A-490-89
Letraset Canada Limited (Appellant)
v.
W.H. Brady (Respondent)
INDEXED AS: W.H. BRADY Co. v. LETRASET CANADA LTD.
(C.A.)
Court of Appeal, Marceau, MacGuigan and
Décary JJ.A.—Ottawa, December 12 and 21,
1990.
Practice — Costs — Entitlement to costs based on party's
liability to solicitor — Liability of party to solicitor not
affected by arrangement third party assume expense of
litigation.
Practice — Judgments and orders — Reversal or variation
Judge reviewing prothonotary's taxation — Judge empow
ered only to make order prothonotary could make — Pro-
thonotary cannot make order inconsistent with Court decision
— Nil taxation inconsistent with Trial Judge's award of costs
to successful party — Remedy to move under R. 1733 for
variation of judgment on ground of matter subsequently
discovered.
The appellant was successful in its defense, in the principal
action, against a claim for patent infringement. The trial ended
with the claim being dismissed, and the counter-claim allowed.
The Trial Judge awarded appellant party and party costs. On
the taxation, the Prothonotary rejected the respondent's general
objection to taxation, and taxed and awarded costs at
$64,051.94.
The respondent moved under Rule 346(2) for a review by the
Court, not as to the amount, but as to the appellant's entitle
ment to costs. Before the Motions Judge, the respondent raised
the same objection it had before the Prothonotary, namely that
the appellant had incurred no liability for costs towards its own
solicitors. This was based on an allegation that the appellant's
parent company, Letraset U.K., had directed the conduct of the
litigation and paid the solicitors' bills. The Motions Judge set
aside the Prothonotary's certificate and ordered that the costs
of the appellant be taxed and allowed at nil. This is an appeal
from that order.
Held, the appeal should be allowed, and the certificate of the
Prothonotary reinstated.
Under Rule 346(2) a judge sitting in review of a taxation can
only make an order which the taxing officer could make. Rule
336(1)(b)(i) prevents a prothonotary from making any order
inconsistent with an order previously made by the Court or a
judge. Here, a taxation of nil is inconsistent with the Trial
Judge's order that costs be awarded and taxed. The respond
ent's remedy, rather, was under Rule 1733, which provides for
an application to reverse or vary an order on the grounds, inter
alia, of new evidence.
A successful party litigant can recover costs from the other
party only if it is liable to pay its solicitors. That liability is the
legal obligation to pay for the services rendered by the solicitor,
which can be enforced by the solicitor against the party. The
client's obligation is not affected by the undertaking of a third
party, either to the party litigant or to the solicitors, to assume
the expense of the suit — any such arrangement is res inter
alios acta. Here, the fact that the parent company may have
directed the action and paid the bills does not displace the
solicitors' legal entitlement to look to the appellant for their
fees.
STATUTES AND REGULATIONS JUDICIALLY
CONSI DERED
Federal Court Rules, C.R.C., c. 663, RR. 336(1)(6)(i),
346(2) (as am. by SOR/87-221, s. 3), 1733.
CASES JUDICIALLY CONSIDERED
REVERSED:
W.H. Brady Co. v. Letraset Canada Ltd., [1990] 1 F.C.
51; (1989), 28 C.P.R. (3d) 167; 30 F.T.R. 153 (T.D.)
revg W.H. Brady Co. v. Letraset Canada Ltd., [1990] 1
F.C. 46 (T.D.).
DISTINGUISHED:
Simpson v. Local Board of Health of Belleville (1917),
41 O.L.R. 320 (H.C.).
REFERRED TO:
W.H. Brady Co. v. Letraset Canada Ltd. (1985), 7
C.P.R. (3d) 82; 7 C.I.P.R. 1; Adams v. London Improved
Motor Coach Builders, [1921] 1 K.B. 495 (C.A.);
Armand v. Carr, [1927] S.C.R. 348; Broderick v. Fierro,
[1933] 1 D.L.R. 476 (Ont. S.C.).
COUNSEL:
Gordon F. Henderson, Q.C., and Neil R. Bel-
more for appellant.
A. David Morrow for respondent.
SOLICITORS:
Gowling, Strathy & Henderson, Ottawa, for
appellant.
Smart & Biggar, Ottawa, for respondent.
The following are the reasons for judgment
rendered in English by
MARCEAU J.A.: This appeal is taken against a
decision of a judge of the Trial Division [[1990] 1
F.C. 51] who, on a motion for review made pursu
ant to Rule 346(2) [Federal Court Rules, C.R.C.,
c. 663 (as am. by SOR/87-221, s. 3)] as it existed
in 1989,' set aside a certificate of costs that had
been issued by the Prothonotary [[1990] 1 F.C. 46
(T.D.)].
The parties had been involved in a long litiga
tion involving a patent. The appellant, Letraset
Canada Limited, had successfully defended the
infringement action brought against it and, by
counterclaim, succeeded in invalidating the
respondent's patent. In the judgment [(1985), 7
C.P.R. (3d) 82 (F.C.T.D.)], the appellant had
been awarded party and party costs.
At the taxation hearing before the Prothonotary,
the respondent, through its counsel, raised a gener
al objection to the taxation of costs, an objection
said to be based on information gathered in the
cross-examination of the deponent on the affidavit
filed in support of counsel for the appellant's bill of
costs. It was submitted that, even though the
appellant had been awarded costs in the action, no
costs should be forthcoming since it was not the
appellant itself but rather its parent company,
Letraset U.K., which had in fact directed the
conduct of the litigation and paid all of the
expenses generated by it. The objection was reject
ed by the Prothonotary who proceeded to tax the
appellant's costs in the amount of $64,051.94. The
respondent asked for a review of the taxation, not
as to the actual amount awarded, which it did not
dispute, but as to the denial of its general objec
tion. The Motions Judge agreed with the respond
' When it read:
Rule 346... .
(2) Costs shall be taxed by
(a) a prothonotary, each of whom is a taxing officer, or
(b) an officer of the Registry designated by order of the
Court as a taxing officer,
subject to review by the Court on application, within 14 days
after a taxation, of any party dissatisfied with the taxation.
ent's contention and, setting aside the Prothono-
tary's certificate, declared [at page 63] that the
"costs recoverable by the defendant from the
plaintiff [were] to be taxed and allowed at nil."
This is the decision here under appeal.
There is a preliminary question not raised. by
either counsel but which the Court cannot avoid
addressing, it being of a jurisdictional nature: was
the Prothonotary empowered to give effect to this
contention that the appellant was not entitled to
costs because it was its parent company which had
directed the proceedings and paid the solicitors'
bills? The question here is vital because, in allow
ing the motion for review, the judge could only
give the decision that the Prothonotary could him
self render. I will simply say here that it appears to
me difficult to give the question a positive answer
in view of the provisions of Rule 336(1) of the
Rules of the Court and of the Directions issued
pursuant to it. It is in these provisions that the
powers of the prothonotaries are defined, and they
read in part as follows:
Rule 336. (1) Notwithstanding Rule 326(1), a prothonotary
shall have power
(a) to do anything that he is by these Rules authorized to do,
(b) if he is satisfied that all parties affected have consented
thereto, to make any order that the Trial Division may make
other than
(i) an order that is inconsistent with an order previously
made by the Court or a judge, or
(g) to dispose of any interlocutory application assigned to
him specially or to any prothonotary, by special or general
direction of the Chief Justice or of the Associate Chief
Justice, [Emphasis added.]
General Direction under
Rule 336(1)(g)
Under Rule 336(1)(g) the Senior Prothonotary and the
Associate Senior Prothonotary are empowered to hear and
dispose of any interlocutory application in the Trial Division
other than the following, that is to say:
5. any application to vary or discharge an order of a Judge of
the Court. [Emphasis added.]
It is clear to me that the contention of the
respondent, as it attacked the very entitlement of
the appellant to any costs, was seeking a decision
which was inconsistent with an order previously
made by the Court, namely the judgment in the
action, and as such was beyond the powers of the
Prothonotary. The respondent argues that the facts
giving rise to the objection only became known to
it after judgment had been rendered in the action,
but that, of course, could not be a source of
authority for the Prothonotary. And, in any event,
there is a special Rule which allows a party to seek
a variation of a judgment upon the ground of
matter subsequently discovered, Rule 1733, which
provides:
Rule 1733. A party entitled to maintain an action for the
reversal or variation of a judgment or order upon the ground of
matter arising subsequent to the making thereof or subsequent
ly discovered, or to impeach a judgment or order on the ground
of fraud, may make an application in the action or other
proceeding in which such judgment or order was delivered or
made for the relief claimed.
The respondent also argues that the judge who was
assigned to hear the motion to review and who
made the impugned order was the one who had
presided over the trial and had signed the judg
ment. Here again there is a short answer: the
coincidence could not extend the judge's options on
such a motion to review. Besides, it would be
wrong to see the difficulty as limited to a question
of procedure in the narrow sense of the word: on a
motion to reconsider under Rule 1733, a new
hearing is ordered and evidence is adduced before
the judge in the normal manner and by all the
parties concerned; whereas on a simple motion to
review, like the one here involved, the only ma
terial that can be relied on is that which was
before the Prothonotary, in this case the affidavit
filed in support of the bill of costs and the tran
script of the cross-examination of the deponent
thereon, quite tenuous as a source of evidence.
The jurisdiction of the Prothonotary, and there
fore of the judge, to give effect to the objection by
rendering the decision here under attack appears
to me extremely doubtful. I hesitate, however, to
dispose of the appeal on that basis: on the one
hand, this jurisdictional issue may have been
incompletely canvassed, counsel having become
aware of it only at the hearing, and no prior cases,
even those where a similar objection as to entitle-
ment had been made only before the taxing officer,
having even alluded to it; on the other hand, the
most sensitive aspect is, as I just said, in relation to
the evidence, and I happen to believe that the
disposition of the substantive issue in this case does
not depend on the weight of the evidence adduced
as much as it could in other cases. So, I will deal
with the substantive issue.
The objection of the respondent, as upheld by
the Motions Judge, is based on a reasoning made
up of two propositions. Counsel first repeats the
well established jurisprudential rule that a success
ful party litigant can recover costs from the other
party in a particular case only if he is liable to pay
them to his solicitors, and, like the Motions Judge
in his judgment, he refers as authority for that
first general proposition to the old case of Simpson
v. Local Board of Health of Belleville (1917), 41
O.L.R. 320 (H.C.). Counsel then looks to the
particular facts of the present case and argues that
the appellant here was not liable for costs, the
evidence having established that it was its parent
company which had, in fact, taken direction of the
proceedings and assumed payment of the solici
tors' fees. For counsel, the conclusion that the
appellant is not entitled to costs follows irresist
ibly.
It will readily be seen that there is a very basic
condition for the conclusion to follow, as suggested
by counsel: the liability referred to must be the
same in the two propositions. This, in my judg
ment, is simply not the case.
The general proposition that, to be entitled to
recover costs, a litigant must be liable to pay them
to his solicitors is based on the principle that party
and party costs are given as an indemnity, as a
compensation for the expense to which a successful
litigant has been put by reason of the litigation.
The payment of costs to a party is not to be a gift.
It would be unacceptable to let a party collect
costs which, for the most part, relate to profes
sional services — if the solicitor who has rendered
the services is not legally in a position to claim
them from him. The liability required to satisfy
the principle involved is easy to define: it is the
legal obligation to pay for the services rendered to
him which a litigant assumes towards his solicitor
and which can be enforced by the solicitor at any
time. Is this the type of liability that counsel refers
to when he claims that the appellant was not here
liable for costs? Obviously not.
It is clear that the solicitors here have acted for
the appellant in the proceedings. There are equivo
cal comments in that respect in the reasons of the
Motions Judge, but counsel for the respondent has
readily acknowledged that they should be over
looked. One would wonder what the solicitors were
doing if they were not representing the defendant
in the action, and no one has suggested that they
could have become so involved without the knowl
edge and the assent of the defendant. On the other
hand, it is equally clear that there has never been
any agreement between the appellant and its
solicitors which could have the effect of limiting
the right of the latter to claim their normal due
from the former. The statement of the Motions
Judge on this point is quite unequivocal (at page
60):
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.
It is therefore undeniable that the solicitors have
acquired a right to be paid by the appellant for
their professional services and can enforce that
right at any time by an action in court which could
never be defeated by whatever agreement the
appellant — or the solicitors themselves for that
matter — may have entered into with a third party
(res inter alios acta). The liability of the appellant
towards its solicitors within the meaning of the
principle certainly exists.
When counsel claims that the appellant was not
liable for costs, he means that the appellant was
not supposed to finally assume the expense in
practice, because it could count on another party
to pay the debt or it had the right to recover from
or be indemnified by that other party if it was
forced to pay it itself. Liability in that sense is not
the liability within the meaning of the principle; its
absence, in my view, cannot disentitle a successful
party from its right to party and party costs (see
Adams v. London Improved Motor Coach Build-
ers, [1921] 1 K.B. 495 (C.A.); Armand v. Carr,
[1927] S.C.R. 348, at page 350; Broderick v.
Fierro, [1933] 1 D.L.R. 476 (Ont. S.C.)). The fact
that the U.K. company here actually called the
shots and paid the bills is, as I see it, totally
irrelevant.
The objection of the respondent, in my judg
ment, was based on a misconception of the liability
required to entitle a party to its costs. It was
clearly not founded. The appeal should therefore
be granted, the impugned order of the Trial Divi
sion set aside and the certificate of the Prothono-
tary dated August 1, 1989 reinstated.
MACGUIGAN J.A.: I concur.
DÉCARY J.A.: I concur.
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.