Angel Ronan™ is entitled to damages and an injunction for passing off for every hour the fraudsters earned pretending to be sellers of Angel Ronan™ Services and for interrupting and intercepting business emails. Seiko Time Canada Ltd. v. Consumers Distributing Co. Ltd., 1980 CanLII 1765 (ON SC). Click here.
Seiko Time Canada Ltd. v. Consumers Distributing Co. Ltd., 1980 CanLII 1765 (ON SC)
Seiko Time Canada Ltd. v. Consumers Distributing Co. Ltd.
29 O.R. (2D) 221
112 D.L.R. (3d) 500
ONTARIO
HIGH COURT OF JUSTICE
J. HOLLAND, J.
JUNE 5, 1980.
* An appeal and a cross-appeal from the following decision of J. Holland J. to the Ontario Court of Appeal were dismissed December 9, 1981. See (1981), 34 O.R. (2d) 767.
Torts -- Passing-off -- Plaintiff exclusive distributor of brand of watches in Canada -- Authorizing stores to be dealers -- Defendant store not an authorized dealer -- Advertising and selling same brand of watches obtained from source other than plaintiff -- Whether plaintiff entitled to injunction and damages for passing-off.
The plaintiff was the exclusive distributor of a brand of watches in Canada, and authorized certain stores to be dealers. The defendant store was not such an authorized dealer. Nevertheless, the defendant advertised and sold watches of the particular brand, which it obtained from a source other than the plaintiff. The plaintiff brought an action against the defendant seeking, inter alia, a permanent injunction restraining the defendant from advertising or selling the watches in Canada and damages for passing-off. Held, there should be judgment for the plaintiff.
The product of the plaintiff was comprised of (1) the watch itself boxed with an instructional booklet, (2) the point-of- sale service, (3) the warranty properly filled out by an authorized dealer, and (4) the after-sale service. This was what the buyer of the product in Canada was entitled to obtain. It was this product with all its components that developed the reputation of the watch in Canada and the goodwill that thereby arose between the plaintiff, its dealers and the consuming public. The defendant was not advertising or selling this product as it had no sales personnel knowledgeable about this watch, had no point-of-sale service, could not deliver a valid warranty, and offered no after-sale service. The product advertised and sold by the defendant was a different product. The defendant was not an authorized dealer and could not complete the warranty booklet. Confusion in the eyes of the public was therefore likely.
The common law tort of passing-off is one which is continually enlarging and changing to meet new situations. That flexibility is one of the great advantages enjoyed by the common law over statute law. Passing-off is established because (1) by holding out, as it had in its catalogue and stores, that the watches being advertised or sold by it were plaintiff's brand of watches (i.e., including all the components which have become attached to that name) the defendant misrepresented the product it was selling to the consuming public; (2) this misrepresentation was made by the defendant in the course of its trade; (3) the misrepresentation was made to its prospective customers or ultimate consumers of the goods supplied by it; (4) this conduct was calculated to injure the business or goodwill of the plaintiff in the sense that such injury was a reasonably foreseeable consequence; and (5) actual damage to the business and goodwill of the plaintiff had accrued and would probably continue.
Constitutional law -- Validity of legislation -- Section 7 of Trade Marks Act, R.S.C. 1970, c. T-10, ultra vires Parliament.
Constitutional law -- Distribution of legislative authority -- Property and civil rights -- Provision in federal legislation purporting to give civil cause of action with respect to damage suffered by reason of conduct contrary to other provisions of legislation -- Provision ultra vires Parliament as invasion of exclusive provincial power to legislate with respect to property and civil rights -- Combines Investigation Act, R.S.C. 1970, c. C-23, s. 31.1, as added by 1974-75-76 (Can.), c. 76.
ACTION for a permanent injunction and damages.
[A. G. Spalding & Bros. v. A. W. Gamage Ltd. (1915), 32 R.P.C. 273; Erven Warnink BV et al. v. J. Townend & Sons (Hull) Ltd. et al., [1979] 2 All E.R. 927, apld] [MacDonald et al. v. Vapor Canada Ltd. et al., 1976 CanLII 181 (SCC), [1977] 2 S.C.R. 134, 66 D.L.R. (3d) 1, 22 C.P.R. (2d) 1, 7 N.R. 477, folld] [MacDonald et al. v. Vapor Canada Ltd. et al., [1977] 2 S.C.R. 134, 66 D.L.R. (3d) 1, 22 C.P.R. (2d) 1, 7 N.R. 477, folld; Rocois Construction Inc. v. Quebec Ready Mix Inc. et al. (1979), 1979 CanLII 2576 (FC), 105 D.L.R. (3d) 15, 51 C.C.C. (2d) 516, [1980] 1 F.C. 184, apld; R. v. Hoffmann-La Roche Ltd. (1980), 1980 CanLII 1615 (ON SC), 28 O.R. (2d) 164, 109 D.L.R. (3d) 5, 14 C.R. (3d) 289, distd]
J. M. M. Roland and B. G. Morgan, for plaintiff.
D. S. Affleck, Q.C., and R. S. Sutin, for defendant.
J. HOLLAND, J.:-- The plaintiff (Seiko) is the exclusive distributor of Seiko watches in Canada and brings this action claiming against Consumers Distributing Company Limited (Consumers) for the following relief.
1. A permanent injunction from advertising or selling Seiko watches in Canada
Here it is the plaintiff's contention that the product marketed in Canada by the plaintiff under the "Seiko" name is a watch bearing the Seiko name, warranty and Seiko service, and that this has been established over a period of years. On the other hand, it is said, the defendant is advertising and selling a different product, being a watch bearing the Seiko name but lacking the Seiko point-of-sale service, warranty and after-sale service. In this way, the plaintiff submits that the public is being misled and confused, and that this is accordingly "passing-off," both at common law and under s. 7 of the Trade Marks Act, R.S.C. 1970, c. T-10.
2. A permanent injunction restraining the defendant from holding itself out as an authorized Seiko dealer of the plaintiff by advertising and selling "Seiko" watches and as internationally guaranteed
In this the plaintiff points to the defendant's advertising and sales catalogues, the sales practice including the signing of warranty forms and the lack of any point-of-sale or after- sale servicing facilities.
3. Damages at common law and under s. 31.1 of the Combines Investigation Act, R.S.C. 1970, c. C-23
The defendant opposes Nos. 1 and 3 vigorously asserting that both s. 7 of the Trade Marks Act and s. 31.1 [enacted 1974-75-76, c. 76, s. 12] of the Combines Investigation Act are ultra vires the Parliament of Canada, that the requirements of the common law tort of "passing-off" do not exist in these circumstances, and that the plaintiff has not established a basis for damages or any damage suffered by it.
As to No. 2 the defendant, at the opening of this trial, advised that it was prepared to consent to a permanent injunction in the wording of s. 16(b) of the statement of claim. Although the parties did not agree that such an injunction be then issued, the plaintiff wishing to have this left to be judicially determined, no real opposition to this head of relief was presented.
The background giving rise to this action may now be set out and in doing so I comment that the facts here are largely, perhaps entirely, undisputed. I should note here that the defendant elected to call no evidence. The evidence adduced by the plaintiff was through a representative of K. Hattori, representatives of the plaintiff company, authorized dealers and from a marketing surveying group. The plaintiff also "read in" parts of the discovery of an officer of the defendant.
K. Hattori & Co. Ltd. of Tokyo, Japan (K. Hattori), is said to be the world's largest manufacturer of watches. It has been in the business for over 100 years. It manufactures and markets other products as well -- clocks, calculators and many others. It is the owner of the name "Seiko" which is registered in Canada and elsewhere in the world as a trade mark and trade name. The manufacturing of watches under this name is done by two Japanese companies under contract to K. Hattori. All manufacturing, however, is not done in Japan as these companies do have plants in other countries. In Japan, K. Hattori markets these products directly to retailers. In other areas it appoints exclusive distributors who in turn have the exclusive right to appoint authorized dealers.
The warranty which accompanies every watch sold is printed in Japan on instructions of K. Hattori and the wording is solely the choice of K. Hattori. Distributors order watches from K. Hattori, which company arranges for shipment of the order and an adequate supply of warranty booklets to the distributor.
Only one authorized distributor in each area is so appointed by K. Hattori. Canada is one such area, the plaintiff being the authorized distributor. K. Hattori does not exercise any control over marketing in Canada, leaving this to its authorized distributor for Canada. Warranty booklets for watches to be sold in Canada are supplied only to the plaintiff.
In the United States, Seiko Time Corporation is the sole distributor. This has been in effect for many years. This corporation is a wholly-owned subsidiary of K. Hattori. In the United States there are subdistributors appointed by Seiko Time Corporation -- some of which are wholly owned by Seiko Time Corporation -- some not.
In Canada prior to 1975 marketing was accomplished by the United States distributor under its own name, and before that through a company named Shriro. In 1975 Seiko Time Canada was incorporated and appointed as exclusive distributor for the country with all marketing powers. This company is a wholly- owned subsidiary of the United States distributor.
There are no written contracts between K. Hattori and Seiko Time Corporation or Seiko Time Canada, the arrangements being oral. There is no prohibition expressed against the United States or Canadian companies entering the market of the other but it is expected that each will restrict its marketing to its own area.
It is the obligation of Seiko Time Canada, at its own expense, to provide for marketing practices and procedures and to service the warranty for all watches marketed in this area.
With respect to watches validly sold in another area, Seiko Time Canada is expected to service the warranty and it may bill K. Hattori for this. No such billing has ever been made, however, because it is more economical to carry out the service and absorb the expense than to set up a system for this purpose.
There is no obligation on Seiko Time Canada to service watches bearing the Seiko name not validly warranted. At times, however, some such watches have been serviced where the source of sale has not been determined and the watch has been purchased within the one-year warranty period. Where the source of sale is known as being unauthorized no service has been provided.
Seiko Time Canada has established some 1,800 dealers with approximately 2,400 outlets. Its annual business volume in watches distributed and dollar volume has steadily risen in each year except 1978-79 where no real increase was accomplished. In 1980 an increase is predicted. The Canadian distributor has at its own expense done the following since it came into being:
(a) established service centres at Toronto, Montreal and Vancouver, which centres are staffed with trained personnel, including watchmakers, qualified to carry out prompt and efficient warranty and after-warranty work. The evidence satisfied me that a high degree of care and skill was employed in this area and that this resulted in goodwill between the plaintiff and its dealers, and through its dealers, and directly, with the public. In this the plaintiff has taken a generous approach to warranty problems rather than a strict approach;
(b) instituted sales training programmes for its authorized dealer personnel so that they would be well informed as to the characteristics of the Seiko product offered for sale and would be able to provide point-of-sale service and adjustments. Since most watches carry metal straps, bracelet adjustment at time of sale is an important service contributing to goodwill;
(c) established a staff of travelling salesmen, who travel to authorized dealers during the year and who are knowledgeable about the product line and any changes in it. These persons are given instructional booklets on new products for distribution, e.g., the quartz booklet marked as ex. 7, and are provided with slide presentations and dialogue to better educate the dealer personnel. By this system the plaintiff has developed goodwill with dealers, and through its dealers and directly, with the public;
(d) supplied to its authorized dealers quality boxes and instructional booklets with each watch and this has contributed to the continued good relations between the plaintiff and its dealers and through its dealers and directly, with the consuming public;
(e) supplied show-cases and advertising material for impressive in-store display;
(f) directed a substantial amount of its money annually for national advertising and has financially aided its authorized dealers in local advertising undertaken by the dealers;
(g) selected only fine jewellery stores or large department stores with a special jewellery section as authorized dealers;
(h) provided its dealers with a high quality, efficient product.
There can be no doubt that these efforts, entirely those of the plaintiff, have been successful and the undisputed evidence is that the Seiko product has attained great consumer acceptance in Canada largely because of these efforts by the plaintiff which is solely responsible for marketing in this country. The following, taken from the defendant's 1978-79 buying guide (ex. 4), appears at p. 33:
A name synonymous with elegance ... Seiko. For those who want the finest ... Seiko, world renowned for accuracy, and internationally guaranteed, now at Consumers affordable prices.
. . . . .
All Seiko's are accompanied by an international guarantee.
The goodwill, clearly generated by this plaintiff's marketing practices, belongs to this plaintiff in so far as Canada is concerned.
The form of warranty which accompanied a sale by an authorized dealer in Canada up to 1970 is ex. 1. It is marked "code 112" on the back cover. In 1979 the warranty accompanying a sale in Canada has been in the form of ex. 16, also code 112. Each has been known as the international guarantee and is for use in any area of the world (except the United States) by a designated authorized dealer. The United States warranty booklet is in somewhat different wording because of specific requirements attaching to a "full warranty" by the laws of that country. The differences are not important. The United States warranty is code 101.
Consumers is not an authorized dealer of the plaintiff. Some time in 1978, probably in early June, the plaintiff heard rumours that Consumers was going to offer Seiko watches for sale in its catalogue stores. Consumers operates the largest number of catalogue sales showrooms in Canada and the United States and is among the top in dollar volume. There is evidence that some others, also not authorized dealers, had offered Seiko watches for sale just before, or at the same time. These included some jewellery outlets as well as other catalogue stores. Cardinal, Woolco, K-Mart and Shoprite were mentioned. The plaintiff, while notifying these that it did not countenance this conduct, elected to bring this action against Consumers because of the importance of Consumers in this field. The plaintiff has not given up its right to proceed against the others, but obviously hopes that success in the present action, if achieved, will result in all others abandoning what is considered by the plaintiff to be offensive conduct. While the defendant at trial made some issue of the fact that no action has been commenced against these others, I do not feel that anything turns on that. There cannot arise here, I find, any question of laches or estoppel so as to adversely affect this plaintiff's rights as they may be found to exist qua Consumers.
When the buying guide was circulated, discussions between the parties and their solicitors took place for some two months, terminating unsuccessfully in December, 1978. This writ was issued on January 19, 1979. The plaintiff was unwilling to accept the defendant as filling the indicia which it laid down for an authorized dealer.
The evidence clearly shows that the defendant does not employ personnel knowledgeable in the Seiko brand, or for that matter with any brand. No point-of-sale service or adjustment is provided for its customers by the defendant. While Seiko Time Canada offers approximately 250 models to its dealers and dealers largely carry a full line, Consumers shows only 11 in its catalogue and of these only six are marketed in Canada. A survey was carried out at the request of the plaintiff of various outlets of the defendant in the Toronto area. Ruth Skinner purchased Seiko watches at different stores and her evidence included the following questions which she asked and the answers which were given by the sale personnel of the defendant:
Q. Can you adjust the bracelet for me?
A. No. We don't have the stuff here to use.
Q. Is there a manufacturer's guarantee included with the watch?
A. Yes.
Q. Can you tell me what quartz is exactly and the difference between this and a regular watch?
A. No. I don't know that much about them.
Q. How does this watch work?
A. You pull this little thing out and wind.
Q. How long does the battery last and what happens when it runs out?
A. I don't know because we don't sell them.
Q. Can you adjust the bracelet for me?
A. I never have but I don't think it would be too hard.
Mrs. Skinner purchased the watch without any adjustment and was given a guarantee in the form of ex. 2 which the store stamped. In another store, she asked these questions and received the following answers:
Q. I notice that all models in your catalogue are not on display. Are they in stock?
A. No. We do not keep too many on hand. Too expensive.
Q. Can you tell me what quartz is exactly and the difference between this and a regular watch?
A. No, but a lot of watches have it in them.
Q. How does this watch work?
A. I don't know but the guarantee would probably tell you.
Q. Can you set it for me?
A. No.
Q. How long does the battery last and what happens when it runs out?
A. I don't know.
Q. Is there a manufacturer's guarantee included with this watch?
A. I'll ask, I'm not sure.
Q. What about repairs during guarantee period?
A. Look it up in the book for address of where to send it.
Q. Can you adjust the bracelet for me?
A. It's easy. You just move the band to whatever size you want.
The sales clerk was unable to read the serial number and Mrs. Skinner had to record it herself in the warranty form. She purchased the watch with no adjustment and only after she insisted was she given a warranty which was stamped with the store stamp.
I accept that this evidence, the evidence of letters of complaint filed as exhibits and the evidence of Smith and Webb as to complaints regarding purchases made at Consumers adversely affected the goodwill which the plaintiff had with the consuming public and with its authorized dealers. Persons acquiring Seiko watches from Consumers could well believe that they were buying the "product" offered by an authorized Seiko dealer and that Seiko Time Canada had so authorized Consumers.
We did not learn the defendant's source of the watches and warranties being advertised and sold by the defendant. The warranty booklet distributed by Consumers is in the U.S. form and bears the code number 101. The plaintiff had no accurate information on this and the officer of the defendant examined for discovery refused to disclose this, his counsel taking the position that it was not relevant to the inquiry. I would have thought that the relevance of this information was clearly in favour of disclosure. It was not pursued at trial because Consumers called no evidence. The defendant was completing warranty booklets on the page where the vendor, unquestionably expected to be an authorized dealer, was required to enter the date of purchase, the name of the vendor and the serial number of the watch. That warranty is contained in the two booklets marked as ex. 2, one for quartz watches and the other for mechanical ones. That warranty, in the U.S. form, is given by K. Hattori and provides:
To qualify for service under the warranty, present your watch together with the warranty repair coupon, page 13 of this booklet, properly filled in by the authorized SEIKO dealer from whom the watch was originally purchased, or other proof of date of purchase, to any member of the SEIKO Worldwide Service Network.
(Emphasis added.)
The warranty period at all times has been one year from the date of sale. There can be no doubt, on the evidence before me, that Consumers was not empowered to complete this warranty, and that only an authorized dealer could do this.
Discovery answers of the defendant to Qq. 107 to 112, read in by the plaintiff, set out the only information before me as to source:
107. Q. Were the watches -- was your supply of watches obtained within Canada, or from without Canada?
A. Without.
108. Q. From whom did you obtain the watches?
MR. AFFLECK: No, I don't think that question is relevant. There is no issue as to who supplied. We have indicated quite clearly that we got them outside the Country and it's quite clear, from everything, that we obviously didn't get them from Seiko Time Canada. And, I don't see any issue as to who the supplier was.
MR. ROLAND: I think there is an issue now, not with respect to the watches themselves, but certainly the supply of the booklets. There is definitely an issue in this case, in who printed them and that sort of thing. I think, on that basis, that the answer is relevant to the issue of who printed these booklets.
MR. AFFLECK: Well, I can give you the answer that our supplier has never held himself out as being the person who printed the booklet. In other words, our supplier isn't K. Hattori and Co., or any member of the industrial group.
109. Q. Is your supplier someone who holds himself out as an authorized distributor of Seiko watches? Do you know that?
A. No representations were made as to that effect. I don't know what an authorized supplier is.
Q. Did I say supplier? I meant distributor. I said distributor I thought. You probably don't know what an authorized distributor is either?
A. I don't.
Q. Is that fair?
A. Yes, I don't know what an authorized distributor is.
Q. Authorized by K. Hattori and Company?
A. I don't think anybody made any representations to that effect.
MR. AFFLECK: Nor were they asked to.
THE DEPONENT: No, we've never asked.
MR. ROLAND: I appreciate that. I'm not suggesting that they were.
While some evidence was given during trial that the warranty booklets distributed at the time of sale by the defendant are not K. Hattori booklets, plaintiff's counsel in argument said that he would not take that position.
The following questions now arise. They are:
(a) What is the product offered for sale by the plaintiff through its authorized dealers? Is the product offered by Consumers the same or a different product?
(b) Does the common law cause of action of "passing-off" encompass this conduct? What reliance, if any, may be made on s. 7 of the Trade Marks Act?
(c) Is the plaintiff entitled to damages and, if so, on what basis?
As to (a), I find that the product of the plaintiff is comprised of (1) the watch itself boxed with an instructional booklet, (2) the point-of-sale service, (3) the warranty properly filled out by an authorized dealer, and (4) the after- sale service. This is what the buyer of the "Seiko" product in Canada is entitled to obtain.
It was this product with all its components which developed the reputation of Seiko in Canada and the goodwill which thereby arose between the plaintiff, its dealers and the consuming public.
The defendant is not advertising or selling this product as the defendant has no sales personnel knowledgeable about this watch, has no point-of-sale service, cannot deliver a valid warranty, and offers no after-sale service. I find that the product advertised and sold by the defendant is a different product. The defendant is not an authorized dealer and cannot complete the warranty booklet. That confusion in the eyes of the public is likely, is clear. Accepting the fact that the very watch and warranty booklet being sold and distributed by the defendant are of those of K. Hattori, the plaintiff's product is nonetheless a different product because of the various items comprised in the plaintiff's product.
The tort of "passing-off" at common law
As to (b) the common law tort of "passing-off" without any assistance from s. 7 of the Trade Marks Act, is one which is continually enlarging and changing to meet new situations. That flexibility is, of course, one of the great advantages enjoyed by the common law over statute law.
In Salmond on Torts, 16th ed. (1973), the following is found:
149. Injurious Falsehood: Passing Off.
To sell merchandise or carry on business under such a name, mark, description, or otherwise in such a manner as to mislead the public into believing that the merchandise or business is that of another person is a wrong actionable at the suit of that other person. This form of injury is commonly, though awkwardly, termed that of passing off one's goods or business as the goods or business of another and is the most important example of the wrong of injurious falsehood, though it is so far governed by special rules of its own that it is advisable to treat it separately. The gist of the conception of passing off is that the goods are in effect telling a falsehood about themselves, are saying something about themselves which is calculated to mislead. The law on this matter is designed to protect traders against that form of unfair competition which consists in acquiring for oneself, by means of false or misleading devices, the benefit of the reputation already achieved by rival traders. Normally the defendant seeks to acquire this benefit by passing off his goods as and for the goods of the plaintiff in one or more of the modes specified later. But the law governing trade competition is wide enough to prevent a person attaching to his product a name or description with which it has no natural connection in order to make use of the reputation and goodwill gained by a product genuinely indicated by that name and description.
The wrong of passing off is not confined to cases of the sale of goods but assumes many forms, of which the following are the most important:
(1) A direct statement that the merchandise or business of the defendant is that of the plaintiff
Thus it is an actionable wrong to seek to sell a publication by falsely putting the name of a well-known author on the title-page.
(2) Trading under a name so closely resembling that of the plaintiff as to be mistaken for it by the public.
Thus in Hendriks v. Montagu the Universal Life Assurance Society obtained an injunction preventing a company subsequently incorporated from carrying on business under the name of the Universe Life Assurance Association.
(3) Selling goods under a trade name already appropriated for goods of that kind by the plaintiff, or under any name so similar thereto as to be mistaken for it.
A trade name means a name under which goods are sold or made by a certain person and which by established usage has become known to the public as indicating that those goods are the goods of that person. A trade name is opposed to a merely descriptive name -- namely, one under which goods are sold, but which indicates merely their nature, and not that they are the merchandise of any particular person. The principle is not confined to purely commercial matters, for "if a man, be he musician, portrait painter or writer of articles in newspapers, gets to be known under a particular name, that name becomes inevitably part of his stock-in-trade, and apart from some special contract or anything of that kind, he is entitled to say that it is his name, and that anyone who adopts or causes the adoption of that name by some other person is inflicting on him an injury." But "It is established beyond argument that under the law of England a man is not entitled to exclusive proprietary rights in a fancy name in vacuo." The activities of the defendant must have misled the public into confusing his profession, business or goods with those of the plaintiff. It may be that an actor has a sufficient proprietary interest in his voice to entitle him to complain if the defendant imitates his voice so as to pass off his performance as that of the plaintiff.
. . . . .
Basis of passing-off action
The courts have wavered between two conceptions of a passing-off action -- as a remedy for the invasion of a quasi-proprietary right in a trade name or trade mark, and as a remedy, analogous to the action on the case for deceit, for invasion of the personal right not to be injured by fraudulent competition. The true basis of the action is that the passing off injures the right of property in the plaintiff, that right of property being his right to the goodwill of his business. In general the violation of a right to property is actionable, even though it is innocent and though no damage has been proved. At common law it was necessary to prove an actual fraudulent intention, but a different view was taken in equity, and since the Judicature Acts it has been generally accepted that it is not necessary in an action for passing off to prove an intent to deceive. Indeed, talk about deceit tends to obscure the essential fact that the plaintiff himself has not been deceived: his complaint is that the defendant has deceived other persons and that that deception is injuring the plaintiff's trade. It is sufficient in all cases to prove that the practice complained of is calculated (that is to say, likely) to deceive.
Actual deception or damage not necessary
The remedies of the plaintiff in an action for passing off are (1) an injunction, and (2) either damages or an account of profits, at the plaintiff's option. The uncertainty as to the conception underlying the action has led to uncertainty as to the requirement of proof of damage. Damage or likelihood of damage to property is the gist of all such actions according to many authorities, but the contrary has also been stated. Probably it is sufficient to prove that the practice complained of is of such a nature that it is likely in the ordinary course of business to deceive the public. Indeed, it seems that the essence of the tort lies in the misrepresentation that the goods in question are those of another; an offer to sell, as distinct from an actual sale, may be enough to constitute an actionable wrong. This is sufficient for an injunction in equity and even for nominal damages at common law. In considering whether deception is probable, account is to be taken, not of the expert purchaser, but of the ordinary ignorant and unwary member of the public.
(Emphasis added.)
In The Law of Torts, 5th ed. (1977), by John G. Fleming at pp. 700-1, the following appears:
6. UNFAIR COMPETITION: PASSING-OFF
Yet another form of misrepresentation concerning the plaintiff's business--unfair competition par excellence--is the tort of passing-off. While it is injurious falsehood for a defendant to claim that your goods are his, it is passing- off for him to claim that his goods are yours. Though traces of the tort stretch back as far as the reign of Elizabeth, its formulation is essentially modern, and its potentialities for growth not yet exhausted. From its inception it has had some affinity with deceit, and was for long regarded as a mere variety of it, though differing from the parent action in that it furnished redress, not to the person deceived, but to him whose mark, name or get-up was used to deceive. This link was, however, completely severed when the requirement of fraud disappeared as the result of the intervention of courts of equity. At common law, the action was not maintainable, unless an intent to deceive could be established; but as early as 1838 it was held that an injunction would issue to restrain passing-off, regardless of whether the defendant had been fraudulent or not. On the same basis, courts of equity began to award compensation, either in the form of an account of profits or as damages in lieu of, or in addition to, an injunction under Lord Cairns' Act. After the Judicature Act, this conflict between law and equity was resolved in favour of the equitable practice, and it is now settled that proof of fraud is unnecessary, whether the relief asked for be an injunction or damages. It is sufficient that the offensive practice was calculated or likely, rather than intended, to deceive. But for innocent passing-off only nominal damages are ordinarily appropriate.
Neither actual deception nor actual resulting damage need be proved. It is sufficient that the defendant's practice was likely to mislead the public and involved an appreciable risk of detriment to the plaintiff, whether in diversion of sales or impairment of his credit or commercial repute. If the defendant acted with intent to defraud, it will be readily assumed that he succeeded in what he set out to accomplish; but failing deliberate deceit, the onus on the plaintiff to show that there was a likelihood to deceive is heavier. The test for determining whether deception was probable is the likely impression on the casual and unwary customer, and it is no answer that an observant person making a careful examination would not have been misled. "Thirsty folk want beer, not explanations." The appropriate standard is that of the typical customer for the goods in question. For example, much more sophistication may be assumed from purchasers of Vintage Port than of Champagne (the vast bulk of which, in England at all events, is in demand for weddings and other festive occasions by people with only the foggiest notion of its origin and thus quite vulnerable to be misled into thinking that "Spanish Champagne" is the genuine article).
By freeing the tort from any requirement of actual damage and intention to injure, the law created an effective instrument of economic regulation, in response to an undoubted need for stronger legal weapons to combat commercial misrepresentations. Even so, its purpose is primarily to protect the plaintiff's proprietary interest in his goodwill rather than to champion the consumer. Thus it is irrelevant that the defendant's goods were actually cheaper or of superior quality, or that this competition (however unfair to the plaintiff) otherwise enured for the benefit of the public.
(Emphasis added.)
The defendant here clearly claimed that its goods were that of the plaintiff.
In his text, The Canadian Law of Trade Marks and Unfair Competition, 3rd ed. (1972), Harold G. Fox, at p. 497 states:
Passing off falls into two general classes: the first, where a trader uses the trade mark or get-up or the trade name, of another trader or one so nearly resembling it as to cause deception, and the second, where there is a direct substitution of wares or services as and for those asked for by a prospective purchaser or customer. Both these general classes of acts were recognized as improper by the common law and, in a proper case, were restrained by injunction and punished by an award of damages.
Substitution: S. 7(c) of the Trade Marks Act continues, in terms, the second general class of passing off action, at the same time making it quite clear that it extends to services as well as wares, although there can be little doubt that the common law would restrain the improper substitution of services in response to those asked for.
And again at pp. 497-8:
Confusion between Wares, Services or Businesses: S. 7(b) places in statutory form the common law prohibition against the first broad class of acts of passing off, namely, the use of indicia in association with wares or services or the use of the name of a business, which enables a trader to attract to his wares, services or business the purchasing impulse of the public. In such a case a specific order of request for certain wares or services is not an essential part of the evidence in an action for passing off. The action is properly founded on the fact that a trade name for a business, or a trade mark or get-up for wares, is so used as to deceive the public into the belief that the business of A is the business of B or is a branch of it or connected with it in some way, or that the wares or services of A are those of B. This form of the action is mirrored in the words of the statute
--"direct public attention ... in such a way as to cause or be likely to cause confusion." It will be noted that, at common law, the confusion in the minds of the possible purchasers--the likelihood of deception--has to be such as will cause the wares, services or business of A to be taken for those of B. Thus, in the common law decisions it is apparent that, subject to few exceptions, in order that such public deception could arise, it was a necessary ingredient of the proof that the wares were of a related character, and even in such cases the question of probability of deception was strongly influenced by differences between the wares, even though they were of the same general class. In other words, the wares had to be in competition, although this rule was not strictly adhered to in the case of trade names applied to businesses. This principle still continues to be applicable.
In order to found the action for passing off there must be a probability of the public being deceived into purchasing goods or services other than those they desire, or into dealing with a business thinking that it is the business of some other person. On this principle, therefore, there must be more than a mere resemblance between trade marks used in association with wares or services or trade names used in association with businesses. There must be some correspondence between the categories of wares and services dealt in by the respective parties or some reasonable similarity between the classes of business conducted by the parties. This is true to a limited extent in the case of the statutory action, for without some reasonably common field of activity, confusion is not likely to occur. As Lord Wright said in Francis, Day & Hunter Ltd. v. Twentieth Century Fox Corpn. [1939 CanLII 276 (UK JCPC), [1939] 4 All E.R. 192 at 200, [1940] A.C. 112]: "The thing said to be passed off must resemble the thing for which it is passed off. A frying pan cannot be passed off as a kettle."
(Emphasis added.) And again at p. 502:
A more concise statement was given by Farwell J. in Macleans Ltd. v. J.W. Lightbrown & Sons Ltd. [(1937), 54 R.P.C. 230 at 239]: "No trader can complain of honest competition, but no trader is entitled to steal the property of his rival by endeavouring to attract to his goods members of the public by inducing them to believe that the goods that are being offered for sale are the goods of a rival firm.
(Emphasis added.)
In A.G. Spalding & Bros. v. A.W. Gamage Ltd. (1915), 32 R.P.C. 273, five characteristics of the common law cause of action for passing-off were set out. They are:
(1) a misrepresentation;
(2) made by a trader in the course of trade;
(3) to prospective customers of his or ultimate customers of goods or services supplied by him;
(4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably- foreseeable consequence), and
(5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or ... will probably do so.
In Erven Warnink BV et al. v. J. Townend & Sons (Hull) Ltd. et al., [1979] 2 All E.R. 927, the House of Lords was called upon to consider a passing-off problem. The facts were that an alcoholic drink known as "Advocaat" was made and marketed by the plaintiff. It was made from a mixture of eggs and spirits. It was a distinct and recognizable drink, having been sold in England for over 50 years, where it had been heavily advertised. The name "Advocaat" had acquired a substantial reputation and goodwill. The plaintiffs had 75% of the English market.
The defendants manufactured a drink out of dried eggs and Cyprus sherry which they marketed in England as "Old English Advocaat". It was really an "egg-flip". Although the defendants had not passed off this product as that of the plaintiffs, and it was unlikely that any consumer would consider that the defendants' drink was that of the plaintiff, the plaintiff applied for an injunction restraining the defendants from selling or distributing under the name "Advocaat" any product so made. They relied upon the principle that, although they did not have an exclusive right to use the trade name "Advocaat" they were members of a class consisting of all those who had a right to use the name and as such were entitled to protect the name by a passing-off action. An injunction at trial was granted, which was reversed on appeal. On further appeal to the House of Lords the appeal was allowed, all Judges agreeing in the result. The judgment of Lord Diplock contains the following [at pp. 929-33]:
My Lords, this is an action for "passing off" not in its classic form of a trader representing his own goods as the goods of somebody else, but in an extended form first recognised and applied by Danckwerts J in the Champagne case
(Bollinger v Costa Brava Wine Co Ltd [[1959] 3 All ER 800, [1960] Ch 262]). ... the question of law for your Lordships is whether this House should give the seal of its approval to the extended concept of the cause of action for passing off that was applied in the Champagne, Sherry and Scotch Whisky cases. This question is essentially one of legal policy.
. . . . .
True it is that it could not be shown that any purchaser of Keeling's Old English Advocaat supposed or would be likely to suppose it to be goods supplied by Warnink or to be Dutch advocaat of any make. So Warnink had no cause of action for passing off in its classic form. Nevertheless, the judge was satisfied: (1) that the name "advocaat" was understood by the public in England to denote a distinct and recognisable species of beverage; (2) that Warnink's product is genuinely indicated by that name and has gained reputation and goodwill under it; (3) that Keeling's product has no natural association with the word "advocaat"; it is an egg and wine drink properly described as an "egg-flip" whereas advocaat is an egg and spirit drink; these are different beverages and known as different to the public; (4) that members of the public believe and have been deliberately induced by Keeling to believe that in buying their Old English Advocaat they are in fact buying advocaat; (5) that Keeling's deception of the public has caused and, unless prevented, will continue to cause, damage to Warnink in the trade and the goodwill of their business both directly in the loss of sales and indirectly in the debasement of the reputation attaching to the name "advocaat" if it is permitted to be used of alcoholic egg drinks generally and not confined to those that are spirit based.
. . . . .
My Lords, these findings of fact were accepted by the Court of Appeal and have not been challenged in your Lordships' House. They seem to me to disclose a case of unfair, not to say dishonest, trading of a kind for which a rational system of law ought to provide a remedy to other traders whose business or goodwill is injured by it.
Unfair trading as a wrong actionable at the suit of other traders who thereby suffer loss of business or goodwill may take a variety of forms, to some of which separate labels have become attached in English law. Conspiracy to injure a person in his trade or business is one, slander of goods another, but most protean is that which is generally and nowadays, perhaps misleadingly, described as "passing off". The forms that unfair trading takes will alter with the ways in which trade is carried on and business reputation and goodwill acquired. Emerson's maker of the better mousetrap if secluded in his house built in the woods would today be unlikely to find a path beaten to his door in the absence of a costly advertising campaign to acquaint the public with the excellence of his wares.
The action for what has become known as "passing off" arose in the 19th century out of the use in connection with his own goods by one trader of the trade name or trade mark of a rival trader so as to induce in potential purchasers the belief that his goods were those of the rival trader. Although the cases up to the end of the century had been confined to the deceptive use of trade names, marks, letters or other indicia, the principle had been stated by Lord Langdale MR as early as 1842 as being: "A man is not to sell his own goods under the pretence that they are the goods of another man ... " (Perry v Truefitt [(1842) 6 Beav 66 at 73]). At the close of the century in Reddaway v Banham [[1896] AC 199, [1895-9] All ER Rep 133], it was said by Lord Herschell that what was protected by an action for passing off was not the proprietary right of the trader in the mark, name or get-up improperly used. Thus the door was opened to passing-off actions in which the misrepresentation took some other form than the deceptive use of trade names, marks, letter or other indicia; but as none of their Lordships committed themselves to identifying the legal nature of the right that was protected by a passing-off action it remained an action sui generis which lay for damage sustained or threatened in consequence of a misrepresentation of a particular kind.
Reddaway v Banham like all previous passing-off cases, was one in which Banham had passed off his goods as those of Reddaway, and the damage resulting from the misrepresentation took the form of the diversion of potential customers from Reddaway to Banham. Although it was a landmark case in deciding that the use by a trader of a term which accurately described the composition of his own goods might nevertheless amount to the tort of passing off if that term were understood in the market in which the goods were sold to denote the goods of a rival trader, Reddaway v Banham did not extend the nature of the particular kind of misrepresentation which gives rise to a right of action in passing off beyond what I have called the classic form of misrepresenting one's own goods as the goods of someone else nor did it provide any rational basis for an extension.
This was left to be provided by Lord Parker of Waddington in A G Spalding & Bros v A W Gamage Ltd [(1915), 32 RPC 273 at 284]. In a speech which received the approval of the other members of this House, he identified the right the invasion of which is the subject of passing-off actions as being the "property in the business or goodwill likely to be injured by the misrepresentation". The concept of goodwill is in law a broad one which is perhaps best expressed in words used by Lord MacNaghten in Inland Revenue Comrs v Muller & Co's Margarine Ltd [[1901] AC 217 at 223, [1900-3] All ER Rep 413 at 416]: "It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom."
The goodwill of a manufacturer's business may well be injured by someone else who sells goods which are correctly described as being made by that manufacturer but being of an inferior class or quality are misrepresented as goods of his manufacture of a superior class or quality. This type of misrepresentation was held in A G Spalding & Bros v A W Gamage Ltd to be actionable and the extension to the nature of the misrepresentation which gives rise to a right of action in passing off which this involved was regarded by Lord Parker as a natural corollary of recognising that what the law protects by a passing-off action is a trader's property in his business or goodwill.
The significance of this decision in the law of passing off lies in its recognition that misrepresenting one's own goods as the goods of someone else was not a separate genus of actionable wrong but a particular species of wrong included in a wider genus of which a premonitory hint had been given by Lord Herschell in Reddaway v Banham when, in speaking of the deceptive use of a descriptive term, he said:
"I am unable to see why a man should be allowed in this way more than in any other to deceive purchasers into the belief that they are getting what they are not, and thus to filch the business of a rival."
I quote this passage, in which I have supplied the emphasis, because it was Lord Herschell who gave the leading speech in an earlier decision of this House in Native Guano Co v Sewage Manure Co [(1889), 8 RPC 125 at 129] that was principally relied on by the Court of Appeal as justifying their reversal of the judgment of Goulding J in the instant case.
A G Spalding & Bros v A W Gamage Ltd led the way to recognition by judges of other species of the same genus, as where, although the plaintiff and the defendant were not competing traders in the same line of business, a false suggestion by the defendant that their businesses were connected with one another would damage the reputation and thus the goodwill of the plaintiff's business. There are several cases of this kind reported of which Harrods Ltd v. R Harrod Ltd [(1923), 41 RPC 74], the moneylender case, may serve as an example.
Lord Parker's explanation of the nature of the proprietary right protected by a passing-off action also supplied a new and rational basis for the two 19th century decisions of Page Wood V-C in Dent v Turpin [(1861), 2 John & H 139] and Southorn v Reynolds [(1865), 12 LT 75], in which one of two traders, each of whom had by inheritance acquired goodwill in the use of a particular trade name, was held entitled without joining the other, to obtain an injunction restraining a third trader from making use of the name, despite the fact that the plaintiff's right of user was not exclusive. The goodwill of his business would be damaged by the misrepresentation that the defendant's goods were the goods of a limited class of traders entitled to make use of it, of whom the plaintiff was one and the defendant was not.
My Lords, A G Spalding & Bros v A W Gamage Ltd and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so.
In seeking to formulate general propositions of English law, however, one must be particularly careful to beware of the logical fallacy of the undistributed middle. It does not follow that because all passing-off actions can be shown to present these characteristics, all factual situations which present these characteristics give rise to a cause of action for passing off. True it is that their presence indicates what a moral code would censure as dishonest trading, based as it is on deception of customers and consumers of a trader's wares, but in an economic system which has relied on competition to keep down prices and to improve products there may be practical reasons why it should have been the policy of the common law not to run the risk of hampering competition by providing civil remedies to everyone competing in the market who has suffered damage to his business or goodwill in consequence of inaccurate statements of whatever kind that may be made by rival traders about their own wares. The market in which the action for passing off originated was no place for the mealy mouthed: advertisements are not on affidavit; exaggerated claims by a trader about the quality of his wares, assertions that they are better than those of his rivals, even though he knows this to be untrue, have been permitted by the common law as venial ''puffing" which gives no cause of action to a competitor even though he can show that he has suffered actual damage in his business as a result.
As to who had the right to bring the action, the judgment at p. 937 sets out:
Of course it is necessary to be able to identify with reasonable precision the members of the class of traders of whose products a particular word or name has become so distinctive as to make their right to use it truthfully as descriptive of their product a valuable part of the goodwill of each of them; but it is the reputation that that type of product itself has gained in the market by reason of its recognisable and distinctive qualities that has generated the relevant goodwill. So if one can define with reasonable precision the type of product that has acquired the reputation, one can identify the members of the class entitled to share in the goodwill as being all those traders who have supplied and still supply to the English market a product which possesses those recognisable and distinctive qualities.
The language employed by this learned Judge is as applicable to the case at bar and this is so without calling upon any assistance from the Trade Marks Act or the Combines Investigation Act. I accept these quotations as adequately setting out the principles of the common law tort of passing- off, and that the areas of application are on an expanding basis.
In the present case I find:
(1) by holding out, as it has in its catalogue and stores, that the watches being advertised or sold by it are Seiko watches (i.e., including all the components which I have found have become attached to that name) the defendant is misrepresenting the product it is selling to the consuming public;
(2) this misrepresentation is made by the defendant in the course of its trade;
(3) this misrepresentation is made to its prospective customers or ultimate consumers of these goods supplied by it;
(4) this conduct is calculated to injure the business or goodwill of the plaintiff in the sense that such injury is a reasonably-foreseeable consequence;
(5) that actual damage to the business and goodwill of the plaintiff has accrued and will probably continue.
During the trial and in argument the question of suggested retail price and discounts were referred to by the defendant's counsel. There is in this case no suggestion of price fixing but rather that the public is best served by free competition. The tort of passing-off does not concern itself with the consumer, although the effect upon the consumer of alleged offensive conduct is an important consideration. The real right to be protected is that of the plaintiff who is not to be required to accept unfair competition. This plaintiff has established to my satisfaction that it has business or goodwill in the use of the name "Seiko" as developed through its marketing practices which is worthy of protection even though it does not own this name. It is nonetheless one of a class entitled to make use of the distinctive name "Seiko" as descriptive of its product and this is a valuable part of the goodwill which has been generated to the plaintiff by the method of marketing which it has employed. Only the plaintiff, or authorized dealers in Canada, can supply the market in this country with a product which possesses these recognizable and distinctive qualities.
It may be that there are few, or no other cases, which have gone this far but that does not prevent the application of established principles so as to meet new and changing conditions brought about by new business practices. The greatness of the common law rests with its ability to be flexible and to alter and so to accommodate to new problems. It is no longer necessary that Judges find pigeon holes into which to fit particular fact situations.
There is no doubt on the evidence that the conduct of the defendant was designed to and has misled and confused the public into believing that Consumers' product was that of the plaintiff.
In this case the plaintiff, its dealers and the consuming public will benefit from the plaintiff's success here. Lack of success by the plaintiff would benefit only the defendant who has attempted to mislead the consumers into believing that its product was a ''Seiko" watch with all the components to which I have referred, and that it is sold by an authorized Seiko dealer.
Applying only common law principles, I find that the plaintiff is entitled to succeed.
I now turn to consideration of the Trade Marks Act. Section 7 of that statute reads as follows:
7. No person shall
(a) make a false or misleading statement tending to discredit the business, wares or services of a competitor;
(b) direct public attention to his wares, services or business in such a way as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his wares, services or business and the wares, services or business of another;
(c) pass off other wares or services as and for those ordered or requested;
(d) make use, in association with wares or services, of any description that is false in a material respect and likely to mislead the public as to
(i) the character, quality, quantity or composition;
(ii) the geographical origin, or
(iii) the mode of the manufacture, production or performance
of such wares or services; or
(e) do any other act or adopt any other business practice contrary to honest industrial or commercial usage in Canada.
In MacDonald et al. v. Vapor Canada Ltd. et al., 1976 CanLII 181 (SCC), [1977] 2 S.C.R. 134, 66 D.L.R. (3d) 1, 22 C.P.R. (2d) 1, the Supreme Court of Canada was called upon to consider the constitutional validity of s. 7 of the Trade Marks Act, specifically s. 7(e). In that action the jurisdiction of the Federal Court of Canada was in question and in order to determine this an inquiry was necessary into the power of the Parliament of Canada to pass s. 7. The Court unanimously held that s. 7 was ultra vires the Parliament of Canada. In the judgment of Laskin, C.J.C., is found the following (at pp. 139-40 S.C.R., pp. 5-6 D.L.R.):
It is trite law that the Federal Court, being a Court established pursuant to s. 101 aforesaid "for the better administration of the laws of Canada", can only be endowed with such jurisdiction as flows from laws competently enacted by Parliament. In R. v. Hume, Consolidated Distilleries Ltd. v. Consolidated Exporters Corp. Ltd. [1930 CanLII 50 (SCC), [1930] S.C.R. 531], the point is well made by Anglin C.J.C. who said (at p. 535) that "while there can be no doubt that the powers of Parliament under s. 101 are of an overriding character when the matter dealt with is within the legislative jurisdiction of the Parliament of Canada, it seems equally clear that they do not enable it to set up a court competent to deal with matters purely of civil right as between subject and subject". Over and above this, the question of validity of ss. 7(e) and 53 would arise even if it were the provincial superior courts that were charged with enforcement of the substantive provisions of s. 7(e). Legislation sought to be enforced in provincial courts must, of course, be legislation which it was competent for the enacting legislature to pass.
. . . . .
Proper perspective requires a reference to the whole of s. 7 and, indeed, to the scheme of the Trade Marks Act and to some legislative history.
(Emphasis added.)
Chief Justice Laskin then set out ss. 7, 53 and 55 of the Trade Marks Act, and s. 11 of the Unfair Competition Act, 1932 (Can.), c. 38, and having compared the scope and language, commented on the cases decided under each. In specific reference to the submission that the legislation cannot be supported as in relation to criminal power under s. 91(27) [of the British North America Act, 1867], he had this to say (at pp. 145-6 S.C.R., p. 10 D.L.R.):
This last mentioned basis of validity deserves no more than a brief statement of reasons for rejecting it. Assuming that s. 7(e) (as, indeed, the other subparagraphs of s. 7) proscribe anti-social business practices, and are thus enforceable under the general criminal sanction of s. 115 of the Criminal Code respecting disobedience of a federal statute, the attempt to mount the civil remedy of s. 53 of the Trade Marks Act on the back of the Criminal Code proves too much, certainly in this case. The principle which would arise from such a result would provide an easy passage to valid federal legislation to provide and govern civil relief in respect of numerous sections of the Criminal Code and would, in the light of the wide scope of the federal criminal law power, debilitate provincial legislative authority and the jurisdiction of provincial Courts so as to transform our constitutional arrangements on legislative power beyond recognition. It is surely unnecessary to go into detail on such an extravagant posture. This Court's judgment in Goodyear Tire and Rubber Co. of Canada Ltd. v. The Queen [1956 CanLII 4 (SCC), [1956] S.C.R. 303], upholding the validity of federal legislation authorizing the issue of prohibitory order in connection with a conviction of a combines offence, illustrates the preventive side of the federal criminal law power to make a conviction effective. It introduced a supporting sanction in connection with the prosecution of an offence. It does not, in any way, give any encouragement to federal legislation which, in a situation unrelated to any criminal proceedings, would authorize independent civil proceedings for damages and an injunction.
In the present case, the plaintiff does not attempt to support s. 7 as a valid exercise of federal criminal power under s. 91(27) but rather under the heads of "Trade and Commerce" and "Peace, Order and Good Government". Both of these heads had been relied upon in the MacDonald case. As to this submission, Laskin, C.J.C., commented (at pp. 147-9 S.C.R., pp. 11-3 D.L.R.):
I think it fair to look upon s. 7 as embodying a scheme, one limited in scope perhaps but nonetheless embodying an array of connected matters. I shall come later to what appeared to be a fundamental underpinning of the respondent's position and that of the Attorney-General for Canada, namely, that s. 7 or at least s. 7(e) must not be construed in vacuo, but must itself be brought into account as a segment or a piece of a tapestry of regulation and control of industrial and intellectual property.
It was not disputed that the common law in the provinces outside of Quebec and the Civil Code of Quebec governed the conduct or aspects thereof now embraced by s. 7 and embraced earlier by s. 11 of the Act of 1932. To illustrate, s. 7(a) is the equivalent of the tort of slander of title or injurious falsehood, albeit the element of malice, better described as intent to injure without just cause or excuse, is not included as it is in the common law action: see Fleming on Torts, (4th ed. 1971), at p. 623. Section 7(b) is a statutory statement of the common law action of passing off, which is described in Fleming on Torts, supra, at p. 626 as "another form of misrepresentation concerning the plaintiff's business ... which differs from injurious falsehood in prejudicing the plaintiff's goodwill not by deprecatory remarks but quite to the contrary by taking a free ride on it in pretending that one's own goods or services are the plaintiff's or associated with or sponsored by him". It differs from injurious falsehood in that "it is sufficient that the offensive practice was calculated or likely, rather than intended, to deceive".
Section 7(c) is a curious provision to be armed with a civil sanction by way of damages when one already exists in the ordinary law of contract. The provision refers to substitution of other goods for those ordered or requested, but there is always the right to reject upon discovery of the substitution, and if the substituted goods are knowingly accepted there would appear to be no relief. If s. 7(c) purports to give additional relief even if the substituted goods are knowingly accepted, where are the damages? Or does the provision envisage damages arising from failure to deliver the proper goods in time? If so, there is the usual remedy for breach of contract. I can see s. 7(c) in the context of a regulatory regime subject to supervision by a public authority, but its presence under the sanction of a private civil remedy merely emphasizes for me federal intrusion upon provincial legislative power.
Section 7(d) appears to be directed to the protection of a purchaser or a consumer of wares or services, in contrast with s. 7(a) which involves slander of title or injurious falsehood qua a competitor in business. It involves what I would term deceit in offering goods or services to the public, deceit in the sense of material false representations likely to mislead in respect of the character, quality, quantity or composition of goods or services, or in respect of their geographic origin or in respect of their mode of manufacture, production or performance. If any aggrieved person would have a cause of action under s. 53 in respect of damages suffered by him by reason of a breach of s. 7(d), it would ordinarily be expected to arise through breach of contract. One can envisage, of course, a statutory tort of deceit under s. 7(d), but this hardly adds to its constitutional propriety as federal legislation. Whether sounding in contract or in tort, it is not limited to those bases of relief in respect of enterprises or services that are otherwise within federal legislative competence. Again, the issue of a violation of s. 7(d) could as easily arise in a local or intraprovincial transaction as in an interprovincial one; there is nothing in s. 7(d) that emphasizes any interprovincial or transprovincial scope of the prohibition in s. 7(d) so as to establish some connection with federal legislative authority under s. 91(2) of the British North America Act.
Section 7(e) is, in terms, an additional proscription to those enumerated in subparagraphs (a) to (d) of s. 7. Its vagueness is not, of course, a ground of constitutional invalidity, but I am satisfied that it does have subject matter, as the facts of this very case demonstrate. It would encompass breach of confidence by an employee by way of appropriating confidential knowledge or trade secrets to a business use adverse to the employer. So too, it would appear to be broad enough to cover the fruits of industrial espionage. Counsel for the respondent referred the Court to the judgment of the Supreme Court of the United States in International News Service v. Associated Press [(1918), 248 U.S. 215], as exemplary of the thrust of s. 7(e). It recognized as enjoinable unfair competition the "pirating" of news by one news service from another and selling it while its commercial value as news was still evident, although the appropriation was effected by lawful means, e.g., through the reading of bulletin boards and early editions of the complainant's newspapers. I note only that this result, albeit not without dissent, was reached on grounds which included equitable considerations; and it was reached without reliance on statute. In a later case, A.L.A. Schecter Poultry Corp. v. U.S. [(1935), 295 U.S. 495], at pp. 531-2, Hughes C.J. saw the Associated Press case as an extension of the passing off cases (which, as the main instance of unfair competition at common law, involved the palming off of one's goods as those of a rival trader). The scope of the tort has been extended, he said, "to apply to misappropriation as well as to misrepresentation, to the selling of another's goods as one's own--to misappropriation of what equitably belongs to a competitor".
The fact that s. 7(e) has subject matter, whether as embodying claims cognizable at common law or as providing a statutory basis for a civil cause of action, does not differentiate it, in constitutional terms, from s. 7(a) (b)
(c) and (d). As a class of prescriptions, additional to those in the preceding catalogues, it appears to me to be simply a formulation of the tort of a conversion, perhaps writ large and in a business context.
(Page 156 S.C.R., p. 19 D.L.R.):
Overall, whether s. 7(e) be taken alone or, more properly, as part of a limited scheme reflected by s. 7 as a whole, the net result is that the Parliament of Canada has, by statute, either overlaid or extended known civil causes of action, cognizable in the provincial courts and reflecting issues falling within provincial legislative competence. In the absence of any regulatory administration to oversee the prescriptions of s. 7 (and without coming to any conclusion on whether such an administration would in itself be either sufficient or necessary to effect a change in constitutional result), I cannot find any basis in federal power to sustain the unqualified validity of s. 7 as a whole or s. 7(e) taken alone. It is not a sufficient peg on which to support the legislation that it applies throughout Canada when there is nothing more to give it validity.
(Pages 164-5 S.C.R., p. 25 D.L.R.):
The plain fact is that s. 7(e) is not a regulation, nor is it concerned with trade as a whole nor with general trade and commerce. In a loose sense every legal prescription is regulatory, even the prescriptions of the Criminal Code, but I do not read s. 91(2) as in itself authorizing federal legislation that merely creates a statutory tort, enforceable by private action, and applicable, as here, to the entire range of business relationships in any activity, whether the activity be itself within or beyond federal legislative authority. If there have been cases which appeared to go too far in diminution of the federal trade and commerce power, an affirmative conclusion here would, in my opinion, go even farther in the opposite direction.
What is evident here is that the Parliament of Canada has simply extended or intensified existing common and civil law delictual liability by statute which at the same time has prescribed the usual civil remedies open to an aggrieved person. The Parliament of Canada can no more acquire legislative jurisdiction by supplementing existing tort liability, cognizable in provincial Courts as reflective of provincial competence, than the provincial legislatures can acquire legislative jurisdiction by supplementing the federal criminal law: see Johnson v. Attorney-General of Alberta [1954 CanLII 68 (SCC), [1954] S.C.R. 127].
(Emphasis added.)
His conclusion is found at p. 172 S.C.R., p. 31 D.L.R.:
The position which I reach in this case is this. Neither s. 7 as a whole, nor section 7(e), if either stood alone and in association only with s. 53, would be valid federal legislation in relation to the regulation of trade and commerce or in relation to any other head of federal legislative authority. There would, in such a situation, be a clear invasion of provincial legislative power.
(Emphasis added.)
Section 7 I find to be a clear invasion by Parliament of a provincial legislative power and for the reasons so ably set forth by the Chief Justice of Canada.
In coming to the conclusion that the common law test of "passing-off" encompasses the present factual problem I have also obtained assistance from many cases decided here and in England. They are:
C.G. Vokes Ltd. v. F.J. Evans and Marble Arch Motor Supplies Ltd. (1931), 49 R.P.C. 140.
In this action the plaintiffs had for some years sold motor car windscreen wipers marked with the words "Vokes-Folberth", "C.G. Vokes & Co." and with the plaintiff's address. Such wipers were manufactured for the plaintiffs by the C Company under an agreement which prohibited the C Company from manufacturing such wipers to persons other than the plaintiffs. The C Company wrongfully sold a number of such wipers to the defendants the Marble Arch Motor Supplies Ltd., who resold to the public. The plaintiffs instituted an action against the defendants, claiming an injunction to restrain passing-off, an inquiry as to damages, and an order for delivery up. Farwell, J., said at p. 146:
At first I was greatly pressed during the course of the case by this. This is an action of passing-off, that is to say an action in which the Plaintiff claims that the Defendants have passed off as his goods some goods which in fact are not his goods at all. We have here a screen wiper which is in every respect identical with the Plaintiff's article. It is admitted, and there is no doubt about it, that it is exactly the same screen wiper as the Plaintiff has manufactured for him and sells. The inscription upon it is exactly the same; the article itself is precisely the same in every respect, no doubt made in exactly the same way; and at first sight it seemed to me to be difficult to see how it could be said to be passing-off when in fact what the Defendants were doing was selling an article which was, so far as appearance went and so far as the purpose for which it is required goes, precisely the same as the Plaintiff's article.
(Emphasis added.)
Notwithstanding the learned Judge enjoined the defendants as asked because the wipers, not having been selected or marketed by the plaintiff, were spurious.
Morris Motors, Ltd. v. Lilley (trading as G. & L. Motors), [1959] 3 All E.R. 737.
In this case the plaintiffs were manufacturers of motor cars which were marketed to the public exclusively through authorized distributors over various areas, and authorized dealers in each such area; distributors and dealers became authorized on appointment after selection and approval by the plaintiffs. The plaintiffs supplied new unregistered cars from their factory to authorized distributors who in turn supplied those cars still unregistered to authorized dealers in the area who sold retail to the public. On a retail sale, the purchaser was given a warranty which entitled him to a certain amount of service for 12 months including exchange, repair or replacement in case of defect appearing in some parts, but the warranty related only to "any new vehicle", that "the first owner-user" was entitled to the benefit of the warranty, and no claim could be made in respect of "any second-hand vehicle or part thereof".
The defendant acquired a new vehicle from an authorized dealer and then advertised this car as a "new car". The car was registered to the defendant. It only had 130 miles on it when it was offered for resale. The plaintiff contended that the car, when sold by the defendant, was not a "new" car and claimed an injunction to restrain the defendant from advertising, offering for sale or selling any car, not being a new car of the plaintiff's manufacture as and for a new car of the plaintiff's manufacture.
In granting the injunction sought, Wynn-Parry, J., stated at p. 739:
It was alleged that, on a motion such as this, no injury could be shown to the plaintiff's goodwill. It is not necessary, for the purposes of such a motion as this, as I understand the law, to show actual injury; it is sufficient to show that injury is likely to occur. Under this form of trading, I can well see the greatest likelihood of injury occurring. First of all, there is the obvious representation by the defendant that he is an authorised dealer, because he says the car is brand new. If a car is brand new it carries with it the obligation on the plaintiffs under their warranty to service that car. Not only that; they in their wisdom have made a careful selection of firms throughout the country whom they are willing to appoint as either distributors or dealers, and it may well be very injurious to their goodwill if somebody who fulfils neither of those capacities is allowed to hold himself out in effect as being a distributor or a dealer.
(Emphasis added.)
I agree with these judgments and for the reasons given. In the present case the defendant is wrongfully holding out to the consuming public that it is an authorized dealer of the plaintiff and so damaging the goodwill of this plaintiff. The plaintiff would not appoint the defendant or other similar outlet as an authorized dealer because such would be incompatible with the plaintiff's established marketing practice of selling a product which consisted of the watch, point-of-sale and after-sale service and warranty and through selected dealers who are given special education and training.
See also Hughes v. Sheriff, 1950 CanLII 65 (ON SC), [1950] O.R. 206, 12 C.P.R. 81, 10 Fox Pat. C. 175, where LeBel, J., stated at p. 217:
The basic rule as to what amounts to unfair simulation has been admirably stated by Cox J. in Florence Mfg. Co. v. J.C. Dowd & Co. (1910), 178 F. 73 at 75, thus: "It is so easy for the honest business man, who wishes to sell his goods upon their merits, to select from the entire material universe, which is before him, symbols, marks and coverings which by no possibility can cause confusion between his goods and those of competitors, that the courts look with suspicion upon one who, in dressing his goods for the market, approaches so near to his successful rival that the public may fail to distinguish between them. The law is not made for the protection of experts, but for the public--that vast multitude which includes the ignorant, the unthinking and the credulous, who, in making purchases, do not stop to analyze, but are governed by appearances and general impressions."
Mr. Robinette's last contention was that no evidence was called which went to show that anyone who purchased, or sought to purchase, the plaintiff's glassware had been deceived by the similar patterns and labels, but I do not think that that was necessary. Such evidence, if led, would have been helpful to the plaintiff, undoubtedly, but I do not think it was essential. "Instances of actual deception need not be proved if the Court is otherwise satisfied of the probability of deception".
And also Mr. Submarine Ltd. v. Emma Foods Ltd. (1976), 34 C.P.R. (2d) 177, where in an action for interim injunction in a passing-off case, Estey, J. (as he then was), said at pp. 179-80:
The English authorities have, in discussing the tort of passing off, generally sought to apply the standard of the ordinary person who is presented in a commercial background with a presentation of a product or a business which, on first impression, would leave that person, who has at best a general recollection of the product or business of the plaintiff, in a state of confusion as to whether the product or business of the defendant is that of the plaintiff's. The standard to be applied is not that of a person fully familiar with the detailed operations of a plaintiff and therefore capable of at once distinguishing those of the defendant from those of the plaintiff but rather that of a person who has a vague recollection or understanding of the business or product of the plaintiff and who, on being faced with that of the defendant, may well be confused or deceived as to the ownership or nature of the goods or the proprietor of the business in question.
The injunctions sought here should be granted. Accordingly the defendant is (a) permanently enjoined and restrained from advertising or selling "Seiko" watches in Canada; and (b) permanently enjoined and restrained from holding itself out as an authorized Seiko dealer of the plaintiff by advertising and selling Seiko watches and as internationally guaranteed.
As stated, this conclusion is reached without calling upon any statutory support from the Trade Marks Act to the common law tort. While it was therefore unnecessary that it be done, I have commented upon the constitutional validity of s. 7 of the Trade Marks Act, as this issue was argued at some length by the plaintiff, defendant and by the Attorney-General for Ontario. The Attorney-General of Canada, whose legislation was under consideration, declined to appear at trial or take part in the argument. The defendant, supported by the Attorney-General for Ontario, vigorously submitted that the section in its entirety was ultra vires the Parliament of Canada.
The Supreme Court of Canada has, in my view, already dealt with the constitutional validity of all of s. 7 under all three heads of criminal law, trade and commerce and peace, order and good Government in MacDonald et al. v. Vapor Canada Ltd. et al., 1976 CanLII 181 (SCC), [1977] 2 S.C.R. 134, 66 D.L.R. (3d) 1, 22 C.P.R. (2d) 1.
I now must consider the last remaining claim for damage alleged to have been suffered. The statement of claim in para. 14 recites:
14. As a result of the conduct of the Defendant aforesaid the Plaintiff has suffered and continues to suffer damage including loss of trade, reputation, loss of good-will and loss of sales.
In the prayer for relief, para. 16(c), the plaintiff claims damages in the sum of $1,000,000.
Counsel for the plaintiff was frank to say that damages are the least significant part of his client's claim. Little evidence as to the extent of damage, and no evidence of monetary damage was presented. He does not abandon the claim however and asserts this claim both at common law and relying on the Combines Act, s. 31.1. The effective section is s. 31.1 as it is the section which purports to give relief by way of damage suffered by reason of conduct contrary to any provision of Part V. These relevant portions of s. 31.1 read as follows:
31.1 (1) Any person who has suffered loss or damage as a result of
(a) conduct that is contrary to any provision of Part V ...
. . . . .
may, in any court of competent jursdiction, sue for and recover from the person who engaged in the conduct or failed to comply with the order an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under this section.
(2) In any action under subsection (1) against a person, the record of proceedings in any court in which that person was convicted of an offence under Part V or convicted of or punished for failure to comply with an order of the Commission or a court under this Act is, in the absence of any evidence to the contrary, proof that the person against whom the action is brought engaged in conduct that was contrary to a provision of Part V or failed to comply with an order of the Commission or a court under this Act, as the case may be, and any evidence given in those proceedings as to the effect of such acts or omissions on the person bringing the action is evidence thereof in the action.
I am prepared to assume, without finding this as a fact, that the conduct of the defendant was contrary to a provision in Part V.
There can be no doubt that in a passing-off action at common law damages may be awarded. In Draper v. Trist et al., [1939] 3 All E.R. 513, the Court of Appeal in England was called upon to deal with such a case. In that action, there was an inquiry into damages in a passing-off action and the Judge at trial held that, where goods were sold to a middle man and there was no evidence of resale by him, the plaintiff was only entitled to nominal damages. On appeal the judgments rendered fully reviewed the law of assessment of damages in a passing-off action.
I take the law to be as stated by Goddard, L.J., at p. 526:
In passing off cases, however, the true basis of the action is that the passing off by the defendant of his goods as the goods of the plaintiff injures the right of property in the plaintiff, that right of property being his right to the goodwill of his business. The law assumes, or presumes, that, if the goodwill of a man's business has been interfered with by the passing-off of goods, damage results therefrom. He need not wait to show that damage has resulted. He can bring his action as soon as he can prove the passing-off, because it is one of the class of cases in which the law presumes that the plaintiff has suffered damage. It is in fact, I think, in the same category in this respect as is an action for libel. We know that for written defamation a plaintiff need prove no damage. He proves his defamation. So it is with a trader. The law has always been particularly tender to the reputation and goodwill of traders. If a trader is slandered in the way of his business, an action lies without proof of damage. That does not mean to say that the plaintiff cannot give evidence showing that he has suffered damage in fact. The more he can show that he has suffered damage in fact, the larger the damages he can recover. The more the defendant can show that he has suffered no damage in fact, the less he will recover.
(Emphasis added.)
In that case, no specific damage having been proven the Court, by unanimous judgment, increased the nominal damage award as found by the trial Judge to (STERLING)2,000.
In the present action I am satisfied that this plaintiff has suffered recoverable damage even without calling upon any assistance from s. 31.1. The measure of damage however may differ if the statute is intra vires the Parliament of Canada, because the language in the statute deals with damage, (1) equal to the loss of damage proved to have been suffered, and (2) any additional amount that the Court may allow not exceeding the full cost of any investigation of the matter and proceedings under this section.
I have concluded that s. 31.1 of the Combines Investigation Act is ultra vires the Parliament of Canada as an invasion of the exclusive provincial power to legislate regarding property and civil rights. The ratio of the MacDonald case is equally applicable to s. 31.1. However, two recent decisions were called to my attention.
In the action of Rocois Construction Inc. v. Quebec Ready Mix Inc. et al. (unreported -- October 29, 1979 [since reported 1979 CanLII 2576 (FC), 105 D.L.R. (3d) 15, 51 C.C.C. (2d) 516, [1980] 1 F.C. 184]) Marceau, J., of the Federal Court of Canada, Trial Division, dealt with this very problem. The Attorney-General of Canada and the Attorney-General of Quebec intervened and were heard. Marceau, J., reviewed the history of the legislation and the case-law and in particular reviewed the comments of Laskin, C.J.C., in MacDonald. I am in agreement with the comments of Marceau, J., when he states [at p. 31]:
If it must be assumed that in addition to its exclusive jurisdiction over interprovincial and international trade, Parliament has, pursuant to s-s. (2) of s. 91, power to legislate on matters which are properly ancillary to interprovincial and international trade, and even possibly on matters of general regulation affecting Canada as a whole, great care must be taken that the exercise of this power does not in any way permit an encroachment on the powers of the Provinces over local commerce. ... that I do not think that it can be based on the power of Parliament over trade and commerce ... To admit that, as such, it is covered by Parliament's power pursuant to s-s. (2) of s. 91, would be to open the door to a potential trenching on the powers of the Provinces which, in my view, the Courts have definitively rejected, despite their persistent hesitation.
Marceau, J., held that this section was ultra vires the Parliament of Canada. I believe that there is an appeal pending.
It is argued that this decision is in conflict with the decision of Linden, J., of this Court in R. v. Hoffmann-La Roche Ltd., delivered February 5, 1980, but as yet unreported [since reported 1980 CanLII 1615 (ON SC), 28 O.R. (2d) 164, 109 D.L.R. (3d) 5, 14 C.R. (3d) 289]. In that case Linden, J., was dealing with the criminal power of the Parliament of Canada and considering whether s. 31 was supportable under s. 91(27). These cases are not in conflict. One is a civil action dealing with the powers of the Parliament of Canada to legislate regarding trade and commerce, whereas the other addresses the power of Parliament in relation to criminal matters.
In the present case, I am concerned only with a civil action for damages from tort, and not at all with the criminal jurisdiction of Parliament.
Again, while the Attorney-General for Ontario appeared and argued the constitutional validity of s. 31.1, no one appeared for the Attorney-General of Canada.
The plaintiff will accordingly have judgment for the permanent injunctions before set out, damages which I find at $5,000 and its costs. The counterclaim is dismissed without costs.
Judgment for plaintiff.
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