[1] This is an appeal from the Order of the Trial Division which inter alia ordered the appellant to post security with the Court in the amount of $100,000.00 for costs and damages of the respondents.

[2] The facts of this case are set out in some detail in the Reasons for Order dated January 29, 2003, in which the Order of the Trial Division was stayed (reported as (2003), C.P.R. (4^th) 431) by this Court.

[3] For the purposes of this appeal the important facts are that the appellant obtained an ex parte Anton Pillar Order authorizing seizure of certain products in the possession of the respondents on the basis that the respondents were infringing the appellant's trademark.

[4] A short time after obtaining the Anton Pillar Order the respondents brought a motion to set aside the Order and after some discussion, the appellant consented to the Order being set aside except as to the issues of damages and costs.

[5] In order to obtain the Anton Pillar Order the appellant gave an undertaking as follows:

On behalf of Universal, I hereby confirm that Universal undertakes to abide by any Order concerning damages that this Honourable Court may make if it ultimately appears that the granting of the Orders sought has caused damages to any of the Defendants, for which the Plaintiff, Universal, sought to compensate them.

[6] The Motions Judge, in granting the Order for security for costs and damages, relied upon Federal Court Rules 3 and 416 (1) (g) and the appellant's undertaking.

[7] Rule 416 (1) (g) reads in part as follows:

Where on the motion of a defendant, it appears to the Court that...there is reason to believe that the action is frivolous and vexatious and the plaintiff would have insufficient assets in Canada available to pay the costs of the defendant, if ordered to do so...the Court may order the plaintiff to give security for the defendant's costs.

[8] There are two elements to Rule 416 (1) (g). First, there must be reason to believe the action is frivolous and vexatious. There are no reasons of the Motions Judge adverting to this. In the present case, it appears the appellant holds a registered trade mark which is presumed to be valid. It is not clear to us from the present record that the action is frivolous and vexatious.

[9] The second element of R. 416 (1) (g) is that the appellant would have insufficient assets in Canada to pay the costs of the respondents. This, again, was not addressed by the Motions Judge and we are unable to conclude from the record before us that this branch of the test has been met.

[10] It is clear that Rule 416 (1) (g) does not give the Court authority to grant security for damages.

[11] In the result the Motions Judge erred in his reliance on Rule 416 (1) (g) to justify his granting of the Order.

[12] The other ground he relied upon was the undertaking. However, the undertaking clearly referred to an order of the Court for damages after findings are made by the Court as to the damages which the respondents have proven. The respondents have not obtained any such order and hence the undertaking cannot support the Order of the Motions Judge.

[13] The respondents have argued that because the appellant has disobeyed other Court orders and been found in contempt for so doing, and because the appellant has not been proceeding with diligent conduct of this litigation, that there were grounds for granting of the Order for security. We do not see how these actions can authorize the granting of the Order in question and indeed the Motions Judge did not purport to rely upon them. Some of them may have taken place after his Order was made.

[14] We should say that the Order for security was granted by the Motions Judge on December 17, 2002. It is, at the very least puzzling, why the respondents have not managed to pursue their claim for damages and costs more vigorously since this time.

[15] For these reasons, the appeal will be allowed with costs.

"J. E. Sexton"

J.A.

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-690-02

STYLE OF CAUSE: UNIVERSAL FOODS INC.

Appellant

and

HERMES FOOD IMPORTERS LTD., MASOUD MOTAMEDI, TOUS ENTERPRISES LTD., H & R IMPORT-EXPORT INC., HAMIDEH RAFATI, FEREYDON EBADIAN, SUPER ARZON INC., SUPER ARZON LTD., SUPER KHORAK INC. o/a THE MARKET SUPER KHORAK, ASY'S MARKET INC., JOHN DOE and JANE DOE

Respondents

PLACE OF HEARING: TORONTO, ONTARIO

DATE OF HEARING: JANUARY 13, 2004

REASONS FOR JUDGMENT

OF THE COURT: (STONE, SEXTON AND MALONE J.J.A.)

DELIVERED FROM THE

BENCH BY: SEXTON J.A.

APPEARANCES:

Mr. Colin Brown FOR THE APPELLANT

Mr. Donald Cameron FOR THE RESPONDENTS

SOLICITORS OF RECORD:

Thomas McPherson & Associates

Aurora, Ontario FOR THE APPELLANT

Ogilvy Renault

Toronto, Ontario FOR THE RESPONDENTS

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Universal Foods Inc. v. Hermes Food Importers Ltd., 2004 FCA 9

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2004 FCA 9