Two decisions in the Federal Court illustrate the advantages and disadvantages of proceeding by way of application in the Federal Court.
Generally, a party has a choice to assert its claims by way of action or an application.
An application allows the party instituting the proceeding to submit its evidence at the beginning by way of affidavit and requires the respondent to do likewise. Neither party can examine the other for discovery. In theory at least, a hearing to determine the matters in issue can be arrived at more quickly and directly than in an action.
The downside of an application is that the party instituting the proceeding must be ready with its evidence at the outset. It cannot depend on getting further evidence from the other party by way of discovery. The other party may adduce no evidence or little evidence. The applicant essentially must depend on its evidence alone when it comes to the hearing. The applicant cannot expect to make its case out of the mouth of the respondent.
The Facts
The proceeding in issue was begun by issuing a notice of application. The applicants assert various trademark claims against the respondent including conduct contrary to the Trademarks Act. The relief sought includes damages or alternatively, an accounting of profits.
The parties have served their affidavit evidence as required by the Federal Courts Rules.
The respondent served two affidavits: one from an individual described as a “front desk receptionist” of the respondent; and the other from an individual described as a trademark searcher with respondent’s counsel. No cross-examinations were sought by the applicants, or conducted, on those affidavits.
The First Decision - iFIT Inc. v. Safe Sweat Fitness Ltd., 2023 FC 1747 (CanLII)
In response to this evidence the applicants said that neither affiant were key players in the matters at issue in the proceeding. The applicants asserted that the respondent was attempting to shield its evidence from effective cross-examination by relying on affidavits of people with no personal knowledge of the issues. It was also asserted that the respondent had to provide financial information relating to the claim and the accounting of profits sought.
The applicants brought a motion before the case management Judge assigned to the proceeding for production of the financial documents relevant to the claim for the accounting of profits and a subpoena requiring the attendance of the CEO or Vice president of the respondent.
The case management Judge dismissed the motion. He said applicants had the choice to proceed by action or application. They chose to proceed by way of application. There are certain benefits of proceeding by way of application. However, on an application the respondent does not have to serve any affidavit evidence, and if the respondent does, can decide what affidavit evidence to serve and from whom. If the respondent serves affidavit evidence, the applicant can cross-examine on it and require the affiant to produce for inspection at the cross-examination relevant documents in that person’s possession, power or control. However, a party having chosen to proceed by application does not have the opportunity to have something approaching action like documentary production obligations imposed on the respondent –, production of all relevant financial documents – simply because it is not happy with the respondent’s choice of affiants and the nature of their affidavit evidence.
The Second Decision- iFit Inc v. Safe Sweat Fitness Ltd., 2024 FC 1406 (CanLII)
Shortly after the first decision the applicants brought a motion before the case management Judge for an order converting the Application into an action.
The Judge confirmed that it was possible to convert an application into an action but the decision to do so is subject to the court’s discretion. The factors to be considered will be different depending on whether the motion is brought by the applicant or the respondent.
The Judge emphasized that the downside of an application is that the party instituting the proceeding must be ready with its evidence at the outset. It cannot depend on getting further evidence from the other party by way of discovery. The other party may adduce no evidence or little evidence. The applicant essentially must depend on its evidence alone when it comes to trial.
The Judge refused to convert the application into an action. He said in this case it would be inappropriate to permit the applicants, who chose to proceed by way of application, and then found themselves in a situation where they do not have the evidence needed to make out certain aspects of their case through no fault of the respondent, to then convert the proceeding into an action so the applicants can avail themselves of the broad documentary and oral discovery rights and obligations under the Federal Court rules.
Comment
The message to potential litigants in the Federal Court is clear that care must be exercised when choosing to bring an application. But this case seems unusual since most respondents will normally file extensive evidence to support their position concerning “liability”.
With respect to an accounting of profits if the applicant includes its estimate of the extent of the infringing sales in its materials the respondent will be practically compelled to set out its position unless the extent of infringement was more than asserted by the applicant. Generally, the onus is on the respondent to prove its costs.
Finally, if the issues concerning the accounting of profits are complex the Judge hearing the application may order a reference and give directions regarding the conduct of the reference.
If you have questions, please contact me at mckeown@gsnh.com
Goldman Sloan Nash & Haber LLP 480 University Avenue, Suite 1600 Toronto, Ontario M5G 1V2 Direct Line: (416) 597-3371 Fax: (416) 597-3370 Email: mckeown@gsnh.com
These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.
A version of this article originally appeared in the Law360 Canada published by LexisNexis Canada Inc.
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