T-5486-79
Jelin Investments Limited (Plaintiff)
v.
Signtech Inc. (Defendant)
INDEXED AS: JELIN INVESTMENTS LTD. V. SIGNTECH INC.
(T.D.)
Trial Division, Reed J.—Toronto, October 29 and
November 1, 1990.
Injunctions — Motion to require posting of security for
damages — Copyright infringement action — Defendant
moving assets out of jurisdiction — Claim for Mareva injunc
tion abandoned at hearing — Reference to criteria applicable
in Mareva injunction cases — Plaintiff having demonstrated
risk of inability to execute judgment — Order denied due to
(I) long delay in pursuing litigation, (2) plaintiff's reluctance
to undertake indemnification of defendant for damages suf
fered in posting security.
Practice — Costs — Security for costs — R. 446 setting out
criteria, one of which must be met — None met on facts of
instant case.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Rules, C.R.C., c. 663, R. 446.
CASES JUDICIALLY CONSIDERED
CONSIDERED:
Reading & Bates Horizontal Drilling Co. et al. v. Spie,
Horizontal Drilling Co. Inc. et al. (1986), 13 C.P.R. (3d)
37; 9 F.T.R. 261 (F.C.T.D.); Chitel et al. v. Rothbart et
al. (1982), 39 O.R. (2d) 513; 141 D.L.R. (3d) 269; 30
C.P.C. 205; 69 C.P.R. (2d) 62 (C.A.); Third Chandris
Shipping Corpn v Unimarine SA, [1979] 2 All ER 972
(H.L.); Midway Mfg. Co. v. Bernstein et al. (1988), 23
C.P.R. (3d) 272; 23 F.T.R. 295 (F.C.T.D.).
COUNSEL:
Kathleen J. Kelly for plaintiff.
George E. Fisk for defendant.
SOLICITORS:
Bergstein & Kelly, Toronto, for plaintiff.
Gowling, Strathy & Henderson, Ottawa, for
defendant.
The following are the reasons for order ren
dered in English by
REED J.: The plaintiff brings a motion to
require the defendant to post security for damages
which might be awarded consequent on trial of the
copyright infringement action to which the present
litigation relates. The plaintiff also seeks security
for costs which might arise as a result of the
defendant's counterclaim.
The plaintiff initially sought a Mareva type
injunction requiring the defendant not to move its
assets out of the jurisdiction. Counsel for the
plaintiff, towards the end of the hearing, aban
doned this claim. It is clear that the defendant is
moving a major portion of its assets out of the
jurisdiction and intends to continue to do so.
Until recently the defendant had an illuminated
sign parts manufacturing business in Mississauga.
It is moving that business to San Antonio, Texas
where labour costs and taxes are lower. This move
was provoked because the defendant found itself in
a difficult financial situation as a result of expand
ing its business facilities just prior to the recent
downturn in the economy. The defendant is in
default of certain bank loans and with the approval
of the bank is attempting to consolidate its assets
and cut costs.
While the defendant has moved some and, even
tually, will likely move most of its manufacturing
assets out of the jurisdiction, it plans to retain
warehousing facilities and a sales staff here. It
presently owns a building (115,000 square feet)
which it has placed for sale, and leases another
(65,000 square feet). It plans to relinquish that
lease. Most of the defendant's Canadian activity is
now centred in the building which it owns. With
the transfer of its main activity (manufacturing
and management offices) to Texas it plans to
locate the Canadian warehouse and selling staff in
leased premises, not yet identified, located some
where west of Toronto (Mississauga, Brampton or
Weston). The defendant is an Ontario incorpo
rated company; its head office is in Ontario. The
Texas facilities are at present operated by a sub
sidiary of the defendant.
The action to which the application for security
for costs and damages relates was commenced in
1979. The plaintiff seeks an award of damages as a
result of the defendant's copying of the plaintiff's
catalogue and shop drawings, which relate to
aluminum extrusion molded frames for large
industrial and commercial signs. The copying
involved the distribution of approximately 130
manuals in the United States and 30 in Canada.
This took place over a period of six weeks in 1979.
When the defendant was told by the plaintiff to
cease this activity it did so and eventually paid
$1,000 into Court in settlement of the plaintiff's
claim.
The plaintiff has not accepted this as adequate
compensation. As I understand its position it is
that the defendant's copying of the plaintiff's ma
terials acted as a springboard by which the defend
ant got itself positioned in the market at the
plaintiff's expense. The plaintiff claims business
losses of over 3 million dollars. The plaintiff sees
the defendant's behaviour as part of a larger pat
tern of conduct whereby it took ideas, patents
rights, copyrights etc. from others and obtained a
position in the market by sharp practice, if not by
ethically reprehensible behaviour. The plaintiff has
been seeking to amend its statement of claim to
include therein a claim for punitive damages but
has so far been unsuccessful in this regard.
As I understand the defendant's position it is
that the activity in which it engaged was, in gener
al, merely fair competition and, that, it simply
produced a product which was better and cheaper
than the plaintiff's. By counterclaim it asserts that
the plaintiff commenced a number of actions'
against it for the purpose of representing to the
trade that these would result in the defendant
being driven out of business.
In any event, for present purposes I do not need
to determine these issues. The one aspect of this
litigation which is very troubling, for the purposes
of the present application, however, is the length of
time during which the plaintiff's claim has lain
dormant. Virtually no action was taken to move
the litigation forward between 1983 and 1990.
While its reactivation, by the plaintiff, does not
appear to have been triggered by an awareness of
the defendant's present financial difficulties, the
idea of now pursuing that litigation, the main
events to which it relates having occurred over
eleven years ago, is not a welcome prospect.
I turn then to the plaintiff's request for an order
for security with respect to damages. The plaintiff
seeks a bond of $600,000. One of the defendant's
major complaints has been the plaintiff's unwill
ingness to attempt to quantify its damages except
by reference to the three million figure mentioned
above. The plaintiff in seeking a $600,000 bond
has now made some attempt to do so.
The decisions in Reading & Bates Horizontal
Drilling Co. et al. v. Spie, Horizontal Drilling Co.
Inc. et al. (1986), 13 C.P.R. (3d) 37 (F.C.T.D.)
and Chitel et al. v. Rothbart et al. (1982), 39 O.R.
(2d) 513 (C.A.) were referred to by counsel as
setting out the criteria which are applicable in
deciding whether or not a Mareva injunction
should issue to prevent a defendant removing
assets from the jurisdiction prior to judgment
having been rendered against it. In the Reading &
Bates case Mr. Justice Cullen quoted [at pages
39-40] from the Chitel case:
' Two actions (T-3631-81 and T-869-83) are stayed pending
the outcome of the present litigation (T-5486-79).
The defendants do not need to be non-residents of the
jurisdiction. In a proper case the relief is available against a
resident defendant.
The applicant for a "Mareva" injunction must establish a
strong prima facie case on the merits.
A full and frank disclosure must be made of all matters in
the knowledge of the applicant which is material for the judge
to know.
The applicant should give particulars of his claim against the
defendant stating the grounds of his claim and the amount
thereof, and fairly stating the points made against it by the
defendant.
The applicant should give some grounds for believing that
the defendants have assets in the jurisdiction. The assets should
be identified with as much precision as possible so that the
injunction if granted should be directed to specific assets or
bank accounts.
The applicant should give some grounds for believing that
there is a risk of the assets being removed before the judgment
or award is satisfied. The evidence must be of such a nature as
to persuade the court that the defendant is removing, or that
there is a real risk that he is about to remove, his assets from
the jurisdiction to avoid the possibility of a judgment, or that
the defendant is otherwise dissipating or disposing of his assets,
in a manner clearly distinct from his usual or ordinary course of
living, or business, so as to render the possibility of future
tracing of the assets remote, if not impossible in fact or in law.
The applicant must give an undertaking as to damages.
Mr. Justice Cullen also quoted [at pages 40-41]
from Third Chandris Shipping Corpn y Unimarine
SA, [1979] 2 All ER 972 (H.L.):
(i) The plaintiff should make full and frank disclosure of all
matters in his knowledge which are material for the judge
to know.
(ii) The plaintiff should give particulars of his claim against
the defendant, stating the ground of his claim and the
amount thereof, and fairly stating the points made against
it by the defendant,
(iii) The plaintiff should give some grounds for believing that
the defendants have assets here.
(iv) The plaintiff should give some grounds for believing that
there is a risk of the assets being removed before the
judgment or award is satisfied.
(v) The plaintiffs must, of course, give an undertaking in
damages, in case they fail in their claim or the injunction
turns out to be unjustified.
In Reading & Bates, Mr. Justice Cullen refused
to grant a Mareva injunction because the appli-
cants could not prove that the respondents intend
ed to remove their assets from the jurisdiction.
However, he gave an order that a bond be posted
as security for damages. In so doing he pointed out
that: the respondent had limited assets in Canada;
was the subject of a negative Dunn and Bradstreet
report; the plaintiff had established a strong prima
facie case; the probable loss to the plaintiffs was
estimated in affidavit evidence filed before him;
there was reason to believe that the plaintiff would
find it difficult if not impossible to collect on a
judgment if successful. In other words he con
sidered: the strength of the plaintiff's case; the
balance of convenience and the degree of harm
which might occur to the plaintiffs if an order was
not given.
In the present case, the plaintiff has demonstrat
ed a strong prima facie case in so far as copying is
concerned — the defendant has essentially admit
ted copyright infringement. The plaintiff's ability
to "demonstrate" that the amount of damages
which it seeks is really of the magnitude claimed
is, however, more speculative. While the affidavit
evidence filed by the plaintiff with respect to the
defendant's plans to move from the jurisdiction are
somewhat "coloured" because they are framed
from the plaintiff's point of view, I would not
refuse the order sought because of any failure to
disclose the essential facts pertaining to the
application. The plaintiff has also demonstrated
that there is a risk that if successful it might not be
able to execute a judgment once obtained. I do not
give too much weight, in this case, to the fact that
the defendant asserts a counterclaim against the
plaintiff which allegedly might result in it obtain
ing a damage award in excess of that which the
plaintiff could obtain from the defendant. That
supposition is highly speculative.
The overwhelming consideration which militates
against the issuing of the order sought by the
plaintiff, is the delay which has occurred in pursu-
ing the litigation. There are many difficulties
inherent in proving, after such a period of time,
many of the facts which underlie the plaintiff's
case with respect to the award of damages in the
amount it seeks (even assuming it were successful
in getting punitive damages added as an issue to be
addressed). That consideration alone, in my view,
demands that the order requested be denied. In
addition, the plaintiff's reluctance to give an
unqualified undertaking that it would indemnify
the defendant for any damage suffered, as a result
of the posting of security for damages, militates
against the granting of the order.
With respect to the plaintiff's request for secu
rity for costs, Rule 446 applies [Federal Court
Rules, C.R.C., c. 663]. It provides:
Rule 446. (1) Where, on an application of a defendant, it
appears to the Court
(a) that the plaintiff is ordinarily resident out of the
jurisdiction,
(b) that the plaintiff (not being a plaintiff who is suing in a
representative capacity) is a nominal plaintiff who is suing
for the benefit of some other person and that there is reason
to believe that he will be unable to pay the costs of the
defendant if ordered to do so,
(e) subject to paragraph (2), that the plaintiff's address is
not stated in the statement of claim or declaration or other
originating document, or is incorrectly stated therein, or
(d) that the plaintiff has changed his address during the
course of the proceedings with a view to evading the conse
quence of the litigation,
if, having regard to all the circumstances of the case, it seems
just to do so, the Court may order the plaintiff to give such
security for the defendants' costs of the action or other proceed
ing as seems just (Form 17).
(2) The Court shall not require a plaintiff to give security by
reason only of paragraph (1)(c) if he satisfies the Court that
the failure to state his address or the misstatement thereof was
made innocently and without intention to deceive.
(3) Where an order is made requiring any party to give
security for costs, the security should be given in such manner,
at such time, and on such terms, if any, as the Court may direct
(Form of bond where ordered as security — Form 18).
(4) A plaintiff ordinarily resident out of the jurisdiction may
be ordered to give security for costs, though he may be tem
porarily resident within the jurisdiction.
(5) Without limiting the generality of Rule 1721, it is
hereby declared that this Rule is applicable to a counterclaim
or cross-demand.
Counsel for the defendant argues that none of
the four criteria set out in Rule 446(1) pertain in
the present case: the defendant (plaintiff by coun
terclaim) is not ordinarily resident out of the
jurisdiction; the defendant is not suing in a nomi
nal capacity; while the defendant's present address
is not properly stated in the statement of claim
that has occurred only because the claim is so old;
the defendant's actual address is well known; while
the defendant has changed its address during the
proceedings, this has not been done for the purpose
of evading the consequences of the litigation.
Counsel for the defendant made reference to the
decision in Midway Mfg. Co. v. Bernstein et al.
(1988), 23 C.P.R. (3d) 272 (F.C.T.D.) for the
proposition that this Court cannot order that secu
rity for costs be posted merely because a company
is insolvent. As I read Rule 446(1), paragraphs (a)
to (d) set out a set of criteria one of which must be
met in order for an order for security for costs to
be granted. In this case I cannot find that the facts
fit any of those criteria.
For the reasons given the plaintiff's application
must be dismissed.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.