BETWEEN:
CANADIAN PRIVATE COPYING COLLECTIVE
- and -
AMICO IMAGING SERVICES INC. and
COMPUTER DIRECT DEPOT INC.
REASONS FOR ORDER
(Delivered from the Bench in Toronto, Ontario
on September 7, 2005)
HUGESSEN J.
[1] This is a motion which in form has for its purpose the adding of "necessary parties" pursuant to Rule 104.
[2] The parties so sought to be added are Messrs. Grunbaum and Frankel who are the principal directors and officers of the defendant Amico Imaging Services Inc. ("Amico") which is now bankrupt and a Mr. Ted Young ("Young") who, at relevant times, was Director of Sales of that company.
[3] The defendant Amico, as I say, is now bankrupt and is not actively involved in the action.
[4] The defendant Computer Direct Depot Inc. ("Computer Depot") did not appear or make representations on the hearing of this motion.
[5] The proposed defendants Mr. Michel Grunbaum ("Grunbaum") and Mr. Amnon Frankel ("Frankel") did appear through counsel and actively opposed the motion.
[6] The proposed defendant Young did not appear and I have now learned that he was not served with the motion.
[7] In my view there is no justification in proceeding with a motion on an ex parte basis against a person whom it is proposed to bring into an existing lawsuit. Such a person should be served.
[8] Accordingly, I am going to dismiss the motion as against the proposed defendant Young with leave to the plaintiff, to serve and reapply, if so advised.
[9] The action itself is for the recovery of private copying levies imposed under the fairly recent provisions of the Copyright Act, R.S.C. 1985, c. C-42 amended in 1997. It was instituted in April 2003 and, at the same time an Anton Piller Order was issued and executed.
[10] The action is in a very advanced stage, at this point, and should be fairly shortly ready for trial.
[11] This motion was brought on, virtually contemporaneously, with the bankruptcy of the defendant Amico.
[12] I will not deal, for the reasons already stated, with those parts of the motion which deal with the reasons for wanting to implead Mr. Young.
[13] Messrs. Grunbaum and Frankel are sought to be impleaded, as I say, on the basis that they are the principal directors and officers of Amico.
[14] The principal allegations against them are to be found in Schedule A to the notice of motion in paragraphs 16 (f), 16(g) and 16(h) of the proposed amended statement of claim.
[15] This brings me back to the nature of the motion itself which, as I said, is stated to be a motion to add necessary parties.
[16] However, it is not and could not be contended that any of the three proposed defendants would be necessary parties in the action as it exists at this moment. They only become necessary if leave to amend the statement of claim is granted so as to include allegations of the personal liability of the directors and officers.
[17] In my view, therefore, the proper principle to apply is not the question of whether or not these parties are necessary, clearly, if the amendments are allowed their presence is necessary because conclusions are sought against them.
[18] The proper rule to apply is the rule concerning amendments and that rule, speaking very generally in this Court, is that amendments should be allowed unless they would result in a prejudice to the opposing party which cannot be compensated by an award of costs. However, it is also the case, as I understand the law, that an amendment to add parties should not be allowed if it would appear that the claim against the proposed new party is spurious.
[19] In my view, on both counts, this motion fails. First dealing with the allegations against Messrs. Grunbaum and Frankel they are, as I say, contained in paragraphs 16 (f), 16(g) and 16(h) which I reproduce here:
16f The Defendants Grunbaum and Frankel were aware of Amico's obligations under the Act and the Tariffs since at least as early as June 2002.
16g As the co-owners, directors and officers of Amico, the Defendants Grunbaum and Frankel act as the "controlling minds" of the company and direct its activities. They had the ability, when they learned about the Private Copying Levies, to direct Amico to comply with its legal obligations, which they did not do.
16h Instead, the Defendants Grunbaum and Frankel approved the Avoidance Scheme proposed by Young and actively participated in it with total indifference to the possibility that Amico's activities were being carried in an unlawful manner. As such, Grunbaum and Frankel deliberately, wilfully and knowingly pursued a course of conduct in breach of Amico's statutory obligations.
[20] Paragraph 16(f) simply says that the proposed new defendants were aware of Amico's obligations under the Tariffs. That may well be so but it does not make them liable for the fulfillment of that obligation. A director is not liable for the debts of his company even if he knows of them, perhaps especially if he knows of them.
[21] Paragraph 16(g) says that they were the controlling minds and wills of the company and directed its activities. That they had the ability when they learned about the private copying levies, to direct Amico to comply with its obligations, which they did not do. That to, as its seems to me, does nothing to engage their personal liability. Again that would apply to any debt by any company and does not make the director who fails to direct payment of a debt personally liable for it.
[22] Paragraph 16(h) is the meat of the matter it says that Grunbaum and Frankel actively participated in and approved of an illegal scheme devised by the other proposed defendant Mr. Young by which the importation of computer discs was to be effected through the other defendant company Computer Depot in such a way as to avoid the payment of the levy.
[23] The evidence upon which the plaintiff relies for this allegation, is evidence that was produced, at an earlier stage, in these proceedings at a time when Grunbaum and Frankel were not parties to this action. I say in passing, that I find that to be irregular. The plaintiff has relied upon affidavits which were produced at an earlier stage, but does not itself produce those affidavits, in support of its motion and does not therefore expose the deponents of those affidavits to cross-examination thereon. The result was that there was a very unsatisfactory cross-examination of the only deponent who was produced by the plaintiff and I will say no more about that.
[24] Of far more consequence, in my view, is the fact that the evidence that was produced does not show actual knowledge and participation by Grunbaum and Frankel in the illegal scheme. In fact, it shows, if anything, that they were deliberately kept in ignorance of it by Young.
[25] They certainly knew that their company was buying discs from Computer Depot and they certainly knew that those discs were being imported from the United States, but that is not enough, in my view, to engage their personal liability for the payment of these levies.
[26] There is as I have mentioned another reason why I would be reluctant to add these persons as parties to the action and it has to do simply with the rules relating to amendments.
[27] As I say much of the evidence in this file, which is now far advanced, went in at a time when they were not parties. I think it will be very difficult at trial to separate out what would be admissible as evidence against persons who were not parties when that evidence went in by discovery or otherwise and what would not. Secondly, the case against the directors and officers involves different issues of law and fact from the case against their company.
[28] The question before the Court in deciding whether or not the directors and officers should be held liable will be whether they had that degree of knowledge and involvement in the illegal scheme which would make them responsible in accordance with the principles laid down by the Court of Appeal, a good many years ago now, in Mentmore Manufacturing Co., Ltd. et al. v. National Merchandise Manufacturing Co. Inc. et al. (1978), 40 C.P.R. (2d) 164 (F.C.A.). That's a different issue from the liability of Amico and Computer Depot directly for the payment of levies.
[29] Perhaps if the case were at an earlier stage, I might be prepared to overlook that and, I would consider that any inconvenience could be compensated by an award of costs but in the present case I do not think that that is so. It will be simply a different issue altogether which is not conveniently tried at the same time as the issue of the liability of Computer Depot.
[30] The plaintiff is, of course, at liberty to bring an action against the two proposed defendants as a separate action, and that is up to it, but I do not think that it is appropriate at this stage, especially, as I say, with the action as far advanced as it is to join them now as parties. They are certainly not necessary parties and I do not think the amendment should be permitted.
[31] Accordingly the motion will be dismissed. The two proposed defendants will be entitled to their costs on the motion to be assessed.
"James K. Hugessen"
Judge
Ottawa, Ontario
September 9, 2005
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-519-03
STYLE OF CAUSE: CANADIAN PRIVATE COPYING COLLECTIVE
And
AMICO IMAGING SERVICES INC. and COMPUTER DIRECT DEPOT INC.
DATE OF HEARING: September 7, 2005
REASONS FOR ORDER: HUGESSEN J.
APPEARANCES:
Madeleine Lamothe-Samson For the Plaintiff
Fred Tayar For Michael Grunbaum
and Amnon Frankel
SOLICITORS OF RECORD:
OGILVY RENAULT
Barristers & Solicitors
Montréal, PQ For the Plaintiff
Shawn M. Philbert
Barrister & Solicitor
Toronto, ON For the Defendant, Computer
Direct Depot Inc.
Fred Tayar & Associates
Barristers & Solicitors
Toronto, ON For Michael Grunbaum
and Amnon Frankel