Date: 20250618

Docket: T-627-23

Citation: 2025 FC 1105

Ottawa, Ontario, June 18, 2025

PRESENT: The Honourable Justice Fuhrer

ORDER AND REASONS

I. Overview

[1] When is a TOYOTA bumper no longer a TOYOTA brand product? When it is damaged during shipment by a grey marketer, according to the Plaintiffs. Not so fast, says the Defendant.

[2] The Defendant Marrand Auto Inc. [Marrand or Defendant] appeals the November 7, 2024 order of Associate Judge Horne, striking the Amended Statement of Claim, with leave to amend in accordance with the reasons, as reported in Toyota Jidosha Kabushiki Kaisha (Toyota Motor Corporation) v Marrand Auto Inc, 2024 FC 1776 [Order]. The appeal is brought by way of motion under rule 51 of the Federal Courts Rules, SOR/98-106 [Rules].

[3] The Plaintiffs, Toyota Jidosha Kabushiki Kaisha trading as Toyota Motor Corporation and Toyota Canada Inc. [collectively, Toyota or Plaintiffs] assert that Marrand has failed to establish any error in law, or palpable and overriding error, in the Order warranting the Court’s intervention. I agree that the Court’s interference is not called for here.

[4] Having considered the parties’ motion material and heard their oral submissions, I find that the Defendant’s rule 51 motion will be dismissed for the reasons below.

II. Background

[5] Briefly, the underlying facts, as summarized in the Order, are that Toyota received notice from the Canada Border Services Agency that a shipment of suspected counterfeit Toyota automotive parts had been detained, and that the Defendant was the owner and consignee of the shipment. After inspecting the detained goods that bore TOYOTA trademarks, the Plaintiffs did not claim that they were counterfeit. Marrand also contends generally that the goods were put into commerce with the consent of the trademark owner and lawfully acquired.

[6] Rather, Toyota asserts the detained goods were “unauthorized” because they did not come with the warranty that otherwise would be provided if acquired through an authorized dealer, and that the goods were not shipped or handled in an approved manner. In connection with the latter point, Associate Judge Horne observes that the claim does not contain material facts supporting Toyota’s expanded allegation (i.e. made at the hearing of the motion to strike) of damage to the shipped goods and the risk to public safety posed by the sale of damaged automotive parts.

[7] The Order strikes the entire Amended Statement of Claim, with leave for Toyota to file a Fresh as Amended Statement of Claim but limited to claims under paragraph 7(b) and section 22 of the Trademarks Act, RSC 1985, c T-13 [TMA]. Although Associate Judge Horne permits the amendment of the claims based on the latter provision, he has great difficulty seeing how a claim of implied warranty alone can be made under section 22 of the TMA, finding that whether a warranty is in place or not does not impact the quality of the good itself.

[8] The Order also strikes, but without leave to amend, all the claims based on the Competition Act, RSC 1985, c C-34, and those based on paragraph 7(c) of the TMA.

[9] See Annex “A” below for relevant provisions.

III. Issues

[10] I determine that Marrand’s rule 51 motion raises the following issues about whether the Associate Judge erred by holding that:

1. “use” of a trademark is not required to establish infringement of paragraph 7(b) of the TMA;

2. the sale of the alleged damaged grey goods bearing the TOYOTA branding amounts to an implied representation of warranty constituting misrepresentation under paragraph 7(b) of the TMA, absent any false or misleading representations about such grey goods by the Defendant;

3. the sale of alleged damaged grey goods is different from a simple resale, and constitutes “use” of a trademark that could depreciate the goodwill associated with a trademark contrary to subsection 22(1) of the TMA; and

4. the Defendant’s evidence in respect of its claim for damages relating to detained goods under section 51.12 of the TMA was not clear, and whether the Defendant was entitled to an award in the sum of $57,963.82 pursuant to section 51.12 of the TMA.

In the ensuing analysis, I deal with each issue in turn, beginning with a summary of the law applicable to rule 51 appeals.

IV. Analysis

[11] Decisions on motions to strike are discretionary: Davis v Canada (Royal Mounted Police), 2023 FC 280 [Davis] at para 40. The standard of review applicable to a rule 51 motion appealing a discretionary decision of an associate judge is the appellate standard described by the Supreme Court of Canada in Housen v Nikolaisen, 2002 SCC 33 [Housen] at paras 7-36. I rely in this regard on Hospira Healthcare Corporation v Kennedy Institute of Rheumatology, 2016 FCA 215 at paras 63-65, 79 and 83.

[12] The Federal Court of Appeal more recently summarizes the Housen standard as follows: “questions of fact and mixed questions of fact and law are subject to the palpable and overriding error standard while questions of law, and mixed questions where there is an extricable question of law, are subject to the standard of correctness”: Worldspan Marine Inc v Sargeant III, 2021 FCA 130 at para 48; see also Canada (Attorney General) v Iris Technologies Inc, 2021 FCA 244 at para 33; Davis, above at para 40.

[13] This Court describes the applicable review standard more plainly, stating “[l]egal questions are questions about what the correct legal test is; factual questions are questions about what actually took place between the parties; and, mixed questions are questions about whether the facts satisfy the legal tests, or, put otherwise, whether they involve applying a legal standard to a set of facts”: Kostic v Canada, 2023 FC 508 at para 80, citing Teal Cedar Products Ltd v British Columbia, 2017 SCC 32 at para 43.

[14] Further, the “palpable and overriding error” standard of review is highly deferential. Palpable means an obvious error, while an overriding error is one that affects the decision‑maker’s conclusion: Mahjoub v Canada (Citizenship and Immigration), 2017 FCA 157 [Mahjoub] at paras 61-64; see also NCS Multistage Inc v Kobold Corporation, 2021 FC 1395 at paras 32-33.

[15] Marrand contends that issues A, B, and C here (not to be confused with the Housen example of a legal error described below) all involve questions of law to which the correctness standard applies, while issue D concerns a question of mixed fact and law attracting the palpable and overriding error standard.

[16] Toyota counters that because the decision to strike a pleading is discretionary, the Order should be reviewed for palpable and overriding error only. I disagree. If, on appeal from a discretionary decision, the appellate court detects an error in law or principle underlying the exercise of discretion by the first-instance trier, it can reverse the exercise of discretion because of the legal error: Mahjoub, above at para 74.

[17] I deal next with each issue in turn. I pause to add that there is no dispute regarding the Associate Judge’s statement of the applicable law on a motion to strike. This rule 51 motion largely concerns the Associate Judge’s consideration of applicable TMA provisions. Further, I must not take into account Toyota’s Fresh as Amended Statement of Claim dated December 6, 2024 that was filed on the heels of the challenged Order, because the Court generally must determine appeals from orders of associate judges on the material that was before the associate judge: Canjura v Canada (Attorney General), 2021 FC 1022 at para 12. To do otherwise, in my view, would risk the Court applying hindsight to the analysis of the issues on this appeal.

[18] If a legal test is comprised of elements A, B, C, and D but the decision-maker considers only elements A, B, and C, then, in so doing, the decision-maker commits an error of law: Housen, above at para 27, citing Canada (Director of Investigation and Research) v Southam Inc, 1997 CanLII 385 at para 39 (SCC). A question I consider here is whether the Associate Judge’s statement, at paragraph 33 of the Order, that “[i]t is at least arguable that ‘use’ of a trademark is not required to establish infringement of section 7(b)” is the equivalent of failing to consider element D. As explained below, I find that it is, thus resulting in an error of law underpinning the Associate Judge’s exercise of discretion. That said, a related question is whether this error of law warrants the Court’s interference with the Order. In my view, it does not. I expand on this determination in the consideration of issue B.

[19] I start with the premise that “the sale in Canada of grey market goods does not, in itself, constitute passing off (citations omitted)”: TFI Foods Ltd v Every Green International Inc, 2021 FC 241 [TFI Foods] at para 50. See also Consumers Distributing Co v Seiko, 1984 CanLII 73 (SCC), [1984] 1 S.C.R. 583 [Seiko] at 593 (“…the distribution of a trade marked product lawfully acquired is not, by itself, prohibited under the Trade Marks Act of Canada, or indeed at common law”).

[20] In Kirkbi, the Supreme Court of Canada confirms the constitutional validity of paragraph 7(b) on the basis that it “rounds-out” federal trademarks legislation. More specifically, the Supreme Court finds that “s. 7(b) is, in its pith and substance, directly connected to the enforcement of trade-marks and trade-names in Canada because it is directed to avoiding confusion through use of trade-marks” (emphasis added): Kirkbi AG v Ritvik Holdings Inc, 2005 SCC 65 [Kirkbi] at para 33, citing MacDonald et al v Vapor Canada Ltd, 1976 CanLII 181 (SCC), [1977] 2 S.C.R. 134, and Asbjorn Horgard A/S v Gibbs/Nortac Industries Ltd (1987), 38 DLR (4th) 544 [Asbjorn] (see 1987 CanLII 5269 for abridged version).

[21] Further, Kirkbi underscores (at para 35), “s. 7(b) is directly connected to the enforcement of trade-marks and trade-names in Canada: the civil remedy in s. 7(b) protects the goodwill associated with trade-marks and is directed to avoiding consumer confusion through use of trade-marks” (emphasis added).

[22] Kirkbi draws heavily on Asbjorn. In Asbjorn (at 556), the Federal Court of Appeal describes paragraph 7(b) as “a statutory statement of the common law action of passing off, which consisted of a misrepresentation to the effect that one's goods or services are someone else’s, or sponsored by or associated with that other person. It is effectively a ‘piggybacking’ by misrepresentation.”

[23] The Federal Court of Appeal also pays due regard to the statutory language of paragraph 7(b), noting that its three elements provide “that no person shall (1) direct public attention to his wares, services or business (2) in such a way as to cause or be likely to cause confusion in Canada (3) 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. What is deemed to cause confusion is explained in s. 6, particularly in s-ss. (2), (3) and (5)…” (emphasis in original): Asbjorn, above at 558-59.

[24] In my view, the reference in Asbjorn to subsections 6(2), 6(3) and 6(5) of the TMA point squarely to trademark use. Both subsections 6(2) and 6(3) begin with the identical wording, “The use of a trademark causes confusion with…” (emphasis added). Further, paragraph 6(5)(b) specifically describes “the length of time the trademarks or trade names have been in use” (emphasis added). In addition, “use” is defined in section 2 as meaning, “in relation to a trademark, … any use that by section 4 is deemed to be a use in association with goods or services.”

[25] As the authors Kelly Gill and Scott Jolliffe note (cited in Kirkbi at para 35), “[n]o provision of s. 7 is more inextricably linked to the overall scheme of the Trade-marks Act than is s. 7(b).” That scheme was and still remains rooted in use, notwithstanding changes to the TMA in 2019 which included the elimination of the requirement to “declare” use in a newly-filed trademark application or upon allowance. See, for example, current paragraph 38(2)(e) of the TMA.

[26] While the Associate Judge relied on this Court’s decision in TFI Foods to support the view that use may not be required to establish a contravention of paragraph 7(b), I cannot agree, not only for the above reasons but also for the following additional reasons.

[27] The common law tort of passing off articulated in Ciba-Geigy Canada Ltd v Apotex Inc, 1992 CanLII 33 (SCC), [1992] 3 S.C.R. 120 (i.e. the existence of goodwill, deception of the public due to a misrepresentation and actual or potential damage to the plaintiff), has been applied to paragraph 7(b) of the TMA. As Kirkbi notes (at para 23), paragraph 7(b) essentially codifies the common law tort and is sufficiently integrated into the scheme of the TMA that it is intra vires Parliament. Kirkbi cites (at para 25) the following observation attributed to authors Gill and Jolliffe (p 2‑22): “The tort of passing off is in many respects the equivalent cause of action for unregistered trade-marks as infringement [s. 20 of the Act] is to registered trade-marks.”

[28] Further, paragraph 7(b) is limited by the provisions of the TMA and, thus, unlike paragraph 7(e) which was struck because of its lack of connection with trademark or trade name enforcement, paragraph 7(b) is limited in its application: Kirkbi, at para 26. This means, in my view, that when Kirkbi states (at para 68) “[t]he second component [of passing off] is misrepresentation creating confusion in the public,” section 6 of the TMA is implicated necessarily in the context of passing off under paragraph 7(b) having regard to the specific language of the latter provision (i.e. “to cause or be likely to cause confusion”). In criticizing the trial judge’s interpretation of the second component as too narrow, the Supreme Court refers, by implication in my view, to the trial judge’s finding that the claimant needed to prove the asserted confusion arose from an intentional (i.e. wilful) misrepresentation (when para 68 is read with para 9 of Kirkbi), in contrast to negligent or careless misrepresentation which also are covered by modern developments in the law of passing off.

[29] Support for the proposition that paragraph 7(b) implicates section 6 of the TMA, and hence necessitates use, can be found in the Federal Court of Appeal decision in Positive Attitude Safety System Inc v Albian Sands Energy Inc, 2005 FCA 332 [Albian Sands]. There, on a summary judgment motion, the Federal Court of Appeal assessed the issue of whether the defendant’s workplace safety system called Albian Sands Environment and Safety System (ASESS) passed off the plaintiff’s industrial safety system called Positive Attitude Safety System (PASS). It held (at para 33) that, “…confusion, for trade-marks purposes, is confusion between trade-marks and between trade-marks and trade-names. See subsections 6(2), (3) and (4). As a result, if the appellants were not trading in the PASS system, and if no issue of confusion arises with respect to ASESS considered as a trade-mark, there can be no confusion and no contravention of paragraph 7(b).”

[30] I also refer to this Court’s decision in Quality Program Services Inc v Canada, 2018 FC 971, aff’d 2020 FCA 53, leave to appeal refused, 2020 CanLII 74020 (SCC). There, Justice Southcott found (at para 61) that the plaintiff’s passing off action requires the same confusion analysis as an infringement action, except that the tort of passing off only protects goodwill within the geographic area in which it was acquired. Issues of whether this exception applies to registered and unregistered trademarks alike, and whether paragraph 7(b) seemingly is redundant in respect of or not applicable to registered trademarks, are not issues that, in my view, the Court must determine to dispose of this motion.

[31] I pause to note that the Federal Court of Appeal considers but does not determine the latter issue in Group III International Ltd v Travelway Group International Ltd, 2020 FCA 210 at paras 43-44. Kirbi states (at para 31), however, that “[t]here is no reason to believe that the registration regime under the Trade-marks Act was intended to create two separate enforcement regimes[; t]he scheme set out in the Trade-marks Act regulates both registered and unregistered trade-marks.”

[32] Returning to the issue of use in the context of statutory passing off, this Court more recently determined, citing Albian Sands, that “[u]se is an essential requirement in the passing off analysis under paragraph 7(b)”: 2K4 Inc (Indican Pictures) v Indiecan Entertainment Inc, 2025 FC 20 at para 127. For the above reasons, I agree.

[33] I thus conclude it was an error of law for the Associate Judge to state “that ‘use’ of a trademark is not required to establish infringement of section 7(b).” What implications flow from the Associate Judge’s qualification that it is at least an arguable proposition, inform my consideration of issue B to which I turn next.

[34] In my view, this question is one that involves mixed fact and law to which the appellate standard of palpable and overriding error applies. While the Associate Judge made a palpable error, I am not persuaded that it is an overriding one.

[35] Although the Associate Judge’s finding regarding whether “use” is a requirement of paragraph 7(b) was qualified (i.e. “[i]t is at least arguable”), I am not persuaded that the qualification alone would be sufficient necessarily to avoid reversing his exercise of discretion. That said, the “use” finding was not made in a vacuum. Rather, it informs his non-final determination, at paragraph 33 of the Order, that “it is at least arguable that a damaged and unsafe car part bearing TOYOTA branding, being presented to a consumer expressly or by implication as being of the same quality as what would be sourced from a Toyota dealer, could constitute a misrepresentation that pertains to a trademark as well.” In the Associate Judge’s view, this is a novel but arguable claim that should proceed to trial. On this basis, the Associate Judge permitted the Plaintiffs to amend their otherwise struck claim to set out material facts alleging that the TOYOTA products sold by the Defendant were damaged in shipment and unsafe.

[36] This Court previously has held that where, on a motion to strike under rule 221, an associate judge makes no final determination on the merit of the allegations (here, statutory passing off) made in a statement of claim, it is doubtful whether a pure question of law or extricable legal principle is truly at issue: Elbit Systems Electro-optics Elop Ltd v Selex ES Ltd, 2016 FC 1129 [Elbit Systems] at para 18. See also Rovi Guides, Inc v Videotron Ltd, 2022 FC 981 at paras 27-28, citing Elbit Systems.

[37] The Associate Judge refers to “pertains to a trademark” against the backdrop of his determination that it is at least arguable that “use” of a trademark is not required to establish infringement of section 7(b). In my view, the reference at worst is a palpable error but not an overriding one. I say this because Toyota maintains that the goods shipped/sold by Marrand are damaged and, thus, materially different from Toyota’s goods that are subject to quality control standards, resulting in the use of the trademark TOYOTA by Marrand. I am not convinced that this assertion would have changed the Associate Judge’s conclusion that the claim is novel but arguable. Whether Toyota has pleaded sufficient material facts in its Fresh as Amended Statement of Claim to support its claims around damage, an implied warranty and/or trademark use, is an issue not presently before me.

[38] Further, I find the Defendant’s reliance on Arora v Whirlpool Canada LP, 2013 ONCA 657 misplaced because the case involved a question about whether the manufacturer’s allegedly poorly designed washing machines were subject to an implied warranty of fitness under the Sale of Goods Act, RSO 1990, c S.1. I therefore do not disagree with the Associate Judge that there does not appear to be any jurisprudence on whether an implied warranty can constitute misrepresentation for the purposes of paragraph 7(b) of the TMA. None was brought to my attention. It strikes me that the Defendant’s sale of goods argument is an issue that should be dealt with at trial on a fuller evidentiary record.

[39] Further, Seiko differs factually from the dispute between Toyota and Marrand. In Seiko, grey market watches were distributed by the “diverter” Consumers Distributing with warranty cards that purported to bring the goods within the scope of Hattori’s global warranty; by the time passing off was addressed, it was on an evidentiary record where the public was aware that the watches were not supported by an international guarantee, and that Consumers Distributing was not an authorized dealer. In light of these differences and the novelty of Toyota’s claim, I am not persuaded that Associate Judge Horne erred palpably and overridingly by refusing to conclude this claim was doomed to fail. Arguments about the applicability of the Supreme Court’s conclusions and determinations in Seiko in respect of the merits of the claim are better addressed at trial, in my view.

[40] I add that whether there in fact is an absence of any false or misleading representations by the Defendant about the grey goods, also is a matter for the trial judge to consider and determine based on a fuller evidentiary record.

[41] Noting the high threshold to strike a claim (para 8 of the Order), and for similar reasons discussed in respect of issue B above, I am not persuaded that the Associate Judge made a reversible error on this issue.

[42] In my view, this question also is one that involves mixed fact and law to which the appellate standard of palpable and overriding error applies. Specifically, this issue relates to the Associate Judge’s finding (at para 49 of the Order) that a cause of action under section 22 of the TMA could be sustained on the allegations pleaded by Toyota because “it is at least arguable that the sale of damaged merchandise could be treated differently that [sic] simple resale.”

[43] I have at least two reasons for arriving at this determination. First, Marrand relies on Coca-Cola Ltd v Pardhan, 1999 CanLII 7852 [Pardhan] at paras XII-XIV, 85 CPR (3d) 489 (FCA), to support the position that reselling goods manufactured by a trademark owner cannot be considered “use” under the TMA, and therefore this claim cannot succeed. In my view, Pardhan is distinguishable because the decision involved COCA-COLA products that allegedly were packaged and labelled for use in the Canadian marketplace but were shipped to other countries for sale. There was not, however, any allegation that the products themselves differed in their material characteristics, as the Plaintiffs allege here. It is not outside the realm of possibility (i.e. in the sense of doomed to fail), in my view, that the sale of unsafe damaged goods, if proven, conceivably could sustain a claim for depreciation of goodwill.

[44] Second, this Court previously has held that goodwill “may be depreciated by a non-confusing use, where the fame and goodwill of the trademark transcends the wares or services with which the mark is usually associated or used”: Trans-High Corporation v Conscious Consumption Inc, 2016 FC 949 at para 35. Here, the fame and goodwill of the Plaintiffs’ marks, if established, may be indicative of a degree of recognition of the marks within the relevant universe of consumers, and hence, a likelihood of depreciation of the goodwill attaching to the marks. That, however, remains to be determined at trial on a fuller evidentiary record.

[45] I find that the Associate Judge’s determination on this issue is neither incorrect nor does it involve any palpable and overriding error.

[46] A plain reading of section 51.12 of the TMA discloses that the Court is permitted to award damages only “if the proceedings are dismissed or discontinued.” Neither event has occurred here, in my view, notwithstanding that the Associate Judge struck the Amended Statement of Claim. That step was taken in conjunction with granting Toyota leave to amend in accordance with the reasons and providing Toyota with 30 days to serve and file a fresh as amended statement of claim, which was done. The Associate Judge, however, did not dismiss the action. I thus find that the relevant facts here do not meet a necessary precondition.

[47] Marrand also has not persuaded me that the Associate Judge’s appreciation of the evidence before him regarding Marrand’s claimed damages relating to the detention of shipped auto parts resulted in any incorrect or palpable and overriding error.

V. Conclusion

[48] Because the Defendant has not satisfied the Court that the Associate Judge made any error warranting the Court’s intervention, the Defendant’s rule 51 motion will be dismissed.

VI. Costs

[49] The parties advised the Court that they had agreed on costs in the amount of $5,000. This sum is reasonable in my view. In light of Toyota’s success on the motion, I therefore award Toyota lump sum costs in the amount of $5,000 payable by Marrand.

ORDER in T-627-23

THIS COURT’S ORDER is that:

1. The Defendant’s motion under rule 51 of the Federal Courts Rules, SOR/98-106, appealing the November 7, 2024 order of Associate Judge Horne, is dismissed.

2. The Plaintiffs are awarded lump sum costs in the amount of $5,000 payable by the Defendant in any event of the cause.

"Janet M. Fuhrer"

Annex “A”: Relevant Provisions

Federal Courts Rules, SOR/98-106

Règles des Cours fédérales, DORS/98-106

Trademarks Act, RSC 1985, c T-13.

Loi sur les marques de commerce, LRC 1985, ch T-13.

FEDERAL COURT

SOLICITORS OF RECORD

APPEARANCES:

SOLICITORS OF RECORD: