Federal Court Decisions

     T-2685-95

BETWEEN:

     COCA-COLA LTD. and COCA-COLA BOTTLING LTD.

     Plaintiffs

     - and -

     MUSADIQ PARDHAN c.o.b. as UNIVERSAL EXPORTERS,

1106972 ONTARIO LIMITED c.o.b. as UNIVERSAL EXPORTERS

and JOHN DOE and JANE DOE and

OTHER PERSONS UNKNOWN TO THE PLAINTIFFS

WHO OFFER FOR SALE, SELL, EXPORT,

OR DEAL IN TRANSHIPPED COCA-COLA PRODUCTS

     Defendants

     REASONS FOR ORDER

MacKAY J.:

     This is an application by the plaintiffs for costs arising from their execution of an Anton Piller Order and from an application for an interlocutory injunction, to be fixed or to be assessed against the defendants, and to be paid forthwith, although trial of the action, in relation to which those steps were taken, may only occur well into the future.

     The plaintiffs acknowledge that while it may be unusual for the Court to consider an award of costs at an interlocutory stage in proceedings when the rights of the parties have not been finally determined by trial, they urge that this is an unusual case.

     A brief sketch of the background is this. By Statement of Claim filed December 19, 1995, the plaintiffs commenced an action against the defendants, alleging the defendants infringe the plaintiffs' trade-marks, depreciate the value of those marks and cause confusion in the markets where Coca-Cola is sold, by selling in foreign countries Coca-Cola that is made for sale for consumption only in Canada. Further, it is alleged that the defendants sell that product without appropriate licence arrangements and contrary to the plaintiffs' own arrangements for licensing, sale and distribution of goods bearing their trade-marks, and with potentially damaging effects upon plaintiffs' trade-marks, since goods shipped overseas, bearing their marks, are not packaged for such shipment and may arrive in damaged condition before sale, with adverse effects in the country of destination, upon the perception of goods bearing the plaintiffs' marks.

     In addition to the usual forms of relief in actions where trade-mark infringement is alleged, including an interlocutory injunction until trial or disposition of the action, the plaintiffs also sought an order in the form of an Anton Piller Order.

     On December 19, 1995, in addition to filing the Statement of Claim in their action, the plaintiffs also applied ex parte and in camera for an order in the nature of an Anton Piller Order directing that the defendants refrain from removal or destruction of any evidence relating to alleged infringing activities, directing that plaintiffs' solicitors have access to premises and records of the defendants, and that evidence be seized and held by solicitors for the plaintiffs. That Order, as sought, was granted on December 19, 1995 against named defendants, as well as John Doe, Jane Doe and others having notice of the order, by my colleague Mr. Justice Joyal. That Order provided that "Costs of this motion shall be determined by the Trial Judge".

     Thereafter, solicitors for the plaintiffs undertook execution of the Anton Piller Order and they seized documents and other evidence relating to the defendants' activities about which the plaintiffs' action is concerned. Among the items seized were said to be a number of documents which held out the defendants to be agents authorized to sell the plaintiffs' products abroad, a status that simply was not true. On January 8, 1996, the plaintiffs applied for two orders, which I granted. The Orders were granted, as I recall, on the usual two days notice of motion, in the absence of the defendants, though they were then represented by counsel who simply appeared without instructions in regard to the motions before the Court.

     The first Order provided for the original documents seized to be filed and held in the Court, that copies of the documents might be provided by plaintiffs to counsel for the plaintiff Coca-Cola Ltd., and to counsel for the defendants, in a related proceeding in the United States District Court, that certain incidental matters be dealt with, and that the costs of execution of the Order of Joyal J. dated December 19, which was duly reviewed, and costs of this motion of January 8, be "reserved to be determined by further Order of this Court".

     The second Order granted on January 8, 1996, was an interlocutory injunction pending trial, restraining the named defendants from activities infringing the trade-marks of the plaintiffs, including restraint against defendants' shipping or distribution or related activities in regard to plaintiffs' trade-marked beverage products to or in territories for which the defendants did not have licence to ship or to distribute those products. That Order was directed to be without prejudice to a future opportunity for defendants to move to vary the Order. Costs of that motion were ordered "reserved to be determined by further Order of this Court".

     On March 14, 1996, certain named defendants filed a Statement of Defence and Counterclaim. The plaintiffs moved to strike portions of that statement and counterclaim, a motion allowed, at least in part, by order of Giles, A.S.P. with effect from May 15, 1996.

     Thereafter, in January 1997, the plaintiffs filed Notice of Motion for the application now before me, that is, for payment of costs, both of execution of the Order of Joyal J. and of the motion for an interlocutory injunction, to be fixed or to be assessed, and be paid forthwith.

     The plaintiffs' view that this case is unusual and warrants an award of costs at this interlocutory stage is based on the following factors. First, the plaintiffs incurred very substantial costs, well in excess of $100,000., with these preliminary proceedings, for solicitors' costs and substantial disbursements to meet costs of investigators, simply to acquire evidence to commence the action and these proceedings. According to the plaintiffs, the extended investigation and substantial initial costs they have incurred are said to have been necessitated by the manner in which the defendants' business dealings were organized. That organization is said to have included business based in the home of one named defendant, without attribution there or business communications address openly available through public sources. This organization is also said to have operated through various named enterprises, apparently with awareness that the prime purpose of the business, shipment and sale abroad of Coca-Cola produced in Canada for the Canadian market, was without authorization of trade-mark owners or licenses to do so. Much of the defendants' operations in this regard might be said to be carried on surreptitiously, at least in the sense that the defendants appear not to have been prepared to publicly advertise or acknowledge their business in usual business circles in Canada, even though plaintiffs' estimate sales of about $6 million by the defendants in 1995, based on records seized under the Anton Piller Order.

     The plaintiffs note that no strong objection to their action, no move to vary or appeal the Court's Orders, no proper defence on the merits of the plaintiffs' action was taken in more than a year. The Statement of Defence and Counterclaim filed in March 1996 was substantially struck out and no amended defence has been filed. In the plaintiffs' view, with no representations on the merits by the defendants and no affidavit evidence before the Court that would indicate argument in support of lawful business activity on the part of defendants, this action may not proceed further for it would appear to be effectively disposed of by the interlocutory injunction granted, as in many cases where action is commenced against vendors of counterfeit goods or against infringers of trade-mark rights who have no lawful basis for their activities.

     Counsel for the plaintiffs stressed that the application was for party and party costs and disbursements for costs of a reasonable investigation, as was carried out in the circumstances of this case. Plaintiffs did not seek costs on a solicitor and client basis. It was urged that the evidence seized under the Court's Order made clear that the defendants knew that they were not authorized to sell by export sales, to or in foreign markets, trade-marked goods marketed in the ordinary course of trade in Canada, and here purchased by the defendants to sell abroad. Those goods are said by plaintiffs to be made for sale for consumption in Canada. In the plaintiffs' view, costs should be fixed by Order at $30,000. on a party and party basis, and costs for disbursements for the expenses of their investigators in executing the Anton Piller Order, which were said to be in excess of $40,000. plus taxes, should be allowed at this stage, and should be ordered to be paid now.

     Counsel appearing for the defendants to deal with the motion for costs expressed surprise that the motion was brought in light of the decision of the Court of Appeal in Thurston Hays Developments Ltd. et al. v. Horne Abbot Ltd. et al. (1985), 5 C.P.R. (3d) 124. Moreover, the defendants say that in this case the plaintiffs have done little to advance the matter to trial, when it is, after all, the plaintiffs' responsibility, not the defendants', to do so. In the defendants' view, this action was being treated by plaintiffs as subordinate to the plaintiffs' main action in the United States Court. For that action documents seized under the Anton Piller Order in this case were said to be relied upon so that evidence gathered in the investigation in Canada was now used in two actions. Finally, it was urged that the plaintiffs' expense for services of investigators or of solicitors in gathering evidence was not fairly an expense to be addressed as a matter of costs, rather it was an expense which, if recoverable at all, might be recoverable as damages.

     I am not persuaded that the motion for an award of costs should be dismissed by reason of the fact that evidence seized in this matter may be used, by authorization of this Court, in another forum, or by the defendants' submission that expenses of investigation should be treated as damages. In my opinion, the issue is whether in all the circumstances of this case, the plaintiffs' success, in interlocutory proceedings thus far, warrants an award of costs at this stage.

     The Court's discretion in relation to costs, while apparently unlimited under Rule 344, must be exercised on judicial principles. Important portions of that rule include the following:

344. (1) The Court shall have full discretionary power over payment of the costs of all parties involved in any proceeding, the amount and allocation of those costs and determining the persons by whom they are to be paid.

...

(3) In exercising its discretionary power pursuant to subsection (1) the Court may consider

(a) the result of the proceeding;

...

(p) any other matter relevant to the question of costs.

344. (4) The Court may fix all or part of the costs with or without reference to Tariff B and, further, it may award a lump sum in lieu of or in addition to any taxed costs.

...

(5) Notwithstanding any other provisions in these Rules, the Court has the discretionary power

(a) to award or refuse costs in respect of a particular issue or part of a proceeding.

     In my opinion, the discretion granted by R. 344 is sufficient to include authority, in an appropriate case, to order payment of security for costs at an interlocutory stage, but that would be done only in exceptional circumstances.

     The practice of the Court is clear. Unless there are exceptional circumstances, costs are not generally dealt with, and are seldom awarded, in interlocutory proceedings before trial. Rather, costs at this stage are generally treated as in the cause, to be determined, ultimately by the trial judge, following trial of the action.

     The rationale for this was described by Mr. Justice Urie for the Court of Appeal in Thurston Hays Developments Ltd. et al. v. Horn Abbott Ltd. et al., supra. There, the Court was concerned with the order of a motions judge who, in granting an interlocutory injunction for alleged trade-mark infringement, ordered costs to the plaintiffs in any event of the cause, with the direction the plaintiffs give the usual undertaking to compensate defendants in damages in the event the action should be successfully defended. In regard to the award of costs, Urie, J.A. said (at 5 C.P.R (3d) 126):

...to make such an award at this stage necessarily assumes that the appellants are guilty of, or are likely to be found guilty of, the infringements alleged by the respondents and, should be penalized therefor despite the fact that it is quite possible they may successfully defend the action at trial. We do not believe that to impose such a penalty is the proper exercise of judicial discretion. It is more appropriate, in our view, for the award to be "costs in the cause"...the order will be varied to effect this change.

     In Toronto-Dominion Bank v. Canada Trustco Mortgage Co. (1992), 50 F.T.R. 317, 40 C.P.R. (3d) 68 (F.C.T.D.), Mr. Justice Strayer followed that general practice in dealing with an application on behalf of a defendant/respondent for costs following dismissal of the plaintiffs' application for an interlocutory injunction. In his view, the rationale of Thurston Hays applied also in the case of a successful defendant seeking damages after dismissal of the plaintiffs' interlocutory application for an injunction.

     In narrow circumstances of particular cases, the Court has suggested exceptional factors that might warrant an award of costs following interlocutory proceedings before trial. In Tamec Inc. v. 2804166 Canada Inc. (1995), 104 F.T.R. 275, 63 C.P.R. (3d) 309 (F.C.T.D.), Mr. Justice Teitelbaum granted an order extending an injunction originally granted on an interim basis in a claim for infringement of copyright and he issued an Anton Piller Order to preclude the defendant from disposing of certain evidence. He also awarded costs to the plaintiff in the amount of $1,250.00, including disbursements, without direct explanation but in circumstances where he concluded the defendant's finances were questionable, and there was no evidence it could meet an award of damages if the plaintiff should succeed at trial. In Smith & Nephew Inc. v. Glen Oak Inc. (1996), 64 C.P.R. (3d) 452 (F.C.T.D.), Mr. Justice Noël in dealing with submissions on costs at an interlocutory stage in proceedings, declined to award costs, but he did indicate that if the defendant's motions, which he had dismissed, were simply frivolous or vexatious, costs might then appropriately be awarded even in advance of trial.

     Defendants in this case have not advanced claims to defend their actions or to contest the plaintiffs' claims. No full or amended defence was filed before this motion was heard and portions of the original defence pleaded were struck out. Yet the defendants' failure to defend the action, when they are not actively pursued by the plaintiffs in preparing for trial, is hardly a basis for awarding costs at this stage.

     There is, however, another factor that may be considered to arise in this case. From the affidavit evidence of the plaintiffs it appears the defendants are engaged in Canada in activities that support so-called "grey-marketing" abroad. They are said to purchase in Canada beverage products produced under licence arrangements of the plaintiffs in Canada for consumption exclusively in the Canadian market, and then to distribute to, or market those products in, other countries where the defendants have no licence to deal with the product, probably to the detriment of those who do there hold licences, and to the detriment of the plaintiff Coca-Cola Ltd. which owns the trade-marks. They are also said to fraudulently hold out that they act as the plaintiff's agents.

     That activity so far as it occurs in Canada is said to infringe plaintiffs' trade-marks. Whether that constitutes infringement under the Trade-marks Act may be a serious issue at trial, one which at this stage cannot be said to be frivolous or spurious. I say this in light of the decision of the Court of Appeal in Smith & Nephew Inc. v. Glen Oak Inc., [1996] 3 F.C. 565, 68 C.P.R. 153 (F.C.A.), where the Court dealt with alleged grey marketing in Canada of goods from abroad bearing a trade-mark owner's marks. While the circumstances here are different, that case appears to raise, by analogy, serious questions about the effects upon trade-mark rights of activities in support of grey marketing.

     The circumstances in this case, in my view, do not warrant exceptional action to award costs at this stage. There would appear to be serious issues to be tried. It would not be appropriate to award costs, as asked, payable forthwith, at this interlocutory stage.

     The application of the plaintiffs for costs to be fixed or assessed, and paid forthwith, in relation to interlocutory proceedings in which they have thus far been successful, is dismissed. Costs arising in relation to the proceedings in question shall be in the cause.

     ____________________________________

     JUDGE

OTTAWA, Ontario

July 8, 1997.