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Court of Appeal Clarifies Costs Framework in Copyright Class Action

On November 15, 2017, the Federal Court of Appeal issued its Reasons for Judgment in an appeal from an order that (1) granted the respondent’s motion for security for costs for a pending certification motion, (2) set the quantum of security at $75,000.00 and (3) awarded the respondent lump sum costs of $750.00 on the motion. A copy of the Federal Court’s Order and Reasons can be found here.

Background

The appellants, Voltage Pictures, commenced a proposed class proceeding against the proposed representative respondent, Mr. Salna, and others like him who are said to have engaged in illegal file sharing that infringed Voltage Pictures’ copyright in several movies. Voltage Pictures sought to have the proceeding certified as a so-called “reverse” class action, where the plaintiffs sue a class of similarly situated defendants. Before Voltage Pictures served and filed their motion for certification Mr. Salna brought a motion requesting that Voltage Pictures pay security for costs regarding their intended motion for certification.

The Decision Below

In the decision below the Court acknowledged that Rule 334.39(1) of the Federal Courts Rules establishes that unless one of the enumerated exceptions applies no costs may be awarded in respect of a motion for certification. The Court, however, citing Pearson and Campbell, where it was established that costs in respect of a motion to strike a statement of claim in a proposed class proceeding can be awarded if the motions are brought before the motion for certification is filed, held that Rule 334.39(1) is not triggered prior to the motion for certification. Since no certification motion had yet been filed, the Court held that Rule 334.39(1) was not engaged and Mr. Salna could seek security for costs.

The Appeal

The Court of Appeal disagreed and distinguished Pearson and Campbell on the basis that they involved motions to strike which are independent of motions for certification. Since Rule 334.39(1) provides that no costs may be awarded on a motion for certification (unless an exception applies) the Court of Appeal held that Rule 334.39(1) would be undermined if a defendant could circumvent the rule by simply appropriately timing a motion for security for costs:

[7] Here, on the other hand, the situation is entirely the opposite. The purpose of a motion for security for costs is to obtain at least a partial guarantee for the payment of costs that might eventually be awarded in a proceeding. In the instant case, that guarantee was sought in respect of the costs anticipated in regard to the motion for certification. Rule 334.39 provides that, unless one of the exceptions in the rule applies, no costs may be awarded in respect of a motion for certification. It would drive a wedge through the presumptive no costs regime enshrined in the Rules if a defendant could circumvent the bar against an award of costs by merely bringing a motion for security for costs as soon as the defendant is served with a statement of claim in a proposed class proceeding. Moreover, the timing of the motion for security and of the motion for certification in the present case was the result of dates set by the motion judge. It is accordingly artificial to suggest that such timing provides the basis for making the order under appeal. Thus, the reasons offered by the Federal Court for finding that it possessed jurisdiction to award security for costs in the instant case cannot withstand scrutiny.

Nonetheless, the Court of Appeal upheld the order for alternative reasons. Rule (334.39(1)(c)) allows for costs in a class action in exceptional circumstances. The Court of Appeal held that in the circumstances of this case it is possible that Mr. Salna could fall within this exception, but that any such determination would need to await determination of the certification motion. On this basis, the Court of Appeal found the Federal Court had jurisdiction to award security for costs and dismissed Voltage’s appeal.

The Court of Appeal also refused to interfere with the quantum of security ordered by the Federal Court ($75,000.00) holding that Voltage had not identified any palpable and overriding errors that would permit interfering with this discretionary and factual determination.

With respect to the award of costs for the motion, the Court of Appeal agreed that the Federal Court could not award costs on the motion unless it determined that one of the exceptions to Rule 334.39(1) applied. Since no such finding had been made, the Court of Appeal set aside the costs award for the security motion and remitted the issue back to Federal Court for reconsideration. The Court of Appeal further noted that on the reconsideration a finding that an exception to Rule 334.39(1) applies is a precondition to awarding costs but also stated that it would be open to the Federal Court to defer making such a finding until after the certification motion is determined.

The Court of Appeal also clarified the procedure for dealing with costs. While a Court may award costs on a lump sum basis, parties should be prepared to make submissions on costs, including quantum, during the motion unless an offer to settle has been made. In the latter case, Rule 422 provides that settlement offers cannot be referred to until a decision on the merits is made so that the best course of action where a settlement offer has been made is for counsel to request that the Court reserve the issue of costs for determination after the decision on the merits.

A copy of the Court of Appeal’s Reasons for Judgment can be found here.