Canadian Private Copying Collective v. Z.E.I.Media Plus Inc.

Canadian Private Copying Collective v. Z.E.I.Media Plus Inc.
Court (s) Database
Federal Court Decisions
Date
2006-12-22
Neutral citation
2006 FC 1546
File numbers
T-578-05
Decision Content
Date: 20061222
Docket: T-578-05
Citation: 2006 FC 1546
Ottawa, Ontario, December 22nd, 2006
PRESENT: The Honourable Mr. Justice de Montigny
BETWEEN:
CANADIAN PRIVATE COPYING COLLECTIVE
Plaintiff
and
Z.E.I. MEDIA PLUS INC.
and ZANIN CD/DVD INC.
and JOSEPH LEMME
Defendants
REASONS FOR JUDGMENT AND JUDGMENT
[1] This is an appeal of Prothonotary Richard Morneau’s order of June 30, 2006, granting a motion by the Canadian Private Copying Collective (the Collective) for a more accurate and complete affidavit of documents. The Court also refused the defendants’ request to bifurcate the proceedings for liability and quantum of damages, and ordered that the case be specially managed.
[2] This motion was brought forward in the context of a statement of claim filed by the Collective, requesting that the defendants pay private copying levies allegedly owed to the rightsholders the Collective represents, and also requesting that the defendants provide the Collective various and detailed statements of account.
[3] After having had the benefit of the parties’ oral and written submissions, and on the basis of the records submitted to the Court, I have come to the conclusion that the defendants’ appeal must be dismissed. None of the issues raised by the defendants is vital to the final outcome of the case, and I do not believe the prothonotary’s order was clearly wrong. The following are my reasons for coming to that conclusion.
BACKGROUND
1) The Legislative Scheme
[4] The origin, purpose and essential features of the private copying regime are well documented and have been well delineated and summarized in previous cases, most notably in Canadian Private Copying Collective v. Canadian Storage Media Alliance, 2004 FCA 424, [2005] 2 F.C.R. 654; Canadian Private Copying Collective (CPCC) v. Cano Tech Inc. (2006), 47 C.P.R. (4th) 350 (F.C.) and in Private Copying 2003-2004, [2003] C.B.D. No. 8, a decision of the Copyright Board of Canada dated December 12, 2003. I shall therefore examine the history and the legislative provisions setting out this scheme only to the extent that it is relevant to the resolution of the issues raised by this appeal. These provisions are reproduced in Annex 1 to these reasons.
[5] Until 1998, the unauthorized reproduction of sound recordings, even for private use, constituted a copyright infringement. This prohibition became increasingly difficult to enforce, however, with the advent of ever more user-friendly technology for copying music. Part VIII of the Copyright Act, R.S.C. 1985, c. C-42 (the Act), which came into force on March 19, 1998, reflects the compromise reached to address this challenge. From then on, the act of reproducing all or any substantial part of recorded music onto an audio recording medium for the copier’s private use would not infringe the copyright in the musical work, the performer’s performance or the sound recording [subsection 80(1) of the Act]. This is a limited exception, as it does not apply if the copying is done for the purposes of selling or renting, distributing, communicating to the public by telecommunication, or performing in public [subsection 80(2)].
[6] In exchange for expropriating the copyright holders’ exclusive rights, Parliament has provided that manufacturers and importers of blank audio recording media will be liable to pay a levy on selling those media in Canada [subsection 82(1)]. The Copyright Board determines the rate of the levy through certifying a Private Copying Tariff, after having considered the proposed tariffs filed by collective societies representing authors and performers, and the objections to these proposals (section 83). So far, the Board has certified four Tariffs, some of which have been extended for more than a year. The product of that levy will then be redistributed to eligible authors and performers, [subsection 81(1)], through the collecting body designated by the Copyright Board [sections 84 and subsection 83(8)].
[7] Subsection 82(1) of the Copyright Act also compels manufacturers and importers of blank audio recording media to keep statements of account of their activities. This obligation is further complemented and detailed in sections 8 and 9 of the Private Copying Tariffs, which impose reporting and record-keeping requirements. Section 8 prescribes that manufacturers and importers of blank audio recording media must provide information with each payment to the collecting body, about the corporation itself, as well as the number of units of each type of blank audio recording medium on account of which the payment is made. Subsection 9(1) of the Tariff requires importers and manufacturers to keep and preserve records for six years, so the collecting body can readily ascertain the amounts payable and the information required under the tariff. Pursuant to subsection 9(2), the collecting body may audit these records any time on reasonable notice to the manufacturer or importer. The text of these two provisions is also found in Annex 2 of these reasons.
[8] One of the key concepts of this regime is obviously that of an “audio recording medium”. Section 79 of the Act defines it as a “…recording medium, regardless of its material form, onto which a sound recording may be reproduced and that is of a kind ordinarily used by individual consumers for that purpose…” Equally relevant is the statutory definition of “blank audio recording medium,” which is defined as: (a) an audio recording medium onto which no sounds have ever been fixed, and (b) any other prescribed audio recording medium.” I shall come back to these definitions, as the defendants’ request for bifurcation is largely predicated on how the definition is interpreted.
[9] The Act only lists two exceptions to the scheme in Part VIII. The first is found in subsection 82(2), which says that Part VIII does not apply to blank audio recording media exported from Canada. The second exemption from the levy is for all blank audio recording media sold to persons with a perceptual disability [subsection 86(1)].
[10] Finally, section 88 of the Act outlines the collecting body’s possible remedies if a manufacturer or importer defaults on its levy payments. It can recover levies in court [subsection 88(1)], and a court can order a defaulting party to pay up to five times the amount it owes to the collecting body [subsection 88(2)]. In making such an order, the court must consider whether the defaulting party acted in good or bad faith, the parties’ conduct before and during the proceedings, and the need for deterrence [subsection 88(4)]. Moreover, the collecting body can apply under subsection 88(3) for a court order instructing a defaulting party to comply with any of its obligations under Part VIII.
2) The Parties
[11] The Collective is a non-profit corporation established under Part II of the Canada Corporations Act, R.S.C. 1970, c. C-32. It is composed of collective societies that hold private copying remuneration rights on behalf of rightsholders. It has been mandated by its members to collect and distribute private copying levies on their behalf, and the Copyright Board has designated it as the collecting body, pursuant to subsection 83(8) of the Act. Section 84 requires the Collective to distribute the levies to the collective societies it represents “as soon as practicable after receiving the levies paid to it”.
[12] As for the defendants, Z.E.I. Media Plus Inc. (Z.E.I.) is a Quebec wholesaler and retailer of computer-related products like CD-Rs and CD-RWs. Zanin CD/DVD Inc. (Zanin) is also a Quebec corporation. It provides duplication and silk-screening services, and operates in the same premises as Z.E.I. Joseph Lemme is the sole officer and director of Zanin, and president of Z.E.I. He is also the sole director, officer and shareholder of Administration Sogelem Inc., which is the sole shareholder of Zanin and majority shareholder of Z.E.I.
3) Chronology of the Dispute
[13] The dispute between the Collective and the defendants has been ongoing for many years, as the record amply shows. In 2001, the Collective audited Z.E.I.’s records and, as a result of the audit, claimed that Z.E.I. owed $18,848.20 in levies. For reasons that have not been explained, this letter was never acted upon and the invoice was never paid.
[14] At the Collective’s request, another audit was conducted in 2004. It appears the Collective’s auditors were not provided with complete information concerning sales of relevant media, and were denied documents requested like bank statements, cancelled cheques, deposit books, general ledgers, trial balance and financial statements. Based on the information available, the Collective’s auditors nevertheless calculated Z.E.I.’s levy liability for the periods audited at $1,718,102.
[15] Zanin, on the other hand, has allegedly never reported its importations and sales of blank audio recording media. The Collective claims Zanin has not remitted any levies at all.
[16] Throughout these years, Z.E.I. and Zanin have always maintained that their products, which they call “blank industrial media”, do not fall within the definition of “blank audio recording medium”, and therefore Z.E.I. and Zanin’s importation and sale of these media cannot be levied as such. I shall revert to this argument shortly, but suffice it to say for the moment, that the defendants’ thesis is essentially that most of the CDs they sell, because of their characteristics and price, are not ordinarily used by individual consumers but are designed for the industrial, commercial and institutional worlds.
[17] After protracted discussions and negotiations, the Collective filed a statement of claim on March 31, 2005 against the defendants, for failing to report and pay private copying levies. Alleging that the defendants unjustifiably failed to comply with their reporting obligations under the Act, thus preventing the Collective from establishing the true extent of their liability, the Collective is now asking the Court to declare that the defendants have failed to report and pay their private copying levies. It is asking the Court to order the defendants to pay five times the amount owed in outstanding levies – the maximum amount allowed under subsection 88(2) of the Act. It is also asking for unpaid interest, pre-judgment and post-judgment interest, and costs throughout. Finally, the Collective is asking for an order requiring the defendants to produce detailed statements of account within thirty days of this decision.
[18] The defendants filed a statement of defence on April 27, 2005, but the Collective objected to it because it contained privileged information from prior settlement negotiations. After discussions between the parties and with the Collective’s consent, the defendants filed an amended statement of defence on August 23, 2005.
[19] The Collective’s affidavit of documents was served November 18, 2005, with a supplement served November 22, 2005. The defendants’ affidavit of documents was served November 18, 2005.
[20] On January 25, 2006, the Collective filed a motion to compel service of a complete and accurate affidavit of documents, pursuant to Rule 223 of the Federal Courts Rules (the Rules). While not denying that the defendants will not be subject to pay any levies if the CD-Rs are not considered blank audio recording media, the Collective argued it could not determine the exact amount of the defendants’ liability unless it could calculate the number of units of blank audio recording media which have been imported and sold in Canada by each of the defendants. For the Collective to be in a position to make that calculation, it requested, more specifically:
a) all documents relevant to the importation of blank audio recording media into Canada by each of the Defendants, such as purchase orders, invoices, shipping documents, customs documents, correspondence with customs brokers, payment journals, etc. from December 1999 to the present or prior to December 1999 for blank audio recording media sold in Canada in or after December 1999;
b) all documents relevant to the purchase of blank audio recording media in Canada by each of the Defendants, such as purchase orders, invoices, shipping documents, payments journals, etc., from December 1999 to the present; and
c) documents relevant to the sale of blank audio recording media in Canada by each of the Defendants, such as invoices, purchase orders, shipping documents, inventory lists, sales journals, etc., from December 1999 to the present.
[21] Throughout these proceedings, the defendants have maintained the CD-Rs they have imported and sold - more specifically, the four brands that were revealed during the 2001 and 2004 audits - are industrial media not ordinarily used by individual consumers for the purpose of reproducing sound recordings. They have further maintained that a large portion of their sales of imported industrial media qualify under the Collective’s zero-rating program. The Collective implemented this program in response to the claim that private copying levies were unfair for those not using media to copy music. The program waives the levies from certain approved manufacturers and importers who sell blank audio recording media to specific persons or organizations, such as broadcasters, law enforcement agencies, courts and tribunals, and religious and educational institutions. To benefit from this program, both purchasers and sellers of blank audio recording media must have entered into a “Zero-Rating Agreement” with the Collective.
THE IMPUGNED DECISION
[22] On June 30, 2006, Prothonotary Morneau allowed the Collective’s motion and ordered the defendants to provide a better affidavit of documents. In doing so, the prothonotary endorsed the specific requirements spelled out in the Collective’s motion with respect to the documents to be disclosed, which I have reproduced at paragraph 20 of these reasons. He also refused the defendants’ bifurcation request under rule 107 of the Rules, and ordered the case to be specially managed.
[23] Prothonotary Morneau rejected the defendants’ argument that disclosure would intrude too heavily into their business affairs. Rather, since the Court was rejecting their bifurcation request, the documents in question were “relevant” under rule 222(2) of the Rules and thus ought to be disclosed. He also rejected the defendants’ claim that Part VIII of the Act has created a regime requiring issues of quantum and liability to be resolved in separate proceedings. The gist of his argument on this issue is found at paragraph 28 of his reasons, where he wrote:
Deuxièmement, le texte même du paragraphe 88(3) indique qu’il est permissive à l’égard de la Société vu l’emploi de l’expression “peut” et ce même texte prévoit de plus que si la Société fait appel de façon spécifique à ce paragraphe de la Loi, cet exercice n’empêche pas tout autre recours possible de la part de la Société. Je ne vois donc rien dans le texte de la Loi qui empêchait la Société de formuler sa déclaration tel qu’elle l’a fait.
[24] Then, the prothonotary declined to exercise his discretion to order separate proceedings under rule 107. He followed Illva Saronno S.p.A. v. Privilegiata Fabbrica Maraschino “Excelsior”, [1999] 1 F.C. 146 [Illva Saronno], concluding the defendants had not met their burden to prove separate proceedings would “…result in the just, expeditious and least expensive of the determination on its merits” (Illva Saronno, at paragraph 14).
[25] Finally, he noted that, unlike issues litigated in intellectual property cases, the issues at stake in this case were so interrelated that the argument to sever the proceedings on liability and quantum of damages was further weakened.
ISSUES
[26] This appeal raises three questions:
1) What is the appropriate standard of review?
2) Should Prothonotary Morneau’s decision regarding bifurcation be disturbed?
3) Should Prothonotary Morneau’s ordering of a more complete and accurate affidavit of documents be disturbed?
ANALYSIS
1) Standard of Review
[27] The applicable standard of review for appeals of prothonotaries’ orders launched pursuant to rule 51 of the Rules was set out by Justice Mark MacGuigan of the Federal Court of Appeal, in Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 at paragraphs 95-99 [Aqua-Gem]. It was further clarified by Justice Robert Décary of the same Court in Merck & Co. v. Apotex Inc. (2003), 30 C.P.R. (4th) 40 at paragraph 18. He reversed the sequence of Justice MacGuigan’s propositions, but he also made it clear that the emphasis must be on the subject of the orders, not on their effect. Justice Décary therefore reformulated the test at paragraph 19, so that it now reads like this:
Discretionary orders of prothonotaries ought not be disturbed on appeal to a judge unless:
a) the questions raised in the motion are vital to the final issue of the case, or
b) the orders are clearly wrong, in the sense that the exercise of discretion by the prothonotary was based upon a wrong principle or upon a misapprehension of the facts.
[28] Justice Décary went on to stress that the threshold to determine whether an issue is “vital” is a high one. He relied on the minority reasons of Chief Justice Julius Isaac in Aqua-Gem, above, who wrote that Parliament’s intention in creating the office of prothonotary (i.e. to promote the efficient performance of the work of the Court) would be frustrated if all their decisions were to be reviewable by a judge. Justice Décary had this to say on this issue at paragraphs 22 and 23:
The test of “vitality”, if I am allowed this expression, which was developed in Aqua-Gem, is a stringent one. The use of the word “vital” is significant.
[…]
One should not, therefore, come too hastily to the conclusion that a question, however important it might be, is a vital one. Yet one should remain alert that a vital question not be reviewed de novo merely because of a natural propensity to defer to prothonotaries in procedural matters.
[29] Applying this standard to Prothonotary Morneau’s decision, I am of the view that neither of the two issues he decided could be characterized as “vital” to the final disposition of the case. I have not understood counsel for the defendants arguing otherwise. Nor could he have done so credibly.
[30] Considering first the argument that the proceeding should be bifurcated so as to deal separately with the issues of liability and quantum, the defendants have not been able to marshal a single decision in support of that proposition. It may be that the decision to proceed with all the issues at once instead of dealing with them seriatim will inconvenience one of the parties, or prove to be ill-advised in terms of the most expeditious and least expensive determination of the proceeding on its merits. But this is a far cry from saying that the order raises a question that is vital to the final issue of the case, especially bearing in mind that the emphasis must be on the subject of the orders, not on their effect.
[31] This Court and the Federal Court of Appeal have consistently held that a prothonotary’s decision about whether to bifurcate a proceeding is discretionary in nature, and should not be disturbed unless it is clearly wrong. As my colleague Justice Luc Martineau wrote in Merck & Co. v. Brantford Chemicals Inc. (2004), 35 C.P.R.(4th) 4 at paragraph 2:
A discretionary order of a Prothonotary, such as a decision regarding whether to bifurcate a proceeding, will not be disturbed on appeal unless it is clearly wrong, in that it was based upon a wrong legal principle or upon a palpable and overriding misapprehension of the facts. Absent such an error, this Court should not interfere with the exercise of a Prothonotary’s discretion, even where the presiding judge would have decided the matter differently had he or she heard the matter in the first instance (Canada v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 (F.C.A.) at 463; Visx Inc. v. Nidek Co. (1996), 72 C.P.R.(3d) 19 (F.C.A.) at 22, 23).
See also: Fero Holdings Ltd. v. Blok Lok Ltd., 2003 FCT 353 (F.C.).
[32] I see no reason to depart from these decisions, particularly since the defendants have not referred me to any case law recommending such an approach. Nor I have been able to find any such cases in my own research. Thus, the only question to ask is whether the prothonotary’s decision not to separate the proceedings was “clearly wrong”.
[33] I am similarly of the view that the prothonotary’s decision to order a more complete and accurate affidavit of documents is not vital to the final outcome of the case. In its written submissions, the Collective referred to my earlier decision in Contour Optik, Inc. v. Viva Canada Inc. (2005), 45 C.P.R.(4th) 31 [Contour Optik], where I stated at paragraphs 27 and 28:
The Defendants have not contended that further disclosure of documents can be considered as vital to the final determination of the case, nor do I think it can be so ruled. However important such an issue might be, it will be rare indeed that a procedural matter will amount to a vital issue. As Justice Hugessen recently indicated in Ruman v. The Queen, [2005] F.C.J. No. 614 (QL), 2005 FC 474, 138 A.C.W.S. (3d) 820, at para. 7, “it will be a rare case when it can be shown that the denial of further discovery or further documents will be vital to the final outcome”.
As a result, the Defendants cannot succeed in their appeal unless they are able to demonstrate that the Management Prothonotary was clearly wrong in restricting the contents of the further and better affidavits of documents which the Plaintiffs were ordered to furnish.
[34] As mentioned before, what matters is the subject of the order, rather than its effect. While the outcome of Prothonotary Morneau’s order was different than in Contour Optik, above, allowing rather than refusing disclosure, I believe the issue was the same. In both instances, the issue, properly characterized, was the further disclosure of documents. Accordingly, I am inclined to think that the rationale underlying that case applies with equal force here.
[35] This argument is further reinforced by an argument of pure logic. If a refusal to order a better affidavit of documents is not vital to the final determination of a case, it would seem, a fortiori, that an order to provide a better affidavit of documents cannot be considered vital to the final determination of the case. After all, the presiding judge will always have the authority to discard documents found to be irrelevant.
[36] As a result, I shall now turn to the prothonotary’s decisions to determine whether they are clearly wrong, and not to decide whether I would have come to the same conclusion. It must constantly be remembered that prothonotaries, if they are to perform the most useful role they have been assigned by Parliament, must be given some degree of flexibility in the use of their discretionary powers. So long as they do not err in law or overlook important facts, their decisions should stand.
2) Should the Prothonotary’s Decision Regarding Bifurcation be Disturbed?
[37] The defendants claim that the issue of liability must be resolved before a plaintiff can seek recovery of private copying levies. The record shows that since the private copying regime has come into force, the defendants’ liability for importing and selling media in Canada has been the subject of a serious dispute between the parties - the defendants arguing that the CD-Rs targeted by the audits are of an industrial nature and thus do not fall within the statutory definition of “blank audio recording media”. Accordingly, they contend it was an error to presume they were liable for a certain amount of private copying levies, and that the Court’s order was premature as it addressed quantum before resolving liability.
[38] The defendants contend that the framework of the Act supports their argument that liability must be determined separately from damages. This is indeed their main argument, the gist of which is captured in the following paragraphs of their factum:
27. The Prothonotary rejected Defendants representations regarding the framework of the Private Copying Regime stating, at paragraph 28 of the Reasons for the Order, that the wording of subsection 88(3) of the Copyright Act on compliance orders is merely suggestive. The Prothonotary, however, failed to properly take into consideration the balance of section 88 on civil remedies under the Private Copying Regime as well as the economy of the Private Copying Regime as a whole.
28. Subsection 88(1) of the Copyright Act with respect to the collection of private copying levies states that Plaintiff may, in default of payment of the levies due to it, recover them in a court of a competent jurisdiction.
29. Accordingly, Plaintiff’s right to the recovery of levies in court is based on the established fact that levies are due. Pursuant to paragraph 82(1)(a) of the Copyright Act, private copying levies are only due with respect to the importation into Canada and sale therein of blank audio recording media. Blank audio recording media is a defined term at 79 of the Copyright Act. All rights and obligations under the Private Copying Regime flow from the interpretation and application of this defined term.
30. Insofar that the parties dispute the application of the definition of blank audio recording media to the media imported and sold by Defendants, it cannot be said that levies are in fact due upon which Plaintiff can sue for their recovery following Defendant’s failure to pay same. An action for recovery of private copying levies due is premature insofar that there is an outstanding issue of liability.
[39] I agree with the defendants that subsection 88(1) of the Act is premised on the notion that levies are due and ascertainable. Does that mean that if the payment of levies is disputed by a defendant, the Collective’s only alternative is to apply to a court of competent jurisdiction to compel the production of documents, pursuant to subsection 88(3)? I do not think so.
[40] First of all, subsection 88(3) clearly leaves open the possibility for the Collective to seek “any other remedy available”. I note in passing that subsection 88(1) is similarly worded. As a result, the remedies provided by the Act cannot be interpreted as being exhaustive and do not preclude the Collective from resorting to other ways of enforcing the Act. This is precisely how the prothonotary interpreted these provisions in his reasons, where he wrote:
28. Deuxièmement, le texte même du paragraphe 88(3) indique qu’il est permissive à l’égard de la Société vu l’emploi de l’expression « peut » et ce même texte prévoit de plus que si la Société fait appel de façon spécifique à ce paragraphe de la Loi, cet exercice n’empêche pas tout autre recours possible de la part de la Société. Je ne vois donc rien dans le texte de la Loi qui empêchait la Société de formuler sa déclaration tel qu’elle l’a fait.
29. Dans cet ordre d’idées, il faut retenir également que la recherche de documents par la Société se base sur les exigences de la règle 223 dans le cadre d’une action et non pas en fonction du libellé et de la possibilité que prévoit le paragraphe 88(3) de la Loi.
[41] Furthermore, subsection 88(3) is clearly of a residuary nature. It can be resorted to “where any obligation imposed by this Part is not complied with”. Accordingly, it appears the Collective can rely on that provision to enforce both the obligation to keep statements and report, pursuant to paragraph 88(1)(b) of the Act, and the obligation to pay a levy on blank audio recording media pursuant to paragraph 88(1)(a). There is certainly nothing in section 88, nor indeed in the entire framework of Part VIII of the Act, that implicitly mandates a two-step process.
[42] If it were otherwise, and if the defendants’ argument was to be taken to its natural conclusion, all litigation for the recovery of levies would have to be bifurcated. This is clearly an untenable proposition. Of course, the defendants have tried to argue that theirs is a special case, even a kind of “test case”, because no one has ever determined if the type of CD-Rs they sell are subject to the private copying regime.
[43] I am far from convinced this argument makes much of a difference. If it does, it can only be as a result of applying the proper test to determine if it is appropriate to bifurcate the proceeding under rule 107 of the Rules, to which I shall turn shortly. Moreover, it is far from obvious that the private copying regime found in Part VIII of the Act can accommodate such a concept as “industrial media”. While I realize that conflicting views about liability will be debated later in front of the presiding judge, it is nevertheless worth referring to what the Federal Court of Appeal had to say about the phrase “ordinarily used” in the definition of “audio recording medium”.
[44] In AVS Technologies Inc. v. Canadian Mechanical Reproduction Rights Agency (2000), 7 C.P.R. (4th) 68, the Court held that it is not a defence for importers or manufacturers of blank audio recording media to allege that the media they sell are not intended for private copying of music. “Ordinarily used”, the Court said, must be defined by looking at how individual consumers used the product, rather than looking at the use of the products generally. The fact that only five per cent of a given type of medium is sold to individual consumers does not mean that it does not qualify for levies. It may well be that all those media, including the 95 per cent sold to non-consumers, will be subject to the levy as long as a non-marginal number of consumers use the products for private copying in a fashion that is not marginal. Of course, this does not preclude the Board from reducing the rate of the levy to take into account to whom they are sold, as it did in that case.
[45] It is also worth considering another decision of the Federal Court of Appeal, reported as Canadian Private Copying Collective v. Canadian Storage Media Alliance, 2004 FCA 424, [2005] 2 F.C. 654. Sitting on judicial review of a decision by the Copyright Board which established the private copying levies for 2003 and 2004, the Court concluded the Board was right not to take the zero-rating program into account in setting the levies. The Court wrote, at paragraph 125:
In my view, the Board did not commit any reviewable error when it held that the zero-rating program is not authorized under the Act and “illegal” in that limited sense, and that it would no longer compensate the CPCC for the impact of the program on its revenues because that would, in effect, provide for an exemption from the scheme, contrary to Parliament’s intention.
[46] These two cases make it clear that the only exemptions from the private copying regime are those found explicitly in the Act. Adding to the exemptions is Parliament’s role. At the very least, this undermines the defendants’ argument that it is premature to address the quantum issue because they are likely not liable to pay levies on the type of audio recording media they sell.
[47] In any event, I have not been convinced for all the reasons outlined above that the structure of the private copying regime is premised on the assumption that the defendants’ liability must be assessed prior to determining the amount owed in unpaid levies. On November 16, 2006, the defendants filed submissions from the Collective’s counsel as authority for their claim that Part VIII of the Act itself mandates separate proceedings for liability and quantum. The letter in question was written by the Collective’s counsel, David Collier, asking the Copyright Board to direct that individual manufacturers and importers of blank audio recording media comply with their obligations under the private copying regime.
[48] To argue that Mr. Collier’s letter can support an argument in favour of a separate regime for liability and quantum is to take the letter completely out of context. Mr. Collier was merely trying to use section 66 of the Act to convince the Board it could enforce its Tariff, and that it would be more convenient and less burdensome than having to apply to the courts. That had nothing to do with the issue of bifurcation. In any event, even if Mr. Collier’s submissions to the Board could be interpreted as support for the defendants’ position, it would certainly not be binding on this Court.
[49] The defendants’ subsidiary argument is that the prothonotary erred in his application of rule 107 of the Rules. They claim that the prothonotary wrongly focused on the timeliness of their argument, and that it will greatly reduce the volume of discovery and disclosure of confidential information if the Court first concludes they are only liable for a portion of the sales of imported recording media. An examination of the brands sold and of their characteristics is all that would be required to determine if they are liable, so the defendants argue, whereas the second issue of quantum would require “a tedious accounting exercise of sorting through thousands upon thousands of sale transactions”.
[50] First of all, I do not think the prothonotary’s decision rests solely or even mainly on the issue of delay. While he did observe that the defendants could have raised the possibility to bifurcate the proceeding earlier, as it puts into question the very basis of the Collective’s statement of claim, he also applied the appropriate considerations in ruling upon this request.
[51] Moreover, the defendants’ submission that the two issues of liability and quantum can be neatly distinguished is premised on their previous argument that certain types of audio recording media are not covered by the private copying regime. I have already indicated my reservations about this theory.
[52] Rule 107 of the Rules states the following:
(1) Separate determination of issues – The Court may, at any time, order the trial of an issue or that issues in a proceeding be determined separately.
(2) Court may stipulate procedure – In an order under subsection (1), the Court may give directions regarding the procedures to be followed, including those applicable to examinations for discovery and the discovery of documents.
[53] Prothonotary Morneau correctly applied the test set out in Illva Saronno, above, when he ruled that the defendants had failed to satisfy the Court on a balance of probabilities that bifurcation was not warranted in the present case. He wrote, more specifically:
[40] En l’espèce, je suis d’avis que les défenderesses ne se sont pas acquittées de l’obligation qui leur revenait d’établir selon la prépondérance de preuve que la possibilité d’effectuer des économies de temps et d’argent et d’apporter une solution juste à un litige qui tarde à se parfaire est telle qu’est justifiée une dérogation au principe général qui a prévalu jusqu’ici et qui est à l’effet que toutes les questions qui se posent dans une instance, ici on parle des questions d’assujettissement et de quantum, soient examinées ensemble.
[54] Before coming to this conclusion, Prothonotary Morneau aptly quoted from Illva Saronno, above, where Justice John Evans wrote:
[14] Accordingly, on the basis of previous authority and in light of the changes introduced by the 1998 Rules, I would formulate the test to be applied under rule 107 as follows. On a motion under rule 107, the Court may order the postponement of discovery and the determination of remedial issues until after discovery and trial of the question of liability, if the Court is satisfied on the balance of probabilities that in the light of the evidence and all the circumstances of the case (including the nature of the claim, the conduct of the litigation, the issues and the remedies sought), severance is more likely than not to result in the just, expeditious and least expensive determination of the proceeding on its merits. [Emphasis added]
[55] As the prothonotary wrote, severance could possibly lead to even further delays in this case, with all the attendant consequences for the rightsholders. Furthermore, this is not the sort of case in which a court could easily separate the issues of quantum and liability; as the prothonotary wrote, they are intimately interrelated. As for the documents sought by the Collective, they will very likely allow both issues of liability and of quantum to be determined. To conclude as much was certainly within the prothonotary’s discretion – and I do not believe the way he exercised that discretion was clearly wrong.
3) Should the Prothonotary’s Order for a More Complete and Accurate Affidavit of Documents be Disturbed?
[56] The defendants submit that many of the documents subject to Prothonotary Morneau’s order are irrelevant for the purposes of determining the amount of levies owed to the Collective. They claim that pursuant to section 7 of the Tariffs, the obligation to pay a levy is only triggered at the point of sale. Accordingly, the only documents relevant within the meaning of rule 222(2) of the Rules are the defendants’ sales reports, and possibly their invoices concerning their sale in Canada of blank audio recording media they imported. The other types of documents listed in the order, such as purchase orders, journals, shipping documents and correspondence are allegedly “peripheral” and, in certain cases, irrelevant, as they would not establish a sale took place.
[57] Similarly, the defendants contend that documents concerning their purchase in Canada of blank audio recording media [item (b) of the order] are irrelevant, not only because no levy is due until a sale takes place, but also because defendants’ purchases in Canada are irrelevant as no levy is payable on such media that was not imported by defendants. As for their importation of blank audio recording media in Canada [item (a) of the order], the defendants argue that they are not relevant either as such media must first be sold, and be sold as blank audio recording media before a levy becomes payable.
[58] Finally, the defendants submit they cannot confirm the documents listed in the Court’s order exist until they go through all their records if ordered to do so. They claim it was an error to assume all the documents in the order exist. They also insist that 21 days is not enough time to comply with such an onerous disclosure order. They argue they need at least 120 days to comply with the terms of the order if it is upheld on this appeal.
[59] None of these arguments convince me that the prothonotary’s decision was clearly wrong. Rule 222(2) says that a document is relevant “if the party intends to rely on it or if the document tends to adversely affect the party’s case or to support another party’s case”. The case law is quite clear that disclosure of documents is a matter of relevance, not of discretion (see Cooper Industries Inc. v. Caplan Industries Inc. (1998), 80 C.P.R. (3d) 237 at page 240; Havana House Cigar & Tobacco Merchants Ltd. v. Naeini (1998), 80 C.P.R. (3d) 132 at pages 141-142 (F.C.), aff’d (1998), 80 C.P.R. (3d) 563).
[60] In contrast, the defendants’ submissions seem to imply that what matters is necessity. Their submissions are founded on the argument that if a document is not essential for the Collective to prove its case, they are under no obligation to disclose it. This is simply not the test.
[61] Nor can the defendants be left to decide what they will provide in light of their own interpretation of what is leviable (see Symtron Systems, Inc. v. I.C.S. International Code Fire Services Inc., 2001 FCT 1226). It is a judge’s role to determine their liability on its merits, and that determination cannot