Federal Court Decisions

     T-64-95

     IN THE MATTER OF the Trade-marks Act

     - and -

     IN THE MATTER OF trade-mark registration no.

     TMA 249,436 for the trade-mark SHILING OIL

BETWEEN:

     LING CHI MEDICINE CO. (H.K.) LTD.,

     Applicant,

     - and -

     MOHAN PERSAUD, LATCHANDAI PERSAUD,

     - and -

     1013579 ONTARIO INC.,

     - and -

     UNIVERSAL FOODS AND MERCHANDISE CO.,

     Respondents.

     REASONS FOR ORDER

TREMBLAY-LAMER J.

     This is an application pursuant to section 57 of the Trade-marks Act¹ for an order expunging the respondent's registration of the trade-mark SHILING OIL, registration no. TMA 249,436, from the Register of trade-marks.

I.      FACTS AND BACKGROUND

     The applicant, Ling Chi Medicine Co. (H.K.) Ltd. (hereinafter the "applicant") has manufactured and sold SHILING OIL for over fifty years. It is the registered owner of the trade-mark SHILING OIL in Hong Kong, the Benelux countries, Curacao and El Salvador. Prior to 1974, the applicant sold SHILING OIL in Canada through non-Canadian distributors. During that same period, the respondent Universal Foods and Merchandise Co. (hereinafter "UFMC") manufactured and sold its own version of SHILING OIL in Canada.

     UFMC discontinued the manufacture of its own version of SHILING OIL., and, in September 1976, entered into an agency agreement with the applicant. Under the terms of this agreement, UFMC was to be the applicant's exclusive distributor of SHILING OIL in Canada.

     By a letter dated February 12, 1980, the applicant was informed of UFMC's intention to take necessary actions in order to prevent the illegal flow of SHILING OIL in Canada. The respondent reiterated these views in a second letter dated March 11, 1980. As appears from the applicant's letter of July 11, 1980, the applicant accepted UFMC's proposal to take appropriate actions. UFMC then applied for registration of the trade-mark SHILING OIL. Registration was obtained on August 15, 1980. The trade-mark has the registration number TMA 249, 436.

     By way of a letter dated September 8, 1980, UFMC forwarded to the applicant a true copy of the registration. The applicant denies having ever received that letter.

     In a letter dated September 6, 1984, UFMC advised the applicant that it was still dealing with the ever present problem of illegal imports of SHILING OIL into Canada from sources other than the applicant. In that letter, UFMC conveyed to the applicant the fact of the trade-mark's registration and its intention to act under it for the benefit of the applicant. Further, in the letter, UFMC indicates that it is the trade-mark's registered owner. That letter was both received and acknowledged by the applicant, as appears from a reply letter dated September 15, 1984.

     The applicant alleges that it was never informed of the registration prior to early November 1993. By way of a letter dated November 8, 1993, the applicant terminated its agency relationship with UFMC. The respondent 1013579 Ontario Inc. (hereinafter "Ontario Inc.") subsequently succeeded to UFMC.

II.      RELEVANT STATUTORY PROVISIONS

     This application is made pursuant to section 57 of the Trade-Marks Act (hereinafter the "Act")² which provides:

57. (1) The Federal Court has exclusive original jurisdiction, on the application of the Registrar or of any person interested, to order that any entry in the register be struck out or amended on the ground that at the date of the application the entry as it appears on the register does not accurately express or define the existing rights of the person appearing to be the registered owner of the mark.

     The applicant invokes the ground for expungement provided for in subsection 18(1) in fine of the Act. It reads as follows:

18. (1) The registration of a trade-mark is invalid if

(a)      the trade-mark was not registrable at the date of registration,

(b)      the trade-mark is not distinctive at the time proceedings bringing the validity of the registration into question are commenced, or

(c)      the trade-mark has been abandoned,

and subject to section 17, it is invalid if the applicant for registration was not the person entitled to secure the registration.

III.      THE PARTIES' SUBMISSIONS

A.      The Applicant

     As mentioned, the applicant is challenging the registration on the ground that the respondents were not persons entitled to secure registration within the meaning of subsection 18(1) of the Act. In this regard, the applicant submits that an importer, agent or distributor has no right to register a trade-mark owned by its foreign principal under its own name or for its own benefit. The importer, agent or distributor does not have the authority to register a trade-mark in its own name. Contravening that rule has been found to constitute a breach of fiduciary duty. Further, that breach is a basis for expungement. The applicant relies on the following cases: Citrus Growers Association Ltd. v. William D. Branson Ltd.³, Fenessy v. Verb Investments Inc.⁴ and Uniwell Corp. v. Uniwell North America Inc.⁵

     The fiduciary duty owed by any importer, agent or distributor to its principal mainly consists in a duty to make full disclosure of all material facts which might place or do place the said importer, agent or distributor in a conflict of interest. The distributor also owes a duty not to use the principal's personal property, money or information to secure personal gain. The onus of proving adequate disclosure rests with the distributor.

     The rationale behind the duty of full disclosure is to allow the principal, if it wishes to do so, to give an informed consent. In this case, UFMC did not fully disclose all of the material facts pertaining to the registration of the SHILING OIL trade-mark. Therefore, given the absence of informed consent on the applicant's part, UFMC did not have the authority to register the trade-mark.

     The applicant finally deals with the issue of estoppel by laches or acquiescence. In order to find that the applicant is estopped from bringing this Application, this Court would have to find, first, that there has been an unreasonable delay, and, secondly, that the respondents were somehow prejudiced by the bringing of this application. As to the delay, the applicant submits that, at no time prior to November 1993, was it aware of the fact that the trade-mark had been registered in the respondent's own name. Further, the respondents suffered no prejudice. Indeed, the respondents did not incur any costs over and above those that otherwise would have arisen from the business relationship between the parties.

B.      The Respondents

     The respondents admit that, under the terms of the agency agreement, they were to be the applicant's exclusive SHILING OIL distributors in Canada. The respondents agree with the applicant's statement of the law and take issue only with the application of the law to the particular facts of this case.

     The respondents stress that the applicant is a sophisticated corporation. It is submitted that the correspondence sent by the respondents to the applicant before and after the date of the registration satisfies the duty of disclosure. The applicant ought to have understood the meaning of the words "trade-mark", "registered" and "registration".

     With respect to estoppel by laches or acquiescence, it is submitted that there is evidence of a considerable delay. The respondents referred to the correspondence, particularly to their letter dated September 6, 1984. They accordingly argued that the applicant knew about the impugned registration from at least September 1984. As to prejudice, the respondents made efforts in order to protect what had been a mutually beneficial relationship. They prepared circular and leaflets. They incurred considerable expenses. When the Health and Welfare regulations were changed, they undertook to take all necessary steps to continue the import of the product into Canada. For that purpose, they obtained documentation and wrote to both the applicant and the Health Protection Branch of Health and Welfare Canada. These efforts were always left uncompensated. Thus, the granting of this Application would indubitably be prejudicial to the respondents.

IV.      ANALYSIS

     Subsection 18(1) in fine of the Act provides that the registration of a trade-mark is invalid if the applicant for registration was not the person entitled to secure the registration. As was stated by Rouleau J. in Citrus Growers Association Ltd.,⁶ the jurisprudence under section 57 of the Act clearly establishes that a distributor or agent has no right to register a trade-mark owed by the foreign principal, under its own name and for its own benefit. Anything the distributor does with respect to the mark must be for the benefit of the foreign owner of the mark. This flows from the fiduciary duty which is owed by the distributor or agent to its foreign principal.⁷ Thus, a breach of fiduciary duty is a ground for trade-mark expungement.⁸

     The fiduciary duty owed by the distributor or agent to its principal includes a duty of full disclosure. The rationale for that disclosure requirement is to allow the principal to give an informed consent. In this case, the parties raised the question of the extent to which the distributor or agent has to disclose in order to fulfil its obligations to disclose. In Charles Baker Ltd. v. Charles Baker Sr. and Charles Baker Jr.,⁹ the Ontario Court of Appeal stated, at p. 440:

The onus is upon the agent to prove that the transaction was entered into after full and fair disclosure of all material circumstances and of everything known to him respecting the subject-matter of the contract which would be likely to influence the conduct of his principal.

     This case establishes that, first, the disclosure must be complete, and, second, the disclosure has to precede the impugned conduct or transaction.

     Here, in light of the correspondence which was exchanged prior to August 15, 1980, I am not convinced that the respondents did disclose all material circumstances. On the contrary, I find that the respondents' letters dated February 12 and March 11, 1980 were vague. Nowehere in these letters did the respondents fully and frankly disclose their intent to register the SHILING OIL trade-mark. Nowhere did they seek to obtain the informed consent of the applicant. In other words, the respondents did not obtain the applicant's informed consent prior to the date of the impugned registration. It is therefore my opinion that the respondents breached their fiduciary duty.

     As to the respondents' letter dated September 6, 1980, had it been received by the applicant, it would have constituted disclosure after the fact which, in any event, could not have justified a finding that the respondents fully disclosed their intent to seek registration.

     Given my conclusion as to their fiduciary duty, I find that the respondents were not entitled to secure registration of the SHILING OIL trade-mark. It must, however, be determined whether the applicant should be barred from relief based on the principle of estoppel by laches or acquiescence.¹⁰

     In White Consolidated Industries, Inc. v. Beam of Canada Inc.,¹¹ Teitelbaum J. found that the two considerations relevant to estoppel by laches or acquiescence are the length of delay and the nature of the acts done in the interval which might affect either party and cause a balance of justice or injustice in taking one course or the other. These requirements were recently endorsed by the Associate Chief Justice in 1013579 Ontario Inc. v. Bedessee Imports Ltd.¹²

     I agree with the requirements as they were laid down by my colleagues. I find it useful, however, to refer to I.C.F. Spry's summary of the requirements for estoppel by laches in The Principles of Equitable Remedies¹³:

Laches is established when two conditions are fulfilled. In the first place, there must be unreasonable delay in the commencement or prosecution of proceedings; in the second place, in all the circumstances the consequences of delay must render the grant of relief unjust.

     When dealing with the reasonableness of delay, he adds, at pp. 223-225:

The point of time as from which the reasonableness of delay is determined is, prima facie, the time at which the plaintiff came to know of the facts that had given rise to the ground of equitable intervention in question.

* * *

..., the general rule is that in order to establish that the delay of the plaintiff has been excessive it must appear that, in all the material circumstances, a reasonably assiduous person would have proceeded with substantially greater speed or diligence.

     He then turns to the requirement of prejudice to the defendant. He first stresses that there have been cases in which the lapse of time has been treated as a bar in itself. However, it has, since then, become clear that a defendant must establish that the delay of which he complains has caused him to be prejudiced. Unreasonable delay alone is not enough. At p. 229, he states:

There are many ways in which the delay of the plaintiff may give rise to a substantial prejudice to the defendant. A common case is found where the defendant loses meanwhile access to documents or other evidence that affects substantially his ability to defend himself. A further common example arises where, during the period of unreasonable delay, dispositions are made either by the defendant or by a third party and it would be inequitable to disturb them.

     In applying these requirements to the facts of the case at bar, the first question which arises is that of the time at which the applicant came to know of the impugned registration. Counsel for the respondents submitted that the applicant was made aware of the registration by a letter dated September 6, 1980. The applicant argues it never received that letter. Since this letter was never returned to the respondents, I find that argument hard to believe. The applicant was, in any event, informed of the registration by a letter from the respondents dated September 6, 1984. The applicant acknowledged receipt of that letter. The applicant, as a large and sophisticated corporation, upon receiving the respondents' letter dated September 6, 1984, ought to have known that the respondents had obtained registration of the SHILING OIL trade-mark. The words used therein were clear and unambiguous. The applicant only instituted legal proceedings on January 11, 1995. I find that the delay was unreasonable.

     I turn now to the prejudice suffered by the defendants. During the period of delay, the respondents incurred expenses and made efforts to protect the parties' mutually beneficial business relationship. On several occasions, the respondents took necessary steps to protect their rights and those of the applicant. As was submitted by Counsel for the respondents, these efforts were always left uncompensated. For these reasons, I am of the opinion that granting relief in this case would cause the respondents to be prejudiced.

     Accordingly, the application is dismissed.

OTTAWA, Ontario

This 6^th day of February 1997

    

JUDGE

__________________

¹ R.S.C. (1985), ch. T-13.

² Ibid.

³ [1990] 1 F.C. 641 (T.D.).

⁴ (1993), 50 C.P.R. (3d) 477 (F.C.T.D.).

⁵ (1996), 66 C.P.R. (3d) 436 (F.C.T.D.).

⁶ Supra note 3 at 646.

⁷ Ibid. at 647.

⁸ Citrus Growers Association Ltd. v. William D. Branson Ltd., supra note 3 at 647; Sequa Chemicals, Inc. v. United Color and Chemicals Ltd.(1992), 44 C.P.R. (3d) 371 (F.C.T.D.); Fennessy v. Verb Investments Inc., supra note 4; Uniwell Corp. v. Uniwell, North America Inc., supra note 5.

⁹ [1954] 3 D.L.R. 432 (O.C.A.). This passage has, since then, received the approval of the Manitoba Court of Queen's Bench: Redling et al. v. Chatyrbok et al.(1995), 59 C.P.R. (3d) 524 (Man.Q.B.).

¹⁰ The estoppel doctrine does operate in the context of a breach of fiduciary duty. See, as an example, 57134 Manitoba Ltd. v. Palmer et al.(1985), 7 C.P.R. (3d) 477 (B.C.S.C.).

¹¹ (1991), 39 C.P.R. (3d) 94 at 112 (F.C.T.D.).

¹² 1013579 Ontario Inc. v. Bedessee Imports Ltd.(1996), 68 C.P.R. (3d) 486 at 489 (F.C.T.D.); a notice of appeal was filed on July 2, 1996 (Court File No. A-536-96).

¹³ I.C.F. SPRY, The Principles of Equitable Remedies , 4th ed., Carswell Co., 1990, at 223.