Date: 20000825
Docket: T-992-92
BETWEEN:
ALMECON INDUSTRIES LIMITED
Plaintiff
- and -
ANCHORTEK LTD., EXPLOSIVES LIMITED,
ACE EXPLOSIVES ETI LTD. and
WESTERN EXPLOSIVES LTD.
Defendants
REASONS FOR ORDER
LAFRENIÈRE P.
[1] The Defendant Anchortek ("Anchortek") and the Plaintiff settled between themselves a number of issues raised in their respective motions. By consent of the parties, I granted leave to the Plaintiff to immediately requisition a pre-trial conference, however this was without prejudice to Anchortek"s present motion to amend its pleadings and to further discover the Plaintiff. A trial date of the action has since been fixed by the Court in early September 2001.
[2] The only matters outstanding are Anchortek"s request for leave to amend its Thrice Amended Statement of Defence and Counterclaim, for an Order that the Plaintiff produce additional documents and for an Order allowing further examination for discovery of both the Plaintiff and the inventor.
[3] In the event Anchortek is successful in obtaining any relief on its motion, the Plaintiff moves for continued examination of the Defendants. The other Defendants in the action take no position with respect to Anchortek"s proposed amendments, but resist any further attempt to be discovered by the Plaintiff.
Background
[4] This action pertains to the alleged infringement by the Defendants of the Plaintiff"s patent relating to a topping and tamping plug for use in the seismic exploration industry. The acts of infringement claimed by the Plaintiff include the manufacture and sale by Anchortek of a plug known as the Energy Plug.
[5] Anchortek denies any infringement and attacks the validity of the Plaintiff"s patent. It also counterclaims for a declaration of invalidity of the patent and damages suffered as a result of alleged false or misleading statements made by officers and directors of the Plaintiff to employees of Anchortek"s customers some time in 1992 which it claims tended to discredit its business and wares. This would include statements that Anchortek"s Energy Plug infringed the Plaintiff"s patent.
[6] In a related action between the Plaintiff and another company, Austin Powder Ltd. ("Austin Powder"), the Plaintiff alleged that Austin Powder infringed its patent by purchasing and selling Anchortek"s Energy Plugs (Federal Court No. T-609-96). The Plaintiff and Austin Powder reached a settlement in September 1999 and that action has since been discontinued.
[7] Although Anchortek was not privy to the terms of settlement between the Plaintiff and Austin Powder, its president Frank Bodell obtained the gist of the agreement through contacts in the Alberta seismic industry. In his affidavit filed in support of Anchortek"s motion, Mr. Bodell declares that he was told ( by undisclosed sources) that in order to settle the action, Austin Powder agreed to pay a lump sum to the Plaintiff. Austin Powder apparently also undertook to stop purchasing any of Anchortek"s plugs and start purchasing plugs exclusively from the Plaintiff. Finally, the two would have agreed that Austin Powder would no longer be required to purchase the Plaintiff"s plug in the event Anchortek was successful in the present action.
[8] Mr. Bodell also learned that the Plaintiff had approached Western Explosives Ltd. ("Western Explosives"), a co-defendant in this action and one of its customers, with a similar settlement proposal.
[9] Anchortek now seeks to amend its Counterclaim to include allegations that the Plaintiff unlawfully and improperly effected a settlement with Austin Powder and interfered with another one of its customers. It also seeks production of the settlement documents between the Plaintiff and Austin Powder and further discovery with respect to the new amendments and any documents ordered produced.
[10] The Plaintiff objects to the proposed amendments and resists production of any further documents. However, it does not dispute that Anchortek would be entitled to further discovery if it is granted leave to amend its pleadings or further production of documents is ordered.
Proposed amendments to Anchortek"s Counterclaim
[11] I will first deal with Anchortek"s proposed amendments. Anchortek seeks to amend its Counterclaim by adding, inter alia , the following allegations outlined in paragraphs 12 through 16 of its proposed Counterclaim:
| 12. By way of Statement of Claim filed in Federal Court matter T-609-96, the plaintiff sued Austin Powder Ltd. (hereinafter "Austin") for infringement of Canadian Patent No. 1,220,134 on the basis of Anchortek"s sale to Austin of Energy Plugs and Austin"s subsequent resale of these plugs to others. As a result of an agreement between the parties, both the present action and T-609-96 were to be tried together. |
| 13. Anchortek ceased selling its Energy Plug in 1996. Since that time, and with the full knowledge of the plaintiff, Anchortek has manufactured and sold bore hole plugs of a design different from the Energy Plug to Austin and others. The plaintiff at no time has alleged that these other plugs manufactured and sold by Anchortek infringe Canadian Patent No. 1,220,134. |
| 14. The plaintiff has recently settled matter T-609-96 with Austin. As part of that settlement, the plaintiff has required Austin to either cease purchasing, or limit its purchases of Anchortek"s non-impugned plugs referred to in paragraph 13 above. As a result, Austin"s purchase from Anchortek of Anchortek"s non-impugned plugs has stopped or been significantly reduced. |
| 15. The plaintiff has therefore relied upon the false and misleading allegation that Anchortek"s Energy Plug infringes Canadian Patent No. 1,220,134, and the threat of a legal action with respect thereto, to secure from Austin an unlawful and improper agreement that has reduced Anchortek"s sales of its non-impugned plugs to Austin. |
| 16. The plaintiff has also attempted in January of 2000 to have Western Explosives agree to a similar agreement as part of a settlement of the present action with Western. |
[12] Anchortek seeks to clarify by further amendments that the Plaintiff"s statements were made in violation of section 7(a) of the Trade-marks Act and section 52 of the Competition Act. In addition, Anchortek seeks to include allegations that the Plaintiff unlawfully interfered with Anchortek"s economic interests, that the Plaintiff unlawfully interfered with Anchortek"s contractual relations with Austin Powder and that the Plaintiff engaged in injurious falsehood as against Anchortek.
Position of the parties regarding the proposed amendments
[13] Anchortek submits that it has an existing counterclaim against the Plaintiff based in part on the allegation that the Plaintiff has made false and misleading statements to customers of Anchortek, including Austin Powder. It argues that the proposed amendments are necessary to protect its economic rights. Moreover, it says that the amendments essentially supplement the existing counterclaim by providing further particulars of false and misleading statements made by the Plaintiff.
[14] The Plaintiff objects to the proposed amendments on a number of grounds. In particular, the Plaintiff submits that the allegation at paragraph 15 of the proposed Counterclaim that "the Plaintiff relied on the false and misleading allegation that Anchortek"s Energy Plug infringes Canadian Patent No. 1,220,134" appears to be based on privileged statements made by the Plaintiff to Austin Powder in the context of judicial proceedings. As such, it argues, the statements are privileged and cannot be used to found an action.
[15] The Plaintiff further submits that the proposed amendments raise new causes of action which are not within this Court"s jurisdiction. It argues that the Federal Court has no inherent jurisdiction to grant relief for unlawful interference with economic interests or with the performance of a contract as these matters relate directly to property or contract rights. With respect to the claim of injurious falsehood, it says that there are no material facts pleaded to support the allegation, other than privileged statements.
General principles relating to amendment of pleadings
[16] Rule 75 of the Federal Court Rules, 1998 provides that the Court may, at any time, allow a party to amend its pleadings on such terms as will protect the rights of the parties. The parties are in agreement with respect to the general principles relating the amendment of pleadings.
[17] Although leave is discretionary, as a general rule a proposed amendment should be allowed in the absence of prejudice to the opposite party. Décary, J.A., speaking for the Federal Court of Appeal, summarized the general principle as follows in Canderel Ltd. v. Canada1 :
| "... the general rule is that an amendment should be allowed at any stage of an action for the purpose of determining the real questions in controversy between the parties, provided, notably, that the allowance would not result in an injustice to the other party not capable of being compensated by an award of costs and that it would serve the interests of justice." |
[18] On a motion to amend a pleading, a party is not expected to prove its case to the required standard of proof. 2 The Court must also assume that the facts pleaded in the amendments are true. 3
[19] Moreover, the proposed amendments must contain proper material facts upon which the party relies, failing which leave should be denied. 4
Analysis of proposed amendments to Counterclaim
[20] Anchortek alleges in its existing Counterclaim that the Plaintiff approached Anchortek"s customers, including Austin Powder and Western Explosives, and made false and misleading allegations regarding the infringement by Anchortek of its patent. The allegations form the basis for Anchortek"s cause of action under section 7(a) of the Trade-marks Act 5 which reads as follows:
| 7. No person shall |
| (a) make a false or misleading statement tending to discredit the business, wares or services of a competitor; |
[21] At paragraph 15 of the proposed counterclaim, Anchortek seeks to add that the Plaintiff "relied on the false and misleading allegation that Anchortek"s Energy Plug infringes Canadian Patent No. 1,220,134" to secure an agreement with Austin Powder. The Plaintiff maintains that the said "allegation" could only have been made during the course of its action against Austin Powder and that such statements are protected by privilege and are not actionable 6.
[22] Anchortek says that it does not rely upon any statements made by the Plaintiff in its Statement of Claim in the Austin Powder action, or the present action, to support the proposed amendments. Rather, it relies on false and misleading statements made by the Plaintiff to Austin Powder prior to the commencement of the Austin Powder action and the terms of the contract between the Plaintiff and Austin Powder which pertain to Anchortek and its non-impugned plugs. In light of the restriction placed by Anchortek on the allegation at paragraph 15, the question of privilege does not, in my view, arise.
[23] The question before me is whether the proposed amendments to the Counterclaim, as they presently read, are proper and should be allowed to determine the real questions in controversy between the parties.
[24] Paragraphs 12, 13 and 14 of the proposed Counterclaim serve as the background for the allegation at paragraph 15 that the Plaintiffs "therefore relied upon the false and misleading allegation that Anchortek"s Energy Plug infringes Canadian Patent No. 1,220,134, and the threat of a legal action with respect thereto" to secure a settlement with Austin Powder. I recognize these paragraphs are not the model of clarity, however reading them generously, they do set out the bare material facts to support a cause of action under section 7(a) of the Trade-marks Act7.
[25] In S. & S. Industries Inc. v. Rowell8, the Supreme Court of Canada held that the threat of litigation was actionable in a case involving facts strikingly similar to the present one. Referring to section 7(a) of the Trade Marks Act 9, which reads the same today, Spence, J. said:
| "Moreover, the person seeking to defend his patent has a choice of immediately commencing an action for infringement and applying for an injunction to restrain the continuance of such prejudice to his patent rights, or of bringing action for damages against those who use, in their business, the wares manufactured by the alleged infringer. If he chooses the first alternative, he may join as parties defendants all who purchase from the alleged infringer to use in their business. The injunction having been granted only upon his undertaking to pay the damages incurred thereby should he fail, he proceeds at his own risk. There would seem to be no valid reason why rather than choosing that forthright course he should be permitted to proceed by threats against the purchasers from the alleged infringer without rendering himself liable for damages unless his mala fides could be proved." |
[26] Walsh, J. reached the same conclusion in Diamond Shamrock Corp. v. Hooker Chemicals & Plastics 10:
| "If in fact statements in the nature of threats were made to third persons dealing with or using the product of the defendant Hooker Chemicals and Plastics Corp. and if eventually plaintiff"s patent were found to be invalid as a result of the counterclaim, then this would give rise to a claim for damages by said defendant." |
[27] I conclude that paragraphs 12 to 16 of the proposed Counterclaim are adequately pleaded to support a claim under section 7(a) of the Trade-marks Act. Further, it is not plain and obvious to me that a claim under section 52 of the Competition Act would necessarily fail despite the fact that Anchortek has not alleged that the representation was made "to the public". I would therefore allow these amendments.
[28] As for Anchortek"s proposed amendments to add new causes of action, I am not satisfied that leave should be granted in the circumstances. There is no question that the Federal Court has jurisdiction over issues that may otherwise be within the jurisdiction of the Superior Courts of the Provinces, provided the subject-matter of the action primarily concerns a patent, trade-mark or copyright. However, Anchortek"s proposed pleadings, as drafted, do not adequately set out proper claims under any of the three separate heads of tort.
[29] To establish the tort of unlawful interference with contractual relations and economic interests, Anchortek would have to prove that the Plaintiff had the intention to injure the Plaintiff 11. In addition, to support a claim of interference with the performance of a contract, Anchortek would have to establish that it had a contract with Austin Powder. As for the tort of injurious falsehood, malice is an essential element and must be pleaded.
[30] At this late stage of the proceeding, it would not be appropriate to grant leave to Anchortek to provide better particulars of the allegations to correct the deficiencies in its pleading. Moreover, I consider that Anchortek"s claim for damages allegedly suffered at the hands of the Plaintiff can fully be addressed under section 7(a) of the Trade-marks Act or section 52 of the Competition Act.
Production of settlement agreement between the Plaintiff and Austin Powder
[31] I will now turn to Anchortek"s request for production of settlement documents between the Plaintiff and Austin Powder. Anchortek submits that the agreement and related documents are relevant not only to the proposed amendments but also to Anchortek"s allegation in paragraph 12 of its existing counterclaim that Anchortek has suffered damage as a result of false or misleading statements made by the Plaintiff to its customers, including Austin Powder. The Plaintiff objects to produce the documents on the basis that they are privileged, and in any event, irrelevant to the action or counterclaim.
[32] As a preliminary objection, the Plaintiff submits that the affidavit of Mr. Bodell filed in support of the motion for production is improper in that it is based on information and belief. It argues that deponent does not sufficiently describe the source of his information. As such, the Plaintiff submits that the evidence is not properly before the Court and should be struck.
[33] Anchortek responds that it does not have first hand knowledge of the terms of settlement between the Plaintiff and Austin Powder. It submits that the Plaintiff could easily have filed an affidavit setting out better evidence to rebut the allegations or simply cross-examined Mr. Bodell. In the circumstances, Anchortek argues that the Bodell affidavit should not be struck out.
[34] In my view, the Plaintiff"s objection must fail. Although it may have been preferable for Mr. Bodell to identify his sources, the discrepancy did not seriously prejudice the Plaintiff. The material facts on this motion are whether the Plaintiff and Austin Powder entered into a settlement agreement and, if so, whether it was on the same terms as understood by Mr. Bodell. The truth of those statements are surely within the knowledge of the Plaintiff 12. Identifying the sources of Anchortek"s information would have added nothing. In the circumstances, I consider the information obtained by Mr. Bodell reliable, particularly in the absence of any evidence to the contrary.
[35] Turning to the question of relevance, the test for the purpose of discovery is whether the document may fairly lead to a train or inquiry which may directly or indirectly advance the case of one party or damage the case of the other party. I agree with counsel for Anchortek that the terms of agreement between the Plaintiff and Austin Powder are relevant to some of the issues in this action, particularly to the question of damages. To establish liability for damages, Anchortek would have to prove some loss from the wrongful act of the Plaintiff. If the Plaintiff did in fact reach an agreement with Austin Powder which impacts negatively on Anchortek"s sales, those facts are clearly relevant.
[36] As for the Plaintiff"s objection based on privilege, it is well settled that an exclusionary rule or privilege applies to protect evidence regarding negotiations leading to settlement13. However, Anchortek is not seeking disclosure of settlement negotiations, but rather the settlement agreement itself. Moreover, Anchortek does not seek disclosure of the settlement documentation in order to demonstrate a weakness in the Plaintiff"s case or to establish the Plaintiff"s liability for conduct which was the subject of the settlement.
[37] In balancing the competing rights of the Plaintiff and Anchortek, I am mindful of the following statement of Hugessen, J.A. (as he then was) in Bertram v. Minister of National Revenue14:
| "...the public policy which underlies the exclusionary rule requires that that rule not operate to shield evidence of misrepresentation or of dishonest dealing." |
[38] I have difficulty understanding how the Plaintiff would be prejudiced by being required to disclose the terms of settlement with Austin Powder. There is no evidence before me to suggest that the settlement agreement was meant to be kept confidential. In fact, the evidence is to the contrary. I therefore conclude that privilege, even if same could be claimed against an affected third party, which I doubt, does not and should not apply in the circumstances.
Further discovery of the parties
[39] Anchortek is entitled to further discovery of the Plaintiff with respect to the issues raised by the amendments to the Counterclaim and the settlement documents ordered produced. The Plaintiff may also conduct further examinations of Anchortek with respect to the same matters.
[40] Anchortek has failed to establish that further discovery of the inventor is justified. Moreover, I do not see on what basis the Plaintiff should be allowed to re-open the discovery of the other Defendants. Consequently, further examination of other parties is denied unless leave is granted by the Court on better evidence.
Conclusion
[41] For the above reasons, the Defendant Anchortek is granted leave to amend its Counterclaim, except for paragraphs 10(d) and (f) and paragraphs 17 (iii), (iv) and (v) for which leave is denied.
[42] The Plaintiff shall forthwith produce a copy of the document(s) reflecting the settlement between the Plaintiff and Austin Powder.
[43] Anchortek and the Plaintiff may conduct further examinations of each other relating to the amendments allowed and documents produced.
[44] In light of divided success of the parties, costs of the two motions shall be in the cause.
[45] The parties shall submit a draft order within 10 days of the date of these reasons reflecting the disposition of their respective motions, as well as a proposed timetable for completion of the remaining steps in the proceeding in anticipation of the pre-trial conference scheduled to resume on September 13, 2000.
"Roger R. Lafrenière"
Prothonotary
Toronto, Ontario
August 25, 2000
FEDERAL COURT OF CANADA
Names of Counsel and Solicitors of Record
| COURT NO: T-992-92 |
| STYLE OF CAUSE: ALMECON INDUSTRIES LIMITED |
- and -
| ANCHORTEK LTD., EXPLOSIVES LIMITED, |
ACE EXPLOSIVES ETI LTD. and
WESTERN EXPLOSIVES LTD.
| DATE OF HEARING: MONDAY, APRIL 17, 2000 |
| PLACE OF HEARING: TORONTO, ONTARIO |
| REASONS FOR ORDER BY: LAFRENIÈRE P. |
DATED: FRIDAY, AUGUST 25, 2000
| APPEARANCES IN PERSON: Mr. Bruce W. Stratton, and |
Mr. Henry Lue
| For the Plaintiff |
| Mr. Steven B. Garland |
For the Defendant, Anchortek Ltd.
APPEARANCE BY
TELECONFERENCE: Ms. Brenda M. Leeds
| For the Defendants, Explosives Limited, Ace Explosives ETI Ltd. and Western Explosives Ltd. |
| SOLICITORS OF RECORD: Dimock Stratton Clarizio |
Barristers & Solicitors
3202-20 Queen Street West
Box 102
Toronto, Ontario
M5H 3R3
| For the Plaintiff |
Smart & Biggar
Barristers & Solicitors
900-55 Metcalfe Street
P.O. Box 2999, Station D
Ottawa, Ontario
K1P 5Y6
For the Defendant, Anchortek Ltd.
Burnet, Duckworth & Palmer
Barristers & Solicitors
First Canadian Centre
1400, 350 - 7th Avenue SW
Calgary, Alberta
T2P 3N9
| For the Defendants, Explosives Limited, Ace Explosives ETI Ltd. and Western Explosives Ltd. |
FEDERAL COURT OF CANADA
Date: 20000825
Docket: T-992-92
BETWEEN:
| ALMECON INDUSTRIES LIMITED |
Plaintiff
- and -
ANCHORTEK LTD., EXPLOSIVES LIMITED,
ACE EXPLOSIVES ETI LTD. and
WESTERN EXPLOSIVES LTD.
Defendants
| REASONS FOR ORDER |
__________________
1 ©1994ª 1 F.C. 3 (F.C.A.) at p. 9.
2 Almecon Industries Ltd. v. Anchotek Ltd.. (1999), 85 C.P.R. (3d) 216 (F.C.T.D.)at p. 218.
3 Visx Inc. v. Nidek Co. (1996), 72 C.P.R. (3d) 19 (F.C.A.) at p. 24.
4 Visx Inc. v. Nidek Co., supra.
6 Fleming, Law of Torts , 9th ed., pp. 617-618; Chase ManhattanCorp. v. 3133559 Canada Inc. (1999), Court No. T-1754-96, unreported, Dubé, J., June 22, 1999; Diamond Shamrock Corp. v. Hooker Chemicals & Plastics Corp. et al (1981), 60 C.P.R. (2d) 166 (F.C.T.D.)at p. 171.
7 False and misleading statements are actionable under section 7(a) of the Trade-marks Act providing that they tend "to discredit the business, wares or services of a competitor" and result in damage.
9 c. 49, Statutes of Canada 1952-53.
10" (1981), 60 C.P.R. (2d) 166 at p. 171
11 Lewis N. Lar et al, Remedies in Tort (Toronto: Carswell, 1987) Volume 3, Chapter 24, Š 50; Daishowa Inc. v. Friends of the Lubicon (1996), 27 O.R. (3d) 215 at p. 230
12 Weatherill v. Canada (Attorney General) et al., (1999), 168 F.T.R. 161 (T.D.)
13 John Sopinka, Sideney N. Lederman, Q.C. & Alan W. Bryant, The Law of Evidence in Canada (Toronto and Vancouver, Butterworths, 1992) at p. 719