T-4853-77
W.H. Brady Co. (Plaintiff)
v.
Letraset Canada Limited (Defendant)
INDEXED AS: W.H. BRADY CO. V. LETRASET CANADA LTD.
(T.D.)
Trial Division, Cullen J.—Ottawa, October 11 and
17, 1989.
Practice — Costs — Taxation — Successful party not
entitled to taxation of costs awarded to it at trial where
solicitor's costs had in fact been paid by successful party's
parent company.
The defendant in a patent infringement action was successful
in its counterclaim that the patent was invalid and was awarded
costs. Before the Prothonotary, the plaintiff objected to the
taxation of costs on the grounds that the defendant was not
liable to its solicitors, Gowling & Henderson, and had not itself
paid any of the costs of this litigation. It was alleged that the
costs had in fact been paid by the defendant's parent company,
and accordingly argued that the defendant was not entitled to
recover any costs from the plaintiff. The Prothonotary over
ruled the objection and proceeded with the taxation. This is a
motion under Rule 346(2) for an order setting aside the
Prothonotary's certificate and declaring that the costs recover
able by the defendant from the plaintiff be taxed and allowed
at nil.
Held, the motion should be allowed.
The Prothonotary's decision was discretionary and could be
overruled only if it was clearly wrong on the facts or was based
on an erroneous principle of law or if it resulted in some
injustice to the appellant.
The only issue to be determined was whether or not the
defendant was liable to pay Gowling & Henderson's costs. In
actual fact, the defendant did not pay these costs, until after
the issue of liability for them was raised by the plaintiff. It
appeared that the purpose of the payment was to undermine the
plaintiffs application.
The Prothonotary was mistaken as to the facts in that there
was no evidence that Gowling & Henderson acted for the
defendant. Indeed, this law firm acted for the parent company
from which it was getting instructions and payment. Gowling
& Henderson had no written retainer from the defendant and
submitted no accounts for payment to it. The evidence failed to
establish that the parent company's patent agent, who was its
representative in connection with all matters that were going on
in the case, was also the defendant's agent.
To allow the decision to stand would result in an injustice to
the appellant. The direct payment to the parent company was
most suspect, coming as it did after the issue was raised and in
an unusual form. Nor were there no indirect payments pursu
ant to some agreement to that effect since no such agreement
was proven to exist. Nor was the defendant anything more than
a passive defendant. So there was no obligation by the defen
dant company to compensate Gowling & Henderson.
It may be that once established that a solicitor has acted for
a party with its knowledge and assent, that party becomes
liable to the solicitor for costs. Unfortunately, in this case, the
defendant has been unable to establish that Gowling & Hen-
derson was acting for the defendant with its knowledge and
consent.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Federal Court Rules, C.R.C., c. 663, R. 346(2).
CASES JUDICIALLY CONSIDERED
APPLIED:
Simpson v. Local Board of Health of Belleville (1917-
18), 41 O.L.R. 320 (H.C.).
REVERSED:
W.H. Brady Co. v. Letraset Canada Ltd., [1990] 1 F.C.
46 (T.D.).
AUTHORS CITED
Orkin M. M. The Law of Costs 2nd ed. Aurora, Ontario:
Canada Law Book Inc., 1987.
COUNSEL:
A. David Morrow for plaintiff.
Neil R. Belmore for defendant.
SOLICITORS:
Smart & Biggar, Ottawa, for plaintiff.
Gowling, Strathy & Henderson, Toronto, for
defendant.
The following are the reasons for order ren
dered in English by
CULLEN J.: This is a motion made pursuant to
Rule 346(2) [Federal Court Rules, C.R.C., c.
663] as it read before Amending Order No. 11
[SOR/87-221], for an order setting aside the cer
tificate of J. A. Preston, Esquire, Prothonotary,
dated August 1, 1989 [[1990] 1 F.C. 46] and
declaring that the costs recoverable by the defen
dant from the plaintiff be taxed and allowed at nil.
The grounds for the motion are that the defen
dant was not liable to its solicitors, Messrs. Gow-
ling & Henderson, for costs in this action and did
not in fact pay any of such costs and is therefore
not entitled to recover any costs from the plaintiff.
At trial the defendant was awarded costs in a
patent infringement action after it succeeded on its
counterclaim that the patent was invalid.
On the evidence there is no question that Letra-
set Canada Limited is a wholly owned subsidiary
of its parent company Letraset U.K. At the time of
this litigation the firm was known as Gowling &
Henderson and it billed its fees and disbursements
in the litigation to a company called Stentap Lim
ited which is the company of Letraset organiza
tion's, patent attorney, Mr. Gallafent.
On cross-examination of Mr. R. Scott Joliffe on
April 15, 1988 at page 15, Question 79:
Q. You don't treat Stentap Limited any differently from
Gallafent's actual patent agency firm for the purposes of this
billing practice?
A. No.
On the evidence there is also no question that
Stentap Limited/Gallafent was the patent agent
for Letraset U.K. It was alleged by counsel for the
defendant that Stentap Limited/Gallafent should
also be considered as an agent to the defendant. I
cannot accept that proposition nor is there any
evidence to corroborate it.
This is an appeal from the decision of a pro-
thonotary and not, after all, (as I was reminded) a
hearing de novo. His decision is a discretionary
decision and I can overrule it only if the prothono-
tary was clearly wrong on the facts, or proceeded
on an erroneous principle of law or if the decision
resulted in some injustice to the appellant. In my
view there is a fourth factor here, namely that the
prothonotary seemed to feel bound by the judg
ment awarding costs to the defendant. Normally
that would be acceptable, but the grounds for the
plaintiff's appeal did not become evident until
after the judgment and during the cross-examina
tion of R. Scott Joliffe's affidavit in support of
Gowling & Henderson's prepared bill of costs.
Had this information, i.e. all the defendant's costs
were paid by Letraset U.K., been known earlier, I
accept counsel for the plaintiffs comment that he
would have asked permission to make a "special
argument" on the question of costs.
The only issue to be determined is whether or
not the defendant was "liable" to pay Gowling &
Henderson's costs. In actual fact they did not pay
these costs until after the issue of liability for these
costs was raised by the plaintiff. It was suggested
that this late payment was made out of an abun
dance of caution. More correctly, I believe, it was
paid to undermine the plaintiff's application. The
payment itself was unusual, namely, not a solicitor
and client bill of the kind sent by Gowling &
Henderson to Stentap, but rather a proposed bill
of costs that had been submitted by the defendants
for taxation. There was no document introduced
by the defendant to show an agreement between
Letraset U.K. and the defendant whereby the
defendant would assume responsibility for party
and party costs, and Letraset assume the balance
of the solicitor's invoice. Certainly Gowling &
Henderson had no doubt about who was to pay all
of its bills, namely, Letraset U.K. Transcript of
cross-examination of R. Joliffe, November 16,
1988:
MR. MORROW: But these expenses flowed through Letraset
U.K. initially did they not?
THE DEPONENT: Yes.
Thus no payments were ever made by or went
through the defendant company.
The defendant, throughout the course of this
action, endeavoured to distance itself from Letra-
set U.K. and now, somewhat late in the day, its
argument that Letraset U.K.'s patent agent is also
the defendant's agent is a somewhat startling turn
about. Another telling comment appears during
the November 16, 1988 cross-examination at page
171 (when commenting about whether Mr. Galla-
fent had to be in the U.S. during a particular
motion):
Q. Do you say that Mr. Gallafent had to be there for that
motion, for that ex parte motion in the U.S.A.?
A. Well, I am not saying he had to be there. He wasn't a
witness or anything like that.
Q. Right.
A. I can't say he had to be there. I mean, he was essentially
the client's representative in connection with all matters that
were going on in this case. [Emphasis added.]
Mr. Gallafent was Letraset U.K.'s agent and
Mr. Joliffe calls him "the client's representative in
connection with all matters that were going on in
this case".
Counsel for the plaintiff has characterized the
defendant's position as having "2 lines of defence":
1) indirectly—due to agreement between Letraset
U.K. and the defendant; 2) directly—the direct
payment by the defendant to Letraset U.K. after
this issue arose. He feels to hang one's defence on
the direct payment is just not sufficient. I agree.
Who instructed Gowling & Henderson to
submit bills to Stentap? Although Mr. Joliffe
states these instructions came from the defendant
through a Mr. Miles, it was hearsay in that he was
still in attendance at the bar admission course.
The transcript of November 16, 1988 beginning
at page 195 reads in part as follows:
THE DEPONENT: It's almost impossible to answer the question
with the detail you want now, but our file indicates that on
January 4, 1978, this matter arose for the first time as far as
our firm is concerned. And on that day we spoke with Mr.
Miles, Wayne Miles, and Mr. Gallafent.
BY MR. MORROW:
Q. When you say spoke, you mean on the telephone?
A. On the telephone.
Q. Yes.
A. On that day. I can't tell you who—
Q. That wouldn't have been you, though?
A. It was both Mr. McClenahan and Roma Colbert.
A. And it appears that the initial instructions came from
Mr. Miles, and that he suggested that we contact their U.S.
lawyers, Darby & Darby, and Stentap, Mr. Gallafent in Eng-
land, for assistance.
Q. Okay. Is there anything in there that tells you that Miles
told Gowling & Henderson at that time to bill Stentap?
A. No.
Q. No. And you weren't a party to those discussions, so you
can't tell me that he gave those instructions at that time?
A. That's correct.
Q. Right.
A. All I can tell you is that the first instructions came from
him.
Q. Sure, because he got served with—it was his company
that was served with the Statement of Claim.
A. Yes.
Q. Right?
A. Yes. And he instructed us to deal with Gallafent.
Q. And there is nothing in your file to tell you, I gather,
where the actual billing instructions came from, where and
when, and from whom?
A. That is correct.
Q. And you have no specific recollection as to that?
A. We were told to receive our instructions from Mr.
Gallafent.
Q. Okay.
A. And to keep Mr. Miles informed throughout.
Q. Okay.
And later, at page 198:
Q. So I suggest that you really don't know who gave you the
instructions to bill Stentap?
A. I think they probably came from either, jointly from
Miles and Gallafent, or from Gallafent himself.
I am of the view that counsel for the plaintiffs
summary at page 1984 of the November 16, 1988
cross-examination is more likely accurate:
Q. And my question to you is simply this: given that the first
debit note is addressed to Stentap; given that you evidently had
a meeting with Mr. Gallafent; isn't it likely that your instruc
tions to bill Stentap came from Gallafent?
Also, the bills submitted to Stentap indicate that
Gowling & Henderson reported to Gallafent with
copies to Miles. Words such as "to generally
acting on your behalf' (i.e. Gallafent, Letraset
U.K.'s agent) and "receiving your instructions"
seem to indicate who the real client was. The U.K.
company's employee and their patent agent cost a
very substantial sum of money.
On this evidence, all advanced by the plaintiff,
there seems to be little and only technical involve
ment in the proceedings by the defendant com-
pany, other than their receipt of the statement of
claim and instructions to Gowling & Henderson to
keep Miles notified. This evidence seems to point
clearly to Letraset U.K. calling the shots and
paying the bills. There is no evidence that Gowling
& Henderson had a written retainer from the
defendant company, and certainly submitted no
accounts for payment to Letraset Canada Limited.
In all likelihood all instructions to Gowling &
Henderson were given by Gallafent, and although
his presence was not required in New York for a
motion earlier referred to, he was present. Similar
ly, Mr. Scrutton, Letraset U.K. employee, was
very much a part of the case. The "late in the day"
payment by the defendant company to Letraset
U.K. is most suspect coming as it did after the
cross-examination of Mr. Joliffe.
The question, however, still remains—notwith-
standing the payments made by Letraset U.K.,
was the defendant ultimately liable to Gowling &
Henderson for their costs? Certainly Gowling &
Henderson considered the defendant ultimately
liable for their costs. Counsel for the defendant
sums up in his undertaking at page 22 of cross-
examination of R. Scott Joliffe, April 15, 1988:
I guess Mr. Joliffe's answer is that right now, indirectly—his
information is that, indirectly, Letraset Canada has paid for the
costs of this proceeding. We'll endeavour to find some of the
evidence which would support that belief. [Emphasis added.]
And then, in answer to the undertaking, a letter
from Gowling & Henderson dated July 7, 1988
reads in part:
Letraset Canada is paying for the costs of this proceeding. In
cases where Gowling & Henderson incurred expenses or bills,
these were either passed on or charged to Stentap. These
amounts, together with expenses and bills incurred by Stentap
were paid for by Letraset U.K. Letraset U.K. is now billing
Letraset Canada. It ultimately is responsible for the costs of
thisrop ceeding. [Emphasis added.]
Again, at page 148 of the November 16, 1988
cross-examination of R. Scott Joliffe:
THE DEPONENT: They were all eventually dealt with in the
same way. In other words, whether we had paid the amount,
Gallafent or Stentap paid the amount, or Letraset U.K. paid
the amount, it all flowed back eventually to Letraset Canada in
the sense that they are paying either directly or indirectly for
the costs of any litigation in Canada.
This strong view was weakened a bit when the
witness referred to Gallafent as "the client's
representative".
Although damaged somewhat on cross-examina
tion, Mr. Joliffe seemed convinced in his mind that
Miles or Gallafent gave instructions to bill Stentap
(I have already stated that I find counsel for the
plaintiffs comments were more likely).
According to counsel for the defendant, upon
receipt of the statement of claim, it was Gowling
& Henderson that the defendant's representative
called on to represent them, and if Letraset U.K.
refused any billing, Gowling & Henderson would
have looked to the defendant company to meet its
costs. He alleged all evidence pointed to the fact
that the defendant was liable to their solicitors.
Counsel for the defendant suggests that the
defendant was not a passive defendant and points
to the cross-examination of Joliffe, April 18, 1988,
at page 17:
Q. I didn't see any reference to Letraset Canada Limited in
any of the exhibits in the action but let me just ask you this
question and maybe you can answer it in the terms I'm putting.
Apart from Mr. Miles' participation in the discovery proceed
ings, was Letraset Canada Limited involved actively in the trial
preparation?
A. They were involved actively in different parts of the case.
Q. Can you tell me what parts those were and when?
A. The initial part.
Q. Initial meaning pre Miles discovery?
A. Yes. The Miles discovery, various points along the way in
terms of endeavouring to obtain evidence for trial. And just
regularly keeping them informed as to the progress.
Q. I didn't see anything in the Bill of Costs that you're
seeking any disbursements regarding anything that Letraset
Canada did for the trial preparation. Is there anything in there
that I've overlooked?
A. No, there was nothing for them to do because of the
issues that were involved in the action.
There is no evidence of any agreement between
Gowling & Henderson and the defendant whereby
they agreed that the defendant would not be
responsible for costs of litigation and I would agree
that no evidence of such an agreement surfaced.
However, Gowling & Henderson had been direct
ed to invoice Stentap, and did so on numerous
occasions. I expect both Gowling & Henderson
and the defendant company both felt no such
agreement was necessary.
The counsel for the defendant quotes the pro-
thonotary: "In my view when it is established that
solicitors are acting for a company with its knowl
edge, it becomes liable to the solicitor for its
costs". I agree, but has it been established here
that Gowling & Henderson are acting for the
defendant company?
CONCLUSIONS:
I feel on the evidence that this appeal of the
Prothonotary's certificate must be allowed. First,
the Prothonotary was wrong on the facts because
there was no evidence that Gowling & Henderson
acted for the defendant. Indeed, every indication
points to Gowling & Henderson acting for Letra-
set U.K. getting instructions from Letraset U.K.,
getting paid by Letraset U.K., and only informing
the defendant through Miles (this too a direction
from Gallafent). Gowling & Henderson had no
written retainer from the defendant, an unusual
state of affairs for a court case that could result in
costs alone approaching one-half million dollars.
Mr. Joliffe was unable to say of his own knowledge
that Miles directed the bills be sent to Stentap. He
did not couch his affidavit in these terms, "I have
been advised by Mr. McClanahan and Ms. Colbert
and verily believe". As earlier indicated, I feel it is
more likely that Gallafent gave this direction
naming his own company. It is likely that had
Miles given direction he would have suggested
Letraset U.K., not the patent agent.
Second, I feel the prothonotary's decision cannot
be allowed to stand because to do so would result
in an injustice to the appellant.
The direct payment is most suspect, coming as it
did after the issue was raised, and the amount
billed was a "proposed" bill of costs the defendant
was to tax. Also, it is on a party-and-party basis,
not the normal solicitor and client invoice.
The plaintiff would be hard pressed to find an
agreement between Gowling & Henderson and the
defendant company, that Gowling & Henderson
would not look to the defendant company for its
costs—because I'm satisfied that none exists.
What the plaintiff has established, however, is the
fact that no such an agreement was necessary
because invoices (solicitor and client amounts)
were submitted to their real client and paid by
Letraset U.K.
The defendant suggests it was an active, not a
passive defendant. On the evidence, it is just not
so. Other than a minor technical role at the begin
ning, the defendant company was not "active". In
The Law of Costs 2nd ed., Orkin, 1987, para
graphs 204, 209.14, under the heading, "CosTs AS
INDEMNITY":
The fundamental principle of costs as between party and party
is that they are given by the court as an indemnity to the person
entitled to them; they are not imposed as punishment on the
person who must pay them. Party-and-party costs are in effect
damages awarded to the successful litigant as compensation for
the expense to which he has been put by reason of the litigation.
Since costs are an indemnity only, it follows that they cannot be
made a source of profit to a successful party. Thus, if costs have
not been incurred or the party is not liable for any particular
item or fee, he cannot recover them as part of the costs of the
litigation; nor can he by a voluntary payment increase the
burden cast on his opponent. The reason is simple: where the
successful party incurs no pecuniary loss, there is nothing in
respect of which he should be indemnified. [Emphasis added.]
In my view there was no obligation by the
defendant company to compensate Gowling &
Henderson and the late payment can charitably be
described as a "voluntary payment". Had this
most suspect voluntary payment not been made,
the payment to the defendant company of the
taxed bill of costs would have been a profit or a
bonus, because the defendant was not liable to
Gowling & Henderson, never paid Gowling &
Henderson and only a last ditch effort to derail
this appeal found them ready and willing to make
a voluntary payment.
In Simpson v. Local Board of Health of Belle-
ville (1917-18), 41 O.L.R. 320 (H.C.), at pages
321-322, Middleton J. states:
There is a fundamental principle, which has been recognised
in many cases in our Courts, that costs are an indemnity and an
indemnity only, and cannot be made a source of profit to the
party, nor can a party by any voluntary payment he may make
increase the burden cast upon his adversary who has been
ordered to pay his costs.
As put by Draper, C.J., in Jarvis v. Great Western R.W. Co.
(1859), 8 U.C.C.P. 280, 285: "If the client be not liable to pay
costs to his attorney he cannot have judgment to recover those
costs against the opposite party".
This principle has been applied in various ways. For example,
when a solicitor agreed to conduct litigation for his client
looking to another for payment, no costs could be recovered:
Meriden Britannia Co. v. Braden (1896), 17 P.R. 77; Gundry v.
Sainsbury, [1910] 1 K.B. 645 (C.A.) A similar result followed
when the defendant was insured against loss from accident to
workmen and the insurance company undertook the defence of
the action, retaining its own solicitors, who agreed to look to it,
and not to the defendant, for their remuneration: Walker v.
Gurney-Tilden Co. (1899), 19 P.R. 12. This principle has been
invoked to prevent recovery of costs where a solicitor has been
paid by an annual salary: Jarvis v. Great Western R.W.
(supra); Stevenson v. City of Kingston (1980), 31 U.C.C.P.
333; Ottawa Gas Co. v. City of Ottawa (1902), 4 O.L.R. 656, 5
O.L.R. 246; Ponton v. City of Winnipeg (1909), 41 S.C.R. 366.
Evidence in support of the alleged indirect pay
ment, because of an ongoing agreement between
Letraset U.K. and Letraset Canada Limited, is not
credible. If such an agreement existed surely it
would be in writing and available. We heard no
real evidence about the terms of the alleged agree
ment. Consider the transcript of Joliffe cross-
examination, April 15, 1988, at page 20:
Q. Are you telling me that all the costs that are in your Bill
of Costs were ultimately paid for by Letraset Canada Limited?
A. Indirectly.
Q. Indirectly. And how do you know that?
A. In the sense that the way the organization works is that
the subsidiary companies like Letraset Canada pay a yearly
percentage of sales to the Letraset U.K. organization to com
pensate them in part for all legal patent trademark expenses in
connection with—that the U.K. organization incurs on their
behalf.
Q. Is that under some kind of a licence or other written
agreement?
A. I don't recall whether it's a written agreement. It's an
arrangement. It may well be in writing, I don't know.
Later, at page 21, counsel for the plaintiff
expresses what he understands to be the case,
namely:
Since I'm not persuaded through my efforts so far that it paid
in any real sense, the litigation costs, apart from what appears
to have been an annual licence fee which I don't know whether
it's related to the litigation costs or not. It may be related to
something else entirely. It may be related to gross sales or
something like that. That information is going to have to be
before this court at some point to determine the basic issue of
liability or non liability. [Emphasis added.]
Then, at page 22 follows counsel for the defen
dant's undertaking already quoted, but here again:
I guess Mr. Jolliffe's answer is that right now, indirectly—his
information is that, indirectly, Letraset Canada has paid for the
costs of this proceeding. We'll endeavour to find some of the
evidence which would support that belief. [Emphasis added.]
What was the response? On July 7, 1988, in a
letter referred to earlier there is no reference to the
issues raised on page 20, nor to the underlined
portion on page 21, but rather it totally ignores the
alleged agreement between Letraset U.K. and
Letraset Canada Limited about "to look after
expenses in connection with intellectual property"
(see pages 19-20, Q. 102).
There is no evidence any such agreement in fact
existed, and actually the non-answer suggests it
did not. There is only a somewhat self-serving
phrase, "Letraset U.K. is now billing Letraset
Canada. It ultimately is responsible for costs of
this proceeding".
Thus, the voluntary payment fails to sustain the
defendant's opposition to this application and no
weight can be given to the alleged indirect
payment.
The defendant makes the point that when it
moved unsuccessfully to increase its costs, the
plaintiff did not at that time raise the issue of the
defendant's non-entitlement to any costs whatso
ever. Its reason has already been dealt with.
"Once it is established that the solicitors were
acting for a party with its knowledge and assent,
that party became liable to the solicitors for
costs": paragraph 16 of the written argument of
the defendant. Unfortunately, the defendant has
been unable to establish that Gowling & Hender-
son were acting for the defendant with its knowl
edge and consent.
The plaintiff's application is allowed, and the
certificate of J. A. Preston, Esq., Prothonotary,
dated August 1, 1989 is set aside; costs recoverable
by the defendant from the plaintiff to be taxed and
allowed at nil.
The plaintiff is entitled to its costs for this
appeal and the earlier application before the said
Prothonotary.
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.