Wednesday, April 15, 2020

Stay of Judgment Pending Appeal Granted

Evolution Technologies Inc v Human Care Canada Inc 2019 FCA 11 Webb JA granting motion for stay of judgment of 2018 FC 1304 Elliott J

At trial, Elliott J held that Human Care’s 392 patent was valid and infringed by Evolution Tech: see here. In this decision from January of 2019, only recently posted to the FCA website, Evolution sought a stay pending appeal. The applicable test is the same American Cyanamid test used in interlocutory injunctions, requiring a serious question to be tried on the merits, whether the applicant would suffer irreparable harm and and assessment of the balance of convenience [21]. The serious question threshold is low and was satisfied in this case [24].

Interlocutory injunctions are almost never granted by the FC in patent matters because of the very high threshold for establishing irreparable harm that is applied by the Federal Courts. However, irreparable harm was made out in the unusual circumstances of this stay application, for two reasons. First, Evolution established on the balance of probabilities it did not have enough money to pay the major part of the judgment and would be put out of business if required to pay [29]. This is well-recognized as perhaps the clearest type of irreparable harm: [29]. Second, normally a party seeking an interlocutory injunction will undertake to compensate the other party for any losses suffered as a result of the injunction if the injunction turned out to be ‘wrongly’ granted, in the sense that the other party ultimately prevailed on the merits. In this case, however, Human Care declined to give an undertaking to pay any amount to Evolution for any loss sustained by Evolution if the stay was not granted and Evolution was ultimately successful in its appeal [31]. Without such an undertaking, Evolution would be entirely uncompensated for its losses suffered as a result of being enjoined from selling the goods in question prior to the appeal decision, and that would clearly be a form of irreparable harm. The balance of convenience analysis followed largely from the irreparable harm issues. It is worth noting that Webb JA only stayed payment of the largest amount ordered, relating to the accounting of profits itself; the award of reasonable compensation, pre-judgment interest and costs were not stayed.

Human Care also raised two variants of an unclean hands argument, which, if successful would have meant that the stay would be denied without the need to consider the Cyanamid test. First, Human Care argued that Evolution had breached court orders by previously failing to disclose the financial documents which it has now tendered as part of its motion record [10], and so the documents should be inadmissible, following White v E B F Mfg 2005 NSCA 103 . Webb JA rejected this, and distinguished White, on the basis that a breach of the court orders had not been established [15]. Human Care also argued that Evolution had not fully disclosed its assets [16]. While Webb JA considered that Evolution had not been entirely forthcoming, this fault was not sufficiently related to the question of whether a stay should be granted [20].

In the end, Human Care’s refusal to give an undertaking was wise, as Evolution’s appeal was ultimately successful; see 2019 FCA 209, blogged here.

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