Judgments

[1996] 3 F.C. 40

A-535-94

Imperial Oil Limited and its subdivision Paramins (Appellant) (Respondent)

v.

The Lubrizol Corporation and Lubrizol Canada Limited (Respondents) (Plaintiffs)

Indexed as: Lubrizol Corp. v. Imperial Oil Ltd. (C.A.)

Court of Appeal, Stone, Linden and McDonald JJ.A. —Toronto, February 12, 13; Ottawa, April 3, 1996.

Damages — Non-compensatory — Exemplary — Appeal from exemplary damages award — Trial Judge awarding exemplary damages before reference to assess amount of compensatory award for patent infringement — Exemplary damages intended to punish, express outrage at egregious conduct, deter — Awarded only where combined general, aggravated damages insufficient to punish, deter — Court to assess exemplary damages only if deciding general damages awarded insufficient for punishment, deterrent purposes.

Practice — Evidence — Appeal from order dismissing motion to adduce further evidence on continuance of trial of claim for exemplary damages — Claim for exemplary damages referred back to Trial Judge for continuance — Discretion conferred by R. 494 applied as trial still in progress — Discretionary decisions interfered with only if Trial Judge not giving sufficient weight to all relevant considerations — Trial Judge not giving sufficient weight to fact appellant permanently deprived of adequate opportunity to defend against serious claim — Justice requiring opportunity for appellant to adduce further evidence on claim for exemplary damages.

Practice — Pleadings — Claim for exemplary damages referred back to Trial Judge for continuance — Claim not initially pleaded but added by amendment — Federal Court Rules not requiring exemplary damages claim be specifically pleaded — While R. 409(b) requiring party to plead so as not to take another by surprise, Rules not regarding failure to so plead as running afoul of rule.

Practice — Res judicata — Claim for exemplary damages referred back to Trial Judge for continuance — Appellant not estopped by doctrine of res judicata from raising issue of postponement of assessment of exemplary damages — F.C.A. not specifically directing Trial Judge to assess exemplary damages separately from general — Court bound by S.C.C. decision general damages to be assessed before award of exemplary damages considered.

Practice — Costs — Trial Judge in patent infringement action awarding costs on party and party basis — Appeal therefrom dismissed with costs — Cross-appeal re: exemplary damages claim allowed with costs in event of Trial Judge’s disposition of claim — At continuance, Trial Judge awarding costs on solicitor-client basis for motions, trial, appeal, continuance — Only costs on cross-appeal, continuance remaining for Trial Judge’s discretion — Other costs already awarded under final orders, judgments not subject to variation — Trial Judge lacking jurisdiction to change basis of previously awarded costs.

This was an appeal from a Trial Division order awarding the respondents exemplary damages and from an earlier order dismissing with costs the appellant’s motion to adduce further evidence on the continuance of the trial of the respondents’ claim for exemplary damages. In 1989 an interlocutory injunction was granted restraining Imperial Oil from making, using, selling any lubricating composition or lubricant additive containing Lubrizol’s products ECA 10444 or ECA 11014, including Paranox 600 and 300. The patent was subsequently found to be valid and infringed and Lubrizol was awarded its costs. Lubrizol subsequently elected an accounting of Imperial Oil’s profits. An appeal from the trial judgment was dismissed with costs, but the cross-appeal was allowed and Lubrizol’s claim for exemplary damages was referred back to the Trial Judge for a continuance of the trial. The costs of the cross-appeal were to “be in the event of the Trial Judge’s disposition of that claim”. Exemplary damages were awarded with costs on a solicitor and client basis “for motions, trial, appeal and continuance of the trial”.

The issues were: (1) whether the Trial Judge erred in refusing to allow Imperial Oil to adduce evidence about the alleged contempt of the interlocutory injunction; (2) whether the factual finding that Imperial Oil knowingly breached the interlocutory injunction was a palpable and overriding error; (3) whether the Trial Judge erred in awarding punitive damages before the Court assessed the amount of the compensatory award against Imperial Oil; and (4) whether the Trial Judge had jurisdiction to change his earlier award of costs and to amend the award of costs in the Court of Appeal despite the Court’s order.

Held, the appeal should be allowed.

(1) Although Lubrizol’s initial pleading did not include a claim for exemplary damages, the amended statement of claim did contain an allegation that Imperial Oil knowingly appropriated the invention of, and wilfully infringed the patent and persisted in wilful infringement. The pleading was amended in 1989 to claim “exemplary or punitive damages” and counsel’s opening address at trial referred to the claim for exemplary damages. Imperial Oil cannot now argue that callous disregard of the interlocutory injunctions giving rise to exemplary damages was not properly before the Trial Judge for lack of pleading. Imperial Oil was obviously aware that the claim was being pursued on the cross-appeal. The interlocutory injunction was granted in the framework of the litigation. While callous disregard of the interlocutory injunction was not pleaded, the obvious purpose of counsel’s opening was to raise that issue, to assert a claim for exemplary damages and to provide particulars thereof. The trial proceeded without request for adjournment. Evidence relevant to counsel’s assertions was adduced by Lubrizol without further objection. The argument that the allegation of callous disregard was not properly before the Trial Judge because it was not specifically pleaded, was not raised on the cross-appeal, which succeeded. Imperial Oil cannot now re-litigate the point. The matter was returned to the Trial Judge for continuance on the express basis that the claim was not devoid of evidential support.

In any event, the issue had been sufficiently raised to permit its adjudication. The Federal Court Rules do not require exemplary damages to be specifically pleaded. Exemplary damages can be awarded even though not pleaded wherever rules of practice do not require a claim for exemplary damages to be specifically pleaded. While Rule 409(b) lays down a general requirement that a party must plead in such a way as not to take another by surprise, the Rules, by not expressly requiring exemplary damages to be specifically pleaded, evidently do not regard a failure to so plead as running afoul of that rule. That is not to say that a specific plea would not be preferable.

The discretion conferred by Rule 494 applied because the trial was still in progress. A discretionary decision should only be interfered with if, in exercising it, the Trial Judge failed to give “sufficient weight to all relevant considerations”. In rejecting the motion for further evidence, the Trial Judge failed to give sufficient weight to the fact that the appellant would be permanently deprived of an adequate opportunity of defending itself against a very serious claim. In these exceptional circumstances, the appellant should not be deprived of a fair opportunity to fully respond to the grave misconduct with which it is charged and the potential award of exemplary damages. Fairness and justice required that the appellant should have been permitted to adduce further evidence on the claim for exemplary damages at the continuance to the extent of showing, if it could, that it did not callously disregard the interlocutory injunction even though it was found to have done so knowingly. It should have that opportunity on a further continuance.

(2) Imperial Oil contended that the Trial Judge committed a “palpable and overriding error” in finding that its product ECA 10444 was the same as Lubrizol’s ECA 10271. The interlocutory injunction was clear on its face and the Trial Judge concluded, based upon the language and the evidence before him that the appellant had failed to respect its requirements. That finding was open to him on the evidence. However, as that evidence was incomplete, the appellant should be permitted to adduce evidence to explain its conduct for failing to comply with the injunction, if able to do so, but not that by its actions it did not knowingly contravene the interlocutory injunction.

(3) Punitive or exemplary damages are intended to “punish” a defendant and to express “outrage at the egregious conduct of the defendant”. They are akin to a civil fine which is meant to “act as a deterrent to the defendant and to others from acting in this manner”. Exemplary damages may be awarded only “where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence”. In addition, it is necessary for such an award to “serve a rational purpose” i.e. was the misconduct so outrageous that punitive damages were rationally required to act as a deterrent? There remains outstanding a claim for general damages which has not been quantified. This claim awaits assessment on the reference. The Court cannot decide whether exemplary damages are required until after it decides whether the general damages were insufficient for punishment and deterrent purposes.

The appellant was not estopped by the doctrine of res judicata from raising the issue of the postponement of the assessment of the exemplary damages. The Court of Appeal did not specifically direct the Trial Judge to assess the exemplary damages separately from the general damages. In any event, this Court was bound by the decision of the Supreme Court of Canada in Hill v. Church of Scientology that general damages must be determined before an award of exemplary damages can be made.

The amount of the award will depend on the figure required to deter the appellant and others, in all the circumstances.

Once the trial judgment was issued and filed, the Trial Judge was functus officio. The only costs remaining for the Trial Judge’s discretion were those on the cross-appeal and on the continuance. All other costs had already been awarded under orders or judgments which had become final and were not subject to variation by the Trial Judge. These included the disposition of all costs left to the discretion of the Trial Judge at trial, a discretion which, having been exercised in his judgment of September 17, 1990 could not be again exercised. Moreover, the Trial Judge lacked jurisdiction to change the basis of any previously awarded costs. He did possess jurisdiction under the Court of Appeal’s judgment to dispose of the costs on the cross-appeal in his discretion and likewise to award the costs of the continuance.

The matter was remitted to the Trial Judge for a further continuance of the trial subject to directions as to the issue to be retried, production and discovery relating thereto, documentary and oral evidence and when the question of exemplary damages should be considered and, if necessary, assessed.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Federal Court Act, R.S.C., 1985, c. F-7, s. 52(b)(iii).

Federal Court Rules, C.R.C., c. 663, RR. 337(5),(6), 408(1), 409(b), 415(1)(a), 494 (as am. by SOR/90-846, s. 21).

Rules of the Supreme Court 1965 (U.K.), S.I. 1965/1776, Ord. 18, r. 8.

CASES JUDICIALLY CONSIDERED

FOLLOWED:

Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130; (1995), 126 D.L.R. (4th) 129; 25 C.C.L.T. (2d) 89; 184 N.R. 1.

APPLIED:

Green v. Weatherill, [1929] 2 Ch. 213; Henderson v. Henderson (1843), 3 Hare 100; Vidéotron Ltée v. Industries Microlec Produits Électroniques Inc., [1992] 2 S.C.R. 1065; (1992), 96 D.L.R. (4th) 376; 76 C.C.C. (3d) 289; 45 C.P.R. (3d) 1; 141 N.R. 281; 50 Q.A.C. 161; Cropper v. Smith (1884), 26 Ch. D. 700 (C.A.).

CONSIDERED:

Lubrizol Corp. v. Imperial Oil Ltd. (1989), 23 C.I.P.R. 302; 22 C.P.R. (3d) 493; 25 F.T.R. 33 (F.C.T.D.); Lubrizol Corp. v. Imperial Oil Ltd. (1989), 27 C.I.P.R. 147; 26 C.P.R. (3d) 461; 103 N.R. 237 (F.C.A.); Lubrizol Corp. v. Imperial Oil Ltd. (1990), 33 C.P.R. (3d) 1; 39 F.T.R. 161 (F.C.T.D.); Imperial Oil Ltd. v. Lubrizol Corp. (1993), 48 C.P.R. (3d) 1; 154 N.R. 196 (F.C.A.); Lubrizol Corp. v. Imperial Oil Ltd. (1992), 98 D.L.R. (4th) 1; 45 C.P.R. (3d) 449; 150 N.R. 207 (F.C.A.) leave to appeal to S.C.C. refused [1993] 3 S.C.R. vii; Lubrizol Corp. v. Imperial Oil Ltd. (1994), 55 C.P.R. (3d) 141 (F.C.A.); Broome v. Cassell & Co. Ltd., [1971] 2 Q.B. 354 (C.A.); Glisic v. Canada, [1988] 1 F.C. 731 (1987), 80 N.R. 39 (C.A.); Broome v. Cassell & Co. Ltd., [1972] A.C. 1027 (H.L.); TRW Inc. v. Walbar of Canada Inc. (1991), 39 C.P.R. (3d) 176; 132 N.R. 161 (F.C.A.); Esso Petroleum Co. Ltd. v. Southport Corporation, [1956] A.C. 218 (H.L.); Grenn v. Brampton Poultry Co. (1959), 18 D.L.R. (2d) 9 (Ont. C.A.); Wood v. British Columbia Electric Ry. Co., Ltd. (1925), 34 B.C.R. 527 (S.C.); Celestino v. Celestino, judgment dated August 16, 1990, Fed. Ct. of Aust. A.C.T., not reported; Bird v Northern Territory (1992), 108 FLR 270 (S.C.N.T.); Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085; (1989), 58 D.L.R. (4th) 193; [1989] 4 W.W.R. 218; 36 B.C.L.R. (2d) 273; 25 C.C.E.L. 81; 90 CLLC 14,035; 94 N.R. 321.

REFERRED TO:

Maynard v. Maynard, [1951] S.C.R. 346; [1951] 1 D.L.R. 241; Fidelitas Shipping Co. Ltd. v. V/O Exportchleb, [1966] 1 Q.B. 630 (C.A.); Gulf Canada Limited v. The Tug Mary Mackin, [1984] 1 F.C. 884 (1984), 42 C.P.C. 146; 52 N.R. 282 (C.A.); Drane v Evangelou, [1978] 2 All E.R. 437 (C.A.); Starkman v. Delhi Court Ltd., [1961] O.R. 467 (C.A.); Sturrock et al. v. Ancona Petroleums Ltd. et al. (1990), 111 A.R. 86; 75 Alta. L.R. (2d) 216 (Q.B.); United Nurses of Alberta v. Alberta (Attorney General), [1992] 1 S.C.R. 901; (1992), 71 C.C.C. (3d) 225; 135 N.R. 321; Reza v. Canada, [1994] 2 S.C.R. 394; (1994), 116 D.L.R. (4th) 61; 22 Admin. L.R. (2d) 79; 21 C.R.R. (2d) 236; 24 Imm. L.R. (2d) 117; 167 N.R. 282; 72 O.A.C. 348; Becker Milk Co. Ltd. et al. v. Consumers’ Gas Co. (1974), 2 O.R. (2d) 554; 43 D.L.R. (3d) 498 (C.A.); International Corona Resources Ltd. v. LAC Minerals Ltd. (1988), 66 O.R. (2d) 610 (H.C.); Shoe Machinery Company v. Cutlan, [1896] 1 Ch. 108 (C.A.); Norberg v. Wynrib, [1992] 2 S.C.R. 226; (1992), 92 D.L.R. (4th) 449; [1992] 4 W.W.R. 577; 68 B.C.L.R. (2d) 29; 9 B.C.A.C. 1; 12 C.C.L.T. (2d) 1; 138 N.R. 81; 19 W.A.C. 1; Rookes v. Barnard, [1964] A.C. 1129 (H.L.); MacDonald Estate, Re (1993), 89 Man. R. (2d) 161 (Q.B.); MacDonald Estate, Re (1994), 95 Man. R. (2d) 123 (C.A.); Robitaille v. Vancouver Hockey Club Ltd. (1979), 19 B.C.L.R. 158 (S.C.); affd (1981), 124 D.L.R. (3d) 228; [1981] 3 W.W.R. 481; 30 B.C.L.R. 284; 16 C.C.L.T. 225; 20 C.P.C. 293 (B.C.C.A.); Coughlin v. Kuntz, [1990] 2 W.W.R. 737; (1989), 42 B.C.L.R. (2d) 108; 2 C.C.L.T. (2d) 42 (B.C.C.A.); Huff v. Price (1990), 76 D.L.R. (4th) 138; 51 B.C.L.R. (2d) 282; 46 C.P.C. (2d) 209 (B.C.C.A.); Pro Arts, Inc. v. Campus Crafts Holdings Ltd. et al. (1980), 28 O.R. (2d) 422; 110 D.L.R. (3d) 366; 10 B.L.R. 1; 50 C.P.R. (2d) 230 (H.C.); Fenwick v. Staples (1977), 18 O.R. (2d) 128; 82 D.L.R. (3d) 145 (Co. Ct.); Canada Metal Co. Ltd. et al. v. Canadian Broadcasting Corp. et al. (No. 2) (1974), 4 O.R. (2d) 585; 48 D.L.R. (3d) 641; 19 C.C.C. (2d) 218 (H.C.); affd (1974), 11 O.R. (2d) 167; 65 D.L.R. (3d) 231; 29 C.C.C. (2d) 325 (C.A.); Dictionnaires (Les) Robert Canada SCC et al. v. Librairie du Normade Inc. et al. (1987), 16 C.P.R. (3d) 319; 11 F.T.R. 44 (F.C.T.D.); Reading & Bates Construction Co. v. Baker Energy Resources Corp., [1995] 1 F.C. 483 (1994), 58 C.P.R. (3d) 359; 175 N.R. 225 (C.A.); General Tire & Rubber Co. v. Firestone Tyre & Rubber Co. Ltd., [1976] R.P.C. 197 (H.L.); Gustar v. Wadden, [1994] 7 W.W.R. 148; (1994), 45 B.C.A.C. 55; 91 B.C.L.R. (2d) 86; 26 C.P.C. (3d) 197; 72 W.A.C. 55 (B.C.C.A.); Claiborne Industries Ltd. v. National Bank of Canada (1989), 69 O.R. (2d) 65; 59 D.L.R. (4th) 533; 34 O.A.C. 241 (C.A.); Paper Machinery Ltd. et al. v. J. O. Ross Engineering Corp. et al., [1934] S.C.R. 186; [1934] 2 D.L.R. 239; Chandler v. Alberta Association of Architects, [1989] 2 S.C.R. 848; (1989), 101 A.R. 321; 62 D.L.R. (4th) 577; [1989] 6 W.W.R. 521; 70 Alta. L.R. (2d) 193; 40 Admin. L.R. 128; 36 C.L.R. 1; 99 N.R. 277.

AUTHORS CITED

Bullen & Leake’s Precedents of Pleadings, 10th ed. by George Kirkhouse Jenkins. London: Sweet & Maxwell, 1950.

Ontario Law Reform Commission. Report on Exemplary Damages. Toronto: The Commission, 1991.

Roy, Pauline. Les dommages exemplaires en droit québécois. Doctoral Thesis, University of Montréal, 1996.

Supreme Court Practice 1993. London: Sweet & Maxwell, 1992.

Williston, W. B. and R. J. Rolls. The Law of Civil Procedure. Toronto: Butterworths, 1970.

APPEAL from Trial Division orders awarding the respondents exemplary damages and dismissing with costs the appellant’s motion to adduce further evidence on the continuance of the trial of the respondents’ claim for exemplary damages (Lubrizol Corp. et al. v. Imperial Oil Ltd. et al. (1994), 84 F.T.R. 197; 58 C.P.R. (3d) 167 (F.C.T.D.); Lubrizol Corp. v. Imperial Oil Ltd. (1994), 55 C.P.R. (3d) 129; 79 F.T.R. 14 (F.C.T.D.)). Appeal allowed.

COUNSEL:

W. Ian C. Binnie, Q.C. and Jenny P. Stephenson for appellant (respondent).

Donald J. Wright, Q.C., Donald H. MacOdrum and Peter E. J. Wells for respondents (plaintiffs).

SOLICITORS:

McCarthy Tétrault, Toronto, for appellant.

Ridout & Maybee, Toronto, for respondents.

The following are the reasons for judgment rendered in English by

Stone and Linden JJ.A.: This appeal is from an order of the Trial Division of October 4, 1994 [Lubrizol Corp. et al. v. Imperial Oil Ltd. et al. (1994), 84 F.T.R. 197] awarding the respondents $15,000,000 in exemplary damages, and from its earlier order of April 25, 1994 [Lubrizol Corp. v. Imperial Oil Ltd. (1994), 55 C.P.R. (3d) 129 (F.C.T.D.)] dismissing with costs the appellant’s motion to adduce further evidence on the continuance of the trial of the respondents’ claim for exemplary damages.

BACKGROUND

The action was commenced March 16, 1987 for infringement and inducing infringement of Canadian patent No. 1,094,044. By order of January 12, 1989 [Lubrizol Corp. v. Imperial Oil Ltd. (1989), 23 C.I.P.R. 302 (F.C.T.D.)], Reed J. granted an interlocutory injunction in the action restraining the appellant,

… from making, having made, using, selling or offering for sale, in Canada, any lubricating composition or lubricant additive containing the defendant’s products ECA 10444 or ECA 11014, including its products Paranox 600 and Paranox 300, and from supplying in or from Canada any such composition or additive combination in a lubricating composition outside Canada.

An appeal against that order was allowed by this Court on September 22, 1989 [Lubrizol Corp. v. Imperial Oil Ltd. (1989), 27 C.I.P.R. 147 (F.C.A.)] but only to the extent of varying the award of costs made by Reed J.

After a twenty-nine day trial which commenced May 7, 1990, by judgment of September 17, 1990 [Lubrizol Corp. v. Imperial Oil Ltd. (1990), 33 C.P.R. (3d) 1 (F.C.T.D.)], the learned Trial Judge found the patent to be valid and infringed. By the terms of that judgment, the respondents were awarded an election of being paid damages or profits made by the appellant, to be determined on a reference pursuant to the consent order of Associate Senior Prothonotary Giles of March 22, 1989. The respondents were awarded their costs. On February 23, 1995 the respondents filed an election for an account of the appellant’s profits.

By judgment of April 14, 1993 [Imperial Oil Ltd. v. Lubrizol Corp. (1993), 48 C.P.R. (3d) 1 (F.C.A.)], this Court dismissed with costs the appellant’s appeal from the judgment at trial but allowed the respondents’ cross-appeal in the following terms:

5. The cross-appeal is allowed. Pursuant to Section 52(b)(iii) of the Federal Court Act, the matter of the claim of the Respondents (Plaintiffs), the cross-appeal appellants, for exemplary damages is referred back to the Trial Judge for a continuance of the trial to deal with that claim.

This Court ordered the costs of the cross-appeal “to be in the event of the Trial Judge’s disposition of the claim”.

Leave to appeal from the judgment of this Court was dismissed by the Supreme Court of Canada [Imperial Oil Ltd. v. Lubrizol Corporation, [1993] 3 S.C.R. vii].

By order of April 25, 1994, the Trial Judge dismissed the appellant’s motion to adduce further evidence on the continuance of the trial with respect to the claim for exemplary damages. That order, too, was the subject of an appeal, which was dismissed with costs by this Court’s judgment of June 1, 1994 [Lubrizol Corp. v. Imperial Oil Ltd. (1994), 55 C.P.R. (3d) 141] on the ground that it was a matter that could be raised on an appeal from the final judgment at trial. Finally, as already indicated, the Trial Judge by his judgment of October 4, 1994, awarded exemplary damages with costs on a solicitor and client basis “for motions, trial, appeal and continuance of the trial.”

THE ISSUES

The issues raised in this appeal are as follows:

(1) Did the Trial Judge err in refusing to allow Imperial Oil to adduce evidence about the alleged contempt of the interlocutory injunction?

(2) Was the factual finding by the Trial Judge that Imperial Oil knowingly breached[1] the interlocutory injunction a palpable and overriding error?

(3) Did the Trial Judge err in proceeding to award punitive damages before the Court assessed the amount of the compensatory award against Imperial Oil?

(4) Did the Trial Judge have jurisdiction to change the basis of the award of costs he had previously made (and which had been affirmed by this Court) from a party and party award to an award on a solicitor client basis, and further to amend the award of costs in the Federal Court of Appeal despite the order of this Court?

ANALYSIS

Issue No. 1

The appellant reduces this first issue to three sub-issues. These are whether the respondents had complied with relevant rules of pleading and particularly paragraphs 409(b) and 415(1)(a) of the Federal Court Rules [C.R.C., c. 663]; whether the Trial Judge correctly characterized the appellant’s decision not to lead evidence on the claim for callous disregard of the interlocutory injunction as a “tactical decision” and, if so, whether the Court should punish the appellant by concluding on an incomplete record that it had so disregarded the interlocutory injunction; finally, whether the Trial Judge erred in applying the rules governing the introduction of fresh evidence on appeal in deciding to disallow any further evidence on the continuance. It is sufficient, in our view, that these sub-issues be dealt with in the overall context of the primary issue.

In the Court below, the appellant contended that it should have been permitted to adduce further evidence on the continuance with respect to the issue to be determined because such evidence would show (1) that its product ECA 10271 is neither the same nor equivalent to its product ECA 10444 which by the interlocutory injunction the appellant was restrained from making, having made, using, selling, or offering for sale, (2) the value of the offending product manufactured subsequent to the interlocutory injunction, (3) the steps taken by the appellant to comply with the injunction.

Among the appellant’s submissions on the motion for further evidence was that, as no issue of callous disregard of the injunction had been pleaded by the respondents at any stage of the proceedings, the issue was not properly before the Trial Judge. Therefore, it was argued that the appellant should not have been deprived of the opportunity of explaining its conduct on the continuance despite its failure to lead evidence on the issue at trial. The Trial Judge took the view that the claim was properly before him because, as he put it at page 140 of his reasons for the order of April 25, 1994:

The pleadings combined with counsel’s arguments at trial made it clear what the issue was at trial.

In historical terms, the respondents’ pleading did not include a claim of this kind for exemplary damages. Paragraph 16 of the further amended statement of claim contains an allegation that the appellant “knowingly appropriated the invention of and wilfully infringed the Patent” and that the appellant “persists in its wilful infringement in Canada by the continued manufacture, use and sale of infringing concentrates and lubricating compositions”. The respondents’ pleading was amended on April 29, 1989, by the addition of as paragraph 17(d) claiming “exemplary or punitive damages”. In his opening at the commencement of the trial on May 7, 1990, as recorded in Vol. 1 of the transcript, at page 97, counsel for the respondents asserted that the appellant had manufactured and sold the product ECA 10271 and that it was “exactly the same thing we called 10444 … as if the interlocutory injunction never existed”. Later in his opening, at page 131 of the transcript, Vol. 1, counsel made reference to the effect of the interlocutory injunction. At pages 165-166 of the same volume, he went on to submit that the appellant “came up with a new specification” for the same product covered by the interlocutory injunction which they “called 10271”, and then continued:

They just continued on with that after the injunction order as if nothing had ever happened, and they continued right through to September 1989, to supply a product made according, presumably to that specification, to Shell in Canada, because Shell would not … I believe the reason was Shell would not accept 12819.

Counsel concluded his submission in the same vein when he alleged, at pages 167-168:

Following the injunction in Canada restraining it from manufacturing and selling 10444, [the defendant] simply named the product they were selling as 10444 as 10271, and slightly modified the … 10444 specification to … presumably to enable them to argue that on the basis of that specification they were not infringing.

…

So, My Lord, in our respectful submission, this was a flagrant defiance of the spirit, if not the actual literal words of the order of the court, and we have a claim for exemplary damages in these proceedings arising from that.

At the trial itself, the respondents adduced evidence (Ex. P-13 and P-14) in support of its allegation that the interlocutory injunction had been callously disregarded together with a booklet of discovery evidence entitled “Read-Ins re Continued Manufacture Of ECA 10271 And its Non-Borated Form Following Interlocutory Injunction” (Ex. P-49). For its part, apart from contending that the allegation of callous disregard of the interlocutory injunction had not been made out, the appellant took the position that the claim for exemplary damages had not been pleaded and accordingly that it was not properly before the Trial Judge. The appellant led no evidence on the allegation at trial.

The motion to adduce further evidence on this allegation was brought following the allowance of the respondents’ cross-appeal by this Court on April 14, 1993, when a continuance of the trial was ordered. In disposing of that motion, the Trial Judge took the view that the matter was one of discretion under Rule 494 [as am. by SOR/90-846, s. 21] and that it should be exercised against the appellant for the following reasons, which appear at page 139 of his reasons for the order of April 25, 1994:

With respect to my discretion under Rule 494, there are several factors which weigh against my exercising it in favour of the applicant. First, at least some of the documents in issue were previously sought by Lubrizol and not produced by Imperial, to the prejudice of Lubrizol. It should be noted that I do not accept counsel for the applicant’s argument that there could have been no prejudice to Lubrizol since it was ultimately victorious in the trial. I believe that it is indeed possible to be prejudiced and yet still win a case. The prejudice manifests itself in having to fight a tougher battle because of the defendant’s tactics than had all the evidence requested been produced. Second, to conduct the action in this manner, by effectively re-opening the evidence stage, would merely serve to unduly delay what should be a fairly straightforward issue. I am also of the opinion that it would be manifestly unfair, at this late date, to allow Imperial to improve its evidential position on an issue previously argued in court. Lastly, I am convinced that Imperial, and its solicitors, made a tactical decision not to produce documents previous to this. That was certainly their decision to make, but it is one by which they must now abide. I am not prepared to allow them the benefit of “20/20 hindsight” to change that position now. A continuance is not a new trial. If it were, then my discretion might be exercised in a different manner. Such is not the case here.

We shall return momentarily to consider whether this discretion was properly exercised. In our view it is now past time for the appellant to be heard to argue that callous disregard of the interlocutory injunction giving rise to a claim for exemplary damages was not properly before the Trial Judge because of lack of pleading. While the Trial Judge did not deal with that claim as raised by counsel in his opening, the appellant was obviously aware that it was being pursued on the cross-appeal. It had not been addressed in the reasons for judgment at trial. On the cross-appeal, in deciding to refer the matter back to the Trial Judge for determination, [Lubrizol Corp v. Imperial Oil Ltd. (1992), 98 D.L.R. (4th) 1] Mahoney J.A., speaking for the Court, stated at pages 30-31:

Lubrizol says the trial judge erred in not awarding exemplary damages in respect of the infringement by one of Imperial’s products. In disposing of the issue, the trial judge said only (at p. 45):

At trial, counsel for the plaintiffs alluded to deliberate infringement but did not in my view produce sufficient evidence to warrant an award of exemplary damages. I do have some concerns regarding the defendant’s conduct, but there was not enough concrete evidence to conclude a situation of callous disregard for the plaintiff’s rights and for the patent system existed to warrant exemplary damages.

As argued on appeal, it was not callous disregard to Lubrizol’s rights or the patent system that gave rise to exemplary damages, but a callous disregard for the interlocutory injunction issued by Reed J., January 12, 1989. If that is proved, exemplary damages are an available remedy…. In view of the disposition I think must be made, I will only say that the allegation is not devoid of evidential support.

I have perused Lubrizol’s written Memorandum of Fact and Law at trial … which, along with Imperial’s, was ordered to be included in the appeal case …. I have also perused the transcript of its oral argument at trial…. There is simply no doubt that the argument was based on the allegation that Imperial had continued to manufacture and sell a product, the manufacture and sale of which had been enjoined by the interlocutory injunction, until after this Court had dismissed its appeal against the interlocutory injunction on September 22, 1989.

It is apparent that the trial judge misapprehended the issue. He cannot, therefore, be found to have properly exercised his discretion in refusing exemplary damages. Lubrizol was, and is, entitled to have its claim for exemplary damages dealt with. I have reluctantly come to the conclusion that, absent relevant findings of fact by the trial judge, this Court is not able to resolve it.

The interlocutory injunction was claimed and granted within the framework of the litigation. The appellant’s attempt to overturn it on appeal failed. While no allegation of callous disregard of its terms was pleaded, the obvious purpose of respondents’ counsel in his opening was to raise the issue by asserting that claim and providing particulars thereof. The trial proceeded without request for adjournment. Evidence relevant to counsel’s assertions was adduced by the respondents without further objection. The appellant’s ultimate position at trial—that the allegation of callous disregard of the injunction was not properly before the Trial Judge because it was not specifically pleaded—was not raised on the cross-appeal, which succeeded. The matter was returned to the Trial Judge for continuance on the express basis, as Mahoney J.A. put it [at page 31], that the claim was “not devoid of evidential support”.

What the respondents sought to achieve on the cross-appeal and, indeed, what they succeeded in achieving was the continuance of the trial for the sole purpose of having their claim of callous disregard of the interlocutory injunction dealt with by the Trial Judge. Given that apparent purpose, the appellant might have been expected to contend on the cross-appeal that the respondents should not succeed there because the claim was not, for want of pleading, properly before the Trial Judge at trial. This the appellant did not do. Having failed to so do, in our view, the appellant cannot now re-litigate the point on the present appeal. As was stated by Maugham J., as he then was, in Green v. Weatherill,[2] quoting from Wigram V.C. in Henderson v. Henderson (1843), 3 Hare 100:

… the Court requires the parties to that litigation to bring forward their whole case and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward ….

To repeat, the point was decided against the appellant by this Court’s judgment of April 14, 1993.[3] The appellant cannot now be heard to say that the claim was not properly raised at trial.

In view of this analysis, the question of whether the claim for callous disregard of the injunction had been properly raised was no longer at large after this Court made its pronouncement of April 14, 1993. If it were, we would nonetheless conclude that it was sufficiently raised to permit its adjudication. The Federal Court Rules underscore the value and function of a pleading. Subsection 408(1) of the Rules requires that every pleading “contain a precise statement of the material facts on which the party pleading relies”. Paragraph 409(b) of the Rules requires that, in the types of cases exemplified, a party shall plead specifically any matter that “if not specifically pleaded, might take the opposite party by surprise”. Paragraph 415(1)(a) of the Rules lays down that “every pleading shall contain the necessary particulars of any allegation including … particulars of … wilful default”. The jurisprudence of this Court has equally emphasized the value of pleading. In TRW Inc. v. Walbar of Canada Inc. ,[4] this Court adopted the following views of Lord Normand in Esso Petroleum Co. Ltd. v. Southport Corporation:[5]

I wish to associate myself with the observations of my noble and learned friend, Lord Radcliffe, on the value of the pleadings. To condemn a party on a ground of which no fair notice has been given may be as great a denial of justice as to condemn him on a ground on which his evidence has been improperly excluded.

See also Gulf Canada Limited v. The Tug Mary Mackin[6] and Glisic v. Canada.[7]

An objection based on a pleading may perhaps be seen as merely technical or formal. It is much more than that, in our view. In general, the Court expects parties to adhere to the rules of pleading so that each side will know the case the other is required to meet when it comes to trial. It may be said that it is the facts as pleaded and the issues as defined in the pleadings which determine the relevancy of evidence whether oral or documentary; and if the latter, whether a document must be produced before trial. At the same time, the Federal Court Rules do not require exemplary damages to be specifically pleaded.

By contrast, in England, under Order 18, rule 8(1) of the Rules of the Supreme Court 1965 [S.I. 1965/1776], such damages must be specifically pleaded. That rule negatives the ruling in Broome v. Cassell & Co. Ltd.,[8] no doubt as a result of the action recommended by Lord Hailsham of St. Marylebone L.C. as a result of his speech on the appeal in that case to the House of Lords, [1972] A.C. 1027, at page 1083. The object of the proposed new rule, in Lord Hailsham’s words, was to prevent a defendant from being “taken by surprise”, despite the prevailing view that this is one of the principal objects of pleading.[9] Because the County Court Rules in that country lay down no corresponding requirement, the “old practice” under which “exemplary damages can be awarded, even though not pleaded”, continues to apply.[10] This “old practice” obtains in Canada wherever rules of practice do not require a claim for exemplary damages to be specifically pleaded.[11] While paragraph 409(b) of the Rules lays down a general requirement that a party must plead in such a way as not to take another party by surprise,[12] the Rules of the Court as they now stand, by not expressly requiring exemplary damages to be specifically pleaded, evidently do not regard a failure to so plead as running afoul of that Rule. This is not to say, however, that a specific plea would not be preferable even though not strictly required by the Federal Court Rules.

This, however, does not end the matter. The appellant submits that, even if the claim for exemplary damages was properly before the Trial Judge, we should set aside his decision refusing further evidence to be adduced on the continuance as well as his decision on the continuance. We are not here dealing with a case involving either criminal or civil contempt of court.[13] Nevertheless, because the allegation that the appellant callously disregarded a solemn order of the Court is so serious, adequate safeguards are required to ensure that the appellant may come before the Court to show, if it can, that its conduct is not deserving of the severe censure that an award of exemplary damages represents. It seems to us that the views expressed by Gonthier J. in Vidéotron Ltée v. Industries Microlec Produits Électroniques Inc.,[14] although a case involving contempt, offers some useful guidance here:

The judge must allow the respondent a certain degree of latitude in respect of the relevance of the evidence presented in attempting to justify himself or herself.

Why then did the Trial Judge reject the motion for further evidence? He was of the view that the decision was one of discretion under Rule 494. We agree. The discretion conferred by that Rule applied because the trial was still in progress in consequence of this Court’s judgment of April 14, 1993. Because the decision of April 25, 1994 was one of discretion, it must not be interfered with unless in exercising it the Trial Judge failed to give “sufficient weight to all relevant considerations”.[15] The Trial Judge took account of four different considerations for exercising the discretion as he did. The first was that [at page 139] “at least some of the documents in issue were previously sought by Lubrizol and not produced by Imperial, to the prejudice of Lubrizol”. If the exemplary damages for callous disregard of the interlocutory injunction had been pleaded we could accept the Judge’s criticism. The failure on the part of the respondents to explicitly plead, although not required by the Rules of this Court to do so, had as one of its consequences that documents which would otherwise have been producible on an issue raised by the pleadings did not have to be produced prior to the trial. It seems to us, therefore, that the Trial Judge ought not to have laid as much stress as he apparently did on this consideration. The second [at page 139] was that allowing further evidence would “unduly delay what should be a fairly straightforward issue”. While we accept this as a legitimate consideration, its significance is somewhat lessened when weighed against the requirement for a fair trial. Before the point was dealt with by this Court on April 14, 1993, the claim based on callous disregard of the interlocutory injunction had not been disposed of by the Trial Judge. Indeed, it was his opinion that the evidence before him at trial—which was the same evidence as was before him at the time he made his order of April 25, 1994—did not establish a claim for exemplary damages for infringement of the respondents’ rights or the patent system. It is true that the trial was a lengthy one and that the appeal, the cross-appeal, the leave application to the Supreme Court and the motion to adduce further evidence, consumed a good deal of additional time. Nevertheless, in our view, the need for a fair trial outweighs the need to avoid any additional delay in bringing the litigation to a conclusion. The third [at page 139] was that to allow further evidence would be unfair to the respondents because it would “allow Imperial to improve its evidential position on an issue previously argued in court”. While again we believe the Judge’s concern was quite legitimate, we are of the view that he attached too much weight to the fact that—despite the silence of the pleading—the claim was properly before him at trial and not enough to the manner in which it was raised, that is to say, in counsel’s opening. A final consideration was that as the appellant had made a “tactical decision” at the first part of the trial not to lead evidence on the issue, it should be bound by that decision. The decision was obviously taken in the heat of the trial and at a time when the respondents’ claim for callous disregard of the interlocutory injunction had been raised for the first time. In retrospect, this was a mistake. That decision appears to have been based on a view that as the claim had not been specifically pleaded any documents touching it were not producible because they were not relevant. In our view, the appellant was fully aware of the issue as raised in the opening and of the need to confront it.

Save in exceptional circumstances, a litigant who has had a full opportunity of adducing evidence at trial will not be permitted to reopen his case so as to allow new evidence to be introduced after the judgment at trial.[16] It has been well observed that as under our adversary system of justice, “what witnesses are called and what questions they are asked is a matter left to counsel” and it is counsel who “makes decisions, both strategic and tactical, as to what approach will be taken”, counsel cannot later complain about the absence of evidence at trial.[17] The case at bar, it seems to us, does present a somewhat unusual situation. It is not the normal case where all of the issues are defined by the pleadings and there has been full discovery of documents and of witnesses on the issues so defined in advance of the trial. Nor is it a case where a party seeks to reopen after the trial has ended and judgment has been pronounced by the trial judge on the issue to which the new evidence relates. On April 25, 1994, when the Trial Judge disposed of the appellant’s motion for further evidence, the trial had not yet come to an end, this Court having by its judgment of June 14, 1993, ordered its continuance to deal with the very issue raised by the respondents’ counsel in his opening.

It is a long-standing principle that the object of courts is to decide the rights of the parties in litigation and not to punish for mistakes made in the conduct of a case unless the circumstances are exceptional. That principle was expressed in the following way by Bowen L.J. in Cropper v. Smith:[18]

Now, I think it is a well established principle that the object of Courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. Speaking for myself, and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy….

While Bowen L.J. wrote in dissent of how the particular case ought to be decided, the principle, in our view, remains good law. (See Shoe Machinery Company v. Cutlan;[19] Supreme Court Practice 1993, Vol. 1, Part I (London: Sweet & Maxwell, 1992), at pages 371-372.) The case itself was concerned with whether a pleading should be amended on an appeal, and while the principle is of particular relevance in cases involving amendment of a pleading it has received broader application. Thus in Wood v. British Columbia Electric Ry. Co., Ltd.,[20] it was applied in rejecting an argument put forward at the end of a trial that the plaintiff could not recover damages because he was not the proper party to the action.[21]

In our opinion, by rejecting the motion for further evidence the Trial Judge failed to give sufficient weight to all relevant considerations and particularly that the appellant would be permanently deprived of an adequate opportunity of defending itself against a very serious claim—one which, in the sequel, has resulted in a substantial award of exemplary damages. In the exceptional circumstances recited above, the appellant should not be deprived of a fair opportunity to fully respond to the grave misconduct with which it is charged and the potential award of exemplary damages. Given these circumstances, it is our opinion that fairness and justice requires that the appellant should have been permitted to adduce further evidence on the claim for exemplary damages at the continuance to the extent of showing, if it could, that it did not callously disregard the interlocutory injunction of January 12, 1989 even though it was found to have done so knowingly. It should have that opportunity on a further continuance.

Issue No. 2

The appellant submits that by finding it to have knowingly disregarded the interlocutory injunction, the Trial Judge committed a palpable and overriding error in his assessment of the facts. The interlocutory injunction, as we have seen, restrained the appellant from “making, having made, using, selling or offering for sale, in Canada, any lubricating composition or lubricant additive containing the defendant’s products ECA 10444”. Reed J. was of the view that the respondents had presented “a very strong prima facie case” of infringement and issued the restraining order accordingly.

The “palpable and overriding error” contended for by the appellant is with the Trial Judge’s finding that product ECA 10444 and ECA 10271 were the same. At page 203 of his reasons for the judgment of October 4, 1994, the Trial Judge stated:

Was there ever any doubt in the minds of Imperial that ECA 10444 and ECA 10271 were one and the same product? Mr. Levy, the senior officer of Imperial’s Esso Chemical division, responsible for the Paramin Division which manufactured the dispersants in question, and the person put forward by Imperial Oil to be its representative on its examination for discovery, has made an express admission on examination for discovery of Imperial Oil, first, (and referred to herein at p. 9 of transcript):

“… for several months following the issue of the injunction on January 12, 1989 and until September 1989, Imperial manufactured and sold ECA 10271. That admission was made in October of 1989, on discovery …

“Secondly, he admitted expressly that Imperial came up with the specification for ECA 10271 to cover the product that they had formerly made … manufactured under the specification for ECA 10444.

“And thirdly, he admitted that ECA 10271 was, in fact, the product Imperial had made and called ECA 10444 for all practical purposes.”

In my reasons following the trial, I ruled that ECA 10444 and ECA 10271 were the same product and it needs no more elaboration here. It is travelling old ground for Imperial Oil to trot out once again the argument that Imperial Oil did not comply with its own specifications for ECA 10444. That has been rejected by this Court and the Court of Appeal.

He continued at page 204:

Clearly, Imperial Oil chose to defy the injunction rather than lose Shell as a customer. It was a business and legal risk taken by a corporation in violation of a court injunction and I am satisfied they knew it. They chose not to test ECA 10271 before the court or Reed, J. as I stated earlier.

and again, at pages 206-207:

Did Imperial really have a nonoffending product solely because they thought anything under 1.5 [1.25] succination ratio did not violate the patent? They took that risk when guidance from the court was available, and must face the consequences. Imperial Oil can hardly be surprised because Reed, J. took great pains to point out, as paraphrased by Lubrizol (p. 83 of transcript):

“In defying the injunction Imperial accomplished exactly what Madame Justice Reed was concerned to deter, namely, it continued in the market place with Shell as a customer and thereby bought time to switch Shell to 12819. As a result, among other things, Lubrizol lost the opportunity to obtain Shell’s additive business and was denied … the advantage it was entitled to reap from having a patented product which met the new standards. This caused Lubrizol irreparable harm.”

The interlocutory injunction is clear on its face and the Trial Judge concluded, based upon its language and the evidence before him, that the appellant had failed to respect its requirements. In our view, that finding was open to him on the evidence. We can find no basis for interfering with the Trial Judge’s conclusion that the interlocutory injunction was knowingly disregarded. At the same time, as already stated, his view that the appellant callously disregarded that order was based on evidence which was incomplete. The appellant should be permitted to adduce evidence to explain its conduct for failing to comply with the injunction, if indeed the appellant is able to do so, but not that by its actions it did not knowingly contravene the interlocutory injunction.

Issue No. 3

Some general comments about the place of punitive or exemplary damages in Canadian law are required at this juncture. It is now clear that Canadian law recognizes three distinct types of damages. First, there are general or compensatory damages, which are meant to reimburse a victim of wrongdoing for any losses suffered, both pecuniary and non-pecuniary. Second, there are aggravated damages, which are also compensatory, but which may be awarded only in cases where “defendants’ conduct has been particularly high-handed or oppressive, thereby increasing the plaintiff’s humiliation and anxiety”. To allow such damages there must be a finding that a defendant was “motivated by actual malice, which increased the injury to the plaintiff … by increasing the mental distress and humiliation of the plaintiff”. Aggravated damages express the “natural indignation of right-thinking people arising from the malicious conduct of the defendant”.[22] Third, punitive or exemplary damages, unlike general and aggravated damages, are not compensatory; their aim is “to punish” a defendant and to express “outrage at the egregious conduct of the defendant”. They are akin to a civil fine which is meant to “act as a deterrent to the defendant and to others from acting in this manner”. Exemplary damages may be awarded only “where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence”. In addition, it is necessary for such an award to “serve a rational purpose”, that is, “was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence”?[23]

Exemplary damages are necessary, for, according to Cory J., without them the wealthy and powerful might regard awards of general damages as a “licence fee” to continue harming “vulnerable victims.” “The most effective means of protection will be supplied by the knowledge that fines in the form of punitive damages may be awarded in cases where the defendant’s conduct is truly outrageous”.[24] In the words of La Forest J., punitive or exemplary damages are “awarded to punish the defendant and to make an example of him or her in order to deter others.”[25] Exemplary damages are meant to “teach a wrongdoer that tort does not pay.”[26]

McIntyre J. has listed the adjectives describing the type of conduct that would warrant punitive damages as “harsh, vindictive, reprehensible and malicious”; in other words, the conduct must be so “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment”.[27] Cory J. felt that the conduct has to be so “malicious, oppressive and high-handed that it offends the court’s sense of decency.”[28] Another common word used to identify the state of mind of the wrongdoer is “callousness”.

The Canadian law relating to punitive or exemplary damages has diverged sharply from that of the United Kingdom in recent years. As McIntyre J. pointed out in Vorvis,[29] the courts of Australia, New Zealand and Canada have all “rejected” the narrower British approach as expressed in Rookes v. Barnard,[30] adopting instead a “wider scope for the application of punitive damages”. The Ontario Law Reform Commission has encouraged this show of independence in this country.[31] The law of Quebec also permits exemplary damages in appropriate situations.[32]

The standard of proof in punitive or exemplary damage cases is the civil standard of proof—on the balance of probabilities, not the criminal standard of proof—beyond a reasonable doubt. Nevertheless, an award of exemplary damages “should always receive the most careful consideration and the discretion to award them should be most cautiously exercised”.[33] Furthermore, according to Wilson J., the quantum awarded should not be “excessive”, but should be “reasonable”, “in keeping with the Canadian experience in the award of relatively modest punitive damages”.[34]

In recent years, there have been many awards of punitive or exemplary damages made by Canadian courts. They have not been limited to defamation and intentional tort situations, where they are most prevalent, but they may be awarded in contract cases,[35] in certain negligence cases,[36] fiduciary relationship cases,[37] and other situations where the court, in a civil case, feels that it is necessary to condemn the outrageous conduct of a defendant. We can see no reason why, in appropriate circumstances, punitive or exemplary damages could not be available in a copyright[38] or patent infringement case, a type of statutory tort claim, and counsel have not even suggested that they should not be permissible.

It should also be noted that, where the conduct being complained of in the civil case has yielded a criminal conviction, this generally is a bar to a punitive damages award, on the theory that such punishment as was required has been exacted in the criminal proceeding.[39]

Turning now to the particular issue raised in this appeal.

It is argued that the Trial Judge erred in assessing the exemplary damages in this case before the assessment of general damages was done. This contention is based on the recent jurisprudence of the Supreme Court of Canada in Hill.[40] In this case, there was no claim for aggravated damages and, hence, none were awarded. There remains outstanding, however, a claim for general damages, which has not yet been quantified. This claim awaits assessment on the reference. The conclusion follows inexorably from this that the Court cannot decide whether exemplary damages are required until after it decides whether the general damages were insufficient for punishment and deterrent purposes. In other words, the Court must first assess the general damages. Only after that is done can the Court determine whether they are sufficient to deter the appellant or whether an additional award by way of punitive damages is required to effectively deter the appellant and others from similar outrageous conduct if such conduct should be found. This, indeed, is the teaching of Hill, where Cory J. stated:[41]

It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence.

Unlike compensatory damages, punitive damages are not at large. Consequently, courts have a much greater scope and discretion on appeal. The appellate review should be based upon the court’s estimation as to whether the punitive damages serve a rational purpose. In other words, was the misconduct of the defendant so outrageous that punitive damages were rationally required to act as deterrence?

The respondents contend that this case was distinguishable from the Hill case which involved a defamation claim. Here, it was argued, there is no danger of overlap, as in other cases; an accounting of profits is being claimed by the respondents not by way of compensation but by way of restitution. This is not convincing, for, whatever the basis for the award—reimbursement of loss or disgorging of profits, they are given to the patent holder “as compensation” for the infringement. It is only after that figure is established, therefore, that the Court is able to determine whether the amount will suffice or whether additional punitive damages are needed. Thus, this Court is unable, at this time, to decide whether $15,000,000 is too much or too little in the circumstances. It will depend upon what the assessment of general damages for infringement will be, as well as the additional evidence that will be introduced and the arguments that will be made.

It was also argued that the exemplary damage award in this case was for breach of the injunction and not for the patent infringement, so that the general damages were completely unconnected to the exemplary damages. True, the exemplary damages award in this case was based on the fact that a breach of an injunction had occurred. But this was not entirely divorced from the fact of the patent infringement. The action here was for patent infringement, with the breach of the injunction serving as an aggravating factor, suggesting arrogant conduct[42] deserving of extra civil punishment. There is no such thing as a separate civil action for damages for contempt; a contempt proceeding is either a quasi-criminal or a civil proceeding in which, if successful, the Court orders that a penalty be paid to the state, not to the claimant.[43] However, where there is a patent infringement and a wilful breach of injunction following that, the Court in a civil case may by an award of punitive damages punish that conduct in the context of the patent infringement action. Although the state of mind of a defendant is significant, there is no room for talk of actus reus and mens rea in a civil case. These are concepts of the criminal law, not the civil law. In our view, the reasons of this Court which sent the case back for the continuance are in harmony with these principles.

The respondents’ argument that the appellant is estopped by the doctrine of res judicata from raising this issue of the postponement of the assessment of the exemplary damages is not persuasive. This Court, in its judgment of April 14, 1993, did not specifically direct the Trial Judge to assess the exemplary damages separately from the general damages. In any event, the Supreme Court decision in Hill of July 20, 1994, following this Court’s decision in this case, held that the general damages had to be determined before it could be concluded that an award of exemplary damages should be made. This Court is bound by that jurisprudence.

The Trial Judge, who could not have known what the Supreme Court would decide in relation to timing, correctly isolated the main factors to be considered in assessing whether exemplary damages should be awarded, which he succinctly summarized as follows at page 209 of the reasons for his order of October 4, 1994:

Exemplary damages are not compensatory. Rather, they are punitive and must be sufficiently substantial to act as a deterrent.

The defendant continued to manufacture and sell the offending product and did so for eight months. The volume of product sold, although not quantified, must be enormous (see earlier comments by the applicant). Clearly, this product was sold at a profit and helped Imperial Oil to maintain Shell as a customer illegally, thereby preventing the applicant the benefit of its invention. The means of the respondent is also a factor when weighing the amount to be awarded. Imperial Oil is a large corporation with annual sales of 10 billion dollars.

There may be additional factors and additional facts that may come to light on the further continuance of this case, for example, the fact that someone may have intentionally hidden the fact that they were infringing the patent.[44] In addition, of course, the new evidence of the specific state of mind of the appellant will have to be fully assessed to see whether it was callous, reprehensible, vindictive or outrageous so as to warrant an award of exemplary damages.

As for the amount that may be awarded ultimately, it may still be $15,000,000 or it may be less or even more. It depends on what figure would be required to deter this appellant and others, in all the circumstances of this case. It is true that, in patent infringement cases, courts do not normally consider that they punish infringers by granting awards of compensatory damages or accounting of profits.[45] They may do so, however, by an award of exemplary damages in appropriate situations. The appellant’s factum contains a list of over 160 exemplary damages awards granted by Canadian courts between 1985 and 1995 in all types of cases. The vast majority of them are in the $5,000 to $50,000 range. There are nine awards of $100,000 listed. There are four between $175,000 and $250,000. Two awards are in terms of a percentage of the compensatory damages. The largest awards made before this one were $800,000.[46] This Court makes no comment on what the appropriate amount, if any, might be for this case, but will leave it for the Trial Judge on the further continuance to decide, based on all the evidence, both new and old, the principles set out in these reasons and having regard to the compensatory damages figure that will have been assessed.

Issue No. 4

The Trial Judge disposed of costs in his order of October 4, 1994, as follows:

2. that costs be awarded to the plaintiffs on a solicitor and client basis for motions, trial, appeal and continuance of the trial.

By the trial judgment of September 17, 1990, costs were awarded as follows:

7. the defendants pay the plaintiffs their costs of this action to be taxed;

8. the plaintiffs be allowed costs for their counsel to be taxed above the tariff, the plaintiffs be further entitled to all reasonable disbursements and payment for the fees and disbursements of their expert witnesses;

Once that judgment was issued and filed, the Trial Judge was functus officio (Williston & Rolls, The Law of Civil Procedure (Toronto: Butterworths, 1970), Vol. 2, at page 1059). The circumstances in which a court may amend a judgment are very limited (see Paper Machinery Ltd. et al. v. J. O. Ross Engineering Corp. et al., [1934] S.C.R. 186, at page 188; Chandler v. Alberta Association of Architects, [1989] 2 S.C.R. 848, at page 860). They are also set forth in subsections 337(5) and (6) of the Rules. None of these apply here. The only costs remaining for the Trial Judge’s discretion under his order of October 4, 1994, were those on the cross-appeal and on the continuance. All other costs had been already awarded under orders or judgments which had become final and, accordingly, were not subject to variation by the Trial Judge’s order of October 4, 1994.[47] These included the disposition of all costs left to the discretion of the Trial Judge at trial, a discretion which, having been exercised in his judgment of September 17, 1990, could not be exercised over again. Moreover, the Trial Judge lacked jurisdiction to change the basis of any previously awarded costs. We agree, however, that he did possess jurisdiction under this Court’s judgment of April 14, 1993, to dispose of the costs on the cross-appeal in his discretion and, likewise, to award the costs of the continuance. However, in view of the disposition we are about to propose for this appeal, it is of no consequence that the Trial Judge purported to dispose of costs in respect of which he was functus officio.

DISPOSITION

We would allow the appeal, set aside the orders of the Trial Division of April 25, 1994 and October 4, 1994 and, pursuant to subparagraph 52(b)(iii) of the Federal Court Act [R.S.C., 1985, c. F-7], remit to the Trial Judge for a further continuance of the trial of the matter of the claim of the respondents for exemplary damages for callous disregard of the interlocutory injunction, which matter should be dealt with in accordance with the following directions:

(a) the Trial Judge should retry only the issue of whether the appellant callously disregarded the interlocutory injunction in failing to comply with the requirements of that order;

(b) the parties should be entitled to such further production and discovery on the issue remitted under paragraph (a) as may be necessary to support their respective positions or to answer the position of the opposite party or parties;

(c) the Trial Judge should receive into evidence at the further continuance such of the appellant’s documents contained in Appendix 1 of the Appeal Book as well as any other documentary evidence from the parties, as are relevant to the issue remitted under paragraph (a);

(d) the parties should be entitled at the further continuance to call oral evidence that is relevant to the issue remitted under paragraph (a);

(e) in the event the Trial Judge finds on the further continuance that the appellant did callously disregard the interlocutory injunction and that there should be an award of exemplary damages against the appellant, the exemplary damages should be assessed by him only after the accounting for profit has been disposed of on the reference.

As success on this appeal has been fairly evenly divided, there should normally be no order as to costs. However, because this appeal has its genesis in the appellant’s failure to lead at trial the evidence it now wishes to adduce even though the claim to which it may relate was clearly raised in counsel’s opening, the respondents should have their costs of this appeal as well as on the continuance ordered in the Court’s judgment of April 14, 1993, in any event of the cause payable forthwith after taxation.

McDonald J.A.: I agree.

---