Ex. C R. EXCHEQUER COURT OF CANADA [1966] 801 BETWEEN: Ottawa 1965 SAMUEL DUBINER PLAINTIFF; July 6, 7, 8 1966 AND Jan.24 CHEERIO TOYS AND GAMES LTD. DEFENDANT. Trade Marks—Infringement—Account of profits—Reference to officer of court—Appeal from—Accounting period—Exclusion of part of— Assessment of profits to date of reference—Whether permissible— What profits to be included—Exclusion of certain expenses—Cost of delivering up goods—No allowance permitted for unpaid services— Costs of reference—Exchequer Court Rules 185, 261. On March 13th 1963 plaintiff commenced an action against defendant for infringement of plaintiff's trademarks. By judgment dated July 29th 1964 ([1965] 1 Ex. C.R. 524) the court found that the defendant had infringed some of the plaintiff's trademarks since December 28th 1962 and directed a reference to establish, at plaintiff's option, either the damages sustained by plaintiff or the profits made by defendant. Plaintiff elected an accounting of profits. The referee made his report and both parties appealed therefrom under Exchequer Court Rule 185. Held, dismissing the appeal:— (1) The Exchequer Court has jurisdiction under secs. 52 and 54 of the Trademarks Act, S. of C. 1953, c. 49 to grant the equitable remedy of an account of profits; (2) While the referee had the right to assess the profits to the date of assessment (Bell v. Read, 3 A.T.K. 592; Barfield v. Kelly, 4 Russ 359; Bulstrade v. Bradley, 3 A.T.K. 582), no error could be found with his decision to exclude the period subsequent to the date of judgment, during which defendant suffered a loss, by reason of his own tortious acts, due to the expense of litigation and delivering up to the court infringing goods. John B. Stetson v. Stephen L. Stetson Co. [1944] 58 Fed. Suppl. 586 approved; (3) Plaintiff was entitled only to an account of defendant's profits attributable to the use of plaintiff's trademarks in the accounting period and not to all defendant's profits during such period. Cartier v. Carlisle (1862) 31 Beavan 292, followed; (4) The referee did not err in disallowing as an expense the cost of delivering up infringing goods to the court: United Telephone Co. v. Walker and Oliver, 4 R.P.C. 63, followed; nor in disallowing an amount in lieu of salary for services rendered to defendant without remuneration by its controlling shareholder during the accounting period; (5) The accounting period was not limited to the period during which plaintiff had no notice of defendant's infringement; Electrolux Ltd. v. Electrix Ltd. (1953) 70 R.P.C. 158 distinguished; (6) The court has power under Exchequer Court Rule 261 to deal with the costs of the reference. 92719-1
802 R.C. de 1'E. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 MOTIONS to vary the findings of the Deputy Registrar DUBINER on a reference. V. CHEERIO Tors & W. F. Green for plaintiff. GAMES LTD. David Watson and C. R. Carson for defendant. NOËL J.:—This is an appeal pursuant to Rule 185 of the General Rules of this Court against the report of the Deputy Registrar, Mr. W. C. McBride, resulting from an inquiry into an accounting of profits of the respondent in pursuance of a judgment of this Court dated July 29, 19641 . The appeal was brought about by the notices of motion of both the plaintiff and the defendant herein for an order varying the findings of the Deputy Registrar. The plaintiff by its notice of motion requests that the Deputy Registrar's report be varied on the basis that the latter erred in holding that the plaintiff was only entitled to a percentage of the total profit of the defendant resulting from the infringing sales of the defendant and that, consequently, instead of being entitled to the sum of $25,-743 for which the Deputy Registrar found the defendant accountable, the latter would be accountable to the plaintiff for the sum of $128,717 which is all of its profits derived from the infringing sales during the accounting period; the plaintiff further requests the entry of judgment for costs of the reference to be paid by the defendant to the plaintiff forthwith after taxation thereof. The defendant, on the other hand, by its notice of motion also moved for an order varying the finding of the Deputy Registrar in that the Deputy Registrar erred in the following matters: 1. Holding that the Plaintiff could carry on the reference up to and including the completion of the reference and then select a period of profit therefrom as the accounting period. 2. Not allowing as an expense the cost of goods delivered up to the Exchequer Court by the Defendant. 3. Not finding that to the extent that Mr. Krangle worked without salary a profit was realized which was not attributable to the use of the trade marks. 4. Not finding the period for accounting is dependent upon an equitable doctrine based on secret profits, and that the Plaintiff is entitled to an accounting with respect only to such period it can establish it was without notice. 1 [1965] 1 Ex. C.R. 524.
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 803 5. Refusing to allow legal fees expended to protect the Defendant's 1965 right to sell its merchandise. DirRINER 6. Failing to appreciate that the agreement of August 17, 1955, licensed v. the Defendant. CHEERIO Toys ae 7. Not considering that if the agreement of August 17, 1955 is GAMES LTD. terminable, that a reasonable period of notice must be given. Noël J. S. Computing the percentage of the royalties attributable to the various trade marks. 9. Disallowing expenses which had not been questioned by the Plaintiff. 10. His rulings and findings with respect to the onus with regard to expenses. 11. Errors in the computation of the amounts due. I should mention that the parties subsequent to the hearing of these appeals, in view of the fact that an entire transcript of the evidence on this reference had not been made, were requested by the Court and submitted a consent indicating the exhibits, examinations and documents upon which they relied in their appeals and it is upon such material that these appeals shall be determined. The most important by far of the matters raised in these appeals is whether this Court has jurisdiction in an action for infringement of a registered trade mark to grant to a successful plaintiff the remedy of an account of profits which would give the plaintiff the right to recover all of the profits of the defendant derived from acts established, not only before the date of issue of the statement of claim and held to be an infringement of the registered trade mark, but also acts of the defendant established as infringements in the accounting of profits after the date of issue of the statement of claim and at least up to the date of judgment and even to recover defendant's profits for acts established in the accounting of profits as infringements after the date of judgment. The relevant paragraph of the judgment rendered on July 29, 1964, as settled, comprised the following material paragraphs : This Court Doth Further Order and Adjudge that the Plaintiff is entitled to recover from the Defendant those damages sustained by him by reason of the infringement of the said trade marks aforesaid , or the profits which the Defendant has made as the Plaintiff may elect. This Court Doth Further Order and Adjudge that at the Plaintiff's election, enquiry may be made by the Registrar or Deputy Registrar of this Court to establish the damages sustained by the Plaintiff or profits 92719-1
804 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 made by the Defendant as the case may be, which damages or profits so DvsI• determined on the said enquiry shall be paid by the Defendant to the Plaintiff forthwith after the determination thereof; CHEERIO Tors & On the 23rd day of October 1964, the defendant moved GAMES LTD. before the Deputy Registrar to require the plaintiff to Noël J. make his election between an assessment of damages and an accounting of profits prior to the opening of the reference. The plaintiff, accordingly, filed a notice that he elected an accounting of profits. The hearing before the Deputy Registrar commenced on November 30, 1964, and then was adjourned and an opportunity to inspect the documents was given to the plaintiff. It then came on for hearing on January 18, 1965 and more or less continued until March 15, 1965 and his report was rendered on June 11, 1965. At the beginning of his report, the Deputy Registrar deals with a number of questions of law raised during the course of the inquiry and primarily with the determination of the proper accounting period, the period over which the plaintiff is entitled to examine the operations of the defendant and whether the plaintiff must accept an accounting of profits or losses for the whole accounting period. I can do no better than reproduce hereunder the decisions reached by the Deputy Registrar with regard to the above at pp. 3, 4, 5 and 6 of his report: 1. With respect to the limitation of the accounting period the parties share common ground that the date of commencement of the period is the date when the defendant's permitted use of the trade marks in question was terminated and that was December 28, 1962, as found by the judgment under which this reference was directed. The termination date of the accounting period has presented some difficulty and confusion. The defendant has insisted that it cannot extend beyond the date of judgment, July 29, 1964, but I was long under the impression that the plaintiff took the position that the accounting period extended to the date of the reference. No authorities have been cited to me by either party on this point. I adopted the view that the accounting period did extend to the date of the reference and I so ruled on at least three occasions during the course of the hearing. Of course, if the terms of the judgment were obeyed and the defendant ceased dealing with merchandise in association with the trade marks found to be valid and owned by the plaintiff, there would be nothing for which the defendant must account to the plaintiff after the date of judgment, but if the defendant did in fact deal with such merchandise after that date I can see no reason why it should not account for its profits, if any, arising therefrom. Neither can I see any reason why it should be necessary to hold a separate reference in order to accomplish this. 2. I ruled during the course of the inquiry that the plaintiff is not restricted in his examination of the witnesses to the operations of the defendant during the accounting period proper. The defendant is an incorporated company, the fiscal year of which was April 1 to March 31
Ex. C R. EXCHEQUER COURT OF CANADA [1966] 805 until 1963, when it was changed to coincide with the calendar year. As a 1965 result, three fiscal periods of the defendant fall wholly or partially within DUBINEx the accounting period. They are, the fiscal year April 1, 1962 to March 31, V. 1963; April 1, 1963 to December 31, 1963 and January 1, 1964 to December Cnsaaio 31, 1964. Accordingly, I felt it was necessary for the plaintiff to investigate Tors & the operations of the defendant during the three fiscal periods covering GAMES LTD. the total period from April 1, 1962 to December 31, 1964 in order that I Noël J. might have as clear a picture as possible of the operations of the defendant during the accounting period proper and I permitted him to do so. 3. It was argued by the defendant that since I had ruled that the accounting period extended to the date of the reference, the plaintiff was compelled to accept an accounting to that date and that he could not waive his right to an accounting for any part of the accounting period. It may be that I misunderstood the position of the plaintiff for it appears from page 141 of the reference transcript that he indicated as early as the third day of the reference that he might not claim an accounting to the date of the reference. His position, I think, was a reasonable one. He was examining the operations of the defendant and until he had done so he could not be expected to know what would be the effect of including the period from the date of judgment to the date of the reference. In fact, the evidence has established that during this period the defendant suffered a loss, due primarily, I think, to the cost of litigation, and the expense incurred in delivering up merchandise in accordance with the terms of the judgment and perhaps also to the necessity of carrying on busmess without the benefit of the trade marks in question. In my opinion it would be most unreasonable to saddle the plaintiff with these losses and force him to set them off against any profit for which the defendant is required to account to him which was earned by the defendant after December 28, 1962 and before the date of judgment. The only authority cited to me in connection with this particular matter was John B. Stetson v. Stephen L. Stetson Co. (1944) 58 Fed. Suppl. 586, where Bright J. District Judge of the District Court, S D. New York, affirmed the Master's decision, on a reference as to profits and damages in a trade mark infrmgement case, to permit the plaintiff to waive a part of the accounting period. In that case the accounting period was three years and nme months and the plaintiff had been permitted to waive the first five months thereof, during which there were losses. It may be worth noting that in the present case, the losses suffered by the defendant from the date of judgment to the date of the reference were not ordinary business losses but losses directly attributable to the tortious acts committed by the defendant in continuing to use the plaintiff's trade marks after its legal right to do so had terminated There being no reason, in my opinion, why the plaintiff should absorb these losses, I have permitted him to waive an accounting by the defendant for the period following the date of judgment. From this it appears that the Deputy Registrar has determined that (1) the commencement of the accounting period is December 28, 1962; (2) the termination date could have gone beyond the date of judgment up to the date of the reference; (3) that the actual termination date of the accounting period in the present case was the date of
806 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 judgment, July 29, 1964; (4) the plaintiff, in the case of an DuBINEB accounting of profits is not restricted in his examination of Cameo witnesses to the operations of the defendant during the Toys & accounting period proper but may go beyond this in order GAMES ~ . to have as clear a picture as possible of the operations of Noël J. the defendant during the accounting period proper; (5) although he had ruled that the accounting period extended to the date of the reference, the plaintiff was not compelled to accept an accounting period to that date and could still waive his right to part of an accounting period which he was allowed to do for the period after the date of judgment, July 29, 1964, during which the defendant sustained a loss, which the Deputy Registrar found was due primarily to the cost of litigation, the expense incurred in delivering up merchandise in accordance with the terms of the judgment and possibly also to the necessity of carrying on business without the benefit of the trade marks in question on the basis that it would have been most unreasonable to saddle the plaintiff with these losses. At the reference, counsel for the plaintiff submitted that the Registrar should extend the inquiry period beyond the date of judgment, July 29, 1964, to the date of reference although, as pointed out by the Registrar at p. 5 of the report "he (counsel for the plaintiff) indicated as early as the third day of the reference that he might not claim an accounting to the date of the reference". Counsel for the defendant on the other hand took the position at the reference inquiry that the accounting period could not go beyond the date of judgment. At the hearing of the appeal, however, there was somewhat of a reversal of positions in that counsel for the plaintiff submitted that the period could not go beyond the date of judgment and counsel for the defendant insisting that it should go down to the date of assessment, as it turned out that losses had been sustained since the date of judgment. This matter was discussed at great length by both parties and became further involved when the Court pointed out that it was even doubtful that the accounting period could go beyond the date of the taking of the action as it is a general rule that at the trial of any action, judgment can be granted only in respect to such causes of action as had arisen at the date of the issue of the writ of summons or
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 807 the statement of claim initiating the proceedings. Such, at 1965 least, is the prevailing rule under the civil law, where if DuBI xu causes of action subsequent to the initiation procedure are CRFFE o to be invoked, a procedure called an incidental demand is Cx T AM E 8 11i'D. used and once authorized allows these new causes of action — to be dealt with at the same time as the original action. In Noël J. a case such as here where we are dealing with the illegal use of trade marks, each time the infringement is repeated, there is a new cause of action, a new injuria or infringement of legal rights and a new damnum flowing therefrom and so where the acts continue, a plaintiff may, theoretically, issue a writ or a statement of claim every day for the new damage. For one who was brought up under the civil code, the granting of damages or profits as a result of infringements subsequent to the taking of the action is unacceptable. Indeed, a party has the right to have such questions, as they arise, tried according to the ordinary practice of the Court and there is no such procedure either under the civil law or under the common law that I know of under which a judgment can be obtained in respect of an anticipated wrong. It would appear, however, that under the law of Ontario, two exceptions have been made to the principle that at the trial of any action, judgment can be granted only in respect to such causes of action as had arisen at the date of the issue of the initiating proceedings. The first exception was by section 15(2) of the Judicature Act, R.S.O. 1960, c. 197 as amended by 1960-1961, c. 41 and 1961-1962, c. 65, where it is provided that "no action or proceeding is open to objection on the ground that a merely declaratory judgment or order is sought thereby and the Court may make binding declarations of right, whether or not any consequential relief is or could be claimed". Under the practice which preceded the rule, no declaration would be granted unless the plaintiff was entitled to claim relief consequent upon the declaration, but the statute above quoted does away with this limitation, although, notwithstanding the above, a declaratory judgment or order can only be granted in respect of a right which existed at the date when the action was initiated. The second exception to the general principle is covered by Rule 259 of the Ontario Rules of Practice: Rule 259: Damages in respect of any continuing cause of action shall be assessed down to the time of the assessment.
808 R.C. de l'É. COUR DE L'ÉCIÉQUIER DU CANADA [ 1966] 1965 This rule is similar to Rule 0.36 r 7 of the Rules of the DURINER Supreme Court under the English Act which reads as fol-v. CHEERIO lows : ToYs de 7. Where damages are to be assessed (whether under this order or GAMES LTD. otherwise) in respect of any continuing cause of action, they shall be Noël J. assessed down to the time of the assessment. This rule is available before our Court under Rule 42 of its General Rules and Orders which provides that in the absence of any practice or procedure provided for by any Act of the Parliament of Canada, or by any general rule or order of the Court, the practice and procedure should "conform to and be regulated as near as may be by the practice and procedure at the time in force in similar suits, actions and matters in Her Majesty's Supreme Court of Judicature in England". The English rule 7 is merely declaratory of what was the practice in equity prior to the Judicature Act, but under it damages cannot be given in anticipation. In other words, the plaintiff, although entitled to actual damage, is not entitled to recover in respect to prospective damages, that is to say, anticipated damages expected to occur, but which have not actually occurred or which never may arise. This appears from a reading of West Height Colliery Company Limited v. Turncli f e de Hampson Limited- where it was decided that in assessing the damages recoverable by a surface owner for subsidence owing to the working of minerals under or adjoining his property, the depreciation in the market value of the property attributable to the risk of future subsidence must not be taken into account to recover damages. The surface owner must wait until the damage or inquiry caused by a subsidence has happened. It however would seem that if at the trial in the above case a reference has been directed to the Master to ascertain the amount due to the plaintiff, the Master, in taking the account, could have brought it down to the date of the making of his report under the authority of Read v. Wol-ton 2 where damages were claimed from the defendants as a result of nuisances committed by the latter as lessors of the plaintiff's property. Sterling J. stated here at p. 174 of the above decision: There is in the writ a claim for damages and under order XXXVI, rule 58 (which later became rule 0.36 r 7) where damages are to be assessed in 1 [1908] AC. 27. 2 [18931 2 Ch. 171.
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 809 respect of any continuing cause of action, they shall be assessed down to 1965 the time of the assessment. DIrsINER Consequently, if it is proved at the trial that there has been a breach v. of the contract under which the premises are held before action brought, CHEERIO continuing at the time when the action is brought, and down to the trial, Toys & ni~Es Lin. damages may be assessed down to not only the issue of the writ, but to G the time of assessment. Noël J. It is interesting to note that although these nuisances were not strictly speaking what is considered as a continuing cause of action, yet the reference was allowed to deal with the damages down to the assessment. A similar situation was dealt with in the same manner in Hole v. Chard Union" where the plaintiffs had brought an action against the defendants for permitting sewage to fall into and pollute a stream running through the plaintiff's land and obtained judgment for a perpetual injunction and for damages. The defendants continued to pollute the stream and three years after the judgment, the chief clerk assessed the damages sustained by the plaintiffs carrying the assessment down to the date of his certificate. It was held by the Court of Appeal here (affirming a decision of Chitty J.) "that there was a continuing cause of action within the meaning of Order XXXVI, rule 58 and that the damages were rightly assessed down to the time of assessment". .. The question raised in the appeal is, What are the damages since the death of the original Plaintiff to which the Plaintiffs are entitled? That depends upon the construction of Order XXXVI, rule 58. Mr. Justice Chitty having directed an inquiry as to damages, the Chief Clerk has assessed the damages down to the time of his certificate. The question is whether he was justified in taking account of damage sustained by the Plaintiffs since the date of the grant of the injunction, or rather since the 25th of August, 1890, the date when it came into operation. It is contended on behalf of the Defendants that it was not right in principle to do this; because any nuisance committed after the date when the injunction came into operation gave rise to a fresh cause of action, and was not a continuing cause of action in respect of which the damages could be assessed down to the date of assessment under Order XXXVI, rule 58, What is a continuing cause of action? Speaking accurately, there is no such thing; but what is called a continuing cause of action is a cause of action which arises from the repetition of acts or omissions of the same kind as that for which the action was brought. In my opinion, that is a continuing cause of action within the meaning of the rule. The cause of action complained of and existing in the present case appears to me precisely the kind of mischief at which rule 58 was aimed, its object being to prevent the necessity of bringing repeated actions in respect of repeated nuisances of the same kind. To adopt the argument of the Defendants would be to render the rule altogether a nullity. I feel no doubt that the 1 [1894] 1 Ch. 293.
810 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 present case is a continuing cause of action within the rule. It is a Dvsi• repetition of acts of the same kind as those which had been investigated at the trial, and had been decided to constitute a nuisance. The Judge C1 E1uso was, therefore, right in treating it as a continuing cause of action, and in Tors & assessing the damages down to the date of the Chief Clerk's certificate. GAMES LTD. (The emphasis is mine.) Noël J. Although the present case deals with an accounting of profits which is different from a reference on damages, there is some analogy in that in both cases the question is whether the calculation of damages or of an account of profits can be made with respect to infringing sales subsequent to the taking of the action, the judgment and even down to the assessment. The matter of damages was dealt with here in order to show how the Courts in England have interpreted "a continuing cause of action" and have held in many cases that although strictly speaking they did not deal with continuing causes of action but repeated causes, they were to be held as continuing causes of action under the above rule and such an interpretation of a continuous cause of action under the rule became an exception to the rule that at the trial of any action, judgment can be granted only in respect to such causes of action as had arisen at the date of the issue of the initiating proceedings. It appears to have been accepted on the basis that it was more practical to allow such a procedure to be exercised than to force a plaintiff to be delayed in his relief and to put both parties to the expense of another action or to several actions before the plaintiff can get the relief to which the judgment in the action adjudges him to be entitled. A reference as to damages in patent cases has been granted in this country in numerous instances as well as in England. Cf. Dominion Manufacturers Ltd. v. Electrolis Mfg. Co. Ltd.'; Colonial Fastener Co. Ltd. et al. v. Lightning Fastener Co. Ltd?; The British Thomson-Houston Co. Ltd. v. Goodman (Leeds) Ltd and others 3; Proctor v. Bennis Tool4. It has also been granted in trade name or trade mark cases: Edelsten v. Edelsten5; in cases dealing with passing off by trade mark and get up of goods: Draper v. Triste and Tristebestos Brake Lining Ltd. 6 The matter of dealing with causes of 1 [1939] Ex. C.R. 204. 4 4 R.P.C. 333. 2 [1936] S.C.R. 37. 6 7 L.T. 768. 8 42 R.P.C. 75 at 305. 6 56 R.P.C. 429.
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 811 action subsequent to the initiating proceedings for which 1965 some particular defence or exception could be raised, ap- D UBINER pears to be assured an adequate treatment, at least, before cHEEBIo this Court, by either the Registrar conducting the reference Toys & GAMES LTD. referring the matter to the Court by means of a certificate or if such a course of action is not taken, the matter can be Noel J. dealt with by the Court upon an appeal against the Reg- istrar's report or even possibly upon a motion for judg- ment to be entered. The recourse chosen here, however, is an accounting of profits which is quite different from a reference as to dam- ages and on which topic there appears to be very little written. Halsbury's Laws of England, 3rd edition, at pp. 647 and 648, deals with the procedure as follows: The Court grants an account of profits where one party knowingly marks his goods with the trade mark of the plaintiff or passes off his goods as those of the plaintiff. Also an account will be granted where one party owes a duty to another; the person to whom the duty is owed is entitled to recover from the other party every benefit which that other party has received by virtue of his fiduciary position if in fact he has obtained it without the knowledge or consent of the party to whom he owes the duty. In taking an account of profits, which is an equitable relief, the damage which the plaintiff has suffered is totally immaterial; the object of the account is to give the plaintiff the actual profits which the defendant has made and of which equity strips him as soon as it is established that the profits were improperly made. In Draper v. Triste and Tristebestos Brake Lining Ltd.'. which was a passing off by trade mark and get up of goods case, Sir Wilfrid Green M/R stated at p. 439: Of course in taking an account of profits which is the equitable relief, the damage which the plaintiff has suffered is totally immaterial. The object of the account is to give to the plaintiff the actual profits the defendants have made and of which equity strips them as soon as it is estabhshed that the profits were improperly made. That such a remedy is available in Canada and that this Court has jurisdiction to grant it, would appear to be clear. Sections 52 of the Trade Marks Act, 1-2 Elizabeth II, c. 49 specifically refers to this remedy: ...the Court may make any such order as the circumstances require including provision for relief by way of injunction and the recovery of damages or profits (the emphasis is mine). 1 56 R.P.C. 429.
812 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] Vi Section 54 of the same Act clearly indicates that the Court DIIBINER ...has jurisdiction to entertain any action or proceeding for the v. enforcement of any of the provisions of this Act or of any right or remedy CHEE ~ R I O conferred or defined thereby. GAMES LTD. Section 40 of the Exchequer Court Act states that the Noël J. Court may "for the purpose of taking accounts or making inquiries . .. refer any cause, claim, matter or petition to the Registrar .. . for inquiry and report". As the relief of an account of profits is an equitable remedy and since the Judicature Acts, a common law court can also give it on the same conditions as those previously recognized in equity alone, decisions regarding an accounting of profits in England are useful in determining the extent and manner of the accounting to be conducted in this country. Before, however, looking at the English decisions in this regard, it might be apposite here to point out that there is a complete dearth of Canadian decisions on this topic and that even in England such little use has been made of this remedy that it is difficult to produce English decisions which determine its limits with precision. The fact that this remedy was a difficult one to work out may, however, explain the fact that very few litigants appear to have used it. In Siddell v. Vickers1 which dealt with an action for infringement of a patent, damages and an account of profits, the Court of Appeal, after expressing an opinion that an account of profit was extremely difficult to work out and should rarely be chosen, discharged the order of the judge below and the certificate, and ordered the defendants to pay the plaintiffs £3000 in satisfaction of all demands with all costs. Lindley L.J. at p. 126 then stated: The Plaintiff having succeeded in his action for the infringement was entitled, as the law stands, to elect whether he would take damages or an account of profits I have been looking into that for reasons which I will state presently. The old form of decree in Chancery before Lord Cairns' Act, always was to give the Plaintiff an account of profits. They had no jurisdiction to give damages. After Lord Cairns' Act the jurisdiction to give damages was conferred upon the Court, and in Hills v. Evans, which is to be found in 4th De Gex Fisher and Jones, Lord Westbury pronounced a decree giving the plaintiff both damages and profits. As soon as attention was called to that, it was said to be wrong and that was put right in Neilson v. Betts, which is in law Reports, 5th English and Irish Appeals, page 1, and more pointedly in De Vitre v. Betts, which is in 1 Cutter's Reports on Patent Design, Vol. 9, 1892, pp. 152-153.
Ex C R. EXCHEQUER COURT OF CANADA [1966] 813 6th English and Irish Appeals 319 The House of Lords then settled 1965 finally that the plaintiff in an action for infringement of a patent, hav- Du B I NER ing succeeded, is entitled at his election either to damages or an account v. of profits, and that is the state of the law. The Plaintiff therefore was CHEERIO perfectly within his right in electing, as he did in this case, to have an Tors & account of profits but I do not know any form of account which is more GAMES LTD. difficult to work out, or may be more difficult to work out than an Noël J. account of profits. One sees it—and I personally have seen a good deal — of it—in partnership cases where the capital of a deceased or outgoing partner has been left in the trade; an account has been directed of the profits made in respect of his capital, which is something like the profits made in respect of an invention, and the difficulty of finding out how much profits is attributable to any one source is extremely great— so great that accounts in that form very seldom result in anything satisfactory to anybody. The litigation is enormous, the expense is great, and the time consumed is out of all proportion to the advantage ultimately attained; so much so that in partnership cases I confess I never knew an account in that form worked out with satisfaction to anybody. I believe in almost every case people get tired of it and get disgusted Therefore, although the law is that a Patentee has a right to elect which course he will take, as a matter of business he would generally be inclined to take an inquiry as to damages, rather than launch upon an inquiry as to profits. (The emphasis is mine.) There have been, however, a few decisions in Eng-land regarding this remedy, cf. Ford v. Fosters and Lever Brothers, Peat and Sunlight Limited v. Sunniwite Products Limited 2 which dealt with an action for the infringement of a registered trade mark. In M. Saxby v. Easterbrook3, in the Court of Exchequer Chamber on appeal from the Court of Exchequer, Kelly, C. B. in giving judgment for the plaintiff stated: From my own experience I can say that for at least thirty years past, it has been a matter of course in the Court of Chancery that upon a decree being pronounced in favour of a patentee in a suit in which complaint is made of infringement of the patent, application is at once made and granted that an account be taken of the profits made by means of infringement down to the time of the decree. In this case, the trial was before me; and upon the verdict being pronounced, I, at once, under the power given in the statute, granted an order for an account, meaning an account of profits from the time of the infringement to the time of verdict. Judgment was afterwards given in this court confirming the verdict. It does appear that the plaintiff is entitled in an account of profits, to recover profits after the date of the institution of the action up to the date of the judgment or even thereafter, if an order extending the period remains unap-pealed. 1 (1872) L.R. 7 Ch. 633. 2 (1949) 66 R P.C. 84. 3 (1872) L.R. 7 Ex. 207.
814 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 Two old decisions, Bell v. Read' and Barfield v. Kelly2, DIIBINER determine that the account may be carried on as long as V. CHEERIO the suit is pending between the parties and in Bulstrade v. Bradley3 it was stated that though judgments for account GAME s ly. do not contain future words, sums received after judgment Noël J. must be accounted for. It therefore follows that the decision of the Deputy Registrar to carry the accounting period in the present case to the assessment was in line with the procedure and practice followed in England in such matters and he was perfectly right in doing so. I now come to the plaintiff's first ground of appeal to the effect that the Deputy Registrar erred in holding that the plaintiff could carry on the reference up to and including the completion of the reference and then select a period of profit therefrom as the accounting period. I should point out here that in some cases the Registrar may be dealing with an inquiry period more extensive than the accounting period proper and necessary in order to properly evaluate the profits to be determined during the accounting period and although the Deputy Registrar here has not gone up to the date of assessment merely to be able to determine the profits during the accounting period which he has determined as ending on July 29, 1964, date of the judgment, he might well have done so here, as it was helpful for him to go as far at least as the end of the fiscal year of the defendant company, i.e., December 31, 1964, in order to properly assess the profits which the plaintiff was entitled to up to the date of the judgment. His decision not to include the period after the judgment in the accounting period is explained at p. 5 of his report where he states that: The evidence has established that during this period the defendant suffered a loss, due primarily, I think, to the cost of litigation, and the expense incurred in delivering up merchandise in accordance with the terms of the judgment and perhaps also to the necessity of carrying on business without the benefit of the trade marks in question. In my opinion it would be most unreasonable to saddle the plaintiff with these losses and force him to set them off against any profit for which the defendant is required to account to him which was earned by the defendant after December 28, 1962 and before the date of judgment. 13 A.T.K. 592. 2 4 Russ 359. 8 3 A.T.K. 582.
Ex. C.R. EXCHEQUER COURT OF CANADA [19661 815 And at p. 6 he added: 1965 It may be worth noting that in the present case the losses suffered by DIIBINEB the defendant from the date of judgment to the date of the reference were V. CHEERIO not ordinary business losses but losses directly attributable to the tortious TOYS er acts committed by the defendant in continuing to use the plaintiff's trade LTD. marks after his legal right to do so had terminated. There being no reasons in my opinion why the plAintiff should absorb these losses, I have Noël J. permitted him to waive an accounting by the defendant for the period following the date of judgment. I can see nothing wrong in the action taken by the Deputy Registrar in doing what he did when he permitted the plaintiff to waive the period subsequent to the judgment and it appears to me to have been the reasonable and equitable thing to do in the circumstances. If an argument of reason is required to sustain such a course of action, his reference to the case of John Stetson v. Stephen L. Stetson Co.1, although an American decision, appears to me to be a convincing enough authority to do so. In this case, the plaintiff in an accounting of profit had been permitted by the Master's decision to waive a number of months of the accounting period during which there had been losses. I therefore see no reason why the decision of the Deputy Registrar in this respect should be disturbed. I will now deal with plaintiff's submission that he is entitled to the sum of $128,717 instead of merely $25,743 as determined by the Deputy Registrar, the former being all of defendant's profit derived from the infringing sales during the accounting period. In order to properly understand this contention it is necessary to explain the basis of the Deputy Registrar's decision in this regard. The difficulty the latter had to deal with in respect of determining the profit of the defendant was due to the fact that the total net profit of the defendant was composed of that derived from the sale of merchandise bearing one or more of the plaintiff's trade marks, some of which were infringing and others of which were not (Cheerio and Beginners could be used by the defendant whereas Pro, YoYo, Bo-Lo, 99 and Tournament could not and were infringements) or of merchandise otherwise sold in association with those trade marks and the sale of non-infringing merchandise. The plaintiff here takes the position that he is entitled to all of the profits made by the defendant during the 1 (1944) 58 Fed. Suppl. 586.
816 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 accounting period, because it is the goodwill of the trade DIIBINER marks that the defendant has obtained and that he has V. CHEERIO traded upon, whereas the latter maintains that the plaintiff TOYS m is only entitled to that portion of such profits directly GAMES LTD. attributable to the use of the plaintiff's trade marks. No51J. It is my view that the Deputy Registrar's decision that the plaintiff is entitled to require the defendant to account for only that part of the profit it realized on infringing sales during the accounting period that is attributable to its use of the plaintiff's trade marks is the right one in the present instance and the authority he has cited in this regard to sustain this finding and his interpretation thereof is also in accordance with my view on the matter. Indeed, in Cartier v. Carlisle' a trade mark infringement case, the Master of the Rolls stated at p. 298: I am therefore of opinion in this case, that the injunction must be made perpetual and that there must be the usual account, but, as I have stated, I do not propose, in taking the account in Chamber, to make the Defendants account for every species of profit during the last six years, but I shall consider how much of the profits are properly attributable to the user of the plaintiff's trade marks. The Deputy Registrar here in determining what proportion of the profit realized can be attributable to the infringing use of the plaintiff's trade marks took into consideration a number of matters such as the value placed on plaintiff's trade marks by Krangle, the defendant's President, when he executed the agreement of August 17, 1955, Krangle's evidence during his cross-examination on an affidavit in September 1964, the fact that the defendant used its own trade marks during the accounting period and the way in which it used them and finally the significance of the sales achieved by the defendant during its promotion campaign in St. John's, Newfoundland in November 1964, which counsel for the defendant submitted was the first promotion campaign conducted by the defendant without the use of any of the plaintiff's trade marks. He then concluded, after due consideration to the evidence that was before him regarding the value of the plaintiff's trade marks, that 20 percent of the profit realized by the defendant on its sales made in the accounting period is attributable to its use of those trade marks and I must say that I fully 1 (1862) 31 Beavan 292.
Ex. C R. EXCHEQUER COURT OF CANADA [1966] 817 concur not only in the percentage he has arrived at in this 1965 .._.,— regard, but also in the reasons given for arriving at this DUBINER result. V. CiHEERIo To accept the submission of counsel for the plaintiff that, TOYS & GAMES LTD. if an infringer is using infringing marks as well as other marks, the whole of the profits in an accounting of profits Noël J. goes to the person whose rights he has been infringing even if some of the profits are attributable to the use of a trade mark which does not belong to such person would, in my view, lead to unconscionable results particularly in a case where use is made of several trade marks belonging to different owners. Indeed, one might ask whether, if the trade marks used together belonged to different people, the defendant should be compelled to pay an amount equal to all of his profits to each of the individual owners. To reach such a result would indeed be most unreasonable and would lead to unjustifiable abuses. I now come to defendant's second submission that the Deputy Registrar erred in "not allowing as an expense the costs of goods delivered up to the Exchequer Court". I can deal with this matter shortly by merely stating that if such a course of action was taken and the resulting expense was incurred after the date of judgment, it was because the defendant failed to take the alternative given to it in the judgment of either destroying the infringing wares or removing the offending labels or inscriptions and also because of the fact that it had attempted to avoid the judgment of this Court. Having therefore determined that the Deputy Registrar had the right to allow the plaintiff to waive the losses during that period, these expenses should not be taken into account. But even if this period had been taken into account, these expenditures could not be considered in establishing the profits realized during such period. A similar situation occurred in a patent case in The United Telephone Co. v. Walker and Oliver' where an expense of a similar nature was refused: It was stated by the defendant that there ought to be a set-off, as against these damages, of the value of the instrument which had been given up under the judgment. That appears to me to be absolutely untenable. The judgment is that those instruments should be delivered up and the plaintiffs have not to pay for them in any form. That is one of the penalties which the Patent law imposes on the infringer. 14 R.P.C. 63. 92719-2
818 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [ 1966] 1965 Defendant's third submission is that the Deputy Regis- DUBID EE trar erred in "not finding that to the extent that Mr. CHEExio Krangle worked without salary a profit was realized which was not attributable to the use of the trade marks". G A T M OY E S & Mr. Krangle drew a salary of $8,500 in the fiscal period Noël .T. April 1, 1962 to March 31, 1963 and $10,000 for the year 1964. He did not, however, draw a salary for the nine month fiscal period April 1963 to December 31, 1963, and counsel for the defendant submits that the value of his services during this period should have been taken into consideration by the Deputy Registrar in establishing the profits during the accounting period. From the Report it would appear that the Deputy Registrar could not see why he should allow an expense greater than what was actually paid during the period in question and I am not prepared to say that he was wrong in this regard particularly in view of the fact that during the 9-month period during which Krangle received no salary, he used funds from the defendant company to pay for personal wearing apparel for himself and his family and for things such as repairing golf clubs which had nothing to do with the affairs of the company. The evidence discloses that there were credit charges amounting to $4,000 covering Krangle's personal or family expenses during this period. It was also during this period that some of the profits of the defendant company were transferred to a company called Dulev of which Krangle's wife was the president, on the basis of some alleged promotion agreement between both companies. I also agree with the Deputy Registrar's additional reason for refusing to allocate or estimate a salary for Krangle during the 9-month period in that dealing as he was with the actual expenses incurred by the defendant during the accounting period, to allow an increased amount for management salary over that which the defendant actually paid, would be to artificially reduce its apparent profit because it would not be under any liability to pay the increased amount to Krangle. Defendant's fourth submission is that the Deputy Registrar erred in "not finding the period for accounting is dependent upon an equitable doctrine based on secret profits, and that the plaintiff is entitled to an accounting with respect only to such period it can establish it was without notice".
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 819 Counsel for the defendant argued that in Electrolux Ltd. 1965 v. Electrolix Ltd.1 Lloyd Jacob J. held that the right to an DIMMER accounting having an equitable basis and being based upon CHEERIO agency applies only when a secret profit is made and that, GAMETRO JlTl' ,, L ,~ . therefore, the period of accounting should be only that — during which the plaintiff did not have notice of the in- Noël J. fringement, which would mean here that the plaintiff would have no claim to the profits earned by the defendant during the period commencing not later than the date of institution of the action and continuing to the date of the last act of infringement. I h ave read this decision and I agree with the Deputy Registrar that it is not authority for the above proposition as the Court in the Electrolux case was dealing with a situation where the plaintiff had deliberately stood passively by with full knowledge of the defendant's infringing activities for a period of several years and then after allowing the defendant to gain profits over that long period of time, had asked for an accounting of profits. Here, of course, the plaintiff sought his remedy with dispatch and can in no way be held to have acquiesced in any way to the infringing acts. I now come to defendant's point five based upon the refusal of the Deputy Registrar to allow legal fees which had been expended to protect the defendant's right to sell its merchandise. The total amount under legal and audit adjusted to July 29, 1964, is $26,394, a sum of course which as pointed out in the Report, is very much greater than the sum normally expended by the defendant. On the basis that most, if not all of the legal services covered by the account were rendered to Krangle personally, and that the defendant declined to give any particulars of even the most general nature (or in some cases even satisfactory proof— as the Deputy Registrar put it at p. 32 of the Report— of the services represented by these accounts on the ground that such information is privileged) he disallowed the amounts claimed and allowed for legal and audit for the accounting period, a sum of $3,000. Ia m also of the view here that, under the circumstances, this was the only way these items could legally be dealt with. As the matters which points 6 and 7 dealt with, i.e., the agreement of August 17, 1955, and the suggested reasonable 1 (1953) 70 R.P.C. 158 at 159. 92719-2;
820 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 notice of termination to be given have been dealt with by DIIBINEB the Supreme Court in upholding the judgment of this Ciao Court, that the defendant on December 28, 1962, by not TOYS L complying with its obligation to allow the plaintiff free GAMES LTD. access to inspect had infringed his user agreement, and Noel J. from that date on had no longer the right to the use of the trade marks, the submissions which the defendant might have otherwise made in respect to these items can no longer be entertained. Defendant's submission number 8 is that the Deputy Registrar erred in "computing the percentage of the royalties attributable to the various trade marks". An agreement dated August 17, 1955, Ex. C. between the defendant and the plaintiff, provided for the payment by the defendant to the plaintiff of a royalty of 5 percent of the sales price. This agreement was amended twice by agreement dated August 30, 1955, Ex. D., and by agreement dated June 27, 1961, Ex. E. However, these subsequent agreements having been executed only in an attempt to settle a dispute between Krangle and one Gallo, a minority shareholder, the Deputy Registrar held that the undertaking of the plaintiff to accept for a period of two years the sum of $2,000, and 10 percent of the defendant's net profit, cannot be used to establish the value of the plaintiff's trade marks. He then, after examining the evidence of Krangle on the value of some of the trade marks and the fact that the defendant used during a certain period the plaintiff's trade marks in association with those of the defendant, and after considering the evidence before him, concluded that 20 percent of the profit realized by the defendant on its sales made in the accounting period was attributable to its use of those trade marks. Now, although the figure arrived at here is only approximate, it cannot be anything else under the circumstances. Looking at the relevant evidence, I cannot find any fault with his decision on this point. I also cannot find fault with the Deputy Registrar's apportionment of the total profit attributable to the use of the plaintiff's trade marks by the defendant as set down at p. 19 of the Report. He there apportioned 70 percent to "Yo-Yo", 15 percent to "Bo-Lo" and 5 percent to each of the trade marks "Pro", "Tournament" and "99". I cannot find anything unreasonable in such a determination.
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 821 Before dealing with defendant's points 9 and 10, shall 1965 deal with defendant's submission that the report contains a Dui R number of erroneous figures which counsel for the plaintiff cA ÉRio admitted and which should be corrected as follows: the Toys & GAMES LZv. figure $50,039 on line 2, p. 21 of the Report is changed to $68,223; $150,197 in line 7 of p. 21 is changed to $168,381 Noël J. and $322,002 in line 11 of the same page is changed to $303,818; $322,002 in the first line of p. 42 is changed to $303,818; $128,717 in the second line of the same page is changed to $110,533 and $25,743 in line 5 is changed to $22,106 and $128,717 in line 20 of the same page is changed to $110,533. A further adjustment should also, I believe, be made in the total amount of sales $472,198.54 found by the Deputy Registrar from December 28, 1962 to July 29, 1964. The plaintiff was allowed to increase the amount of sales by the defendant by $9,419.83 for goods sent out on consignment prior to the accounting period and although this was a proper thing to do in order to obtain the total sales during the period, it would follow also, however, that some deduc- tion should be made for an amount of $8,986.89 paid out by the defendant for returns after the period from consign- ment of wares sent out during the period. I believe that in order to be consistent in this matter, this amount of $8,986.89 less a credit note of $279.18 for taxes (which is credit note No. 428 included in invoice No. 743), i.e., $8,707.71, should be deducted from the total amount of sales of $472,198.54 thus leaving a sum of $463,490.83 as the total amount of sales of the defendant during the period. After deducting from this amount the corrected amount of the cost of goods sold during the period, i.e., $168,381, the resulting gross trading profit of the defendant for the accounting period becomes $295,109.83 instead of $303,818. By deducting the expenses of $193,285 from the amount of $295,109.83, a net profit of the defendant of $101,824.83 is arrived at instead of $110,533. By taking 20 percent of the net profit the sum of $20,364.96 is arrived at for which the defendant is accountable to the plaintiff instead of the amount of $22,106. I can find no other item where the Deputy Registrar has disallowed expenses which should have been allowed and I
822 R.C. de 1'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 can find no fault with the manner in which he dealt with DIIBINEB the matter of expenses. This was a most difficult assessment CHEERIO to make and the manner in which he discharged his duties TOYST&, ,,,~ in this regard must be commended. GAMES LTD. The defendant submitted under point 10 that the Noel J. Deputy Registrar erred "in his rulings and findings with respect to the onus with regard to expenses". Here counsel for the defendant complained that the Deputy Registrar not only imposed on the defendant the onus of proving expenses but that of proving that the expenses were proper expenses. He admits that this would have been proper if ordinary trial procedure had been followed in this inquiry but he says that the inquiry was conducted on an in-quisitorial basis, the plaintiff being given carte blanche to explore the expenses. He further adds that the plaintiff was allowed to have things all his own way. Under Rule 178 of the Court the Registrar is required to proceed in like manner as at a trial before a judge of the Court and so far as was possible in this case, the proper procedure seems to have been followed. Whatever deviations the Deputy Registrar may have adopted during this long and difficult investigation (to which, I understand, objection was taken only at the end of the inquiry by the many counsels for the defendant) do not appear to have prejudiced the defendant in any way. The difficulties met by the Deputy Registrar here were in no way caused by adopting any improper procedure but were mainly due to Krangle's reluctance to give out information regarding certain expenses in order not to damage his interests in an accounting action between him and one Gallo in another jurisdiction and on other occasions. They were due also to Krangle's attempt to bring forth extraordinary expenses such as payments made to his daughter allegedly as wages, the charging of capital cost allowance to the defendant for certain items in the home of Krangle and for an automobile used by his wife and the very large legal accounts paid by the defendant, for which particulars were refused on the basis that this was a confidential matter covered by privilege. I now come to the matter of costs on this reference which the plaintiff submits should be paid by the defendant to the plaintiff forthwith after taxation. Counsel for the defendant submits on this point that the costs of the reference
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 823 were disposed of by the award regarding costs made in the 1965 judgment of July 29, 1964, and as the award made therein DUDINER was that there would be no costs, there can be no costs CHEERIO either on the reference. TOYS & GAMES LTD. The decision of the Court of July 29, 1964, on the ques- — tion of infringement and validity regarding the matter of Noël J. costs and reference reads as follows: "Both parties having been partly successful in this case, there shall be no costs for either of them and as for the matter of damages or profits, they will be such as the Registrar of this Court may award on a reference to him, if the plaintiff elects such reference." The above has been the usual and customary way of referring matters to be inquired into by the Registrar and does no more in my view than turn the matter over to him to be dealt with thereafter in accordance with Rules 176 and following of the Rules of this Court and once his inquiry is terminated, he then proceeds in accordance with Rules 184, 185 and 186 to deposit his report and give notice of such filing to the other parties to the proceeding. Within 14 days after service of this notice any party may, by a motion, appeal to the Court against the report and the Court may confirm, vary or reverse the findings in the report and direct judgment to be entered accordingly or refer it back to the referee for further consideration and report. If there is no appeal within 14 days after the service of notice of filing of the report, the latter becomes absolute. However, unless otherwise directed by the order of reference, judgment on such report cannot be entered without an order thereupon obtained upon motion for judgment of which at least eight days' notice shall be given. The parties to the present proceedings dealt with this reference in accordance with the above procedure as both appealed to the Court against the report on various grounds of appeal mentioned in their respective motions. On this appeal the Court is empowered to confirm, vary or reverse the findings of the report and to direct judgment to be entered accordingly. In so varying this judgment, the Court may also, in accordance with the discretion given it under Rule 261 of the General Rules of this Court deal with the costs. This rule provides that: "The costs of and incidental to all proceedings in the Court shall in the discretion of the Court and shall follow the event unless
824 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] 1965 otherwise ordered. The Court may also direct the payment DUBINER of a fixed or lump sum in lieu of taxed costs." v. CHEERIO It could not, however, if by the award of costs in the Tore & GAMES LTD, decision of the Court of July 29, 1964, had disp oosseed of in advance of the costs of the reference. This, in my view, the Noël J. Court did not however do; it merely decided that at the date of the judgment of July 29, 1964, no party was entitled to any costs as (and this is specifically mentioned in the conclusions of the judgment) both parties had been partly successful in the case. In Underwriter's Survey Bureau Ltd. v. Massie & Renwickl, which was an inquiry by the Registrar into damages for infringement of copyright and other relief in this Court, although, as here, the formal order of the Court did not reserve the question of costs on the inquiry, the Court exercised its inherent jurisdiction to award costs. The proceedings at this stage are not terminated and in order to give the parties an appeal to the Supreme Court of Canada on the matters decided at that time, it is necessary to have a section such as 85(5) of the Exchequer Court Act which states that "A judgment is final for the purpose of this section if it determines the rights of the parties except as to the amount of damages or the amount of liability" otherwise there would have been no appeal. The reference, however, is still part of the same case and the Court being still seized of the matter, the proceedings continue. The remedy chosen by the plaintiff, damages or account of profits, can be settled in several ways. In most cases the parties agree to an amount and the matter is ended and very little costs is involved. In some cases, however, the time and cost involved are considerable, and unfortunately this is the situation here where the inquiry degenerated into an inquiry of 37 days mainly because of, as pointed out by the Deputy Registrar, at p. 43 of his report: ...the virtual refusal of the witness Krangle (the President of the defendant corporation) to answer the questions put to him with anything even approaching candour, his failure to produce the required books and documents of the defendant at the opening of the inquiry and his production of some important documents late in the enquiry, and the almost incessant attempts made by the defendant, some of which seemed to me to border on desperation, to have the enquiry adjourned both before it commenced and during its course. 12 Fox P.C. 39.
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 825 The Deputy Registrar, accordingly, recommended 1965 strongly that serious consideration be given to adoption of DUBINER the normal rule that the costs should follow the event and, Ca ÉRIo in my view, adopted the proper procedure if reference is TOYS & GAD/LEs LTD. made to Lightning Fastener Company Limited v. Colonial Fastener Company Limited-. In the Supreme Court Noël J. Kerwin J. dealt with the Registrar's recommendation as to costs as p. 49 as follows: The Registrar recommended that the plaintiff be allowed the costs of the reference since it was entitled to damages and the defendants had contested each claim. That recommendation is adopted. The Deputy Registrar, although he had no power to award costs, made a finding on the matter of costs and also a recommendation which he had the right to do. I therefore have no hesitation in the present case in accepting the recommendation and awarding costs to the plaintiff on the reference proceedings. I do feel, however, that the ends of justice would be met by the payment to the plaintiff of a fixed sum of $5,000 of the costs of the reference and of this appeal in lieu of taxed costs. It then follows that judgment will be entered herein that the defendant is accountable to the plaintiff in the sum of $20,364.96 and that the defendant will pay the plaintiff a fixed sum of $5,000 in lieu of costs. 1 [1936] Ex. C.R. 1; [1937] S.C.R. 36. REPORT ON A REFERENCE before Mr. W. C. McBride, Deputy Registrar, to inquire into an accounting of profits of the Defendant Company in pursuance of Judgment of this Court dated July 29, 1964. This reference has been held pursuant "This Court Doth Further Order and to the judgment handed down in this case Adjudge that at the Plaintiff's election, on the 29th day of July, 1964 by the enquiry may be made by the Registrar Honourable Mr. Justice Noël. The mate- or Deputy Registrar of this Court to rial paragraphs of the judgment as settled establish the damages sustained by the are: Pla intiff or profits made by the De- "This Court Doth Further Order and fendant as the case may be, which dam- Adjudge that the Plaintiff is entitled to ages or profits so determined on the recover from the Defendant those dam- said inquiry shall be paid by the De- ages sustained by him by reason of the infringement of the said trade marks fendant to the Plaintiff forthwith after aforesaid, or the profits which the the determination thereof;" Defendant has made as the Plaintiff After having been set down for hearing may elect; on previous dates, the reference was
826 R.C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA scheduled to commence in Toronto, On-tario, on the 3rd day of November, 1964. On the 23rd day of October, 1964 the defendant moved before me to require the plaintiff to make his election between an assessment of damages and an accounting of profits prior to the opening of the reference. I ordered that such election be made by the plaintiff at least two clear days before the commencement of the reference and the plaintiff accordingly filed a notice that he elected an account-ing of profits. On more mature considera-tion I think that the plaintiff in such proceedings should be required to give perhaps two weeks' notice of his election. However, the short notice in this par-ticular case worked no hardship on either party because the hearing was adjourned during the first day and was not resumed until the 18th day of January, 1965. I might mention at this point that dur-ing the first day of the hearing the de-fendant offered to pay to the plaintiff the sum of $7,000.00 in full settlement of his claim in this action and this sum was subsequently paid into Court. Several questions of law were raised during the course of the inquiry and I propose to dispose of them before dealing with the details of the account of profits as such. These questions concerned primarily the determination of the proper accounting period, the period over which the plaintiff is entitled to examine the operations of the defendant, whether the plaintiff must accept an accounting of profits or losses for the whole accounting period, the nature of the evidence to be adduced, the burden of proof to be borne by the parties, and the profits, if any, to which the plaintiff is entitled. I might frame the questions as follows and deal with them seriatim: 1. Does the accounting period end at the date of judgment or does it con-tinue to the date of the inquiry? 2. Is the plaintiff restricted in his inves-tigation of the defendant's opera-tions and its books of account to the accounting period as such? 3. The accounting period having been defined, is the plaintiff compelled to accept an accounting for the entire period, or may he elect to have the [1966] actual accounting commence or ter-minate at some date within the ac-counting period? 4. Is it proper to adduce hearsay evi-dence in a proceeding such as an accounting of profits? 5. What burden of proof, if any, rests on the plaintiff or the defendant in such a proceeding? 6. Assuming that the defendant made a profit during the accounting period, to what part of it is the plaintiff entitled? 1. With respect to the limitation of the accounting period the parties share com-mon ground that the date of commence-ment of the period is the date when the defendant's permitted use of the trade marks in question was terminated and that was December 28, 1962, as found by the judgment under which this reference was directed. The termination date of the accounting period has presented some difficulty and confusion. The defendant has insisted that it cannot extend beyond the date of judgment, July 29, 1964, but I was long under the impression that the plaintiff took the position that the ac-counting period extended to the date of the reference. No authorities have been cited to me by either party on this point. I adopted the view that the accounting period did extend to the date of the reference and I so ruled on at least three occasions during the course of the hear-ing. Of course, if the terms of the judg-ment were obeyed and the defendant ceased dealing with merchandise in as-sociation with the trade marks found to be valid and owned by the plaintiff, there would be nothing for which the defendant must account to the plaintiff after the date of judgment, but if the defendant did in fact deal with such merchandise after that date I can see no reason why it should not account for its profits, if any, arising therefrom. Neither can I see any reason why it should be necessary to hold a separate reference in order to accom-plish this. 2. I ruled during the course of inquiry that the plaintiff is not restricted in his examination of the witnesses to the opera-tions of the defendant during the ac-counting period proper. The defendant is
Ex. C.R. EXCHEQUER COURT OF CANADA [1966] 827 an incorporated company, the fiscal year The only authority cited to me in con- of which was April 1 to March 31 until nection with this particular matter was 1963, when it was changed to coincide John B. Stetson v. Stephen L. Stetson Co.,i with the calendar year. As a result, three where Bright J., District Judge of the fiscal periods of the defendant fall wholly District Court, S.D., New York, affirmed or partially within the accounting period. the Master's decision, on a reference as to They are, the fiscal year April 1, 1962 to profits and damages in a trademark in-March 31, 1963; April 1, 1963 to December fringement case to permit the plaintiff 31, 1963 and January 1, 1964 to December to waive a part of the accounting period. 31, 1964. Accordingly, I felt it was neces- In that case the accounting period was sary for the plaintiff to investigate the three years and nine months and the operations of the defendant during the plaintiff had been permitted to waive three fiscal periods covering the total the first five months thereof, during which period from April 1, 1962 to December 31, there were losses. 1964 in order that I might have as clear a It may be worth noting that in the picture as possible of the operations of present case, the losses suffered by the the defendant during the accounting defendant from the date of judgment to period proper and I permitted him to do the date of the reference were not ordi- so. nary business losses but losses directly 3. It was argued by the defendant that attributable to the tortious acts commit-since I had ruled that the accounting ted by the defendant in continuing to use period extended to the date of the refer- the plaintiff's trade marks after its legal ence, the plaintiff was compelled to ac- right to do so had terminated. There be-cept an accounting to that date and that ing no reason, in my opinion, why the he could not waive his right to an ac- plaintiff should absorb these losses, I have counting for any part of the accounting permitted him to waive an accounting by period. It may be that I misunderstood the defendant for the period following the the position of the plaintiff for it appears date of judgment. from page 141 of the reference transcript 4. The controlling shareholder, president that he indicated as early as the third day of the reference that he might not and general manager of the defendant claim an accounting to the date of ref- company and its owner, is one Albert Krangle. It is conceded by counsel that erence. His position, I think, was a rea- the defendant company is a one-man op- sonable one. He was examining the opera- eration and the man who at all material tions of the defendant and until he times controlled every aspect of its opera-had done so he could not be expected to tions was Krangle. The problem confront-know what would be the effect of in- ing the plaintiff was how best to get the eluding the period from the date of evidence of the operations of the def end-judgment to the date of the reference. ant before the inquiry. He accordingly In fact, the evidence has established started the inquiry by calling Krangle as that during this period the defendant his witness. I adopted the view that the suffered a loss, due primarily, I think, to the cost of litigation, and the expense inquiry was not strictly an adversary pro- incurred in delivering up merchandise in Deeding but was of an inquisitorial nature accordance with the terms of the judg and that the rules governing the conduct ment and perhaps also to the necessity of of a trial need not be rigidly adhered to, carrying on business without the benefit and I therefore permitted counsel for the of the trade marks in question. plaintiff to cross-examine Krangle without In my opinion it would be most unrea- having first found him to be a hostile or sonable to saddle the plaintiff with these adverse witness. No objection was made losses and force him to set them off to this manner of proceeding by counsel against any profit for which the defend- for the defendant until much later in the ant is required to account to him which inquiry. was earned by the defendant after December 28, 1962 and before the date of judgment. 1 (1944) 58 Fed. Suppl. 586.
828 R C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA The other procedural matter that has to be incurred by a merchandising corn-caused me some concern was the intro- pany engaged in operations similar to duction of hear-say evidence, particularly those of the defendant. The purchase of through the witness, Krangle. Many ques- stock, the expense of promoting sales of tions were put to him concerning various its merchandise and the normal overhead accounts and book entries of the defend- expenses are all the kind of expense in-ant which he could not answer, claiming curred by the defendant to which no ex-he was not an accountant and knew little ception could be taken. It is my opinion about bookkeeping. Counsel for the plain- that payment of these expenses is prop- tiff directed him to inform himself from the defendant's accountant and book- audited books and statements of the keeper, both of whom were present during defendant. In this connection counsel for most of the hearing Krangle did so and the defendant relied on the authority of then gave the answer as his own. Once Wigm ore on Evidence, 3rd Edition, again, counsel for the defendant raised no objection to this procedure until much later in the proceedings Even on reflec-tion I can think of no satisfactory alter- native procedure that might have been adopted to get the required evidence before the inquiry. 5. The position I adopted at the open-mg of the inquiry was that the burden of proving that the defendant enjoyed an income from its operations during the accounting period rested on the plaintiff and that the defendant was required to bear the burden of proving that all or part of that income was derived from its operations not associated with use of the trade marks owned by the plaintiff, or that, in any event, there was no profit gained during the accounting period for which the defendant need account to the plaintiff. There was a continuing dispute between the parties as to what was required of the defendant to establish the validity of certain extraordinary expenses incurred by the defendant during the accounting period. This is a case where admittedly the defendant is required to do with respect expenses claimed by the defendant against its gross income are very numer- the fact of their payment, or even the ous and to require it to prove each one fact that they have been approved or individually would be at least unrealistic. Not even the plaintiff has suggested that the defendant need to go that far. There that the payments, admittedly made is, however, a great difference, for the purpose of this inquiry, between estab- and should be deducted from the defend- lishing that an account was paid by the defendant and proving that it was a Such extraordinary expenses include, in proper expense incurred by the defendant. my opinion, the payment of $1,600 to one Now, there is no doubt that the bulk of G. F. Button in consideration, according the accounts paid by the defendant dur-to the defendant, of his refraining from ing the accounting period were the ordi- slandering the defendant and its mer nary operating expenses one would expect chandise, the large lump sum payments [19661 erly established by production of the Vol. 4, p. 434, s. 1230• "1230.(11) Voluminous Documents (Accounts, Records, Copyright In- fringements, Absence of Entries). Where a fact could be ascertained only by the inspection of a large number of documents made up of very numerous detailed statements—as, the net balance resulting from a year's vouchers of a treasurer or a year's accounts in a bank-ledger—it is obvious that it would often be practically out of the question to apply the present principle by re- quiring the production of the entire mass of documents and entries to be perused by the jury or read aloud to them The convenience of trials de- mands that other evidence be allowed to be offered, in the shape of the tes- timony of a competent witness who has perused the entire mass and will state summarily the net result. Such a prac- tice is well established to be proper. However, this is not to say that all the to extraordinary expenses is to establish passed by its auditor. It must, I think, establish to the satisfaction of this inquiry by the defendant, were properly made ant's gross revenue to establish its profit.
Ex. C R. EXCHEQUER COURT OF CANADA [1966] 829 made to Krangle's daughter, allegedly as accept the consequences flowing there-wages, the charging of capital cost allow- from. I will deal with the legal accounts ance to the defendant for certain items in in more detail later. the home of Krangle and for an automo- 6. It has become apparent that, assum- b a i c le c o u u se n d ts b p y a h i i d s b w y if t e h , e th d e e v f e e r n y d l a a n rg t e d l u e r g i a n l g ing the defendant made a profit during the accounting period, the most difficult the accounting period, and several others, problem facing me is, to what part all of which I propose to deal with in thereof the plaintiff is entitled. detail, later. The profit of the defendant can be con- In the case of this particular company, sidered as being composed of several seg- there is a further factor to be considered ments The total net profit of the defend- Krangle holds the controlling interest in ant is composed of that derived from the three companies, the defendant, Dulev sale of merchandise bearing one or more Plastics Limited or Contest Toys Lim- of the plaintiff's trade marks or of merited. Under the circumstances, therefore, chandise otherwise sold in association same office and factory or warehouse with those trade marks, and the non-space during the accounting period and, infringing sale of merchandise. As I un in the main, employed the same person- derstand it, the pl aintiff claims an ac-nel. However, the defendant's books and statements submitted to this inquiry indi- c t o h u e n f t i i r n s g t t o y n p l e y o o f f s t a h l e e , p i r e o f i i n t f d ri e n r g iv in e g d s f a r l o e m s. cate that consistently throughout the accounting period and before it the defend- H it o n w e e e v d e n r o , t t h a e c c d o e u f n e t n t d o a n th t e h p a l s a a in r t g i u ff e f d o t r h a a l t l ant paid most if not all of the overhead of such profit but only that portion there- expenses for all three companies, such as of directly attributable to the use of the rent, hydro, business taxes, wages and so plaintiff's trade marks Counsel for the forth In addition, it appears that Krangle defendant went even further and argued himself drew no salary from Dulev that the plaintiff is not entitled to any of Plastics Limited or Contest Toys Lim- ited. Under the circumstances, therefore, t f h en e d p a r n o t f a it f t o e f r a th n e y p k l i a n in d t , i f m f a b d e e c a b m y e t h a e w d ar e e it was, I think, incumbent on the defend-that the defendant was infringing his ant to propose some reasonable allocation trade marks. of these expenses among the three compa- nies. This the defendant did not do until Dealing with the second point first, i e. very Iate in the inquiry when a coin- that the plaintiff is not entitled to any pletely inadequate allocation was offered. d p a r t o e f o it n m w a h d ic e h b t y he t h p e la d in e t f i e ff n b d e a c n a t m a e ft a e w r t a h re e The final point I propose to deal with of the defendant's infringing use of his now with respect to the defendant's ex- trade marks, counsel for the defendant penses concerns mainly the large legal cited the case of Electrolux Ld. v. accounts paid by the defendant during Electric Ld and Another 1, a decision of the accounting period. I pointed out to Lloyd-Jacob, J on an application for an counsel for the defendant on several occa-Order for an accounting of profits The sions during the course of the hearing material part of the learned Judge's that he was required to prove not only decision is.— that the accounts were submitted to the "The principle upon which the Court defendant and paid by it, but that they grants an account of profits, as I have always understood it to be, is this, that were for services rendered to the defend- where one party owes a duty to an- ant. After indicating for many days that other, the person to whom that duty is evidence of the nature of the accounts owed is entitled to recover from the would be presented to the inquiry, the other party every benefit which that defendant finally claimed that such infor-other party has received by virtue of mation was privileged I take the view his fiduciary position if in fact he has that where a party seeks the benefit re-obtained it without the knowledge or sulting from a claim of privileged com- munication or information, he must also 1 (1953) 70 R.P.C. 158.
830 R C. de l'E. COUR DE L'ÉCHIQUIER DU CANADA [19661 consent of the party to whom he owed claim to be entitled to the profits made the duty. Had the present case fallen by the defendant after the plaintiff within that principle, in that the De- becomes aware of the infringement, and fendants had secured profit to them- that at the very least, this means that the selves without the knowledge of the plaintiff has no claim to the profits Plaintiffs, I should have felt it my duty earned by the defendant during the period to leave to the Plaintiffs the election commencing not later than the date of for which they prayed in their state- institution of his action and continuing to ment of claim; but on the facts as I the date of the last act of infringement. found them (and, indeed, as the evi-Since I have come to the conclusion dente, I think clearly showed without that the Electrolux Ld. v. Electrix Ld. question) the Plaintiffs were aware for case is not authority for that proposition some period—a considerable period, if and counsel for the defendant has not my recollection serves me aright—of been able to furnish me with any other the fact that the Defendants were uti- authority in support thereof and because lising the mark complained of, and in I think the proposition is wrong in princi- those circumstances any profit that ac-ple, I cannot accept it. crued to the Defendants by reason of The remaining matter to be considered that user could not have been profit with respect to the portion of the profits accruing to them without the knowl- to which the plaintiff is entitled to an edge of the Plaintiffs. accounting is whether or not those profits "In those circumstances, put at its are to be confined to that part of the highest, the only account of profits that profits realized by the defendant on in-I could grant, consonant with that prin- fringing sales which is directly attribut-ciple, would be of such profits as were able to the use of the plaintiff's trade made prior to the date when the marks. Plaintiffs first became aware of the user I have reviewed the many authorities by the Defendants. That was so long cited by both parties with respect to this ago—if my recollection serves me aright question and the only reported case cited again, I think it was in 1939—that the to me, or of which I am aware, where this Statute of Limitations would in effect question appears to have been dealt with prevent them recovering anything under is Cartier v. Carlisle,' a trade mark in-that head at all..." fringement case where the Master of the Now, with respect, I do not accept that Rolls said at p. 298: decision as binding on me in the present "I am therefore of opinion, in this circumstances because there the learned case, that the injunction must be made Judge was dealing with a situation where perpetual and that there must be the the plaintiff had deliberately stood by, usual account, but, as I have stated, I with full knowledge of the defendant's do not propose, in taking the account infringing activities, for a period of many in Chambers, to make the Defendants years, and then, after allowing the de-account for every species of profit dur- fendant to gain profits over that very long ing the last six years, but I shall con- period of time, the plaintiff asked for an sider how much of the profits are prop- accounting of those profits. In my view, erly attributable to the user of the there would have been something inequi- Plamtiff's trade mark." table about affording the plaintiff this remedy. In the present case, the plaintiff It is arguable that the "every species of sought his remedy with despatch. The profit during the last six years" for which first act of infringement could not have the defendant in that case was not reoccurred before December 28, 1962 and quired to account comprised the total this action was instituted in March 1963. profit of the defendant during the period I understand the defendant's ergo- including that realized on sales made with-As out the use or benefit of the plaintiff's ment based on the Electrolux Ld. v. trade mark. If that is so, then all the Electrix Ld. decision, it is that in no case can a plaintiff in an accounting of profits 1 (1862) 31 Beavan 292.
Ex. C.R. EXCHEQUER COURT OF CANADA [19667 831 learned Master of the Rolls has said is first promotion campaign conducted by that the defendant need account for only the defendant without the use of any of that profit it realized on sales made in the plaintiff's trade marks. conjunction with the use of the plaintiff's By paragraph 9 of the agreement of trade mark. I doubt that the learned August 17, 1955, ex. C, which was executed Master of the Rolls would have felt it by Krangle as one of the parties there-necessary or desirable to record such an to, he agreed to pay to Dubiner 5% of the obvious proposition and I have come to sale price of all bandalore tops sold by the conclusion that he has in effect stated the defendant as consideration for a non-the law to be that with respect to the exclusive licence to use the patents and profits realized by the defendant on sales trade marks of the plaintiff and the prom-made in conjunction with the use of the ise of the plaintiff to supply the defend-plaintiff's trade mark, the defendant is ant with information regarding market-required to account for only that part ing systems and his knowledge in con-thereof that is attributable to the use of nection therewith. My recollection of the trade mark. Krangle's evidence is that the plaintiff's Some authorities have likened the ac- patents were not used by the defendant counting required of the defendant to and that he received very little trade that which might be required of an agent information from the plaintiff after he by his principal. However, even in the gained control of the defendant. In addi-case of an agency relationship, the agent tion it is apparent to me that because would be entitled to a share of the profits paragraph 9 is only one of many provi-gained through sales made on the win- sions in a comprehensive agreement by cipal's behalf, so that the principal could which control of the defendant was trans-not claim all the profits made on those ferred from the plaintiff to Krangle the sales. valuation of the non-exclusive licence I have come to the conclusion that the was probably affected by one or more of plaintiff is entitled to require the defend- the other provisions of the agreement, ant to account for only that part of the but of course, I cannot say to what ex-profit it realized on infringing sales during tent or in which direction. I should think the accounting period that is attributable it would be reasonable to say that of to its use of the plaintiff's trade marks. the 5% of sales to be paid to the plain- tiff, 3% of the sales would be attributa- ev T id h e e n re c e a r a e d f d o u u c r e p d o d in u t r s i n ra g i s th ed e b in y q t u h i e ry ble to the value of the non-exclusive licence to use the plaintiff's trade marks, which bear on this matter of just what and this would be a much greater per- proportion of the profit realized on a sale tentage of the defendant's net profits. can be attributed to the infringing use of No attempt was made by either party the plaintiff's trade marks. The first is to relate the value of a non-exclusive the value placed on the trade marks by licence to use the trade marks with the Krangle when he executed the agreement value of the trade marks themselves. of August 17, 1955 by the terms of which he gained control of the defendant. The I am not unaware that the agreement, s h e is c o c n ro d s i s s e K x r a a m ng in le a ' t s i o e n v i o d n en a c n e a g f i f v id en av d i u t r i i n n d g a e t x ed . C A , u w g a u s s t a m 30 e , n 1 d 9 e 5 d 5 t , w fi ic le e d , b a y s e a x g . r e D e , m a e n n d t by agreement dated June 27, 1961 and September, 1964. The third is the wayin filed as ex. E. The provisions of paragraph which the defendant used its own trade 9 of ex. C were not affected by ex. D but marks in conjunction with the plaintiff's were amended by ex. E, wherein it was trade marks during the accounting period provided that in lieu of royalties and and this had an important effect on the other benefits as provided in ex. C, the fourth matter which is the significance of plaintiff agreed to accept for a period of the sales achieved by the defendant dur- two years the sum of $2,000 and 10% of ing its promotion campaign in St. John's, the defendant's net profit, and thereafter Newfoundland in November, 1964, which, the original agreement, ex. C, was again counsel for the defendant argued, was the to become effective. It is clear from a
832 R.C. de l'E. COUR DE L'ÉCHIQUIER DU CANADA [1966] perusal of ex. E in the light of the evi- and when there was at least the possi- dence of the parties thereto given at the bility that the trade mark "Cheerio" would trial and on the inquiry, that it was ex- be found to be valid and owned by the ecuted in an attempt to settle a dispute plaintiff. It might also be noted that for between Krangle and one Gallo, a minori- the first time the word "Yo-Yo" is here ty shareholder and employee of the de- used in a descriptive sense. After judg-fendant. I do not think that either ex. D ment the defendant used a new sales or ex. E has any effect on the value of ex. brochure, ex. 236, entitled "New Cheerio C as evidence of the valuation of the Big-C Tops" and for the first time the plaintiff's trade marks in 1955, and, in- defendant does not use the term "Yo-Yo" deed, until December 28, 1962. anywhere on the brochure. In September, 1964 Krangle was cross- I think these sales brochures and the examined on an affidavit filed in support sequence in which they were used by the of an application by the defendant for a defendant illustrate the manner in which stay of execution under the judgment and it developed acceptance of its products particularly of the injunction granted under its own trade marks by using them thereby. On his cross-examination Krangle in association with the plaintiff's trade testified that in his opinion 75% of the mark "Yo-Yo" after December 28, 1962, sales of the defendant were due to the until, by November, 1964 it was able to use by it of the plaintiff's trade mark hold a promotion campaign in St. John's, "Yo-Yo". I realize that it was in the Newfoundland, apparently with little use defendant's, and therefore Krangle's, in- being made of the trade mark "Yo-Yo" terest to emphasize the importance to the or any of the plaintiff's other trade defendant of the continued use of the marks, and to do so with comparative trade mark "Yo-Yo", and I am satisfied, success. after the examination of Krangle, which However, to argue, as counsel for the occupied more than twenty days of this defendant did,, that the results of the St. inquiry that he has a certain capacity to John's campaign in November, 1964, stray from the truth when it serves his prove the worthlessness of the plaintiff's purposes to do so. I accordingly do not trade marks, is, I think, in the circum- accept at its face value his evidence that stances, to ignore completely the value of 75% of the defendant's sales were due the plaintiff's trade marks to the defend- to the use of the trade mark "Yo-Yo". ant in the development of acceptance of The defendant brought along its own the defendant's own trade marks. This trade marks such as, Big "C", Big Chief, argument fails also because there is evi-Rainbow, Glitterspin, Whistler, Butterfly, dence that some use was made during and so on, in association with the plain- that campaign of the trade mark "Yo-tiff's trade marks and particularly the Yo" and the defendant conspicuously trade mark "Yo-Yo". To illustrate this, I failed to call any witness who might have might refer to ex. 44, 51, 235 and 236 to been able to testify as to how that cam- the inquiry. As I understand the evidence paign was carried out. these sales brochures of the defendant were used more or less in the order in After giving due consideration to what which they were filed as exhibits. The evidence is available regarding the value first one, ex. 44, is entitled "New Cheerio of the plaintiff's trade marks, I have come Yo-Yo Return Tops" and was used by to the conclusion that 20% of the profit the defendant probably as late as Janu- realized by the defendant on its sales ary, 1964. It was replaced by the brochure made in the accounting period is attribut-filed as ex. 51, entitled "New Cheerio able to its use of those trade marks. Big-C Yo-Yo Return Tops", which was in Counsel for the defendant posed a fur- turn replaced by the brochure filed as ex ther problem when he argued that I 235, entitled "New Contest Big-C Yo- should, in addition to determining the Yo's". I might pause here to mention proportion of the total profit directly at-that, as I understand the evidence, this tributable to the use of the plaintiff's brochure, ex. 235, was brought out by the trade marks by the defendant, determine defendant before judgment was rendered, the relative values of the plaintiff's
Ex. C.R. EXCHEQUER COURT OF CANADA [19661 833 trade marks, "Yo-Yo", ̀Bo-Lo", "Pro", however, be necessary for me to calculate "Tournament" and "99". Now, I have no the cost of goods sold for the period doubt that by far the most important of January 1, 1964 to July 29, 1964 because these trade marks is "Yo-Yo". "Bo-Lo" is ex. S was prepared for the period ending limited in importance because the sales of December 31, 1964. To accomplish this I bats of the type bearing the "Bo-Lo" propose to apply the ratio of 36 87% to mark were rather modest compared to the the total sales of $184,49291 for the sale of return tops The trade marks period January 1, 1964 to July 29, 1964, as "Pro", "Tournament" and "99" were not shown in the statement furnished by the used nearly as extensively as "Yo-Yo" plaintiff during argument and referred to and, in my opinion, were of little real above The resulting cost of goods sold value to the defendant during the ac- for the period is $50,03900. Adding this counting period. In the result, I would amount to the cost of goods sold for the apportion the total value of the five trade broken period, December 28, 1962 to marks as 70% to "Yo-Yo", 15% to "Bo- March 31, 1963 and the nine-month fiscal Lo" and 5% to each of the trade marks period, April 1, 1963 to December 31, "Pro", "Tournament" and "99". 1963, as shown on page 1 of ex. S, results Turning now to the computation of the in a total cost of goods sold for the net profit earned by the defendant during accounting period of $150,197 00 When the accounting period, it seems to me this amount is subtracted from the total that the best way of doing this is to find sales for the accounting period of $472,- the gross sales for the period and subtract 199 ($472,198 54), the resulting gross from that the cost of goods sold, which trading profit of the defendant for the will give the gross trading profit. If, from accounting period is $322,002.00. this figure, the operating expenses of the There remains now the task of calculat- defendant for the period are subtracted ing the expenses of the defendant to be the result will be the net profit. deducted from the gross trading profit to In determining the gross sales of the determine the defendant's net profit for defendant I have adopted the compilation the accounting period I propose to ac-of sales set out in a statement furnished complish this by making three amend-to me during the course of argument by ments to the schedule of expenses as counsel for the plaintiff, entitled "Sales shown on page 2 of the defendant's ex S Accordmg to Cheerio Sales Journal— The first will be to recalculate the ex-General Ledger Account". I have verified penses set out in column 3 so that they from the books of the defendant that relate to the period January 1, 1964 to the sales shown on the statement for July 29, 1964 rather than to the full each month during the accounting period calendar year 1964; the second will be to are accurate but there appears to have eliminate entirely from the schedule of been a slight error in addition, resulting expenses those claimed expenses or parts in the total sales for the period being thereof that I find are not properly allow-shown as $900 too much I accordingly able, and the third will be to allocate a find that the sales of the defendant from portion of some of the expenses charged December 28, 1962 to July 29, 1964 were to the defendant to one or both of the $472,198 54 other two companies controlled by After examining the various financial Krangle. statements of the defendant filed during In recalculating the expenses for 1964 the inquiry I have come to the conclusion so that they relate only to the period that I can do no better than accept the from January 1, 1964 to July 29, 1964, I defendant's figures for the cost of goods have adopted the defendant's auditor's sold as shown in ex S. The ratio of 36 87% classification of expenses into fixed, semi-used to calculate the cost of goods sold fixed and variable expenses as shown on during the broken period of December 28, page 3 of ex S, and I have computed the 1962 to March 31, 1963 may be somewhat expenses for the shorter period in accord-high but I have no way of readily deter- ance with his "basis used in apportioning mining a more accurate figure. It will, expenses" as set out on page 3 I recall 92719-3
`
834 R C. de YE. COUR DE L'ÉCHIQUIER DU CANADA [1966] that Mr. Soberman, the defendant's audi- did it not pay him at the rate? On the tor and the author of ex. S, testified at other hand, it may well be that Krangle the inquiry that certain problems would is convinced he is worth that much to the exist in using his classification of expenses defendant. But it seems to me that is a in recomputing the 1964 expenses for the matter to be settled between Krangle and period ending July 29, 1964, but he did the defendant company, who are, I need not explain what the problems were or hardly say, separate legal entities, the lat-how they might be overcome. Accord- ter being a party to this action, but not ingly, I have had no alternative but to the former. Indeed, a perusal of the de-use his classification and basis for appor- fendant's minute book would appear to tioning the expenses. Even so, I have not indicate that the amounts paid to been able to apportion the "adver- Krangle as management salary were not tising, promotion and selling" expenses properly authorized in accordance with with any degree of accuracy for, try as I the by-laws of the company But, al-might, I could not relate the total of though I am not disposed to allow the these expenses for 1964 in the sum of defendant more under this expense than $23,939 00, with any ledger or account or it actually paid to Krangle during the combinations thereof in the defendant's accounting period I am not going to ac-books I have, therefore, allowed one-half cede to the plaintiff's argument and disal-of the full year's expense for the period low what was in fact paid. I might men- ending July 29, 1964. tion that a further reason for not allowing On the above basis the expenses of the an increased amount under this head is defendant for the period January 1, 1964 that I am dealing with the actual ex-to July 29, 1964 amount to $99,388 00. The penses incurred by the defendant during expenses for the entire accounting period, the accounting period and to allow an using the amounts shown in columns 1 increased amount for management salary and 2 on page 2 of ex S and the sum of over that which the defendant actually $99,388 00 in lieu of the total shown in paid would be to artificially reduce its column 3, I calculate at $274,231.00 I do apparent profit because it would not be not deduct from this total the amounts under any liability to pay the increased shown under notes (a), (b), (c) and (d) amount to Krangle. Accordingly, I allow on page 3 of ex. S because they form this expense for management salary, parts of larger sums I intend to disallow which has already been reduced to $7,958 as expenses of the defendant. to coincide with the accounting period. I think the most satisfactory way of 2 Promotion Fees—These are the dealing with the disallowance of expenses amounts paid by the defendant to Dulev of the defendant during the accounting Plastics Limited pursuant to a written period is to discuss individually each ex- contract allegedly executed on or about pense as described by the defendant's April 1, 1963 and allegedly providing for auditor on page 2 of ex. S. it to be effective from January 1, 1963. 1. Management Salary — Mr. Krangle The contract apparently provided for drew a salary of '..:,500 in the fiscal period Dulev Plastics Limited to assume all pro-April 1, 1962 to March 31, 1963 and $10,- motion work formerly done by the de-000 for the year 1964. He did not draw a fendant in return for payment by the salary for the nine-month fiscal period defendant of a commission of 23% of the April 1, 1963 to December 31, 1963. defendant's gross sales, the commission to Counsel for the defendant argued that be payable on the first of the month, Krangle should be allowed not only a calculated on the previous month's sales. salary for the last mentioned period but, Unfortunately, I was never favoured with indeed, a much increased salary for the the opportunity to examine the docu- ment. I understand that the original con- whole accounting period—of the order of tract was in the possession of counsel for $25,000 per annum. I am at a loss to the defendant, or was available to him understand this argument. If the defend- throughout the inquiry, but despite re-ant thought that its president and general peated invitations to file it as an exhibit manager was worth $25,000 per year, why he declined to do so until late in the
Ex. C.R. EXCHEQUER COURT OF CANADA [19661 835 inquiry, when he offered to prove it and Dulev Plastics Limited under the terms introduce it through a witness who obvi- of the agreement appears on Folio 5 of ously could not properly identify it or the defendant's general journal under prove its due execution, and this even date of November 5, 1963. If it were a though the person who I understand was material fact, I would be prepared to find the witness to the signatures on the docu- that the written contract allegedly dated ment was present at the inquiry at the April 1, 1963, was not executed until time and virtually throughout its course. sometime in late September, or early The evidence established that the origi- October, 1963. But what difference does nal oral agreement made allegedly on or this make to an accounting of profits? about January 1, 1963 was that the corn- There is evidence which to me is suffi-mission payable by the defendant was cient to establish that the commission 20%. This rate of commission was in fact agreement between the defendant and paid for the sales of the defendant in Dulev Plastics Limited was in existence, January, February and March, 1963. in an oral form at least, from March, 1963 Then, according to Krangle, the rate of and, in any event, it appears to have commission was increased in April to 23%, been effective from January 1, 1963. I, retroactive to January 1, 1963. Later, in therefore, find that the commissions paid the fall of 1964, the rate was changed to by the defendant to Dulev Plastics Lim-26% on the first $50,000 of sales, 29% on ited as set out in columns 1 and 2 on the next $50,000 and 32% on the sales in page 2 of ex. S are proper expenses of the excess of $100,000, retroactive to Janu- defendant. However, in the amount of ary 1, 1964. $65,819 shown in column 3 on page 2 is Although I have had serious doubts included the sum of $12,104 36 paid by about when this agreement between the the defendant to Dulev Plastics Limited defendant and Dulev Plastics Limited on account of its sales from January 1, was actually made, particularly in view of 1964 to July 29, 1964 as a result of an the vague evidence given by Krangle and alleged increase in the commission rate Soberman, I have come to the conclusion from 23% to 26% on the first $50,000 sales, that it did in fact exist as an oral agree- 29% on the next $50,000, and 32% on the ment, at least, from early March 1963. I sales in excess of $100,000. This new an- base this conclusion on the fact that the rangement is indicated on the statement two cheques ostensibly in payment of the or invoice of Dulev Plastics Limited to commission of 20% of the sales of the the defendant, dated October 1, 1964, and defendant during January and February, showing the re-calculation of commission 1963 are dated March 4th and March 14th on sales for the period January 1, 1964 to respectively and were negotiated at the September 30, 1964 "as per Agreement". bank on March 6th and 14th, respec- Such agreement was never filed as an tively. It may well be that the written exhibit but may have been one of those contract apparently dated April 1, 1963 was counsel for the defendant tried unsuccess-not executed until October, 1963. Cer- fully to put in through the witness So-tainly the only evidence that it was ex- berman after the plaintiff had completed ecuted in early April 1963 was that of his examination of him. In any event, I Krangle. Soberman, the defendant's audi- do not consider it reasonable to permit tor, could testify only that he saw the the defendant to, in effect, greatly in- contract sometime between April 1, 1963 crease its expenses for the last seven and the middle of October, 1963, when he months of the accounting period by finished work on the March 31, 1963 means of the alleged retroactivity of an agreement apparently made sometime financial statement of the defendant. In after the accounting period ended. I addition, the comprehensive adjusting en- therefore deducted $12,104 from the sum try made to re-allocate to Dulev Plastics of $65,819 before I recalculated the pro- Limited a whole series of promotion ex- motion fees expense for the period penses actually paid by the defendant January 1, 1964 to July 29, 1964. The between April 1, 1963 and September, revised total for promotion fees for the 1963 and which should have been paid by accounting period is $105,174. 92719-3l
836 R.C. de l'E. COUR DE L'ÉCHIQUIER DU CANADA 119661 3 Depreciation on Automobile—As I Krangle's wife accompanying him or understand the evidence, the defendant these business trips because the business owned three cars until the end of the in connection with which they were made fiscal year ending March 31, 1963. One was at least as much the concern of Du-was used by Krangle, another was used lev Plastics Limited, of which she was by Mrs. Krangle, although durmg the president, as it was of the defendant. first three months of 1963 she was not an Now, with respect to the two trips in employee of the defendant and was the January, 1963, and January, 1964 to president of Dulev Plastics Limited, and Puerto Rico and the Virgin Islands, the third car was one which had been there is evidence that Krangle transacted used by Gallo until about June, 1962 and some business there. I think therefore had not been used since that time. I that his air fare is a proper charge against think I should allow full depreciation on the defendant, but I disallow the fare for the car used by Krangle but none for the his wife. The amount paid for their air other two cars, for the first three months fares on the first trip as indicated by ex. of the accounting period. I have esti- 79 to the inquiry was $406 80. I deduct mated this at $250 so that $338 will be $203.40 from the expenses charged to the deducted from the sum of $588 claimed defendant under this head. The account under this head in column 1 on page 2 of rendered ` by the Virgin Isle Hilton for ex. S. The amounts claimed for deprecia- Mr. and Mrs Krangle's 11-day stay there tion in columns 2 and 3 are apparently on the first trip is ex. 169 and is in the for only the car Krangle used—a Buick amount of $660 31. I realize that Krangle convertible. Although I rather doubt that and his wife stayed at the hotel for less it is customary for comparatively small than twice as much as Krangle alone companies to provide such elegant means would have been charged so I reduce that of transportation for their chief execu- account, which was paid by the defendant tives, I think it proper to charge full and charged to "travelling expense" by depreciation as an expense of the corn- $225 to $435 31 In addition, Krangle sub-pany I therefore deduct from the total mitted an expense voucher in the amount depreciation allowed for the accounting of $482 with respect to the first trip, period, which is $1,885, the sum of $338, which amount was paid to him by the leaving a revised total under this head of defendant There are no receipts support-$1,547, all of which relates to the automo- ing his claimed expenditures, which in bile used by Krangle. itself is not surprising, but in addition, 4 Travelling and Car Expenses—It has the defendant offered no evidence as to been difficult for me to arrive at a rea- what this not inconsiderable sum was sonable mode of dealing with this item spent for. I think an expense allowance As I understand the evidence, this in- of $35 per day in addition to payment by eludes the travelling expenses incurred by the defendant of Krangle's full air fare Krangle on his many trips but not the and hotel accommodation, the account for cost of his accommodation, and the which last expense, incidentally, includes amounts of the expense vouchers he sub- some meals, bar expenses, purchases of mitted to the defendant. clothing and several long distance tele- I propose to deal with only a few of phone calls is immoderately generous. I Krangle's trips under this head, viz sev- reduce it to $20 per day, which is a total eral trips to New York, one to Boston and of $280 for the 14-day trip This is a two to Puerto Rico and the Virgin reduction of $202 from the amount Islands. Most of his other trips made claimed by the defendant. There is also during the accounting period were, on this trip, Mr and Mrs. Krangle's stay in New York for two days. Since I pro-I believe, made in connection with the pose to disallow entirely any expense in-various promotion campaigns held by the cuffed by the defendant for Krangle's defendant, and certainly the cost of his trips to New York unless there has been fare on these trips is a proper expense of adduced some evidence that such trips the defendant. I do not think the defend- were at least partly for business, I disal-ant should be charged with the cost of low the expense incurred on this occasion
Ex C R. EXCHEQUER COURT OF CANADA [1966] 837 in the amount of 'I;:6 88. I have also disal-.v 00 However, she also received from the lowed the amounts charged to the defend- defendant the sum of $1,000 in each of ant for the second trip to Puerto Rico m the months of March, April and May, January, 1964, on the same basis I have 1964. Since the defendant has not adduced used with respect to the first trip. any evidence at all to support these large Ex. 85 and one or two other documents payments I disallow the sum of $4,500 not filed as exhibits indicate that Krangle under this head. made four trips to New York City dur- Similarly, I disallow the sum of $1,600 ing the accounting period in addition to paid to one G. F. Button and charged to the one already dealt with. It was only office salaries, the defendant having failed with respect to his trip to New York on _ utterly to justify payment of this December 30, 1962, that Krangle even at- amount. tempted to establish that it was for busi- In the result, the total amount I disal- ness reasons, and on my reading of the low under "office salaries" is 'G.,100. transcript he failed in his attempt. I therefore disallow any expenses incurred 6. Legal and Audit—The total amount by the defendant on account of these under this head, adjusted to July 29, 1964 New York trips. The documents pro- is $26,394, a sum which is very much duced by the defendant indicate that the greater than the normal expense of this total expenses incurred by the defendant kind incurred by the defendant. I re-for payment of Dominion Travel Office minded counsel for the defendant on Ltd. Accounts for air fares, hotel bills, several occasions during the course of the and Krangle's expense vouchers in con- inquiry that I was not disposed to allow nection with these New York trips and extraordinary amounts under this head, the trip to Boston in August, 1963 were any more than under any other, in the approximately $2,800 and I disallow this absence of satisfactory evidence that the amount. I have taken into consideration services for which the sums were paid the evidence of Krangle that on one of were, in fact, rendered to or for the bene-his trips to New York he went by auto- fit of the defendant. The only evidence mobile with the defendant's patent agent, adduced by the defendant was with re-Leon Arthurs. I am aware that some of spect to the accounts rendered by Messrs. the expenses I have disallowed under Gauld, Hill, Kilgour and Friend and this this head may have been allocated in the was to the effect that no part of these defendant's books to Promotion expense services was rendered to Krangle per-rather than Travelling, and, of course, I sonally and that, with the exception of will not deduct these expenses a second the adjustment made in note (a) on page time 2 of ex S, all the legal work was done for The total amount I disallow under the the defendant With respect, I cannot ac-heading "Travelling and Car Expenses" is cept this evidence. I am satisfied that $3,517 much of the advice contained in the let- ter to Krangle dated January 7, 1963 and 5 Office Salaries—Included under this which was filed as ex 84, as a sealed head are the sums of $1,500 and $3,000 exhibit, to which the plaintiff has not had paid to Miss Wendy Krangle, the daugh- access, was actually advice given to ter of Albert Krangle The pay records of Krangle personally, not all of which was the defendant for 1963, filed as ex. 112, such as to benefit the defendant. Other indicate that Miss Krangle worked for than that the defendant has declined to the defendant from January to August, offer any particulars, of even the most 1963 and she appears to have been paid a general nature, of the services represented generous weekly salary, considering her by these accounts, on the ground that experience and qualifications Never- such information is privileged. Under the theless, the sum of $1,500 was paid to her, circumstances, I propose to disallow the in addition thereto With regard to 1964, I amounts of these accounts as expenses of can find no evidence that Miss Krangle the defendant. was employed by the defendant at all The same situation obtains with respect except that in September she received to the many accounts submitted by several
838 R C. de I. COUR DE L'ÉCHIQUIER DU CANADA [19661 other law firms during the account-During the accounting period the Be- ing period and paid by the defendant. fendant paid accounts rendered by the The defendant did not even deign to Oakdale Golf & Country Club Ltd. in the mention most of them at all. amount of '9,402, if my examination of I think, therefore, that all the defend- the defendant's books of account has been ant is entitled to be allowed for legal and accurate, and these accounts were all as a audit expenses is a sum similar to its result of Krangle's use of the Club's normal annual legal and audit expenses facilities. I cannot recall any evidence put which appear to me to be about $1,000. I forward on behalf of the defendant that allow the defendant the sum of $3,000 for would indicate that these expenses were legal and audit expenses during the ac- incurred for the benefit of the defendant counting period and therefore disallow and not for Krangle's personal enjoy-the sum of $23,394 on the simple ground ment, not connected in any way with the that the defendant failed to prove these business of the defendant However, I am accounts, and aside entirely from the prepared to allow Krangle's membership question of whether or not they would be fees in the Club, which amount to $475. I allowable in whole or in part if they had therefore deduct the sum of $1,927 under been proved. this head, being the total golf club ex- incurred by the defendant, less the 7. Advertising, Promotion and Selling— pense amount of Krangle's membership and There was evidence that although the two locker fee. I should have thought that payments to G F. Button totalling $1,600 Dulev Plastics Limited might have paid are shown in the defendant's books as its president's membership fee. being charged to "salaries" the auditor re-allocated this expense to "promotion". The amount paid by the defendant However, I have disallowed this item during the accounting period for photo- under "Office salaries", so, of course, I graphic work and camera equipment and shall not deduct it again under this head. supplies appears to be about $1,500. While Krangle's credit cards, i.e. Diners' Club,, there was some evidence given by American Express and Carte Blanche Krangle that would indicate that some were never properly explained during the photographic work was done for the de- fendant it falls far short of establishing inquiry. It is obvious that Krangle could draw expense money from the defendant that the sum of $1,500 was paid by the at any time and that when travelling he defendant for work done for, and camera was in the habit of charging a number of equipment supplied to, the defendant I his meals to his hotel account. In addi- reduce this amount as a proper expense tion, he was in the habit of charging the of the defendant, to $750 and deduct defendant at a rate of as much as $60 00 $750 from the amount claimed. per day over and above his travel fares The last item I propose to deal with and hotel bills. Surely under these ar- under this head is the matter of gift rangements he would have had little use certificates As nearly as I can determine for dining credit cards while travelling. from an examination of exs. 165, 183 and On the other hand, there are among the 184 and the books of the defendant, a productions of the defendant several ac- total of $5,800 was expended on gift counts from dining establishments in certificates during the accounting period. Toronto which were paid by the defend- When questioned on the disposition of ant the certificates, all of which seem to have I have calculated the total amount paid been in $5 and $10 denominations, with by the defendant during the accounting the exception of those purchased from period for charges made through use of Revitch Men's Shop Ltd., which were the American Express, Diners' Club and for as much as $20, Krangle stated they Carte Blanche credit cards to be $3,868 were used as prizes in the defendant's and in, the absence of any evidence by promotion campaigns and, in addition, the defendant as to what these charges some were given to the defendant's em-were incurred for, I disallow the whole ployees as Christmas bonuses one year. amount. He had no record of the disposition of
Ex. C.R. EXCHEQUER COURT OF CANADA any of them but the documents in ex. 52(2) indicate, if anything, that the eluded in this item is the interest defendant sent six certificates to be charged by Dulev Plastics Limited to awarded as prizes on a campaign. There the defendant on the loan made to the is no evidence that any greater number defendant many years ago and the was sent out on any campaign. There ance were thirty-one campaigns held during funds are moved from one company to the accounting period, some of which the other. As I understand the evidence, embraced more than one city or town, no interest at all was charged by Dulev but there is no evidence that certificates Plastics Limited until, I think, 1961, when were used as prizes in all of them. In the rate was set at 6%. Then, in 1962 the fact ex. 52(2) would indicate the very rate was increased to 12% and in 1963 it reverse. I estimate that certificates for was reduced to 6%, where it remained which the defendant paid $1,200 were for the balance of the accounting period. disposed of as prizes during the account-ing period and certificates costing the de- Dulev Plastics Limited ever notified the fendant $300 were disposed of as defendant that it proposed to charge in-Christmas bonuses. The inventory of the terest on the loan, or that the defendant defendant for October 31, 1964 included ever agreed to pay it. Furthermore, the gift certificates valued at $1,160, but this evidence of Krangle is that the defendant would include certificates costing $1,080 started paying interest because he, purchased in September, 1964. It follows Krangle, did not see why Gallo, who was that the defendant paid $4,220 for gift entitled to a share of the defendant's net certificates that are unaccounted for, and profits and with whom strained relations I disallow that amount. The total amount I disallow under the fendant head of Advertising, Promotion and without interest. I disallow entirely the Selling is $10,765. 8, 9 and 10. Packing and Shipping Sal- aries, Rent and Warehouse Expenses.— The books of the defendant indicate that the amounts claimed under these defendant for postage in 1964 appears to heads were paid by the defendant and I be far in excess of the normal expenses have no reason to believe otherwise. 11 Telephone and Telegraph—The Bell Telephone accounts paid by the defend- ant during the accounting period include the charges for the telephone in Krangle's cate to me that the large postage expense residence. Although, admittedly he trans- had anything to do with the date of acts some business from his residence, I judgment herein, the recall of infringing should think he and his family derive the merchandise or the distribution and usual benefit from having a telephone in subsequent recall of relabelled merchan-their residence. There is also no evidence dise. There is the evidence of Krangle that all the long distance calls charged to that late in 1963 and in early 1964 the his residence telephone related to busi- defendant undertook the expense of free ness. I think it would be reasonable to distribution through the mail of a large charge Krangle with $25 per month for his residence telephone. I therefore de- duct $475 from the total claimed under pense this head. 12, 13 and 14. Office Expenses, General Expenses and Donations—I can see no reason to disallow any of these expenses. [1966] 839 15. Bank Charges and Interest—In- bal-of which varies from time to time as There is no evidence whatever that existed, should benefit through the de- having the use of this money interest payments made by the defendant to Dulev Plastics Limited during the ac-counting period, which amount to $6,622. 16. Postage—The amount paid by the incurred by the defendant in previous years. However, the books of the defend- ant indicate that rather large sums were d for poser in January, , July a a n d December, , 1964. This does not indi- number of return tops in connection with its promotion campaigns. This could have caused the great increase in postage ex-in 1964. In any event, I am not prepared to disallow any of this expense. 17, 18, 19 and 20. Insurance, Freight and Cartage Outward, Unemployment In- surance and Business Taxes—With the
840 R C. de l'É. COUR DE L'ÉCHIQUIER DU CANADA [1966] exception of Freight and Cartage Out- of expenses on page 2 of ex. S, and ward, these expenses appear to be part of which I have disallowed, is $51,513. the normal expenses of the defendant and In my opinion, the expenses charged to I know of no reason why the amounts and paid by the defendant and a portion thereof should be varied. of which should properly have been The amount claimed for freight and charged to Dulev Plastics Limited and cartage appears to be high in 1964 in Contest Toys Limited, the other two relation to sales but the books indicate companies controlled by Krangle and the amount was paid by the defendant sharing the defendant's office and factory and I am not aware of any evidence accommodation and staff, are all of those before the inquiry that would support a listed in the Schedule of Expenses on disallowance of part thereof. There is also page 2 of ex. S except management sal-no indication that the amount was in- ary, promotion fees, bank charges and creased by any of the operations of the interest, freight and cartage—Outward, defendant resulting from the judgment bad debt provision and sundry income. herein. I have already eliminated the overhead 21. Depreciation on Furniture and charges to affiliated companies from the Equipment—This item, although small schedule when compared with many of the others, I realize that the proportions of the includes depreciation on rugs and draper- various expenses that should be trans-ies purchased and used in Krangle's resi- ferred to the other companies will vary deuce and such things as the colour with the nature of the expense and the television set and the "globe bar", both relative degrees of activity of the vari- also used in Krangle's home I therefore ous companies at different times during reduce this amount to $1,000, thereby the accounting period However, any disallowing $275. reapportionment can be nothing more far as I am than an estimate, so i do not propose to 22. Purchase Discounts—As aware, this amount has not been disputed deal with each expense in detail. by the plaintiff. I estimate that 30% of the depreciation on automobile and travelling and car ex- 23 Bad Debt Provision—Although the penses should be allocated to Dulev large increase in 1963 in this provision Plastics Limited and Contest Toys Lim-and its subsequent decrease to a normal ited I am aware that one automobile amount was certainly not explained to used by Mr Krangle and formerly owned my satisfaction, I do not think that by the defendant was transferred to manipulation of the provision had any Dulev Plastics Limited early in the ac- effect on the defendant's expenses for the counting period However, the evidence is accounting period No change will be clear that it was Krangle himself who made in this expense constituted the management of all three 24 Sundry Income—This item was not companies, all of which should share dealt with by the parties to any extent these expenses, which were incurred and I see no reason to vary the amount primarily as a result of his activities claimed. I think the same proportion, 30%, of 25 Overhead Charges to A f filiated advertising, promotion and selling ex- Companies— I am going to disallow this pense, telephone and telegraph and gen- so-called negative expense under the eral expenses, should be allocated to the schedule of expenses because I propose to other two companies consider it with the $2,000 allowed under With regard to office salaries, rent, note (c) on page 2 of ex. S, in the light of the proper general apportionment of office expenses, donations, postage, insur- several of the defendant's expenses ance, business taxes, depreciation on fur- among the three companies controlled by nature and equipment and purchase dis- Krangle. counts, the allocation should be 60% to The total of the expenses claimed by the defendant and 40% to the other two the defendant as set out in the schedule companies.
Ex. C.R. EXCHEQUER COURT OF CANADA The expenses identified as packing and dence directly in point, I think such an shipping expenses, warehouse expenses and inference is almost irresistible in view of unemployment Insurance relate mainly all the evidence of the manner in which to the actual distribution of merchan- Krangle operated the three companies, dise, partly by Contest Toys Limited, but charging virtually everything he possibly primarily by the defendant. I would allo- could to the defendant. I therefore allow cate 80% of these expenses to the defend- 70% of this expense as a charge against ant and 20% to the other two companies. The legal and audit expenses I have largely disallowed, but even so, I take it lowable expenses of the defendant for the that certain normal legal and auditing accounting period to be $193,285. services were rendered to Dulev Plastics Limited and Contest Toys Limited dur- process by which I have arrived at the mg the accounting period and charged to total of the allowable expenses of the the defendant. Although there is no evi- defendant for the accounting period: CALCULATION OF PROPER EXPENSES OF DEFENDANT FOR ACCOUNTING PERIOD DECEMBER 28, 1962 TO JULY 29, 1964 Expenses claimed accounting deduction allocation as in Description of expense Ex. S, as in Ex. S, page 2 page 2 1 Management salary. $ 12,125 2. Promotion fees 130,507 3. Depreciation-automobile 2,073 4. Travelling and car expense 11,010 5. Office salaries . . 22,780 6. Legal and audit 37,382 7 Advertising, promotion and sell- ing expense 50,542 8. Packing & shipping salaries 27,571 9. Rent 5,750 10. Warehouse expense 3,722 11. Telephone and telegraph 5,714 12. Office expense 5,304 13. General expense 407 14. Donations 743 15. Bank charges and interest .. 11,847 16. Postage 1,547 17. Insurance 1,407 18. Freight & cartage outward 17,310 19. Unemployment insurance 582 20. Business tax 417 21. Depreciation-furniture and equipment 1,574 22. Purchase discounts (985) 23. Bad debt provision, increase or (decrease) 284 24. Sundry income (166) 25. Overhead charges to affiliated companies (3,000) TOTAL . . $ 346,357 $ 269,321 $ 220,808 $ 193,285 [19661 841 the operations of the defendant. In the result, I calculate the total al- The following table indicates the Claimed expenses Expenses adjusted to Expenses of defend- relate to after ant after period of portions among ending on held to be affiliated July 29/64 improper companies $ 7,958 $ 7,958 $ 7,958 105,174 105,174 105,174 1, 885 1,547 1,083 10,055 6,538 4,577 19,158 13,058 7,835 26,394 3,000 2,100 38,483 27,718 19,403 19,473 19,473 15,578 4,500 4,500 2,700 3,123 3,123 2,498 4,113 3,638 2,547 4,092 4,092 2,455 372 372 260 708 708 425 7,731 1,109 1,109 1,317 1,317 790 1,115 1,115 669 15,303 15,303 15,303 440 440 352 355 355 213 1,275 1,000 600 (966) (966) (580) 402 402 402 (166) (166) (166) (3,000) -
842 R C. de l'E. COUR DE L'ÉCHIQUIER DU CANADA [19661 When the expenses of $193,285 are The final matter I propose to deal with deducted from the defendant's gross trad- is that of costs. I am aware that I have ing profit for the accountmg period which no jurisdiction to award costs on a refer-I have already calculated to be $322,002, ence of this kind, but the matter was the net profit of the defendant for the argued at length before me and the period is $128,717. amount of costs if taxed in the normal I have found that the defendant is way will obviously be very large. For accountable to the plaintiff for 20% of its these reasons I thought I might not be net profit for the accounting period and out of order in commenting on this aspect this amounts to $25,743 This follows from of the reference. two conclusions I have already reached in While there is no doubt that the inquiry addition to the actual calculation of the would have been shortened somewhat defendant's net profit during the account- if the plaintiff had examined Krangle, or ing period. These are that the total net some other officer of the defendant, for profit of the defendant during that period discovery prior to the commencement of was derived from sales of merchandise the reference, and counsel for the defend-made in association with the use of one ant sought to make much of this; par-or more of the plaintiff's trade marks and ticularly during argument, there is one that the defendant is accountable to the impression that stands out more clearly in plaintiff for only that portion of its profit my mind than any other, and that is that realized on infringing sales which is at- the overriding reasons why this inquiry tributable to the use of the plaintiff's occupied some 37 days are the virtual trade marks. Needless to say, if I am refusal of the witness, Krangle, to answer wrong in this latter conclusion, and the the questions put to him with anything defendant is required to account for all of even approaching candour, his failure to its profit derived from infringing sales produce the required books and docu-during the accounting period, the total ments of the defendant at the opening of amount it would be required to account the inquiry and his production of some for would be $128,717. With respect to the important documents late in the inquiry, question of whether or not some of the and the almost incessant attempts made sales of the defendant during the account- by the defendant, some of which seemed ing period may have been non-infringing, to me to border on desperation, to have the evidence is clearly to the effect that the inquiry adjourned both before it com-at least very nearly all of such sales were menced and during its course. infringing and there was no evidence ad- I, accordingly, have no hesitation what- duced that would indicate that any of the ever in recommending that serious con-sales made during the accounting period sideration be given to adoption of the were of a non-infringing nature. This normal rule that the costs should follow matter is concluded, I think, by the argu- the event. In fact, the conduct of the ment advanced by counsel for the defend- ant to the effect that the sales made defendant during the inquiry has been during the November, 1964 campaign in such that should I have found no profit St. John's, Newfoundland, were the first for which the defendant need account to to be made by the defendant without the the plaintiff, I would have recommended use of the plaintiff's trade marks, and that no costs be awarded to either party. particularly the mark "Yo-Yo". All of which is respectfully submitted.
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.