Docket: T-1502-00
Ottawa, Ontario, June 20, 2007
PRESENT: The Honourable Mr. Justice Harrington
BETWEEN:
Plaintiff
and
9038-3746 QUEBEC INC., 9014-5731 QUEBEC INC.,
ADAM CERRELLI and CARMELO CERRELLI
Defendants
REASONS FOR ORDER AS TO COSTS
[1] Microsoft obtained judgment against the defendants, and now seeks an order as to costs. It asks for a lump sum award calculated on a solicitor-client basis. The figure approaches $2,500,000.
[2] The defendants concede that Microsoft is entitled to costs, but argue they should be calculated in accordance with the Tariff which accompanies the Federal Courts Rules. They oppose an award on a lump sum basis as the proceedings stretched out over some six years. They submit that they are entitled to receive an affidavit, to cross-examine and to argue such items as they see fit before a taxation officer.
[3] They also submit that a number of other factors should be taken into account. They say that the time spent on the file and the number of lawyers involved was excessive considering what was in issue. They also submit that Microsoft was not fully successful in that the permanent injunction it obtained was not as broad as the one it had sought. As well, certain offers of settlement, although not better than the judgment obtained, are relevant.
THE JUDGMENT
[4] It was found that the defendants, with the exception of Adam Cerrelli, infringed subsisting copyright and trade-marks pertaining to certain computer programs and related material. Microsoft was awarded statutory damages in the amount of $500,000 as well as an additional $200,000 in punitive damages, $100,000 from the two corporate defendants jointly and severely and a further $100,000 from Carmelo Cerrelli. Pre-judgment and post-judgment interest were awarded on the damages, and a permanent injunction issued.
[5] In virtue of a settlement reached with Adam Cerrelli, no conclusions were sought against him save that it was agreed that if a permanent injunction issued against Carmelo Cerrelli, the same injunction would issue against him. Microsoft also agreed it would not seek costs against him.
THE LAW OF COSTS
[6] Costs are governed by Rules 400 and following of the Federal Courts Rules. Costs normally follow the event, so that on the facts of this case Microsoft, as the successful party, is entitled to costs. The Court has full discretion and may, in appropriate circumstances, both award costs on a solicitor-client basis and for a lump sum in lieu of formal taxation by an assessment officer.
[7] The Rules set out a number of factors which the Court may consider such as the amount claimed and the amount recovered, the importance and complexity of the issues, the outcome of interlocutory motions and offers to settle. The premise of most of these factors is that unless the Court orders otherwise, party and party costs are assessed in accordance with Tariff B which accompanies the Rules.
[8] The granting of costs on a party and party basis assumes a partial, not a complete, indemnity. Solicitor-client costs are allowed when it is appropriate to completely indemnify the successful party, or at least on a very substantial basis. Costs are not usually granted on a solicitor-client basis. Thus the first issue is whether the behaviour of the defendants was such that they should be sanctioned by this type of order.
[9] The second issue is whether costs should be awarded on a lump sump basis. Although an award of lump sum costs is desirable, and certainly simplifies matters, there were several stages to this case which extended over a number of years. In addition, Microsoft submits, and the defendants dispute, that Mr. Cerrelli’s post-judgment testimony is relevant.
[10] Finally, the other factors raised by the defendants should be taken into account as well as certain items they specifically dispute.
SOLICITOR-CLIENT COSTS
[11] Solicitor-client costs are saved for those occasions when a party has displayed reprehensible, scandalous or outrageous conduct (see: Young v. Young, [1993] 4 S.C.R. 3 at pp. 134-135; Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at p. 864 and Apotex Inc. v. Canada (Minister of National Health and Welfare) (2000), 9 C.P.R. (4th) 289 (F.C.A.)).
[12] Any award of costs should be against Carmelo Cerrelli and the two numbered companies on a joint and several basis. Not only was Mr. Cerrelli found liable personally, but he was the directing mind of both corporations. The conduct to be assessed is his.
[13] I have already found that the three defendants acted in bad faith, which was a factor in awarding maximum statutory damages of $20,000 for each of the 25 copyright infringements. I said at paragraph 113 of the reasons for judgment that “their conduct both before and during these proceedings has been dismissive of law and order, and their failure to provide appropriate records, despite court order, demonstrates the necessity of deterring other infringements of the copyrights in question.”
[14] I also awarded punitive damages, which are awarded against defendants in exceptional cases for malicious, oppressive and high handed misconduct that offends the Court’s sense of decency (see: Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, at paragraph 36).
[15] However, those awards do not preclude the award of costs on a solicitor-client basis. Indeed, in cases where statutory damages were awarded, solicitor-client costs were awarded as well. In this regard, see the decision of Mr. Justice Nadon in Wing v. Van Velthuizen (c.o.b. Gratitude Press Canada) (2000), 9 C.P.R. (4th) 449 and the decision of Mr. Justice Lemieux in Telewizja Polsat S.A. v. Radiopol Inc. (2006), 52 C.P.R. (4th) 445, 2006 FC 137.
[16] “Reprehensible” behaviour is that deserving of censure or rebuke; blameworthy. “Scandalous” comes from scandal which may describe a person, thing, event or circumstance causing general public outrage or indignation. Among other things, “outrageous” behaviour is deeply shocking, unacceptable, immoral and offensive (see: Oxford Canadian Dictionary).
[17] Mr. Cerrelli’s behaviour was all of those things, as mentioned throughout my reasons for judgment, more particularly at paragraphs 26, 34, 56-64, 70, 72, 84 (e), 111, 113 and 114.
[18] Mr. Cerrelli had little regard for the truth at discovery and at trial, and failed to produce documents despite court order. The case is somewhat similar to Logiudice v. Her Majesty the Queen (1997), 97 D.T.C. 1462, a decision in which Mr. Justice Bowie of the Tax Court of Canada awarded solicitor-client costs. He said of the applicant at page 1466:
She gave conflicting answers at the trial on a number of occasions, and her answers to a number of questions on crucial issues varied from the answers given by her on discovery. She frequently took refuge during her evidence in the statement that she forgot, or that she was confused. It is very clear that the Appellant has no respect for the oath that she took, and that her evidence was governed not by any desire to tell the truth, but by her view of what story would best serve the interest of herself and her son.
[19] It is Mr. Cerrelli’s conduct as a whole which must be assessed. While not backing down from the defendants’ principal contention that costs should only be awarded on a party and party basis, counsel raised two subsidiary points. One was that if solicitor-client costs were to be awarded, they should not run before the date in 2002 when the defendants were provided with the first affidavit from Robert Friedman. Mr. Friedman had been called by Microsoft as an expert witness and in a clear and convincing manner established that 394 of the 397 CDs he examined were counterfeit. No expert evidence was called in an attempt to rebut him.
[20] The record does not indicate what expert advice, if any, the defendants sought after receiving Mr. Friedman’s opinion. What it does show, however, is that after the Montreal police returned other CDs, and related items, which had been seized, Microsoft asked that they be made available for Mr. Friedman’s inspection. What happened is explained at paragraph 55 and following of the reasons for judgment. First he told his lawyers they were not available for inspection because he had sold them. Then he said he had thrown them in the garbage. Then, and after a court order had been issued to produce them, he said he realized that his instructions had not been followed and so he instructed a new employee to throw out the material in question. As I said at paragraph 64, “however, no matter how this is analyzed, the items had not been destroyed when the lawyer said they were, and, to Mr. Cerrelli’s knowledge were available for inspection after Prothonotary Lafrenière’s order”.
[21] Instead of admitting that the items were counterfeit, which still would have left open the issue of his personal liability because he was not the importer of the copyrighted works, he tried to cover up.
[22] There is no room for argument here that at times Mr. Cerrelli’s behaviour was less scandalous than at others. Nor is there any merit in the point that there was cooperation between counsel. This is not a case where the liability of a solicitor for costs is in issue pursuant to rule 404.
[23] The other point arises from the decision of Mr. Justice O’Keefe in Abbott Laboratories v. Canada (Minister of Health), 2007 FC 50, currently under appeal. Abbott obtained an order for costs against Pharmascience Inc. in respect to an application pursuant to the Patented Medicine (Notice of Compliance) Regulations. Mr. Justice O’Keefe’s decision was based on issue estoppel, a branch of res judicata. Although he awarded party and party costs rather than solicitor-client costs, he awarded a lump sum which was far above the Tariff. He awarded about 52% of solicitor-client costs.
[24] He took note of the decision of the Federal Court of Appeal in Consorzio del Prosciutto di Parma v. Maple Leaf Meats Inc., [2003] 2 F.C. 451, 2002 FCA 417, where Mr. Justice Rothstein pointed out that the discretionary power of the Court means the Court may fix costs by referring to the Tariff or may depart from it, and that the objective of party and party costs is to award an appropriate contribution toward solicitor-client costs.
[25] In this case what is appropriate is not a contribution towards solicitor-client costs, but rather actual solicitor-client costs, save some deductions which I shall detail.
[26] To conclude on this point, Microsoft is entitled to costs on a solicitor-client basis.
LUMP SUM COSTS
[27] In the cases which admit of it, lump sum costs should be awarded. It saves the time and expense of what could be protracted accounting and taxation. The administration of justice is better served if the time of designated officers is not unnecessarily taken up (see: Barzelex Inc. v. “EBN Al Waleed” (The), [1999] F.C.J. No. 2002 (T.D.) (QL); Eli Lilly and Co. v. Novopharm Ltd. (1998), 83 C.P.R. (3d) 31 (F.C.T.D.); and Consorzio del Prosciutto di Parma v. Maple Leaf Foods Inc., previously cited. Although speaking of damages, rather than costs, I ascribe to the view expressed by Winn, L.J. of the English Court of Appeal in Doyle v. Olby (Ironmongers) Ltd., [1969] 2 All E.R. 119 at page 124:
I think myself with confidence that there is already sufficient evidentiary material available to enable this court to make a jury assessment in round figures. It would be wrong and indeed an intolerable expenditure of judicial time and money of the parties to embark on any detailed consideration of isolated items in the account on which a balance must be struck.
[28] During a scheduling conference, I expressed some concern as to the appropriateness of awarding costs on a lump sum basis given all that had been involved over a six-year period. To bolster its position, Microsoft asked that I take into account the examination of Carmelo Cerrelli in aid of execution of judgement. Counsel for the defendants objected as post-judgment behaviour should not be relevant in terms of awarding solicitor-client costs up to and including trial.
[29] However, I allowed the transcript, as I was assured by Microsoft that its only point was to prove that Mr. Cerrelli had testified that neither he nor the two numbered companies was in position to satisfy the judgment, and hence any award of costs. A tedious taxation could well be a waste of time and effort, and delay matters.
[30] An award of lump sum costs would deprive the defendants of the opportunity of testing the amounts claimed. However, the draft bill of costs accompanying the motion is extremely well detailed and what happened, including examinations for discovery, objections, rulings and the trial, is already in the record. Microsoft argues that it is the principle which is important here. It wants a clear message that the Court will not sanction cavalier disregard of intellectual property rights. An award of solicitor-client costs on a lump sum basis, goes as Voltaire would put it, “pour encourager les autres”.
[31] Furthermore, to avoid any appearance that the defendants were being deprived of their rights, they would be prepared to discount the fee by 25%.
[32] On the facts of this case, I think that it is appropriate to take this circumstance into account, and will award lump sum costs.
DEDUCTIONS
[33] The legal fees claimed are in the amount of $1,950,947.55. They include fees which relate to a number of interlocutory motions on which costs have already been awarded. Microsoft submits that it is important to “top up” those costs awards so as to provide full indemnity. It is submitted that it is appropriate to do so now since it is only now that the full extent of the defendants’ misconduct is known. Reference was made in particular to the decision of Mr. Justice Muldoon in Maison des Pâtes Pasta Bella Inc. v. Olivieri Foods Ltd. (1999) 163 F.T.R. 252, [1999] F.C.J. No. 213 (QL). As I understand it, Mr. Justice Muldoon was speaking of costs awarded on a party and party basis. I agree that in this case it would be unfair to deny Microsoft the remaining costs from such interlocutory orders. However, specific amounts were already awarded on four motions. The awards were above Tariff and reflected the Court’s displeasure. In at least one instance the order was satisfied in full.
[34] It seems to me that if a party seeks and obtains an order above Tariff on an interlocutory motion, that order should not be reassessed at a later date.
[35] The fees on those motions were about $150,000. To round matters off, the fees are thus reduced to $1,800.000. It bears mentioning that as part of the discount in order to get a quick lump sum order, Microsoft had also offered to waive this $150,000, quite apart from the 25% discount. However, I want to make it clear that I would not have awarded the “topping off” in any event.
[36] Although a 25% discount appears to be reasonable, the defendants argue that the plaintiff was overzealous in the total amount of time spent, and in the number of lawyers and other legal personnel utilized. No doubt Microsoft wanted to get it right. Some of the issues were novel. Taking into account that the possibility that probing during a taxation might have turned up something, my decision is to discount the fees of $1,800,000 by 30% rather than 25%.
[37] It should not be thought that the amount sought, or awarded, in damages constitutes a ceiling on costs. The amount in issue is but one of many factors to take into account, quite apart from the fact Microsoft also sought, and was granted, equitable relief.
[38] The disbursements claimed, apart from Mr. Friedman’s fees and disbursements, are in the amount of $198,143.61 plus the cost of photocopying which has not yet been calculated. There were 37,194 photocopies.
[39] The defendants expressed particular concern over some of the fees incurred. For instance, the plaintiff incurred some $40,000 in witness fees and disbursements of non-experts, who could have been subpoenaed and paid little or nothing. They also paid over $22,000 to a note taker during trial, notwithstanding evidence was being transcribed by an official court reporter. Furthermore, Microsoft has not yet been billed for the costs of photocopies.
[40] Rather than a taxation, I consider it fair and reasonable to fix the disbursements, other than Mr. Friedman’s account, at $150,000.
[41] Mr. Friedman’s fees and disbursements total US$175,715.23. I allow them in full. They should be converted into Canadian dollars as of the date liability was incurred, which I will take to be the date of the various invoices (see: Capitol Life Insurance Co. v. Canada (1988), 87 N.R. 153, [1988] F.C.J. No. 579 (F.C.A.) (QL); and N.V. Bocimar S.A. v. Century Insurance Co. of Canada (1984), 53 N.R. 383, overruled on other points, [1987] 1 S.C.R. 1247).
OTHER FACTORS
[42] The defendants made reference to three settlement offers, two by them and one by Microsoft. The offers by the defendants are not relevant in that they did not include a permanent injunction. The offer by Microsoft is more relevant in terms of damages; however, the permanent injunction it sought was wider than the one which was granted. I do not consider the settlement offers relevant as to costs.
[43] The defendants submit that Microsoft only obtained divided success in that the injunction it obtained was narrower than the one it sought. However, it is well established that as long as a plaintiff obtains judgment, it is still entitled to costs. In Liquilassie Shipping Ltd. v. M.V. “Nipigon Bay” (The), [1975] 2 Lloyd’s Rep. 279, [1975] F.C.J. No. 209 (QL), the plaintiff’s ship was crowded in a seaway and went aground. Mr. Justice Walsh found the plaintiff’s ship 20% to blame and the defendant ship, which suffered no damage, 80%. As to costs being divided on the same basis as the division of fault, Mr. Justice Walsh noted that the cases relied on by the defendant dealt with collisions in which the two ships had suffered damage. The trial only served to reduce the amount of the plaintiff’s claim without avoiding liability all together, and so there should be no proportionate reduction in costs.
[44] In Sunrise Co. v. “Lake Winnipeg” (The), [1988] F.C.J. No. 1009 (F.C.A.) (QL), Mr. Justice Hughessen stated:
While it is true that the appeal on liability, though unsuccessful, occupied the greater part of the time of the hearing, I do not think that that is any reason for departing from the general rule and depriving the successful appellants of their costs. To do so would be to set an unfortunate precedent, which might result in much lost judicial time making fine distinctions. Unless there has been an abuse of the court's process, a successful appellant, like a successful plaintiff, should not be penalised simply because not all the points he has taken have found favour with the court. I would accordingly give the appellants the costs of their appeal in the ordinary way, subject only to the exception which follows.
The point upon which the appellants succeeded was, as has been indicated, a pure question of law. Since the factual background had been admitted, no part of the evidence at trial was necessary for this court's disposition of the matter. The transcription and reproduction of that evidence was wholly unnecessary and it would be unjust to make the respondents pay for them. Accordingly, judgment should be entered in the terms agreed by the parties with an order as to costs giving the appellants the costs of the appeal (excluding the costs of transcription and reproduction of the evidence at trial). I would make no order for costs on the present motion.
[45] In this case, the issues which did not find favour such as grey market activities and the extension of the permanent injunction to copyrights which had not been alleged, were pure questions of law, and did not add in any meaningful way to the time and material before the Court.
SUMMATION
[46] The plaintiff is awarded costs against 9038-3746 QUEBEC INC., 9014-5731 QUEBEC INC. and Carmelo Cerrelli jointly and severely, comprising legal fees of $1,260,000, ordinary disbursements of $150,000, and the Canadian equivalent of US$175,715.23 covering the fees and disbursements of Robert Friedman. These costs cover the motion for directions on costs, pre-hearing conferences, and the hearing. They also cover the award of costs on all interlocutory motions except those granted by order of Prothonotary Lafrenière on 23 November 2004, 19 July 2005 and 7 November 2005, as well as the order of Mr. Justice Kelen dated 23 August 2005. They do not cover the courtroom rental charge, or the efforts to execute judgment.
“Sean Harrington”
Judge
FEDERAL COURT
SOLICITORS OF RECORD
STYLE OF CAUSE: Microsoft Corporation v.
9038-3746 Quebec Inc., 9014-5731 Quebec Inc., Adam Cerrelli and Carmelo Cerrelli
PLACE OF HEARING: Toronto, Ontario
DATES OF HEARING: June 11, 2007
TO COSTS: HARRINGTON J.
DATED: June 20, 2007
APPEARANCES:
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Mr. John C. Cotter Ms. Tara James
|
|
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Mr. Dany S. Perras
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SOLICITORS OF RECORD:
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Osler, Hoskin & Harcourt LLP Barristers & Solicitors Toronto, Ontario
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FOR THE PLAINTIFF |
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Michelin & Associates Barristers & Solicitors Montreal, Quebec |
FOR THE DEFENDANTS |