PRESENT: The Honourable Mr. Justice O'Keefe
BETWEEN:
ENTRAL GROUP INTERNATIONAL INC.
and TC WORLDWIDE LTD.
and
d/b/a Di Da Di Karaoke Company,
VITUS WAI-KWAN LEE and
YUK SHI (TOM) LO
REASONS FOR ORDER AND ORDER
O'KEEFE J.
[1] This is an appeal of part of the order of Prothonotary Lafrenière dated February 24, 2006 in which he denied the part of the defendants' motion requesting that the statement of claim as against the defendants, Vitus Wai-Kwan Lee and Yuk Shi (Tom) Lo be struck. The Prothonotary granted other parts of the motion.
[2] The plaintiffs' claim deals with alleged copyright infringement. The defendant Lee was a director of MCUE Enterprises corp., d.b.a. Di Da Di Karaoke Company (MCUE). The defendant Lo was the president, secretary and a director of MCUE. Both Lee and Lo are referred to by the plaintiffs as the "Directors" of MCUE.
[3] The one specific allegation against Lee and Lo is at paragraph 22 of the original statement of claim (paragraph 28 of the amended statement of claim):
The Directors were, at all material times, the directing minds of the corporate Defendant. The Directors personally, deliberately, wilfully, knowingly, jointly and severally caused, directed and authorized the activities of the corporate Defendant, a closely held corporation.
[4] The plaintiffs referred to the following paragraphs of the original statement of
Claim (paragraphs 29 and 36 of the amended statement of claim):
Copyright Infringement
23. The Defendants have, for profit and in connection with the business of the corporate Defendant Mcue, wilfully and deliberately imported or otherwise acquired, produced, reproduced, publicly performed, published, communicated, exhibited, distributed or otherwise commercially exploited the exploitation of the Works and the Plaintiffs have been and continue to be injured by the Defendants' unlawful acts.
. . .
Punitive Damages
30. The Plaintiff EGI has made demands that the Defendants either enter into a license agreement to secure the legal right to reproduce and perform the Works in the Defendants' establishment, or discontinue the infringement and acts complained of, and the Defendants have ignored or refused to comply with EGI's requests. The Defendants have performed the acts complained of in this Claim wilfully and with knowledge of the infringement that it would cause.
[5] Issue
Should the Prothonotary have struck Mr. Lee and Mr. Lo as defendants?
Analysis and Decision
[6] Standard of Review
In Z.I. Pompey Industrie v. Ecu-Line N.V., 2003 SCC 27, [2003] 1 S.C.R. 450 at 461, the Supreme Court of Canada set out the standard of review to be applied to decisions of Prothonotaries:
Discretionary orders of prothonotaries ought to be disturbed by a motions judge only where (a) they are clearly wrong, in the sense that the exercise of discretion was based upon a wrong principle or a misapprehension of the facts, or (b) in making them, the prothonotary improperly exercised his or her discretion on a question vital to the final issue of the case: Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.), per MacGuigan J.A., at pp. 462-63.
[7] Further, in Merck & Co., Inc. v. Apotex Inc., 2004 FCA 488, [2004] 2 F.C.R. 459, the Federal Court of Appeal stated at paragraphs 17 to 19:
[17] This Court, in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (C.A.), set out the standard of review to be applied to discretionary orders of prothonotaries in the following terms (MacGuigan J.A., at pages 462-463):
Following in particular Lord Wright in Evans v. Bartlam, [1937] A.C. 473 (H.L.) at page 484, and Lacourcière J.A. in Stoicevski v. Casement (1983), 43 O.R. (2d) 436 (Div. Ct.), discretionary orders of prothonotaries ought not to be disturbed on appeal to a judge unless:
(a) they are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts, or
(b) they raise questions vital to the final issue of the case.
Where such discretionary orders are clearly wrong in that the prothonotary has fallen into error of law (a concept in which I include a discretion based upon a wrong principle or upon a misapprehension of the facts), or where they raise questions vital to the final issue of the case, a judge ought to exercise his own discretion de novo. [Footnote omitted.]
[18] MacGuigan J.A. went on, at pages 464-465, to explain that whether a question was vital to the final issue of the case was to be determined without regard to the actual answer given by the prothonotary:
It seems to me that a decision which can thus be either interlocutory or final depending on how it is decided, even if interlocutory because of the result, must nevertheless be considered vital to the final resolution of the case. Another way of putting the matter would be to say that for the test as to relevance to the final issue of the case, the issue to be decided should be looked to before the question is answered by the prothonotary, whereas that as to whether it is interlocutory or final (which is purely a pro forma matter) should be put after the prothonotary's decision. Any other approach, is seems to me, would reduce the more substantial question of "vital to the issue of the case" to the merely procedural issue of interlocutory or final, and preserve all interlocutory rulings from attack (except in relation to errors of law).
This is why, I suspect, he uses the words "they (being the orders) raise questions vital to the final issue of the case", rather than "they (being the orders) are vital to the final issue of the case". The emphasis is put on the subject of the orders, not on their effect. In a case such as the present one, the question to be asked is whether the proposed amendments are vital in themselves, whether they be allowed or not. If they are vital, the judge must exercise his or her discretion de novo.
[19] To avoid the confusion which we have seen from time to time arising from the wording used by MacGuigan J.A., I think it is appropriate to slightly reformulate the test for the standard of review. I will use the occasion to reverse the sequence of the propositions as originally set out, for the practical reason that a judge should logically determine first whether the questions are vital to the final issue: it is only when they are not that the judge effectively needs to engage in the process of determining whether the orders are clearly wrong. The test would now read: "Discretionary orders of prothonotaries ought not be disturbed on appeal to a judge unless: (a) the questions raised in the motion are vital to the final issue of the case, or (b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts."
[8] In the present case, the motion raises a question vital to the final issue of the case because the defendants seek to strike the statement of claim as against the defendants, Lee and Lo. I must therefore exercise my discretion de novo.
[9] Prothonotary Lafrenière denied the defendants' request for an order striking the statement of claim as against the defendants, Lee and Lo, because he found that there were personal allegations of tortious conduct made against these defendants in the statement of claim.
[10] The case law cited by the defendants makes it clear that a director or officer is not liable simply because of being in that position. In Windsurfing International Inc. v. Novaction Sports Inc. (1987), 18 C.P.R. (3d) 230 (F.C.T.D.), Associate Chief Justice Jerome stated at page 4:
There are thus two possible ways in which the plaintiffs may have an action against Mr. Teasdale for infringement. They may either claim that he personally sold and used and induced others to sell and use infringing sailboards or that, as the "directing mind" of his company, he participated in the infringing actions of the corporate defendant. The first option is not supported by the allegations in the statement of claim. There are absolutely no facts alleged to indicate that Mr. Teasdale at any time engaged in the business of selling or using sailboards independently of his company, Novaction. The plaintiffs cannot, by a statement such as "the Defendants have offered for sale and sold EON sailboards to members of the public ...", extend an action against a competing company to include one of the company's officers in his personal capacity.
To establish a cause of action against Mr. Teasdale as the "directing mind", the mere fact of his capacity as President is insufficient. There must be an allegation that he ordered or authorized the acts complained of. The requirements for such a finding were set out in Mentmore Manufacturing Co. Ltd. v. National Merchandise Manufacturing Co. Inc. (1978) 40 C.P.R. (2d) 164 (F.C.A.). In that case, LeDain, J. cited, as the governing principle, the following quotation from 24 Hals., 2nd ed. pp. 652-3, para. 1226:
1226. Normally the directors of a company are not personally liable for the company's torts, even if they are managing directors or the sole directors and shareholders. In order to make them responsible it must be proved either (1) that they have formed the company for a tortious purpose; or (2) that they have directly ordered or authorised the acts complained of; or (3) that they have so authorised or ordered by implication.
[11] In the Windsurfing case above, and other authorities cited by the defendants, there were specific allegations against the individual directors or officers because of their corporate capacity and there were also allegations against the defendants generally. The courts have stated that allegations against defendants generally could not be the basis for personal liability against the directors and officers. I agree with this statement of the law. The present statement of claim, however, is different.
[12] From the beginning, in the original statement of claim, the plaintiffs have, in paragraphs 6 to 9, described who the defendants were and in particular, in paragraphs 7 and 8, described the defendants Lee and Lo. The statement of claim goes on in paragraph 9 to state who is included in the "defendants" by stating:
All of the above Defendants are collectively referred to as the "Defendants". The Defendants Yuk Shi (Tom) Lo and Vitus Wai-Kwan Lee are also herein sometimes referred to as the "Directors"
.
[13] In paragraph 23 of the original statement of claim, the plaintiffs alleged with respect to copyright infringement:
The Defendants have, for profit and in connection with the business of the corporate Defendant Mcue, wilfully and deliberately imported or otherwise acquired, produced, reproduced, publicly performed, published, communicated, exhibited, distributed or otherwise commercially exploited the Works, and purported to authorize, license and permit the exhibition and public performance of the Works by the customers of Mcue, at the premises of Mcue, including in each case many of the Listed Works and many of the Registered Works, and the Defendants continue to do all of the foregoing acts, in each case without the authorization of the Plaintiffs and in violation of the Plaintiffs' copyright interests. Such unauthorized use of the Works by the Defendants infringes the Plaintiffs' exclusive copyright interests in the Works contrary to sections 3(1) and 27 of the Copyright Act, R.S.C. 1985, c. C-42, as amended.
[14] I am of the opinion that since paragraph 9 of the statement of claim specifically includes the defendants Lee and Lo in the term "defendants", it follows that the allegations contained in paragraph 23 of the statement of claim are allegations that apply to the defendants, Lee and Lo. The plaintiffs have pled material facts to allege tortious conduct by these defendants. Paragraph 23 of the statement of claim refers to acts by the defendants Lee and Lo as the paragraph uses the plural word "defendants". Without the defendants Lee and Lo, there is only one defendant, MCUE. In my view, the Prothonotary was correct in refusing to strike the statement of claim against the defendants Lee and Lo as the pleadings allege tortious conduct on their part.
[15] The motion (appeal) of the defendants (appellants) is dismissed with costs to the plaintiffs.
[16] The defendants shall have 20 days to file a statement of defence.
ORDER
[17] IT IS ORDERED that:
1. The motion (appeal) of the defendants is dismissed with costs to the plaintiffs.
2. The defendants shall have 20 days from the date of this order to file a statement of defence.
ANNEX
Relevant Statutory Provisions
Sections 174 and 221 of the Federal Court Rules, 1998, SOR/98-106, state:
| 174. Every pleading shall contain a concise statement of the material facts on which the party relies, but shall not include evidence by which those facts are to be proved.
. . .
221. (1) On motion, the Court may, at any time, order that a pleading, or anything contained therein, be struck out, with or without leave to amend, on the ground that it
(a) discloses no reasonable cause of action or defence, as the case may be,
(b) is immaterial or redundant,
(c) is scandalous, frivolous or vexatious,
(d) may prejudice or delay the fair trial of the action,
(e) constitutes a departure from a previous pleading, or
(f) is otherwise an abuse of the process of the Court,
and may order the action be dismissed or judgment entered accordingly.
(2) No evidence shall be heard on a motion for an order under paragraph (1)(a). |
174. Tout acte de procédure contient un exposé concis des faits substantiels sur lesquels la partie se fonde; il ne comprend pas les moyens de preuve à l'appui de ces faits.
. . .
221. (1) À tout moment, la Cour peut, sur requête, ordonner la radiation de tout ou partie d'un acte de procédure, avec ou sans autorisation de le modifier, au motif, selon le cas:
a) qu'il ne révèle aucune cause d'action ou de défense valable;
b) qu'il n'est pas pertinent ou qu'il est redondant;
c) qu'il est scandaleux, frivole ou vexatoire;
d) qu'il risque de nuire à l'instruction équitable de l'action ou de la retarder;
e) qu'il diverge d'un acte de procédure antérieur;
f) qu'il constitue autrement un abus de procédure.
Elle peut aussi ordonner que l'action soit rejetée ou qu'un jugement soit enregistré en conséquence.
(2) Aucune preuve n'est admissible dans le cadre d'une requête invoquant le motif visé à l'alinéa (1)a). |
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1009-04
STYLE OF CAUSE: ENTRAL GROUP INTERNATIONAL INC.
and TC WORLDWIDE LTD.
- and -
MCUE ENTERPRISES CORP.,
d/b/a Di Da Di Karaoke Company,
VITUS WAI-KWAN LEE and
YUK SHI (TOM) LO
PLACE OF HEARING: Vancouver, British Columbia
VIA VIDEO CONFERENCE
DATE OF HEARING: March 20, 2006
APPEARANCES:
| Karyn Shapira
|
|
| Paul Smith Stephen Selznick
|
SOLICITORS OF RECORD:
| Cassels Brock & Blackwell LLP Toronto, Ontario
|
|
| Paul Smith Intellectual Property Law Vancouver, British Columbia |