its elements including damage, in a small locality in a Province or within a Province. I do not see any general cast in s. 7(e) other than the fact that it is federal legislation and unlimited (as such legislation usually is)in its geographic scope. Indeed, the very basis upon which s. 7(e) is analyzed by the respondent, namely, that it postulates two or more competitors in business, drains it, in my opinion, of the generality that would have been present if the legislation had established the same prescriptions to be monitored by a public authority irrespective of any immediate private grievance as to existing or apprehended injury.
The source of authority for s. 7(e), alleged to be in s. 91(2) of the British North America Act, may now be examined. The reasons for judgment of the Federal Court of Appeal, delivered by Jackett C.J. are adopted by the respondent and by the Attorney-General of Canada and I turn to them. The initial proposition stated in those reasons as a base for what follows is not one which I can accept. Jackett C.J. says this:
The primary question is whether the Trade Marks Act, as a whole, is a valid exercise of Parliament’s legislative powers. If the answer to that question were in the negative, the further question that would arise is whether section 7, or section 7(e), is severable from the rest of the statute and, taken by itself, is a valid exercise of Parliament’s legislation powers.
No attack has been made on the Trade Marks Act as a whole, and the validity of its provisions in so far as they deal with trade marks is not in ques-
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tion. Since s. 7(e) is not a trade mark provision, its inclusion in the Trade Marks Act does not stamp it with validity merely because that Act in its main provisions is quantitatively unchallenged. I come back to the question whether s. 7, and particularly s. 7(e), can stand as part of the scheme of the Trade Marks Act and other related federal legislation. If it can stand alone, it needs no other support; if not, it may take on a valid constitutional cast by the context and association in which it is fixed as complementary provision serving to reinforce other admittedly valid provisions.
Having regard to the way in which the issue of validity came to this Court, I think the proper approach is to inquire whether s. 7(e), taken alone, can be supported as valid federal legislation, and, if not, whether it can be supported as part of a scheme of legislative control that Parliament may establish. In this connection I would not characterize the Trade Marks Act as the Federal Court of Appeal did in associating ss. 7 to 11 of the Act as representing “a set of general rules applicable to all trade and commerce in Canada, including a statutory version of the common law rule against passing off. I have already noted that ss. 8 to 11 belong to trade mark enforcement, and if we are left with s. 7 to represent general rules applicable to all trade and commerce in Canada, the generality resides only in the fact that s. 7 has no geographic limitation. This is the beginning of the problem not the end.
Two decisions of the Privy Council lie at the base of the Federal Court’s conclusion on the validity of s. 7 including s. 7(e); they are Citizens Insurance Co. v. Parsons, and Attorney‑General of Ontario v. Attorney-General of Canada. The conclusion was stated as follows:
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Against the background of these authorities, my conclusion is that a law laying down a set of general rules as to the conduct of business men in their competitive activities in Canada is a law enacting “regulations of trade as a whole or regulations of general trade and commerce within the sense of the judgment in Parsons case”. From this point of view, I can see no difference between, the regulation of commodity standards and a law regulating standards of business conduct; and, in my view, if there is anything that can be general regulation of trade as a whole it must include a law of general application that regulates either commodity standards or standards of business conduct.
In my opinion the Trade Marks Act, as a whole, is a law of general application regulating standards of business conduct in Canada and is, therefore, within the powers conferred on Parliament by section 91(2) of the British North America Act, 1867. It is therefore unnecessary for me to consider the other grounds advanced for supporting the validity of section 7(e).
I am quite prepared, in considering the scope of federal legislative power in relation to the regulation of trade and commerce, to look at the Parsons case in the widest aspects of its pronouncements on what that scope is. The attenuation of this broadly phrased power cannot be attributed to the Parsons case but to a sequential course of decision which, in my view, failed to redeem the promise of what the Parsons case said. The Parsons case itself, on its facts, may even now be taken to have been correctly decided in so far as it concerned the validity of provincial legislation respecting contracts of insurance in the province, and the prescription of statutory conditions for policies of fire insurance on property in the province. It should not be forgotten that this Court had sustained the validity of the legislation, albeit with two dissents, when the case was before it: see (1880), 4 S.C.R. 215. In sustaining the provincial enactment, this Court was careful to emphasize the sweep and primacy of the federal trade and commerce power but found its limits not to be transgressed by the provincial legislation under consideration. Thus Ritchie J. said (at p. 242):
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No one can dispute the general power of parliament to legislate as to “trade and commerce,” and that where, over matters with which local legislatures have power to deal, local legislation conflicts with an Act passed by the Dominion parliament in the exercise of any of the general powers confided to it, the legislation of the local must yield to the supremacy of the Dominion parliament; in other words, that the provincial legislation in such a case must be subject to such regulations, for instance, as to trade and commerce of a commercial character, as the Dominion parliament may prescribe. I adhere to what I said in Valin v. Langlois, that the property and civil rights referred to, were not all property and all civil rights, but that the terms “property and civil rights” must necessarily be read in a restricted and limited sense, because many matters involving property and civil rights are expressly reserved to the Dominion parliament, and that the power of the local legislatures was to be subject to the general and special legislative powers of the Dominion parliament, and to what I there added: “But while the legislative rights of the local legislatures are in this sense subordinate to the right of the Dominion parliament, I think such latter right must be exercised, so far as may be, consistently with the right of the local legislatures; and, therefore, the Dominion parliament would only have the right to interfere with property and civil rights in so far as such interference may be necessary for the purpose of legislating generally and effectually in relation to matters confided to the parliament of Canada.”
I think the power of the Dominion parliament to regulate trade and commerce ought not to be held to be necessarily inconsistent with those of the local legislatures to regulate property and civil rights in respect to all matters of a merely local and private nature, such as matters connected with the enjoyment and preservation of property in the province, or matters of contract between parties in relation to their property or dealings, although the exercise by the local legislatures of such powers may be said remotely to affect matters connected with trade and commerce, unless, indeed, the laws of the provincial legislatures should conflict with those of the Dominion parliament passed for the general regulation of trade and commerce…
The Privy Council’s assessment of the trade and commerce power in the Parsons case, upon which the Federal Court of Appeal relied in this case,
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was expressed in the following words (at p. 113 of 7 App. Cas.):
Construing therefore the words “regulation of trade and commerce” by the various aids to their interpretation above suggested, they would include political arrangements in regard to trade requiring the sanction of parliament, regulation of trade in matters of interprovincial concern, and it may be that they would include general regulations of trade affecting the whole dominion. Their Lordships abstain on the present occasion from any attempt to define the limits of the authority of the dominion parliament in this direction. It is enough for the decision of the present case to say that, in their view, its authority to legislate for the regulation of trade and commerce does not comprehend the power to regulate by legislation the contracts of a particular business or trade, such as the business of fire insurance in a single province, and therefore that its legislative authority does not in the present case conflict or compete with the power over property and civil rights assigned to the legislature of Ontario by No. 13 of sect. 92.
Lord Watson in the Local Prohibition case, Attorney-General of Ontario v. Attorney-General of Canada, at p. 363 was content to leave open the exact scope of the federal trade and commerce power, saying of the Parsons case that it was there decided “that in the absence of legislation upon the subject by the Canadian Parliament, the Legislature of Ontario had authority to impose conditions, as being matters of civil right, upon the business of fire insurance, which was admitted to be a trade, so long as those conditions only affected provincial trade”. The truncation of the federal trade and commerce power appeared in the Insurance Reference case of 1916, Attorney-General of Canada v. Attorney-General of Alberta, at p. 596, where Lord Haldane, making no specific reference to the Parsons case but to two other cases, Hodge v. The Queen, and to the unreported Privy Council decision in the McCarthy Act case (as to which see schedule to 1885 (Can.), c.
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74), stated that “it must now be taken that the authority to legislate for the regulation of trade and commerce does not extend to the regulation by a licensing system of a particular trade in which Canadians would otherwise be free to engage in the provinces”.
The Parsons case, as already noted from the quotation therefrom, spoke of the contracts of a particular business or trade, and excluded these from regulation by the federal Parliament under s. 91(2). The process of truncation was continued in the Board of Commerce case, but was arrested in Proprietary Articles Trade Association v. Attorney-General of Canada.
I do not find it necessary to examine in any detail subsequent cases, either in the Privy Council or in this Court which canvassed or considered the federal trade and commerce power. In so far as they involved marketing regulation, whether under federal legislation, as in The King v. Eastern Terminal Elevator Co., in the Natural Products Marketing Act reference, and in Murphy v. C.P.R., or under provincial legislation, as in Shannon v. Lower Mainland Dairy Products Board or in Reference re Ontario Farm Products Marketing Act, they do not bear directly upon the present case. The bearing they do have, however, is in indicating that regulation by a public authority, taking the matter in question out of private hands, must still meet a requirement, if federal regulatory legislation is to be valid, of applying the regulation to the flow of interprovincial or foreign trade; or, if considered in the aspect of regulation of credit (to adopt views expressed by
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Duff C.J. in Reference re Alberta Statutes it must be such as to involve a public regulation thereof applicable to the conduct of trading and commercial activities throughout Canada.
I do not find anything in the case law on s. 91(2) that prevents this Court, even if it would retain a cautious concern for stare decisis, from taking the words of the Privy Council in the Parsons case, previously quoted, as providing the guide or lead to the issue of validity that arises here. I think the Federal Court of Appeal was correct in doing so, but Ï do not agree with its use of the Parsons criteria to sustain s. 7(e). I repeat the relevant sentence in the Parsons case:
The words “regulation of trade and commerce”… would include political arrangements in regard to trade requiring the sanction of Parliament, regulation of trade in matters of interprovincial concern, and it may be that they would include general regulations of trade affecting the whole dominion.
It is the last mentioned category that is to be considered here. I take it as it is phrased, or as paraphrased by Duff C.J. in the Natural Products Marketing Act reference, at p. 412 where he spoke of “general regulations of trade as a whole or regulations of general trade and commerce within the sense of the judgment in Parsons case”.
The plain fact is that s. 7(e) is not a regulation, nor is it concerned with trade as a whole nor with general trade and commerce. In a loose sense every legal prescription is regulatory, even the prescriptions of the Criminal Code, but I do not read s. 91(2) as in itself authorizing federal legislation that merely creates a statutory tort, enforceable by private action, and applicable, as here, to the entire range of business relationships in any activity, whether the activity be itself within or beyond federal legislative authority. If there have been cases which appeared to go too far in diminution of the federal trade and commerce power, an
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affirmative conclusion here would, in my opinion, go even farther in the opposite direction.
What is evident here is that the Parliament of Canada has simply extended or intensified existing common and civil law delictual liability by statute which at the same time has prescribed the usual civil remedies open to an aggrieved person. The Parliament of Canada can no more acquire legislative jurisdiction by supplementing existing tort liability, cognizable in provincial Courts as reflective of provincial competence, than the provincial legislatures can acquire legislative jurisdiction by supplementing the federal criminal law: see Johnson v. Attorney-General of Alberta.
One looks in vain for any regulatory scheme in s. 7, let alone s. 7(e). Its enforcement is left to the chance of private redress without public monitoring by the continuing oversight of a regulatory agency which would at least lend some colour to the alleged national or Canada‑wide sweep of s. 7(e). The provision is not directed to trade but to the ethical conduct of persons engaged in trade or in business, and, in my view, such a detached provision cannot survive alone unconnected to a general regulatory scheme to govern trading relations going beyond merely local concern. Even on the footing of being concerned with practices in the conduct of trade, its private enforcement by civil action gives it a local cast because it is as applicable in its terms to local or intraprovincial competitors as it is to competitors in interprovincial trade.
It is said, however, that s. 7, or s. 7(e), in particular, may be viewed as part of an overall scheme of regulation which is exemplified by the very Act of which it is a part and, also, by such related statutes in the industrial property field as the Patent Act, R.S.C. 1970,c. P-4, the Copyright
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Act, R.S.C. 1970,c. C-30 and the Industrial Design Act, R.S.C. 1970,c. I-8.
The Trade Marks Act and the Patent Act, as the keystones of the arch, are characterized by public registers and administrative controls which are not applied in any way to s. 7. This is also true of copyright legislation but, of course, both patents and copyrights are expressly included in the catalogue of enumerated federal powers and the exclusive federal control here excludes any provincial competence. That is not so in the case of unfair competition as it is dealt with in s. 7 of the Trade Marks Act. Trade mark legislation (and industrial design legislation, also providing for a registration system, would come under the same cover) has been attributed to the federal trade and commerce power in a cautious pronouncement on the matter by the Privy Council in Attorney-General of Ontario v. Attorney-General of Canada. That case, which is relied on here by the respondent and by the Attorney-General of Canada, was concerned with certain provisions of the Dominion Trade and Industry Commission Act, 1935 (Can.),c. 59 (repealed by 1949 (Can. 2nd sess.), c. 31, s. 9). The Act provided for a national mark, Canada Standard or C.S., which was vested in the Crown in right of Canada, and which could be applied to goods which met the requirements for its use established by the legislation. No one was compelled to use it even if the standards for its use were met. It was a form of non-compulsory regulation, inviting a sanction only if the mark was used without satisfying the qualifying conditions.
In the course of sustaining this aspect of the Act, the Privy Council took the opportunity to comment on the validity of existing federal trade marks legislation saying (at p. 417) that “no one has challenged the competence of the Dominion to pass such legislation. If challenged, one obvious source of authority would appear to be the class of subjects enumerated in s. 91(2), the regulation of trade and commerce”.
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The Supreme Court of Canada, when the foregoing case was before it (In re Dominion Trade and Industry Commission Act, 1935) considered not only ss. 18 and 19 of the 1935 Act respecting the C.S. mark (which it held was ultra vires but on which it was reversed by the Privy Council), but also s. 14 which provided for government approval of agreements between persons engaged in any specific industry, in which there was wasteful or demoralizing competition, for controlling and regulating prices. This provision was held to be ultra vires because it contemplated application to individual agreements which might relate to trade which was entirely local. The Supreme Court of Canada added this (at p. 382):
If confined to external trade and interprovincial trade, the section might well be competent under head no. 2 of section 91; and if the legislation were in substance concerned with such trade, incidental legislation in relation to local trade necessary in order to prevent the defeat of competent provisions might also be competent; but as it stands, we think this section is invalid.
No appeal was taken on this provision to the Privy Council, and, in my view, the Supreme Court did not consider that s. 14 could be saved on the basis of being part of a scheme of regulation.
I think that in the present case this is a fortiori so when s. 7 has not only been focussed on inter-provincial or external trade but has not been brought under a regulatory authority in association with the scheme of public control operating upon trade marks. To refer to trade mark regulation as a scheme for preventing unfair competition and to seek by such labelling to bring s. 7 within the area of federal competence is to substitute nomenclature for analysis.
I come to consider, finally, whether s. 7, including s. 7(e), can be supported as federal legislation in implementation of an obligation assumed by Canada under an international treaty or convention. There are two important issues that arise in this connection. First, assuming that I have cor-
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rectly concluded that s. 7, as it stands, is outside of federal legislative power, does the Labour Conventions case, stand in the way of federal power to enact it in implementation of an international obligation arising out of an international treaty or convention? Second, if the answer to that is “no” and there is such power, was there a proper implementation of an international obligation in the enactment of s. 7?
The Labour Conventions case is too well-known to require either quotation or statement of its holding. In Francis v. The Queen, at p. 621, the then Chief Justice of this Court, Kerwin C.J., speaking for himself and two other members, Taschereau and Fauteux JJ. (each of whom later became Chief Justice), said that it might be necessary in the future to consider (which I take to mean reconsider) the judgment in the Labour Conventions case. Lord Wright, who sat as a member of the Board in that case, said in a later ex cathedra comment (see (1955), 33 Can. Bar Rev. 1123, at pp. 1125 ff.) that the Judicial Committee has expressed a view of ss. 91 and 92 of the British North America Act in that case which he could not reconcile with the federal general power under the opening words of s. 91, nor with what had been said by the Privy Council in the Aeronautics case, and in the Radio case.
In the latter case, Lord Dunedin, speaking for the Privy Council, said this (at p. 312):
…Canada as a Dominion is one of the signatories to the convention. In a question with foreign powers the persons who might infringe some of the stipulations in the convention would not be the Dominion of Canada as a whole but would be individual persons residing in Canada. These persons must so to speak be kept in order by legislation and the only legislation that can deal with them all at once is Dominion legislation. This idea of
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Canada as a Dominion being bound by a convention equivalent to a treaty with foreign powers was quite unthought of in 1867. It is the outcome of the gradual development of the position of Canada vis-à-vis to the mother country Great Britain, which is found in these later days expressed in the Statute of Westminster. It is not, therefore, to be expected that such a matter should be dealt with in explicit words in either s. 91 or s. 92. The only class of treaty which would bind Canada was thought of as a treaty by Great Britain, and that was provided for by s. 132. Being, therefore, not mentioned explicitly in either s. 91 or s. 92, such legislation falls within the general words at the opening of s. 91 which assign to the Government of the Dominion the power to make laws “for the peace order and good government of Canada in relation to all matters not coming within the classes of subjects by this Act assigned exclusively to the legislatures of the Provinces.” In fine, though agreeing that the Convention was not such a treaty as is defined in s. 132, their Lordships think that it comes to the same thing…
In another ex cathedra statement, a former member of this Court, the late Mr. Justice Rand, also expressed the view that the residual power of the Parliament of Canada comprehended plenary authority to legislate to implement international obligations assumed by Canada, regardless of whether the, subject matter fell otherwise within or outside of federal competence: see RAND, “Some Aspects of Canadian Constitutionalism” (1960), 38 Can. Bar Rev. 135, at p. 142.
Although the foregoing references would support a reconsideration of the Labour Conventions case, I find it unnecessary to do that here because, assuming that it was open to Parliament to pass legislation in implementation of an international obligation by Canada under a treaty or Convention (being legislation which it would be otherwise beyond its competence), I am of the opinion that it cannot be said that s. 7 was enacted on that basis.
The obligation is said to have arisen under the International Convention for the Protection of Industrial Property (the Union Convention of Paris) of March 20, 1883, as revised at Brussels, December 14, 1900, at Washington, June 2, 1911, at the Hague, November 6, 1925 and at London,
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June 2, 1934. Canada’s instrument of accession to the latest of the above-mentioned revisions (there was a later one, that of Stockholm, July 14, 1967 to which Canada acceded but it has no bearing on this case) was deposited on June 26, 1951 and the revised Convention came into force on July 30, 1951. The Trade Marks Act, of which s. 7 is part, was enacted in 1953 by 1952-53 (Can.), c. 49, with effect from July 1, 1954.
Article 1, s. 2 of the Convention as revised provides as follows:
The protection of industrial property is concerned with patents, utility models, industrial designs or models, trade marks, trade names and indications of source or appellations of origin, and the repression of unfair competition.
Article 10bis is the only article that deals with protection against unfair competition. It reads as follows:
1. The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition.
2. Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
3. The following in particular shall be prohibited:
(1) all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor;
(2) false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor;
(3) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity of the goods.
It is couched in terms of obligation and its provisions bear a similarity to s. 7(e) and as well to s. 7(a) and (b). There are no parallels, except by an overextension of language, with s. 7(d) and none with s. 7(c).
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There is nothing in the Trade Marks Act of 1953 to indicate that it was passed in implementation of the aforementioned Convention except that there is a reference to the Convention in the interpretation section and there is a definition of “country of origin” and “country of the Union”, which bring in the Convention. These references are for a very narrow purpose of trade mark regulation, as is evident from ss. 5, 29 and 33 of the Trade Marks Act. They do not, in themselves, support the conclusion that the Act was passed in implementation of the Convention, and certainly not that s. 7 was so enacted.
In my opinion, assuming Parliament has power to pass legislation implementing a treaty or convention in relation to matters covered by the treaty or convention which would otherwise be for provincial legislation alone, the exercise of that power must be manifested in the implementing legislation and not be left to inference. The Courts should be able to say, on the basis of the expression of the legislation, that it is implementing legislation. Of course, even so, a question may arise whether the legislation does or does not go beyond the obligations of the treaty or convention.
Express reference existed in the various pieces of legislation which were the subject of the decision of this Court and of the Privy Council in the Labour Conventions case, supra. When that legislation was referred to this Court, being entitled, in brief, References re The Weekly Rest in Industrial Undertakings Act, The Minimum Wages Act and The Limitation of Hours of Work Act, the Order in Council under which the references were made recited what was the fact, namely, that the three Acts “were respectively passed, as appears from the recitals set out in the preambles of the said Acts, for the purpose of enacting the necessary legislation to enable Canada to discharge certain obligations declared to have been assumed by Canada…”. In an earlier reference to this Court, Reference re Legislative Jurisdiction over Hours of Labour, which concerned a draft con-
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vention on limitation of hours of work in industrial undertakings, adopted by the International Labour Conference of the League of Nations, the Order in Council directing the reference recited the opinion of the Minister of Justice that there was no enacting obligation upon the Parliament of Canada but only an obligation to bring any draft convention “before the authority or authorities within whose competence the matter lies for the enactment of legislation or other action”. The opinion of the Court on this Reference proceeded on this footing.
In the absence of an express declaration in the Trade Marks Act that the Act as a whole, including s. 7, or s. 7 itself was enacted in implementation of the obligations of the Convention, above referred to, I would not hold that there has been a valid exercise in this case of the federal treaty or convention implementing power, assuming such a power exists in the present case.
The position which I reach in this case is this. Neither s. 7 as a whole, nor section 7(e), if either stood alone and in association only with s. 53, would be valid federal legislation in relation to the regulation of trade and commerce or in relation to any other head of federal legislative authority. There would, in such a situation, be a clear invasion of provincial legislative power. Section 7 is, however, nourished for federal legislative purposes in so far as it may be said to round out regulatory schemes prescribed by Parliament in the exercise of its legislative power in relation to patents, copyrights, trade marks and trade names. The subparagraphs of s. 7, if limited in this way, would be sustainable, and, certainly, if s. 7(e) whose validity is alone in question here, could be so limited, I would be prepared to uphold it to that extent. I am of opinion, however (and here I draw upon the exposition of s. 7(e) in the Eldon Industries case), that there is no subject matter left for s. 7(e) in relation to patents, copyright, trade marks and trade names when once these heads of legislative power are given an effect under the preceding subparagraphs of s. 7. In any event, in the present case the facts do not bring into issue any question of patent, copyright or trade mark infringement or
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any tortious dealing with such matters or with trade names. There is here merely an alleged breach of contract by a former employee, a breach of confidence and a misappropriation of confidential information. It is outside of federal competence to make this the subject of a statutory cause of action.
In the result, I would allow the appeal, in respect of those clauses of the interlocutory injunction which are in dispute here and direct that those clauses be expunged and that the judgment of the Federal Court be varied accordingly. The appellants are entitled to their costs in the Federal Court of Appeal and in this Court. There will be no costs to or against the intervenants. This direction is, of course, without prejudice to any action that the respondent may wish or be able to take in a provincial Court.
The judgment of Martland, Judson, and de Grandpré JJ. was delivered by
DE GRANDPRÉ J.—The constitutional question raised by this appeal arises in a narrow factual context. In the words of Jackett C.J., in the Court of Appeal (at pp. 1158-9):
The respondent has been in the heating equipment business for several years and the appellant MacDonald worked for the respondent and a predecessor company for almost 10 years ending up as a vice-president of the respondent. When he entered into the employ of the predecessor company, MacDonald signed an agreement, the preamble of which reads in part as follows:
…realizing that, by virtue of my said employment, I will be in a position to acquire, by observation and communication, vital and confidential information regarding the constructions and principles embodied in—and the problems dealt with in the production of—the devices and structures made, sold, developed or used by this company in connection with its business during the term of my employment;
and para. 5 of which reads:
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I will not divulge to any unauthorized person any information or knowledge acquired by reason of my employment by the company.
While still in the respondent’s employ, MacDonald caused the appellant Railquip Enterprises Ltd. to be incorporated and he has controlled Railquip at all relevant times.
During the last part of his period of employment with the respondent, MacDonald participated in the preparation of a bid made by the respondent to supply 500 boxcar heater assemblies to the Canadian National Railway Company. MacDonald ceased to work for the respondent on April 15, 1971, and on May 1, 1971, he submitted a tender, presumably in Railquip’s name, to supply boxcar heaters to Canadian National, and as a result of that tender, Railquip obtained an order for 150 heater assemblies. In preparing the tender in question MacDonald made use of knowledge, which he acquired as an employee of the respondent, of the figures on which the respondent’s tender was based. To prepare those figures had taken considerable work on the part of the respondent’s employees. In connection with this bid by the corporation that he controlled, MacDonald also made use of and disclosed other confidential information acquired during the course of his employment with the respondent. In addition, he took from the respondent’s possession a number of documents belonging to the respondent that bore on the matter.
By its action, respondent seeks relief by way of injunction, damages and other conclusions of an accessory nature. Upon filing its statement of claim, respondent gave notice of a motion for an interlocutory injunction. This remedy was essentially granted by Walsh J. in words to be found at p. 243 of 6 C.P.R. (2d) 204. In appeal, this judgment was amended so that the substance of the Order at this time restrains appellant from
1) using any invention belonging to respondent and covered by two patents;
2) using confidential information acquired by reason of MacDonald’s employment;
3) using any document therein acquired;
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4) effecting delivery of, or accepting orders for, equipment infringing respondent’s patents;
5) keeping in their possession any document belonging to respondent.
Notwithstanding the reference in paras. 1 and 4 above to respondent’s patents, the judgments below have not pronounced the interlocutory injunction for the reason that respondent had made out a prima facie case of violation by appellant of its patent rights. The following extract from p. 224 of the trial judgment makes it abundantly clear:
It appears therefore that defendants have a serious contestation to make on the question of patent infringement and that I should not issue an interlocutory injunction at this stage of the proceedings, on the basis of this alleged infringement alone.
In the absence of specific allegations of copyright infringement in the original statement of claim and affidavits supporting same, plaintiff’s case at this stage of the proceedings must therefore depend on the application of s. 7 of the Trade Marks Act,…
It is in that light that must be read the Order of the former Chief Justice defining the constitutional question. The sole issue is to determine on the facts of this case whether absent an infringement of a patent, of a trade mark, of a copyright, of a trade name, and given the bare allegation of misappropriation of confidential information by a former employee, s. 7(e) is ultra vires of the Parliament of Canada.
Having had the advantage of reading the reasons prepared for delivery by the Chief Justice, I would dispose of this appeal as he proposes. I do not see how the criminal law power can be invoked here in support of the validity of s. 7(e) standing alone. As to the trade and commerce power, I share the view that the facts of this case do not permit its application, the contract between the individual appellant and respondent being of a private nature and involving essentially private rights.
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Respondent’s other submission, that s. 7(e) is legislation enacted by Parliament under the Treaty making power of Canada, at first attracted me. Upon further examination, it seems however that this argument cannot be accepted for the simple reason that the Treaty to which it refers does not deal with unfair competition in a vacuum but only in a context which is not created by the facts of this case. The Union Convention of Paris for the Protection of Industrial Property of March 20, 1883 was revised on various occasions and finally at London, on June 2, 1934. It is to that London Revision that Canada adhered by Instrument of Accession deposited on June 26, 1951. The purpose of that Convention is to be found in art. 1:
1. The countries to which the present Convention applies constitute themselves into a Union for the protection of industrial property.
2. The protection of industrial property is concerned with patents, utility models, industrial designs or models, trade marks, trade names and indications of source or appellations of origin, and the repression of unfair competition.
Articles 4 to 10 thereof deal at length with patents, trade marks, etc. Article 10bis is the only one dealing with unfair competition:
1. The countries of the Union are bound to assure to persons entitled to the benefits of the Union an effective protection against unfair competition.
2. Every act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
3. The following acts among others shall be prohibited:
(1) All manner of acts of such a nature as to create confusion by any means whatsoever with the establishment, the goods, or the industrial or commercial activities of a competitor;
(2) False allegations, in the course of trade, of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities of a competitor.
Sweeping as this text might appear, it does not in my view afford any support to s. 7(e) when there has been a finding as here that respondent’s industrial property (other than unfair competition)
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as such has not been invaded. Article 10bis must be read in the context of the other articles of the Convention, none of which deals with the contractual relationship between employer and employee.
I would allow the appeal.
Appeal allowed with costs.
Solicitors for the appellants: Ogilvy, Cope, Porteous, Hansard, Marler, Montgomery & Renault, Montreal.
Solicitors for the respondent: Gowling & Henderson, Ottawa.
Solicitor for the Attorney General of Canada: George W. Ainsley, Ottawa.
Solicitors for the Attorney General of Quebec: Geoffrion & Prud’homme, Montreal.
Solicitor for the Attorney General of Ontario: J.D. Hilton, Toronto.
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