Federal Court Decisions

     Court No. T-2143-95

B E T W E E N:

     DAVID CHESTNUTT

     Applicant

     (Plaintiff)

     - and -

     DOLLERY RUDMAN DESIGN ASSOCIATES INC.

     and MOLSON BREWERIES, A PARTNERSHIP

     Respondents

     (Defendants)

     REASONS FOR ORDER

CULLEN, J:

     This is an appeal, by the applicant, pursuant to Rule 336(5) of the Federal Court Rules, from the decision of Associate Senior Prothonotary Peter Giles, dated June 19, 1996, to issue an order pursuant to Rule 480 of the Rules of the Federal Court. The Prothonotary's order was to have the issues of the extent of the alleged infringement, and damages and profits flowing from the said infringement, be the subject of a reference under Rules 500 et seq. after the trial of this action.

THE FACTS

     The plaintiff, David Chestnutt, has been a free-lance design and illustration artist since 1967. Through the exhibition, promotion, and use of his works, David Chestnutt has acquired a reputation for his hard edge, thick-lined and chunky style. (see David Chestnutt's Statement of Claim, paragraph 4).

     The defendant, Molson Breweries, A Partnership, is a partnership along with Carling O'Keefe Breweries of Canada Ltd., with its head office in Toronto, Ontario.

     The defendant, Dollery Rudman Design Associates Inc. (hereinafter, "Dollery Rudman"), is a design company incorporated under the laws of Ontario and has its registered head office in Toronto, Ontario.

     The background to this appeal concerns the creation of a drawing of a bulldog's head, and whether David Chestnutt (hereinafter, "Chestnutt") or Molson Breweries (hereinafter, "Molson") own the copyright and trademark in it. One of the issues in the main action is whether or not Chestnutt authorized Molson and Dollery Rudman Design to copy his work entitled Bulldog Head (hereinafter, the "bulldog head drawing"). However, for the purposes of the appeal of the reference order, the relevant facts are as follows:

     Molson brought a motion for a Rule 480 reference order. The basis of the request for the reference order was 1) that Chestnutt had refused to consent to a reference pursuant to Rule 480; and 2) that a Rule 480 order would significantly minimize the expense of the action. (see Defendants' Notice of Motion, May 9, 1996).

     Chestnutt opposed the Rule 480 reference order for two reasons: 1) the delay caused by this order would seriously prejudice the plaintiff, because the plaintiff does not have the financial resources to pursue both a trial as to liability and a separate reference requiring further documentary production, discoveries, and trial with respect to damages; and 2) Chestnutt did not consent to the Rule 480 reference.

     Prothonotary Giles issued an order for a Rule 480 reference, along with a confidentiality order requested by Molson Breweries, and costs of the motion to the defendants.

THE ISSUE

     The sole issue before this Court is whether Mr. Giles, the Associate Senior Prothonotary, erred in fact and/or law in issuing an order pursuant to Rule 480 of the Rules of the Federal Court.

ANALYSIS

The Law

     Rule 480 of the Rules of the Federal Court allows a prothonotary to make an order for a reference after trial. It is an exceptional procedure. This rule reads:

480. (1) Any party desiring to proceed to trial without adducing evidence upon any issue of fact including, without limiting the generality thereof,

(a) any question as to the extent of the infringement of any right,

(b) any question as to the damages flowing from any infringement of any right, and

(c) any question as to the profits arising from any infringement of any right, shall, at least 10 days before the day fixed for the commencement of trial, apply for an order that such issue of fact be, after trial, the subject of a reference under Rules 500 et seq. if it then appears that such issue requires to be decided.

(2) An Order of the kind contemplated by paragraph (1) may be made at any time before or during trial and may be made by the Court of its own motion.

     The general principle governing the issuance of a Rule 480 order is that such an order should only be made on consent of the parties or where there are sufficient reasons bearing on the conduct of the action as a whole to justify such an order: Verrerie Cristallerie D'Arques J.G. Durand & Cie v. Modern Housewares Imports Inc. (1993), 53 C.P.R. (3d) 537, 70 F.T.R. 194 (T.D.). Since Chestnutt did not consent to the reference, this Court must examine if there are sufficient reasons bearing on the conduct of the action to justify the reference order. According to the case law, the relevant factors to consider are as follows:

1. Minimizing costs Conventional procedures should be used in the absence of consent to a reference or some other compelling reason bearing on the conduct of the action as a whole. However, the goal of minimizing costs constitutes a compelling reason to have a reference. Upjohn Co. v. Apotex Inc. (1993), 53 C.P.R. (3d) 507, 71 F.T.R. 290 (T.D.)

Application to this case: For the goal of minimizing costs, I have taken into consideration the difficulty involved in an accounting of profit which must also determine exactly how the profits arose. In this regard, I have considered:

1)      The evidence required for the reference would necessitate expert investigation and analysis of Molson's records since 1994, in order to estimate profits earned from the use of a component of a label. This would cost at least several hundreds of thousands of dollars.

2)      A Rule 480 reference would allow discovery on Molson's documents for the above evidence to be reduced to several hours, instead of the several days that would be required without a reference.

3)      A Rule 480 reference would, therefore, allow the trial to be completed in four days as opposed to the seven days that would be required without a reference.

4)      The before-trial costs to the plaintiff would increase by a factor of two to three without a reference.

     The above factors indicate compelling reasons to have a Rule 480 reference. In the event of settlement, or a finding of liability against the plaintiff, a significant amount of money would be saved by a Rule 480 reference, and trial costs would thus be minimized.

     In addition, I have considered the evidence in the cross-examination of Timothy Squire, a representative of the plaintiff, that Chestnutt has limited financial resources, and would like to minimize costs (see cross-examination of Timothy Squire, p. 61).

     Chestnutt does not accept as accurate or credible the evidence of Molson regarding the costs and difficulty of amassing and analyzing the evidence required for the reference. Chestnutt argues that a Rule 480 reference would result in more costs to himself than a trial alone, and that he does not have the financial resources to pursue both a trial as to liability and a separate reference as to damages (see affidavit of Timothy Squire, paragraph 4). However, this interpretation of the reference procedure is incorrect. In any event, a reference as to damages will not be stayed unless the application demonstrates special circumstances. Expense, of itself, is not a special circumstance: Baxter Travenol Laboratories of Can. Ltd. v. Cutter (Can.) Ltd. (1981), 54 C.P.R. (2d) 218 (F.C.T.D.).

    

     The test of minimization of costs through a reference is thus satisfied by the evidence before this Court.

2. Reducing complexity The goal of reducing the complexity of a trial can justify an order for a Rule 480 reference. If the complexity of the case would be increased unnecessarily by combining a great volume of evidence as to the extent of damages and profits with the complex issues to be decided in determining liability, an order under Rule 480 may be warranted: Lubrizol Corp. v. Imperial Oil Ltd. (1993), 50 C.P.R. (3d) 394, 66 F.T.R. 153 (T.D.), Giles Proth.

Application to this case: The determination of who owns the copyright and trademark in the bulldog drawing is a question of law. The determination of liability flows directly from the determination of copyright and trademark ownership. These issues are questions of law, and can be disposed of at trial by this Court relatively quickly.

     However, the issue of the accounting of profits is not as easy to decide. It is a question of fact, requiring the examination of a great volume of evidence. Chestnutt requests detailed financial information from Molson with respect to profits earned through its use of the bulldog head drawing. Molson submits that the expert investigation and analysis necessary to produce such information is extensive, would cost at least several hundred thousand dollars, and would require several days of discovery. The complexity of the case is, therefore, increased by combining a great volume of evidence as to the extent of damages and profits with the issues to be decided in determining liability.

     In my view, an order under Rule 480 is, therefore, warranted to reduce the complexity of the case.

     The question remains, however, as to whether combining the extensive evidence of accounting of profits with the determination of liability unnecessarily increases the complexity of the case. In my opinion, it does.

     A Rule 480 reference would allow all of the evidence as to damages and profits to be examined and heard after the trial of this action. If the issue of liability should be determined in favour of the plaintiff, then he most certainly will have his day in court during the Rule 480 reference concerning damages and profits.

     However, should the issue of liability be decided against the plaintiff, then there will be no need to even consider damages and profits, and the evidence subject to the Rule 480 reference. The issues of damages and accounting of profits in the reference are clearly separate from the issues of copyright and trademark ownership and liability in the main action of this case. Clearly, combining the issues of damages and accounting of profits with the complex issues to be determined in the main action would unnecessarily increase the complexity of the case.

     From the affidavit evidence before this Court and upon hearing counsel, it is clear that the goals of minimizing costs and reducing complexity would be satisfied in this action through an order for a Rule 480 reference. A Rule 480 reference is thus justifiable in law.

     Finally, I must decide whether it would be proper for this Court to overturn Prothonotary Giles' order for the Rule 480 reference, as the plaintiff requests. To answer this question, this Court must examine the standard on appeal from a prothonotary's decision.

     Rule 336(5) of the Rules of the Federal Court allows any person affected by an order or decision of a prothonotary, other than a judgment under Rules 432 to 437, a right of appeal to this Court. The standard on appeal is governed by case law. A recent, concise statement of the standard is found in Canada v. Aqua-Gem Investments Ltd., [1993] 1 C.T.C. 186, 93 D.T.C. 5080, 149 N.R. 273 (F.C.A.) (hereinafter, Aqua-Gem): Discretionary orders of prothonotaries ought not to be disturbed on appeal unless they are clearly wrong. A decision that is "clearly wrong" is one in which either:

1) the exercise of discretion was based upon a wrong principle; or

2) the exercise of discretion was based upon a misapprehension of facts; or

3) the exercise of discretion raised questions vital to the final issue of the case.

In any of the above cases, the reviewing judge ought to exercise his/her discretion de novo. An exception to the above may occur when the prothonotary has heard witnesses and made findings of fact based on his or her assessment of credibility. In the case at hand, I have no evidence that the prothonotary heard any such witnesses, and no reasons for his Order were given.

     Prothonotary Giles' decision was a discretionary one in that he had to base his decision on an assessment of what would be an excessive amount of costs and complexity. The standard on appeal regarding the discretionary decisions of prothonotaries established in Aqua-Gem, supra, therefore, applies. In order for Chestnutt's appeal to be successful, he must establish that Prothonotary Giles erred in law (his decision was based on a wrong principle) or in fact (his decision was based on a misapprehension of facts) in arriving at his decision, or that the Rule 480 reference will raise questions vital to the final issue of the case. Since Prothonotary Giles issued no reasons for his decision, this Court must examine whether there is a basis in law and in fact for the Rule 480 order, and that the order raises no further questions vital to the final issue of the case.

1)      Was Prothonotary Giles' exercise of discretion based on a wrong principle? The general principles governing the exercise of Rule 480 discretion, as established by case law, are the minimization of costs and the reduction of complexity. Prothonotary Giles' order is in accordance with these two principles.

2)      Was Prothonotary Giles' exercise of discretion based on a misapprehension of facts? Prothonotary Giles had before him the Defendant's affidavit evidence of Barry Hutsel, outlining the reduction of costs that could be achieved through a reference. In this affidavit, there was also evidence as to the complexity of the matters that would be decided by the Rule 480 reference. Prothonotary Giles also had before him the plaintiff's affidavit evidence of Timothy Squire that David Chestnutt is a person of limited financial resources. Prothonotary Giles thus had the relevant facts before him, as presented by both the plaintiff and the defendants, in order to decide whether a Rule 480 reference would be warranted.

3) Did Prothonotary Giles' exercise of discretion raise questions vital to the final issue of the case? Clearly not. Prothonotary Giles' decision will not preclude a hearing of the case on its merits. The prothonotary's decision did not raise questions vital to the final issue of this case.

CONCLUSION

     During the course of an action for copyright or trademark infringement, where questions are raised as to the extent of the infringement, the damages flowing from any infringement and profits arising from any infringement, it is the usual procedure for the plaintiff to make a motion pursuant to Rule 480(1). In most cases, such matters proceed on consent. The plaintiff did not consent in this case. However, on the basis of the affidavit evidence and counsels' submissions before this Court, the rules governing the issuance of a Rule 480 reference, and the case law interpreting the issuance of a Rule 480 reference, it is clear that Prothonotary Giles correctly issued the order that the issues of the extent of the alleged infringement, and damages and profits flowing from said infringement be the subject of a reference under Rules 500 et seq. after the trial of this action.

     The applicant's appeal is dismissed; costs to the defendant in any event of the cause.

OTTAWA

     B. Cullen

septembre 17, 1999

     J.F.C.C.