Date: 20070828
Docket: T-578-05
Citation: 2007
FC 858
Ottawa, Ontario, August 28, 2007
PRESENT: The Honourable Mr. Justice de Montigny
BETWEEN:
CANADIAN
PRIVATE COPYING COLLECTIVE
Plaintiff
and
Z.E.I. MEDIA PLUS INC.
and ZANIN CD/DVD INC.
and JOSEPH LEMME
Respondents
REASONS FOR ORDER AND ORDER
[1]
On
February 26, 2007, Prothonotary Morneau issued a show-cause contempt order
pursuant to Rule 467 of the Federal Courts Rules, SOR/98-106 (the Rules),
that the defendants Z.E.I. Media Plus Inc. (Z.E.I.), Zanin CD/DVD Inc. (Zanin) and
Joseph Lemme were required to appear before a judge of this Court and be
prepared to answer to the allegation that they are guilty of contempt of Court.
[2]
The acts
with which the Defendants were charged were as follows:
In a decision dated December 22, 2006,
the Honourable Mr. Justice de Montigny dismissed the Defendants’ appeal of an
order of Prothonotary Richard Morneau dated June 30, 2006 requiring the
Defendants to produce a more complete and accurate affidavit of documents within
twenty-one (21) days of the order. In contravention of the above Court’s
decisions, the Defendants have deliberately failed to produce a complete and
accurate affidavit of documents within the delay.
HISTORY OF THE PROCEEDING
[3]
In March
2005, the Plaintiff brought an action to recover the payment of private copying
levies allegedly owed by the Defendants on account of their manufacture or
importation into Canada, and sale, of blank audio recording media. These
levies are payable under Part VIII of the Copyright Act, R.S.C. 1985, c.
C-42.
[4]
The
Plaintiff served an affidavit of documents on November 18, 2005, and a
supplement on November 22, 2205. The defendants’ affidavit of documents was
served November 18, 2005. On January 25, 2006, the Collective filed a motion
to compel service of a more complete and accurate affidavit of documents,
pursuant to Rule 223 of the Rules. While not denying that the
defendants will not be subject to pay any levies if the CD-Rs are not
considered blank audio recording media, the Collective argued it could not
determine the exact amount of the Defendants’ liability unless it could
calculate the number of units of blank audio recording media which have been
imported and sold in Canada by each of the Defendants. Z.E.I., Zanin and Mr.
Lemme, who is the president of these companies, have always argued on the other
hand that a large portion of their products, which they call “blank industrial
media”, do not fall within the definition of “blank audio recording medium”,
and that therefore, Z.E.I. and Zanin’s importation and sale of these media
cannot be levied as such. This is the crux of the matter to be determined in
the main action.
[5]
On June
30, 2006, Prothonotary Morneau allowed the Collective’s motion and ordered the
defendants to provide a better affidavit of documents. In doing so, the Prothonotary
endorsed the specific requirements spelled out in the Collective’s motion with
respect to the documents to be disclosed. He also rejected the Defendants’
claim that the issue of liability should be resolved before the plaintiff can
seek recovery of private copying levies, and therefore refused the Defendants’
bifurcation request under Rule 107 of the Rules. Finally, he ordered
the case to be specially managed.
[6]
On appeal
of that decision, I confirmed Prothonotary Morneau’s order on December 22,
2006, and explicitly rejected a request made by the Defendants that they be
given at least 120 days (as opposed to 21 in the Prothonotary’s order) to comply
with the terms of the order as it was upheld on appeal. On that specific
issue, I wrote (at paragraph 67 of my reasons, which can be found at 2006 FC
1546): “As for the further delay requested by the defendants, I find that it is
purely dilatory. The statement of claim was issued more than 18 months ago,
and discovery has yet to begin. The defendants have had ample time to prepare
a complete affidavit of documents.”
[7]
That
decision of mine therefore left intact the order made by Prothonotary Morneau
on June
30, 2006, whereby the Defendants were requested to provide a
more accurate and complete affidavit of documents in the following terms:
1. The Defendants shall file and serve an
accurate and complete Affidavit of Documents within 21 days of this Order.
Specifically, and without limiting the generality of the foregoing, the
Defendants shall disclose in their Affidavit of Documents:
A. all documents relevant to the
importation of blank audio recording media into Canada by each of the Defendants, such as
purchase orders, invoices, shipping documents, customs documents,
correspondence with customs brokers, payment journals, etc. from December 1999
to the present or prior to December 1999 for blank audio recording media sold
in Canada in or after December 1999;
B. all documents relevant to the purchase
of blank audio recording media in Canada by each of the Defendants, such as
purchase orders, invoices, shipping documents, payments journals, etc., from
December 1999 to the present; and
C. documents relevant to the sale of
blank audio recording media in Canada by each of the Defendants,
such as invoices, purchase orders, shipping documents, inventory lists, sales
journals, etc., from December 1999 to the present.
2. The Defendants shall communicate the
documents listed in the new Affidavit of Documents to the Plaintiff and such
documents shall be organized in a way so that the Plaintiff can readily
ascertain the amounts payable and the information required under the private
copying tariffs certified by the Copyright Board.
3. The Plaintiff’s right to cross-examine
the deponent of the new Affidavit of Documents to be served and filed is
reserved.
[8]
Taking the
Christmas recess into account, the delay within which the Defendants were to
comply with the order of Prothonotary Morneau expired on January 29, 2007. On
January 30, 2007, counsel for the Plaintiff sent an email to counsel for the
Defendants, advising him that his clients had failed to comply with my December
22 Order. On January 31, 2007, counsel for the Defendants wrote to counsel for
the Plaintiff, indicating that some documents would be provided soon. However,
there was no mention in the email of a date when the Defendants planned to comply
with the Court’s order.
[9]
On
February 6, 2007, counsel for the Plaintiff wrote to Mr. Justice Hugessen, the
case management judge for this matter, to request that a case management
conference be held as soon as possible to obtain the Defendants’ immediate
compliance with my December 22 Order. Counsel for the Defendants was copied on
that letter.
[10]
On
February 8, 2007, Prothonotary Morneau directed that the Plaintiff should
proceed by way of a motion in order to address the difficulties raised in the
February 6 letter. Following that Direction, the Plaintiff made an ex parte
motion for an order pursuant to Rule 467 of the Rules.
[11]
On
February 16, 2007, counsel for the Defendants wrote to counsel for the
Plaintiff and indicated that their clients were making their best efforts to
abide by the order requesting a better affidavit of documents. They wrote:
With our clients’ decision not to appeal
the decision of Mr. Justice de Montigny dated December 22, 2006, the judicial
gun has been pointed our clients’ head to provide the documents requested
without delay and our clients are employing their best efforts to do so, being
limited however by several factors including our clients’ corporate memory. In
the timeframe concerned by the Order, our clients’ have moved, changed
accounting systems and undergone 2 audits by your client and wells (sic)
as audits by the governmental authorities. Our clients’ ability to satisfy the
Order on a timely basis is further restricted by the magnitude of the task.
Nevertheless, rest assured that, with the
Order being final, our clients fully intend to comply with it in the best
possible delays so that this case may move forward. In so far that the Federal
Court is of the view that, in connection with the matters disputed by the
parties, it is reasonable and relevant that these documents be provided to your
client at this stage of the proceedings, our clients fully intend to do.
[12]
Attached
to that letter were 291 “bundles of documents” representing the Defendants’
purchases from three manufacturers up to the end of 2006. They also indicated
that they anticipated being in a position to disclose “on or before February
20, 2007” their purchases from another manufacturer as well as their clients’
sales. Finally, Mr. Chronopoulos added that he would be out of the country
from February 21, 2007 to March 12, 2007, and that they should be in a position
to disclose their clients’ remaining documents shortly thereafter.
[13]
Pursuant
to that letter, another letter was sent by counsel for the Defendants to
counsel for the Plaintiff on February 20th, 2007, disclosing another
145 bundles of documents representing their purchases from a fourth
manufacturer up to July 25, 2003. Their purchases of these products since then
were to be disclosed upon the return of Mr. Chronopoulos during the week of
March 12th, 2007. The letter added:
Herewith, our clients’ also disclose to
yours two CDs, one containing a copy of Zanin CD/DVC Inc.’s sales invoices 2 to
25564, the other containing a copy of Z.E.I. Media Plus Inc.’s sales invoices
133380 to 193622. Note that with respect to Z.E.I. Media Plus Inc.’s sales
invoices, we are advised that the numbers in several instances skip due to the
networking system in place whereby sales data coming from different sources
before an invoice is issued resulting in the system skipping numbers, the whole
as shall be more fully explained by Z.E.I.’s representatives.
[14]
In a
further letter dated April 18, 2007, counsel for the Defendants disclosed an
additional 1342 bundles of documents in connection with their purchases of CDs
from Canadian or foreign sources. With respect to sales invoices, Mr.
Chronopoulos wrote:
In addition to the forgoing (sic),
since disclosing two CDs in connection with our clients sales with our letter
dated February 20, 2007, our clients have looked further into the issue of
skipped numbers on the said CDs and determined that the number of skipped
invoices on the said CDs do not reflect reality.
We are advised that the program
application that was developed by a programmer-consultant to perform the task
did not do so in a reliable fashion. We are further advised that after
manually reviewing the results and discovering that there was in fact existing
invoices skipped on the said CDs, a new program application was conceived in
order to reliably process the task which, we understand, has been lengthy, time
consuming and is still ongoing.
In the interim, by the presents, our
clients disclose to yours 3CDs representing their partial sales, as follows:
1. Z.E.I. Media Plus Inc.’s sales
invoices no. 133374 to 165000;
2. Norman Manufactoring Inc.’s, a
division of Z.E.I. Media Plus Inc., sales invoices no. 10001 to 10901;
3. PCLink’s, a division of Z.E.I. Media
Plus Inc., sales invoices 32412 to 47000.
CDs containing our clients’ remaining
sales invoices, insofar that our clients still have records of same, shall be
disclosed as soon as possible, as they become available.
[15]
Finally,
on May 4th, 2007, the Defendants served and filed an Amended
Affidavit of Documents along with three CDs completing the disclosure of
Z.E.I.’s sales invoices.
APPLICABLE LEGAL PRINCIPLES
[16]
The common
law principles governing contempt of court have been codified in Rules 466 to
472 of the Rules. To establish contempt, the Plaintiff bears the burden
of establishing, beyond a reasonable doubt, that there is a valid order of the
Court, that the Defendants were aware of that court order, and that they
wilfully disobeyed that order. My colleague Justice Hansen succinctly
summarized the essential elements of contempt in Sherman v. Canada Custom Revenue
Agency, 2006 FC 1121, at para. 11:
A
person who disobeys a court order is guilty of contempt: Rule 466(b) of the Federal
Courts Rules, SOR/2004-283. The party alleging the contempt has the
burden of proving the contempt beyond a reasonable doubt: Rule 469. That
is, all of the essential elements of the offence of contempt must be proved
beyond a reasonable doubt. Where the alleged contempt is the disobedience
of a court order, the essential elements are the existence of the court order,
knowledge of the order by the alleged contemnor, and knowing disobedience of
the order.
See
also: Brilliant Trading Inc. v. Wong, 2005 FC 1214, at
para. 15.
[17]
The person
alleged to have been in contempt is entitled to a hearing, where the evidence
will be presented orally and where he or she will have the opportunity to
present a defence. Since the party alleging contempt has the burden of proving
such contempt, the Defendant does not need to present evidence to the Court.
[18]
While
knowledge of the Court’s Order or process must be proven so that its breach is
committed knowingly or negligently, mens rea, in the sense of a specific
intent to disobey the Court’s process or Order, does not have to be
established; it only comes into play as one factor to be considered when
determining the sanction. As explained by Prothonotary Hargrave in Telus
Mobility v. Telecommunications Workers Union, 2002 FCT 656, (2002),
220 F.T.R. 291, at paragraph 11, “[t]he
wilfulness aspect is present only to exclude casual or accidental and
unintentional acts of disobedience”. The Federal Court of Appeal expanded on
the required state of mind of the accused for the Court to find him or her
guilty of contempt. In Merck and Co. v. Apotex Inc., 2003 FCA
234, (2003), 241 F.T.R. 160, , at paragraph 60, Justice Sexton (for a unanimous
Court) wrote:
Therefore,
the jurisprudence establishes that it is not necessary to show that the alleged
contemnor intended, by doing the action, to "interfere with the orderly
administration of justice or to impair the authority or dignity of the
Court". This is too high a level of intent to require in civil contempt
cases. Rather, it is sufficient to find that the Court's intention was clear
and that the alleged contemnor knowingly committed the prohibited act.
[19]
Once
contempt has been established, Rule 472 of the Rules provides the
various penalties that can be imposed by the judge. It includes imprisonment
for a period of less than five years, the payment of a fine, and costs. My
colleague Justice Snider recently reviewed the relevant case law and summarized
the various criteria that can be taken into account in coming to a sanction:
A
review of the jurisprudence establishes a number of relevant factors to
consider in assessing the penalty for contempt. Overall, the penalty should
reflect the severity of the law and yet be sufficiently moderate to show the
temperance of justice (Cutter (Canada) Ltd. v. Baxter Travenol
Laboratories of Canada Ltd., [1987] 2 F.C. 557, 14 C.P.R. (3d) 449 at 453
(F.C.A.)). Other elements to be considered are the following:
the
fine must not be a mere token amount, but must reflect the ability of the
person found in contempt to pay the fine (Desnoes & Geddes Ltd. v. Hart
Breweries Ltd., 19 C.P.R. (4th) 346 at para. 7 (F.C.T.D.));
whether
the contempt offence is a first offence (R. v. de L’Isle (1994),
56 C.P.R. (3d) 371 at 373 (F.C.A.));
whether
the contemnor has a prior record of ignoring Court process (Desnoes &
Geddes, above at para. 11);
the
presence of any mitigating factors such as good faith or apology (Cutter (Canada) Ltd., above at 454);
any
apology and whether it was timely given (N.M. Paterson & Sons Ltd. v.
St. Lawrence Seaway Management Corp., [2002] F.C.J. No. 1713 at para. 17
(F.C.T.D.));
deterrence,
to ensure that subsequent orders will not be breached (Louis Vuitton S.A. v.
Tokyo-Do Enterprises Inc. (1991), 37 C.P.R. (3d) 8 at 13
(F.C.T.D.));
any
intention to wilfully ignore or disregard the order(s) of the Court (James
Fisher and Sons Plc v. Pegasus Lines Ltd. S.A., [2002] F.C.J. No. 865 at para.
17 (F.C.T.D.)); and
whether
the order has subsequently been found to be invalid (Coca-Cola Ltd. v.
Pardhan (2000), 5 C.P.R. (4th) 333 at para. 6 (F.C.T.D.), aff’d
(2003), 23 C.P.R. (4th) 173 (F.C.A.)).
Wanderingspirit v. Marie, 2006 FC 1420 at para. 4
FINDINGS OF FACT
[20]
There is
no issue as to the existence of a valid order (that of Prothonotary Morneau
dated June 30, 2006, confirmed on appeal at 2006 FC 1546), nor as to the fact
that the Defendants knew of that Order. At the hearing, Mr. Segal admitted
that his clients received a copy of my decision during the Christmas holidays.
In any event, it appears that my decision was faxed by the Court to both
counsel for the Plaintiff and counsel for the Defendants.
[21]
The only
question to be resolved is whether the Defendants knowingly or negligently
disregarded the Court order. Counsel for the Plaintiff argued that the
Defendants have disobeyed the Court order first by not providing a further and
better affidavit of documents within the timeframe set out in Prothonotary
Morneau’s decision, as confirmed by my December 22, 2006 decision, and
secondly, that the documents they have provided are not all relevant and were
more or less “dumped” on the Plaintiff, leaving it to the Collective to sort
them out and to determine what was relevant and what was not for the purpose of
resolving the dispute between the parties.
[22]
Counsel
for the Defendants, on the other hand, contended that their clients did their
best to comply with the Court order but could not do so within a period of 21
days, because it was a massive undertaking to retrieve all the materials
referred to in Prothonotory Morneau’s order and also because they did not have
the technical capacity first to print all the sales invoices for those years
and then to discriminate between the information related to “blank audio
recording media” and the information that was not so related. Counsel for the
Defendants called four witnesses in support of that assertion.
[23]
The first
witness, Mr. Charles Thibodeau, has worked for the Defendants since 2004 and is
Vice President (Finance) for the Sogelem group, of which the defendant
companies are part. In this capacity, he deals with everything ranging from employees’
wages, accounting and book-keeping, human resources and so on. On the request
of Mr. Lemme, he did try his best to extract from the computer all the sales
invoices, only to realise that the software used by the companies did not allow
him to do so (he could only extract sales invoices one by one). He then went
to see a computer consultant, Mr. Eric Tremblay, to develop a program capable of
retrieving all the sales invoices from the computer and printing them in bulk,
as opposed to one by one. On cross-examination, Mr. Thibodeau confirmed that
he was never asked to retrieve all the sales invoices before January of 2007.
He also indicated that no attempt was made to retrieve the information in the
sales invoices by code of products, and did not know if it would have been
possible.
[24]
The second
witness, Mr. Eric Tremblay, is a computer programmer who works as a consultant
for the Defendant companies. He tried for almost a month to develop a program
application that would export all Defendant companies’ sales records, to no
avail. In fact, the application that he came up with provided unreliable and
incomplete results, and this is what prompted Mr. Thibodeau to turn to those
programmers who had developed the computer software used by the Defendant
companies. On cross-examination, he also confirmed that he was never asked to
retrieve the information by product codes, but that it is a normal feature of
most invoicing software programs.
[25]
The third
witness was Mrs. Louise Lauzon, who works as executive assistant to Mr. Lemme.
She testified at the hearing that the Defendants’ purchase records from
suppliers exist in paper form, and that she worked almost full-time for three
weeks to sift through these records and disclose the Defendants’ purchases of
relevant media to the exclusion of other products. On cross-examination, she mentioned
that she learned of my decision (confirming Prothonotary Morneau’s Order) on
January 5, 2007 from Mr. Lemme himself, but that she was allowed to take her
vacation until January 16. She also said that nobody else went through the boxes
of purchase records until her return to work, as she was best able to do that
work.
[26]
Finally,
Mr. Lemme testified on his own behalf and as President of the two Defendant
companies. He acknowledged that he was on business trips for most of the
period during which a further and more complete affidavit of documents was to
be provided, and that he did not involve himself in the process of complying
with this order beyond giving directions to Mr. Thibodeau and Mrs. Lauzon. He
also said that nothing was done between June and December of 2006, because he
was confident of winning the appeal against Prothonotary Morneau’s Order.
[27]
On the
basis of that evidence, I am of the view that the Defendants are in contempt of
the Court order. Not only have they not provided the Plaintiff with a better
and more complete affidavit of documents within the timeframe ordered by
Prothonotary Morneau and confirmed in my December 22, 2007 decision, but they
have produced a significant portion of documents that are not relevant to the
resolution of the dispute between the parties.
[28]
The
evidence shows that the Defendants have not taken the Order of Prothonotary
Morneau as seriously as they should have. My decision was rendered December
22, 2006, yet they only started implementing it in early January. As for the
purchase orders, Mrs. Lauzon really put herself to the task of collecting and
selecting the relevant material upon her return from vacation, on the 16th
of January, 2007. The evidence that she was the only person who could properly
perform that task is far from convincing and at best debatable. As for the
sales invoices, there was no attempt to retrieve the information by product
codes, and no satisfying explanation as to why the software used by the Defendant
companies does not have the capability of retrieving all the documents in a
quick and efficient way. In any event, the prudent course of action would have
been to start the exercise as soon as Prothonotary Morneau made his order, or
at least to make sure that it could be all completed within 21 days.
[29]
Not only
was the transmission of documents late (the last CDs containing sales invoices
were sent to the Plaintiff on May 4, 2007, some three months after the deadline
set out by the Court), but it was not in compliance with the terms of the
Order. Paragraph 2 of the Prothonotary’s Order stipulates that the “documents
shall be organized in such a way that the Plaintiff can readily ascertain the
amounts payable and the information required under the private copying tariffs”.
This is consistent with the purpose of disclosure in advance of trial, which is
to assist in the determination of the truth of matters in issue, to narrow
these issues, and to expedite trial of the real issues that are outstanding (Apotex
Inc. v. Wellcome Foundation Ltd. (1993), 51 C.P.R. (3d) 305, 69
F.T.R. 161 (F.C.)).
[30]
This
obligation imposed on the Defendants should have been no surprise to them, as
section 9 of the Private Copying Tariff, 1999-2000 (as amended) holds
that “[e]very manufacturer or importer shall keep and preserve (…) records from
which CPCC can readily ascertain the amounts payable and the information
required under this tariff”. This purpose is defeated by the fact that, at
least for the sales invoices, there was no selection made. If, as was
contended by some witnesses, only Mr. Lemme, Mrs. Lauzon and maybe a limited
number of employees of the Defendants are able to make a distinction between
what is a CD and what is not because the description on the invoice is not
always clear, one can just imagine how much more complicated it will be for the
Plaintiff to ascertain the exact nature of these products listed on the sales
invoices. In any event, Plaintiff should not bear the significant costs
associated with sorting through piles of invoices to determine which ones are
for the sale of blank audio recording media and which ones are not, especially
given the high admitted percentage of irrelevant documents contained therein.
[31]
The
Defendants also argued that, had their argument on bifurcation carried the day,
they would not have had to go through this exercise immediately. But this is a
fallacious argument. Whether or not they are to be successful in advancing
their thesis that blank industrial media (i.e., those that are not sold to
individual consumers for the purpose of reproducing sound recordings) are not
covered by the Tariff, the Defendants will at some point have to make a
selection and differentiate between their various products. They have never
argued, after all, that all of their CDs and CD-Rs are not leviable. The
number of documents they may have to produce may be more limited, but they will
still have to undertake some kind of sorting out.
[32]
For all of
these reasons, I find the Defendants to be in contempt of Prothonotary
Morneau’s Order. As for the sanction, Plaintiff suggests a fine of $2,500 per
defendant, to ensure that a clear message is sent and that future Orders of the
Court are complied with. In the specific circumstances of this case, I agree
with that proposal and consider, in light of the criteria developed in the case
law and summarised earlier in these reasons, that such a fine is appropriate
and just. The purpose is not to drive the Defendants out of business, but to
make sure that Court orders are taken seriously. In coming to that conclusion,
I take note of the fact that Mr. Lemme took some steps to abide by the Court Order,
and seems to realize the importance of an orderly Court process. It is to be
hoped that the present condemnation will further induce him to get more
personally involved in the fulfillment of future Court orders.
[33]
As for
costs, the normal practice is to award them on a solicitor-client basis to the
party seeking enforcement of the Court Order. I see no reason to detract from
this practice in the present case. Accordingly, the Defendants shall pay to
the Plaintiff its reasonable costs in respect of the show cause hearing and the
proceedings before this Court.
ORDER
THIS COURT ORDERS that:
-
The
Defendants Z.E.I. Media Plus Inc., Zanin CD/DVD Inc. and Joseph Lemme are found
to have been in contempt of the Order of Prothonotary Morneau dated June 30,
2006.
-
The
Defendants Z.E.I. Media Plus Inc., Zanin CD/DVD Inc. and Joseph Lemme shall
each pay a fine in the amount of $2,500 within one month of the date of this
order.
-
The
Defendants Z.E.I. Media Plus Inc., Zanin CD/DVD Inc. and Joseph Lemme shall,
jointly and severally, pay to the Plaintiff its reasonable costs in respect of
the show cause hearing and the proceedings before this Court on April 23,
2007. These costs are to be assessed on a solicitor-client basis and are to be
paid within one month of the assessment of such costs.
"Yves
de Montigny"
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