Federal Court of Appeal slams ‘Goldilocks approach’ in right to interpret contract

By May Cheng, Author at The Lawyer’s Daily

Thursday, September 10, 2020 @ 8:30 AM

The Federal Court of Appeal appears to be eagerly looking for more work to do. In a significant ruling during the normally sleepy summer months, compounded by court closures due to COVID-19, the Federal Court of Appeal in Salt Canada Inc. v. Baker 2020 FCA 127, not only recognized the jurisdiction of the Federal Court to interpret contracts, it went on to issue the decision that the lower court had refused to undertake due to lack of jurisdiction.

The jurisdiction of the Federal Court has been the subject of many preliminary procedural skirmishes over the years, challenging the court’s ability to interpret contracts on the basis of lack of inherent jurisdiction. These challenges are generally designed to keep the Federal Court from determining a dispute, even if the contractual aspect is ancillary to the overall merits that fall within the purview of the court’s jurisdiction.

This has been particularly vexing in intellectual property disputes, where the Federal Court enjoys special expertise and has the exclusive ability to amend the Register of Patents and Trademarks, for example, to invalidate a patent or expunge a trademark. Therefore, taking a case in the Ontario courts limits a litigant’s ability to also challenge the validity of the patent or trademark asserted.

In the case at hand, Justice Keith Boswell for the Federal Court had determined that the court lacked jurisdiction in a patent ownership dispute to interpret the underlying contract between the parties that purported to determine the question of ownership. Having found no jurisdiction to determine the contract, the Federal Court had effectively turned the plaintiff away to seek a remedy elsewhere before a provincial court, even though the provincial court could not amend the Register of Patents, which was the relief requested.

In the unanimous Federal Court of Appeal decision, Justice David Stratas starts by calling the decision of Justice Boswell an “error” that ignores the Federal Court’s special jurisdiction and role in superintending the Patent Office. The decision is a “tour de force” that will certainly be cited with authority going forward. Justice Stratas makes a bold statement from the outset: “Interpreting agreements and other commercial instruments is not the exclusive preserve of provincial superior courts.”

Justice Stratas then goes on to hold that the lower court’s analysis focused on s. 20 of the Federal Courts Act “has no relevance whatsoever,” and that what matters is to give effect to s. 52 of the Patent Act, which provides that the “Federal Court has jurisdiction … to order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged.”

This section, coupled with s. 26 of the Federal Courts Act, serves to recognize “original jurisdiction in respect of any matter” before the Federal Court where jurisdiction has been conferred by an Act of Parliament.

Justice Stratas also holds that the “plain meaning” of s. 52 of the Patent Act, which grants the Federal Court jurisdiction to vary or expunge the title to a patent, as reflected in the records of the Patent Office, includes the right to determine issues of title to a patent. Justice Stratas logically concludes that such “determination may involve a number of things, including the interpretation of agreements and other commercial instruments. Quite appropriately, that judicial power has been given to the Federal Court, not the Patent Office.”

Justice Stratas also finds authority in the sole Supreme Court of Canada case that has interpreted s. 52 of the Patent Act, in Clopay Corp. v. Metalix Ltd. [1960] C.C.S. No. 117, aff'd 39 CPR 23 (SCC), in holding that the broad power conferred to the Federal Court to rectify the Register of Patents confers the “very wide” power of deciding who is “actually entitled to the grant” of the patent and who has the “rights” to the patent.

Justice Stratas then embarks on a broad review of the many cases involving issues of contractual interpretation undertaken by the Federal Court of Appeal since 2014, concluding that the court’s powers to interpret contractual issues is not new, and is evidenced in all manner of cases before the Federal Court. 

The Court of Appeal also holds that the lower court decision that followed Lawther v. 424470 B.C. Ltd. [1995] F.C.J. No. 549, is based on a line of cases that were “wrongly decided” and that these failed to follow the correct line of authority that had existed since the 1941 decision in Kellogg Co. v. Kellogg [1941] S.C.R. 242. Justice Stratas is unequivocal in his rejection of the Lawther case, lamenting: “Worse, it set off a line of jurisprudence spiralling away from Kellogg.” The judge speaking for the court goes on to state that he would “decline to regard Lawther as good law.” 

His disdain for the piecemeal approach taken to the question of jurisdiction in Lawther is summed up as follows: “To do this is to take a Goldilocks approach to jurisdiction, taste-testing each case for the appropriate amount of federal flavour and asserting jurisdiction only in cases where the federal content is, in the personal opinion of a judge, ‘just right.’ ”

As if still not satisfied that the point has been amply made, Justice Stratas goes on to embark on a historical legislative review of the proposed amendments to the Federal Courts Act as further foundation and rationale for the ability to interpret contracts as part of the decision-making authority granted to the court, noting the absurd and duplicative result of matters having to be decided in separate proceedings if jurisdiction is found lacking.

Having fully and unequivocally established the Federal Court’s entitlement to jurisdiction over the case at bar, Justice Stratas then elects to substitute the court’s own decision in the absence of the lower court’s ruling, rather than send the case back for further consideration. The Federal Court of Appeal quickly dispatches its task of interpreting the contract at issue and finds that the ownership of the patent should be granted to the appellant, ordering the amendment of the Patent Register to reflect the change, with costs awarded to the plaintiff throughout in accordance with the court’s tariffs.

The Federal Court of Appeal decision is a breath of fresh air in its clear and sharp analysis of an issue that has befuddled many a litigant attempting to gain recourse to the Federal Court, but not knowing if the underlying contractual or factual matrix will meet with the court’s limited statutory jurisdiction.

Needless to say, the “Goldilocks approach” is unlikely to be followed in future.

May M. Cheng is a certified specialist in intellectual property (IP) law and a partner in the IP group at Osler. She has 25 years of experience in advising clients on all aspects of IP protection and enforcement. Reach her at MCheng@osler.com. 

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

<<Back to Small Law e-Brief Page