Toronto, Ontario, October 5, 2005
PRESENT: MADAM PROTHONOTARY MILCZYNSKI
BETWEEN:
DIRECT SOURCE SPECIAL PRODUCTS INC.
and
SONY MUSIC CANADA INC. and SONY MUSIC ENTERTAINMENT (CANADA) INC.
Defendants
REASONS FOR ORDER AND ORDER
[1] The Defendant/Plaintiff by Counterclaim Sony Music Entertainment (Canada) Inc., now SM Music (Canada) Corp. (the "Defendant"), brought this motion, heard October 3, 2005, for:
1. A Show Cause Order that the Plaintiff and Arnold B. Schwisberg appear before this Court at a date and time to be fixed to hear proof of the acts with which they are charged and to urge any grounds of defence that they may have regarding information provided by the Defendant that the Plaintiff and Arnold B. Schwisberg acted in contempt of this Court by virtue of the following acts:
a. In violation of the implied undertakings given by them that documents produced by the Defendant in this action and information therein would only be used for the
purposes of this action, by letter dated February 3, 2005, the Plaintiff and its
solicitor, Arnold B. Schwisberg:
(i) caused documents and information produced by the Defendant in this action to be disclosed to CHUM Limited, a non-party to the action; and
(ii) relied on the documents and information therein for the purpose of threatening litigation against CHUM Limited.
[2] This is an action for infringement of the trade-mark "DANCE MIX". The Plaintiff alleges that the Defendants have used the mark on its product labels and have thereby infringed the Plaintiff's trade-mark rights. The contempt alleged by the Defendant that is the subject of this motion, relates to a breach of the implied undertaking governing the disclosure and use of documents and information obtained through the discovery process.
[3] Rule 467 of the Federal Courts Rules provides for a two step process before any person may be found in contempt of Court. First, the person alleged to be in contempt must be served with an order (a "show cause" order), made on the motion of a person who has an interest in the proceeding or on the Court's own initiative. Secondly, the show cause order, if granted, will require the person that is alleged to be in contempt, to appear before a judge at a stipulated time and place, and be prepared to hear proof of the act or acts with which he or she is charged. The person alleged to be in contempt must also, at that time, be prepared to present any defence that they may have.
[4] A motion for a show cause order has been brought in this case by the Defendant against the Plaintiff and against Plaintiff's counsel. On such motion, in order to grant the show cause order sought, the Court must determine only the threshold issue of whether the evidence establishes a prima facie case that the actions of the alleged contemnor have been committed and that they constitute contempt deserving of sanction of this Court. A motion for a show cause order is not the time or place to argue the merits of the contempt proceeding or what may be valid defences. The exception is in those cases where it is clear from the record that the alleged violation is such that it does not deserve to be punished. This is not the case here. I am satisfied that a prima facie case of contempt has been established, and that the show cause order should issue.
[5] On December 22, 2004, Mr. Schwisberg, counsel for the Plaintiff, wrote to then counsel for the Defendants for the purposes of this action, reminding counsel for the Defendants of the Defendants' ongoing disclosure obligations under the Rules, and for the production of certain documents within their "possession, power or control". Mr. Schwisberg made a demand that was fairly specific and well-defined in terms of what documents or information he was seeking through the production and discovery process.
[6] On January 19, 2005, counsel for the Defendants responded and set out the additional productions at Appendix A and Appendix B of their correspondence for the purposes of the Affidavit of Documents, and provided copies of the described documents, which were sent to Mr. Schwisberg by fax and by courier.
[7] On February 3, 2005, Mr. Schwisberg sent a letter to CHUM Limited ("CHUM"). CHUM is not a party to this action. In his correspondence, Mr. Schwisberg described generally the nature of the litigation between his client and the Defendants - trade-mark infringement with respect to the mark "DANCE MIX", and proceeded to make allegations that CHUM owed his client a fiduciary duty and had conspired with the Defendants to deliberately appropriate the goodwill associated with the trade-mark. Mr. Schwisberg stated that he was making these allegations on the basis of additional documents that were produced by the Defendants on January 19, 2005, noting that "as a result" of these additional documents produced, his client "now knows" of CHUM's wrongdoing. He enclosed some of the documents that were provided to him in the January 19, 2005 correspondence and concludes by essentially noting that there were no other means for his client to have uncovered the conspiracy between CHUM and the Defendants - it only came to light on January 19, 2005. On the basis of the allegations, Mr. Schwisberg advised that his client was prepared to join CHUM to this action or commence a separate action against CHUM, but, to the extent that he might have suggestions for a more productive solution, Mr. Schwisberg invited CHUM to call him.
[8] Documents and information produced on discovery are protected by an implied undertaking by the party receiving the documents and their solicitors that the documents and information will not be used for purposes collateral to the action without seeking the consent of the party making the production, or leave of the Court. A party and its solicitor who use such documents and information for purposes outside the action for which they were produced without consent or leave may be in breach of the implied undertaking and may be liable to be held in contempt of court.
[9] On the basis of the above facts, I am satisfied that there is a prima facie case that there has been a breach of the implied undertaking rule relating to the use of documents and information obtained on discovery. The Plaintiff, through its solicitor, Mr. Schwisberg, appears to have disclosed and used documents obtained from the Defendants in this action without consent and without leave, to correspond to and threaten legal action against a non-party, asserting claims of conspiracy and breach of fiduciary duty against the non-party on the basis of the information disclosed. The allegations of conspiracy involving CHUM Limited to injure the trade-mark are not related to this action for trade-mark infringement. They are, however, made on the basis of documents and information disclosed in this action and are therefore made for collateral and improper purposes. Accordingly, I find that there is an arguable case that the Plaintiff and its solicitor breached the implied undertakings and that there is a prima facie case of contempt of court.
[10] As for costs of this motion, counsel for the Defendants submitted that costs ought to be fixed in the amount of $10,000.00 and made payable forthwith. Counsel for the Plaintiff and Mr. Schwisberg did not oppose that amount to be fixed but submitted that it ought to be payable to the Defendants in the event of the cause.
ORDER
THIS COURT ORDERS that
1. A representative of the Plaintiff and Arnold B. Schwisberg appear before this Court at a date and time to be fixed by the Judicial Administrator to hear proof of the acts with which they are charged and to urge any grounds of defence that they may have regarding information provided by the Defendant that the Plaintiff and Arnold B. Schwisberg acted in contempt of this Court by virtue of the following acts:
a. In violation of the implied undertakings given by them that documents produced by the Defendant in this action and information therein would only be used for the
purposes of this action, by letter dated February 3, 2005, the Plaintiff and its
solicitor, Arnold B. Schwisberg:
(i) caused documents and information produced by the Defendant in this action to be disclosed to CHUM Limited, a non-party to the action; and
(ii) relied on the documents and information therein for the purpose of threatening litigation against CHUM Limited.
2. Counsel for the Defendants shall serve the Plaintiff and Arnold B. Schwisberg with a list of documents to be adduced and witnesses that the Defendants propose to call no later than 20 days before the Contempt Hearing:
3. Costs of this motion are fixed at $10,000.00, to be paid by the Plaintiff and Arnold B. Schwisberg to the Defendant in the event of the cause at the contempt of court hearing.
"Martha Milczynski"
PROTHONOTARY
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1483-99
STYLE OF CAUSE: DIRECT SOURCE SPECIAL PRODUCTS INC.
Plaintiff
and
SONY MUSIC CANADA INC. and SONY MUSIC ENTERTAINMENT (CANADA) INC.
Defendants
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: OCTOBER 3, 2005
REASONS FOR ORDER
AND ORDER BY: MILCZYNSKI P.
DATED: OCTOBER 5, 2005
APPEARANCES BY:
Ian Blue FOR THE PLAINTIFF
Andrew Brodkin
Miles Hastie FOR THE DEFENDANTS
SOLICITORS OF RECORD:
Cassels Brock & Blackwell LLP
Toronto, Ontario FOR THE PLAINTIFF
Goodmans LLP
Toronto, Ontario FOR THE DEFENDANTS