Whether we consider its system of governmental or its legal system, Canada sometimes appears to be a schizophrenic country.

The federal and provincial governments each have their own jurisdiction assigned by the Constitution Act, 1867. In addition, Quebec is a civil law jurisdiction, with its own Civil Code of Quebec (C.c.Q.), stemming from its French origins. Other provinces have inherited English common law. The provincial superior courts and the Federal Court of Canada settle debates based on the jurisdiction granted to them by the Constitution Act, 1867. Despite this division of power, the jurisdictions of the superior courts and the Federal Court are not airtight. It is sometimes possible to bring a proceeding in the Federal Court or in the superior court of a province in relation to the same facts.

A recent decision of Justice Martineau of the Federal Court shows how this overlapping jurisdiction can have interesting consequences. Provisions of the C.c.Q. were used to determine the outcome of proceedings initiated in Quebec in the Federal Court.

The disputes

Domaine Pinnacle Inc. (Pinnacle) produces apple ice cider branded "Domaine Pinnacle." Beam Suntory Inc., Beam Canada Inc. and Jim Beam Brands Co. (collectively, Beam) distribute flavoured vodkas named "Pinnacle" in Canada, with the exception of Quebec.

In December 2012, Pinnacle filed a motion to institute proceedings in the Superior Court of Quebec in order to obtain permanent, interlocutory and interim injunctions against Beam to prevent the marketing of vodka and other alcoholic products bearing the name "Pinnacle" in Quebec.

In February 2013, Pinnacle also instituted an action in the Federal Court against Beam alleging unfair competition and trademark infringement under paragraphs 7(b) and 7(c) of the Trade-marks Act. Beam filed a counterclaim seeking, among other relief, a declaration that the use of "Pinnacle" in connection with its vodka does not violate any right alleged by Pinnacle.

The issue

On March 30, 2015, Beam made a written offer of settlement (offer) to Pinnacle, which included three elements:

  • Pinnacle withdraw its action;
  • Beam withdraw its counterclaim; and,
  • Each party bear its own costs.

On April 1, 2015, Pinnacle unconditionally accepted the offer and filed a notice of discontinuance of its action in the Federal Court on the same day. However, on April 2, 2015, Beam advised Pinnacle of its refusal to withdraw its counterclaim on the ground that Pinnacle had not also discontinued proceedings instituted before the Superior Court of Quebec. The problem? The offer did not require Pinnacle to discontinue its action in the Superior Court.

The matter to be decided

Justice Martineau had to determine whether the unconditional acceptance of the final offer of settlement made under Rule 420 of the Federal Courts Rules terminated the proceedings before the Federal Court and constituted a binding transaction for Beam.

Pinnacle sought the homologation of the transaction and its enforcement following the acceptance of the offer. Beam pleaded defect of consent in order to rescind the transaction between the parties. Beam also filed a motion to amend its defense and counterclaim in the Federal Court so as to argue that Pinnacle was acting in bad faith and that the filing of a discontinuance of the action in the Federal Court constituted an abuse of process. However, Beam withdrew this motion on the third day of hearing.

The decision

Justice Martineau began his judgment by determining whether the Federal Court had jurisdiction in this case. He concluded that the Federal Court, having concurrent jurisdiction over the action in the Federal Court and the counterclaim under Section 20 of the Federal Courts Act, could rule on the validity of the transaction, interpret the offer or the terms of the transaction or proceed with its homologation in order to enforce it.

Justice Martineau decided that a transaction had been concluded between the parties following the unconditional acceptance of Beam’s offer by Pinnacle. He applied the provisions of the C.c.Q. concerning contract formation and the rules governing offer and acceptance. He concluded that a settlement offer followed by acceptance is a valid transaction.

Beam claimed that one must look for the common intention of the parties to interpret the offer. It argued that the object of the transaction was the renunciation by the parties of the conclusions sought in their respective procedures. This included the action in the Superior Court, which had the same purpose as the action in the Federal Court.

Justice Martineau relied again on the provisions of the C.c.Q., this time on the rules of contract interpretation, and rejected the interpretation proposed by Beam. He referred to Article 1431 C.c.Q., which provides that the clauses of a contract, even if they are stated in general terms, cover only what it appears that the parties intended to include. Mutual concessions or reservations are the essence of a transaction. Justice Martineau concluded that if a reservation (regarding the Superior Court action) was not recorded, it could not be retroactively included by the court under the guise of interpreting the transaction. As the March 30, 2015, offer was clear, Justice Martineau did not consider it necessary to interpret it.

On costs, Justice Martineau agreed with Pinnacle that there was an abuse of rights when Beam tried to mislead the court regarding the content of the offer and bad faith when Beam attempted to add additional conditions. Exercising his judicial discretion, Justice Martineau concluded that a lump sum of $30,000 in costs was reasonable and should be granted to Pinnacle.