Ottawa, Ontario, November 20, 2006
PRESENT: The Honourable Mr. Justice Mosley
BETWEEN:
Plaintiff
and
CFM CORPORATION
Defendant
REASONS FOR ORDER AND ORDER
[1] On May 11, 2006 in Dimplex North America Ltd. v. CFM Corporation., 2006 FC 586 I determined that Dimplex was entitled to a declaration that its Canadian Patent No. 2,175,442 (the ‘442 patent), entitled “Flame Simulating Assembly”, was valid and that it had been infringed by CFM Corporation. I further found that there had been a “deliberate appropriation of intellectual property” by CFM, but that “it did not amount to conduct of such high handed, callous and
oppressive nature as to offend the Court's sense of decency.” As a result, I denied Dimplex’s claim for aggravated, exemplary or punitive damages. At the conclusion of the Judgment I noted that costs would be spoken to by way of notice of motion.
[2] The present motion is brought by Dimplex pursuant to Rule 403 of the Federal Court Rules, SOR/98-106 (Federal Court Rules). At the hearing, both parties agreed that a lump sum approach to fixing the costs in this matter would be appropriate. In my view also, that would be a reasonable disposition in the circumstances of this case.
[3] The Court has the jurisdiction to award a lump sum for costs under Rule 400(4) of the Federal Court Rules. In Barzelex Inc. v. Ebn Al Waleed (The), [1999] F.C.J. No. 2002 at para. 11 (T.D.), Hugessen J. stated that “[i]n my view, as a matter of policy the Court should favour lump sum orders. It saves time and trouble for the parties and it is a more efficient method for them to know what their liability is for costs”. See also: AB Hassle v. Genpharm Inc., 2004 FC 892, 254 F.T.R. 268 at para. 10 [AB Hassle], and Brunico Communications Inc. v. Canada (Attorney General), 2004 FC 1306, [2004] F.C.J. No. 1579 at para. 3 (QL).
[4] Dimplex asserts that the total of its actual costs incurred, inclusive of fees, disbursements, and GST where applicable, from the commencement of the proceeding in July 2001 to the end of trial was $2,424,215.43.
[5] In its initial submissions, Dimplex requested that its legal fees be assessed on the basis of Column V of Tariff B from the commencement of the action to the date of its first formal written offer to settle dated March 28, 2005, and thereafter on a solicitor-client basis for a total of $1.2 million. In the event that the Court was not persuaded that solicitor-client costs were warranted, Dimplex alternatively proposed that its legal fees be fixed on a party and party scale in accordance with Column V of Tariff B until March 28, 2005, and that the fees be tripled from March 28, 2005 to the end of trial for a total of $500, 000. In each case, the disbursements claimed amounted to $400, 000.
ISSUES
[6] Based on the submissions of the parties, I consider that I need to address the following issues before arriving at a determination of a lump sum award:
1. What is the general scope of the Court’s discretion to award increased costs within or outside of Tariff B?
2. What is the effect of the Dimplex settlement offers with respect to Rule 420?
3. What are the appropriate factors to consider in the present case under Rule 400(3)?
ANALYSIS
What is the general scope of the Court’s discretion to award increased costs within or outside of Tariff B?
[7] Rule 400(1) of the Federal Court Rules grants a broad discretion to the Court in relation to costs: Capital Vision, Inc. v. Canada (Minister of National Revenue - M.N.R.), 2003 FC 1253, 241 F.T.R. 121 at para. 16 [Capital Vision]. That being said, costs should neither be punitive nor extravagant: Aird v. Country Park Village Property (Mainland) Ltd., 2004 FC 945, 257 F.T.R. 1 at para. 6 [Aird]. The Supreme Court of Canada has also made it clear that awarding costs on a solicitor-client basis remains exceptional; it is an award that is generally associated with reprehensible, scandalous or outrageous conduct on the part of one of the parties: Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817 at para. 77; Mackin v. New Brunswick (Minister of Finance); Rice v. New Brunswick, [2002] 1 S.C.R. 405, 2002 SCC 13 at para. 86.
[8] As “a general rule, costs are awarded to the successful party on a party-and-party basis”: Capital Vision, above at para. 17. Rule 407 of the Federal Court Rules dictates that within this general rule, costs are to be awarded in accordance with Column III of the table to Tariff B on a default basis. As further noted by the Court of Appeal in Wihksne v. Canada (Attorney General), 2002 FCA 356, [2002] F.C.J. No. 1394 at para. 11 (QL), absent special considerations outlined in Rule 400(3), “the Court should be reluctant to attempt to rewrite Tariff B - a task better left to the Rules Committee”.
[9] That being said, as noted by the Court of Appeal in Consorzio del Prosciutto di Parma v. Maple Leaf Meats Inc., [2003] 2 F.C. 451, 2002 FCA 417 at paras. 8-10:
8 An award of party-and-party costs is not an exercise in exact science. It is only an estimate of the amount the Court considers appropriate as a contribution towards the successful party's solicitor-client costs…
9 … the objective is to award an appropriate contribution towards solicitor-client costs, not rigid adherence to column III of the table to Tariff B which is, itself, arbitrary. Subsection 400(1) makes it clear that the first principle in the adjudication of costs is that the Court has "full discretionary power" as to the amount of costs. In exercising its discretion, the Court may fix the costs by reference to Tariff B or may depart from it. Column III of Tariff B is a default provision. It is only when the Court does not make a specific order otherwise that costs will be assessed in accordance with column III of Tariff B.
10 The Court, therefore, does have discretion to depart from the Tariff, especially where it considers an award of costs according to the Tariff to be unsatisfactory. Further, the amount of solicitor-and-client costs, while not determinative of an appropriate party-and-party contribution, may be taken into account when the Court considers it appropriate to do so. Discretion should be prudently exercised. However, it must be borne in mind that the award of costs is a matter of judgment as to what is appropriate and not an accounting exercise.
[emphasis mine]
[10] The Court of Appeal has further cautioned however in Mugesera v. Canada (Minister of Citizenship and Immigration), 2004 FCA 157, [2004] F.C.J. No. 710 at para. 14 (QL) [Mugesera] that “in seeking an award of costs that is appropriate, the Court must be prudent in exercising its discretion, if only to prevent parties whose conduct is not reprehensible from being ordered to pay costs of an unforeseeable quantum”.
[11] The Court of Appeal in Mugesera, above at para. 15, further made it clear that where a lump sum order is granted:
15 To ensure that the discretion exercised by the Court is not overly dependent on the perspective of a given panel of judges and to avoid fluctuations in awarding costs which would jeopardize the degree of uniformity and foreseeability that the litigants are entitled to expect, I believe that the Court should be guided, as much as possible, by the standards established in the table to Tariff B when awarding a lump sum in lieu of assessed costs…
[emphasis mine]
[12] It is, therefore, clearly within the discretion of the Court to award increased costs in the present case assuming the circumstances warrant such an award. In this respect, the Court must have regard to the factors it considers reasonable within Rule 400(3) of the Federal Court Rules, as described in further detail below. The default for an award of costs remains Tariff B, Column III. Where an award of increased costs is warranted, the Court should first determine whether an award of costs that is reasonable is possible within the scope of Tariff B. Only where that would dictate an unreasonable or unsatisfactory result, should the Court consider awarding an amount in excess of the Tariff.
What is the effect of the Dimplex settlement offers with respect to Rule 420?
[13] Under Rule 420(1) of the Federal Court Rules, a successful plaintiff may be entitled to double its party and party costs after the date of an offer to settle if: the offer was made in writing; and if the offer was not withdrawn and did not expire before judgment.
[14] In Shtutman v. Oceana Marine Shipping, Inc., 2006 FC 476, [2006] F.C.J. No. 603 at para. 9 the Court made it clear that double costs would not be awarded under Rule 420(2)(a) where the conditions precedent set out in that rule had not been met. This portion of the Rule deals with a defendant’s offer to settle, and has the same two requirements as Rule 420(1) as stated above.
[15] In the present case, Dimplex has not demonstrated that the conditions precedent to Rule 420(1) have been met with respect to its several settlement offers to CFM. That being said, the Court can take judicial notice of the amount of the costs set out in this rule, when analyzing the effect that an offer to settle has under Rule 400(3) as described below.
What are the appropriate factors to consider in the present case under Rule 400(3)?
[16] With respect to what the appropriate factors are for a Court to consider in assessing costs, the Court has noted that although it is recognized that costs are at the discretion of the Court according to Rule 400(1), “the non-exhaustive list of factors delineated in Rule 400(3) assist in formulating an inherent logic to the determination”: Remo Imports Ltd. v. Canada Jaguar Cars Ltd., 2006 FC 690, [2006] F.C.J. No. 902 at para. 2 (QL).
[17] In assessing the appropriate scale of costs to apply in the present case, Dimplex argues that the Court should consider the following factors set out in Rule 400(3) as being relevant to the present case: (a) the result of the proceeding; (e) any written offer to settle; (g) the amount of work; and (o) any other matters it considers relevant, which Dimplex argues includes willful infringement and litigation misconduct.
(a) the result of the proceeding
[18] As noted by the Court in AB Hassle, above at para. 15, success normally entitles a party to costs, not increased costs. As noted by the Court in Aird, above at para. 6: “[a]s a general rule, costs should follow the event. Absent an abuse of process, a successful plaintiff should not be penalized simply because not all the points advanced by the plaintiff have found favour with the court”. The Court found in that case that as the issues in the action were not complex, the matter was mainly factually driven, and the fact that the plaintiffs were successful in relation to all but two subsidiary issues, the defendant’s success on those two issues was not a significant enough reason for the Court to depart from this general rule (at para. 9).
[19] The defendant’s argument regarding the punitive damages claim and its call for a reduction in the plaintiff’s cost award by at least 25% as a result is an issue that is appropriately considered in the context of this factor, but, in my view, not persuasive. The fact that the plaintiff won in regards to validity and infringement, but lost with respect to its punitive damages claim is relevant but not an indication of divided success. The punitive damages claim was subsidiary to the main issues of validity and infringement at trial and on those the plaintiff was completely successful. It was also reasonable for the plaintiff to attempt to make the case for punitive damages although I concluded that the evidence fell short of meeting the Canadian test. That being said, I had no difficulty finding that the infringement was deliberate.
(e) any written offer to settle
[20] Settlement offers not accepted by the Court as falling within Rule 420 should nevertheless be considered under Rule 400: Remo Imports Ltd. v. Canada Jaguar Cars Ltd., 2006 FC 690, [2006] F.C.J. No. 902 at para. 14 (QL). However, as the defendant points out, even in the case of settlement offers that do qualify under Rule 420, a doubling of costs is the default unless otherwise ordered by the Court. It is therefore quite unlikely that a Court would order more than this amount, where the requirements of Rule 420 are not strictly met.
[21] In the present case, multiple offers to settle were made by Dimplex. These constituted genuine attempts to reach a compromise. At the outset, the action could have been easily resolved with each party bearing its own costs if CFM had been prepared to alter its use of the infringing screen technology. After Dimplex had succeeded at trial in the U.S. proceedings in March 2005 and was awarded damages of $8.3 million, Dimplex offered in writing to settle both the U.S. and Canadian actions for $7.2 million, a substantial saving for CFM. The U.S. District Court subsequently increased the award to $12.4 million because of the jury’s finding of wilful infringement. Dimplex then offered in writing to settle both actions for $10 million payable over two years, and again, on the eve of the trial in this action, for $9 million. Each of these offers would have resulted in substantial savings to CFM.
[22] There is no real controversy between the parties that these efforts to settle must be taken into account in assessing costs in the present case. I note that the defendant’s solicitors actively participated, to the extent of exchanging draft terms, in attempting to reach a settlement which would have been reasonable for both sides. I find it difficult to understand why these efforts were not pursued to a resolution of the action prior to trial. Perhaps the only explanation is as Dimplex suggests. CFM was acquired by a new owner in April 2005 and that owner simply wished to defer this liability. Whatever the reason, the plaintiff incurred increased costs as a result.
(g) the amount of work
[23] The plaintiff argues that the Court ought to ensure that costs awarded bear some reasonable semblance to the actual costs of litigation, which are reflected in the amount of work done. The plaintiff highlights the reasoning of the Court in Apotex Inc. v. Syntex Pharmaceuticals International Ltd. (1999), 2 CPR (4th) 368 at para. 9 wherein the Court found that “[t]his case, while not the most complex of patent cases, did exceed the average complexity of an average case” and therefore an “increase in Column III level costs” was justified.
[24] This is not a case where the volume of work done by the plaintiff was due to the nature of the invention: Monsanto Canada Inc. v. Schmeiser (2002), 19 C.P.R. (4th) 524, 2002 FCT 439 at para. 17, aff’d (2002), 22 C.P.R. (4th) 455, 2002 FCA 449. The requirement to prove ingenuity may have added some time to the trial as the physical exhibits, electric fireplaces, had to be dismantled to demonstrate their inner workings but that was not a significant factor in my view.
[25] More to the point, however, is that at the outset of these proceedings, the parties were not evenly matched and the plaintiff had much more at risk than the defendant. CFM was then a large and prosperous enterprise with a diverse product line. Dimplex North America, while a subsidiary of a foreign corporation, was smaller and less diversified. Its core business was the line of electric fireplaces it developed with the patented technology. Other competitors were tempted to follow CFM’s example. Dimplex had no choice but to vigorously defend the patent to maintain its market share and respect for its intellectual property. In those circumstances, the volume of work undertaken was justified.
(o) other factors- litigation misconduct
[26] Litigation misconduct is a factor more properly considered in relation to items (i), (j) and/or (k) under Rule 400(3). Plaintiff’s counsel acknowledged during closing argument at trial that there had been no significant misconduct in the present proceedings. That acknowledgement, which the defendant argues should weigh heavily against the plaintiff now, was made in the context of a question from the Court respecting the claim for aggravated, exemplary or punitive damages.
[27] I am satisfied that I can take into consideration the defendant’s failure to adequately respond to several notices to admit prior to trial. While defendant’s counsel took me to several examples of requests for admissions that were more properly within the Court’s domain as questions of claim construction, that does not explain why the bulk of the admissions sought were either summarily dismissed or ignored, requiring that the plaintiff tender evidence that would not otherwise have been required. For example, evidence relating to admissions made by the defendant’s expert, Dr. Barudi, in the U.S. proceedings did not need to be proved at trial and would have reduced the scope of the Phillips’ affidavit. Information respecting the schedule of trade shows attended by both parties was within the defendant’s knowledge and should not have required preparation and testimony. Further, particulars respecting the employment by CFM of one Colm Martin should have been admitted.
(o) other- willful infringement
[28] It is not enough to say that because the plaintiff lost its claim for punitive damages, willful infringement is not an issue to be considered in the assessment of costs. The plaintiff is not trying to re-litigate its punitive damages claim as asserted by the defendant. Instead, the plaintiff reasonably contends that the Court should consider under the scope of the discretion granted to it pursuant to Rule 400(3)(o), that the defendant did not innocently breach Dimplex’s rights, but did so knowingly. I was satisfied from the evidence that this was established. CFM was unable to come up with a competitive alternative and chose to copy a proven success. This factor can and will be taken into account by the Court in the context of assessing costs in the present case.
Determination of the Award
[29] At the hearing of this motion, in response to CFM’s objections to the plaintiff’s initial submissions, Dimplex put forward an amended proposal calling for a lump sum award of $1.35 million. That included Column V fees at $100,000 from commencement of the action to March 28, 2005, solicitor-client costs from that date to the end of the trial of $1 million and $250, 000 in disbursements.
[30] Dimplex also put forward two alternate proposals for calculating its fees on a party and party basis if the solicitor-client approach was rejected. In each, Dimplex proposed that the portion for fees be determined at the top of Column V and that disbursements be fixed at
$250,000. In the first alternate proposal, the fees from the date of its last settlement offer to the conclusion of the trial would be tripled for a total lump sum of $0.53 million. In the second proposal without tripling, the total requested comes to $0.41 million. Dimplex also requests that the costs of this motion be ordered payable forthwith in the amount of $3000.
[31] These alternate proposals from Dimplex are put forward largely because of its estimation of the defendant’s current financial situation as precarious. In short, Dimplex considers that the prospects of at least some recovery of its costs are more promising if a more modest lump sum is awarded, payable forthwith.
[32] CFM acknowledges that Dimplex is entitled to reasonable party and party costs. It submits that Column III is only meant to be departed from in the rarest of cases. CFM also objects to any award of counsel fees for attendance at related U.S. proceedings. It had been agreed between the parties that the depositions of the inventors in the parallel action in the U.S. would serve for both purposes and a consent Order was issued to that effect. Dimplex submits that Canadian counsel participated in those depositions and it should be entitled to recovery for those costs. In the circumstances, that is a reasonable proposition as Dimplex’s Canadian counsel had to be prepared to rely upon the U.S. depositions in this action.
[33] By CFM’s calculations, the total amount of fees that should be awarded under Column III would be no more than $100,000. CFM also contends that the plaintiff’s disbursements, notwithstanding the reduction in the amended proposal, continue to be excessive and should be limited to $150, 000. It further argues that the total lump sum amount should be reduced by a factor of at least 25% as Dimplex was not successful in its allegation that punitive, aggravated or exemplary damages should be awarded. As a result, CFM submits that Dimplex’s costs be fixed between $150,000 and $200,000 in total for both fees and disbursements.
[34] The plaintiff reassessed its disbursements in light of the defendant’s analysis to arrive at the reduced amount of $250,000. Most of the points advanced by the defendant were accepted. Two items remain in dispute. The first concerns fees claimed for Mr. Samuel Phillips who was called at the trial as an engineering expert and those for Mr. Creighton Hoffman, an accountant, who was not called.
[35] It is difficult to assess what is a reasonable disbursement for a winning expert in a patent case. Mr. Phillips charged the plaintiff $150,000 for his fees. I am assured by counsel that this does not reflect any part of Mr. Phillips’ role in the U.S. proceedings. The defendant suggests that $75, 000 would be more appropriate. I have taken both submissions into account in arriving at my determination of the lump sum.
[36] The difficulty with Mr. Hoffman is that, in addition to not having been called, there is little before me as to why he was necessary or to prove his fees. The plaintiff asserts that he was retained to reply to potential defence evidence that was never called. The defendant argues that his expert opinion would have been based at least in part on survey evidence that I declared inadmissible at trial. In the circumstances, I consider it prudent to disregard the claim for Mr. Hoffman’s services.
[37] The other disputed disbursement item is a claim for photocopies. Dimplex initially claimed $45,982.77 including GST at an in house rate of $.25 per page. CFM proposed a reduction by $13,981.08 to reflect a commercial rate of $.14 per page and removal of an additional $3,993.47 for what it considered unnecessary copying. Dimplex accepted the latter reduction but not the former. While I appreciate that a claim for in-house copying should reflect the actual costs incurred, I note that Assessment Officer Stinson has concluded that $0.25 per page is reasonable and would defer to his considerable experience in these matters: Canadian Union of Public Employees, Local 4004 v. Air Canada (1999), 157 F.T.R. 186, [1999] F.C.J. No. 464 at para. 7 (QL). I did not consider it necessary to take this dispute into account in arriving at a lump sum award as the amount to be awarded will in any event fall well short of Dimplex’ actual costs.
[38] This is not a case in which I would award solicitor-client costs as the defendant’s conduct while deserving of censure was not so reprehensible, scandalous or outrageous as to justify them. For that reason, I was satisfied that general damages or an accounting for profits would act as a sufficient deterrent. I find that a lump sum award approximating party and party costs at the high end of Column V without tripling but with a premium would be appropriate in all of the circumstances of this case.
[39] Having regard for all of these considerations and recognizing that the assessment of costs is, at best, rough justice I am satisfied that a total lump sum award in this matter should correspond to approximately 20% of the plaintiff’s actual costs from the commencement of the proceedings. That amount would be four hundred and eighty thousand dollars ($480,000) inclusive of disbursements and the costs of this motion, payable forthwith.
[40] By virtue of subsection 37(1) of the Federal Courts Act, the law of Ontario relating to interest on judgments is applicable to this case. Section 129(1) of the Ontario Courts of Justice Act, R.S.O. 1990 c.C.43 (Courts of Justice Act) would seem at first impression to indicate that interest should be calculated from the date of the order fixing the costs rather than from the date of the trial judgment. However, the section has been interpreted as requiring that interest on costs be payable from the date of judgment rather than from the date of assessment. I note that under paragraph 130(1)(c) of the Courts of Justice Act, the Court has a discretion to allow interest for a period other than that provided under subsection 129(1).
[41] The question of the date from which interest should be calculated was addressed by Gibson J. in CCH Canada Ltd. v. Law Society of Upper Canada, 2004 FC 1760, 226 F.T.R. 159, and in reasons issued by the Federal Court of Appeal in a parallel motion that are attached as a schedule to Justice Gibson’s decision, see: CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 FCA 278, 243 D.L.R. (4th) 759. I conclude from those reasons that interest on costs should normally flow from the date of the trial judgment in which costs are awarded a party unless an assessment is ordered, in which case they should be calculated from the date of that order. CFM did not dispute that post-judgment interest was payable but submitted that it should be simple and not compounded. I am satisfied that this award shall bear interest from the date of the trial judgment, May 11, 2006 at five percent (5%) not compounded as provided for by section 127 of the Courts of Justice Act.
ORDER
FOR THE REASONS SET OUT ABOVE
THIS COURT ORDERS that:
1. The plaintiff is entitled to a lump sum award of costs in the amount of four hundred and eighty thousand dollars ($480, 000) inclusive of disbursements and the costs of this motion, payable forthwith;
2. This award of costs shall bear interest at the rate of five percent (5%) per annum, not compounded, from the date of issue of the trial judgment,
May 11, 2006.
“Richard G. Mosley”
Judge
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET: T-1348-01
STYLE OF CAUSE: DIMPLEX NORTH AMERICA LIMITED
AND
CFM CORPORATION
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: November 14, 2006
APPEARANCES:
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David A. Aylen Selena Kim
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Trent Horne Sarah Crowe
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SOLICITORS OF RECORD:
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DAVID A. AYLEN SELENA KIM Gowling Lafleur Henderson LLP Toronto, Ontario
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TRENT HORNE SARAH CROWE Bennett Jones LLP Toronto, Ontario
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