Some defendants have the mistaken belief that court deadlines are inherently flexible, and that even a default judgment can be set aside with a simple “mea culpa”. Not so. Without a reasonable explanation—and proof supporting that explanation—failure to defend spells liability. The case of Benchmuel v. Gags N Giggles is a reminder of the permanent consequences of ignoring court deadlines and not retaining counsel at the outset.

Case

Benchmuel v. Gags N Giggles, 2017 FC 720

IP Type

Copyright, Trademarks

Summary

In Benchmuel v. Gags N Giggles, the plaintiffs owned intellectual property rights in designs that were applied to a range of clothing and sold in Niagara Falls. The defendants owned souvenir stores in Niagara Falls and sold products marked with the plaintiffs’ intellectual property.

The plaintiffs took aggressive steps to protect their rights. They obtained an ex parte order enjoining the display, sale and destruction of the infringing products. There was no dispute that the order, together with the statement of claim alleging copyright infringement and passing off, were properly served. A bailiff left the documents with a store employee, and made repeated efforts to contact the store owners by phone and in person, but to no avail.

The 30-day deadline for filing a statement of defence passed. Three days later, the plaintiffs moved, ex parte, for default judgment, claiming the maximum amount of statutory damages, punitive damages, a permanent injunction and costs. Default judgment was granted; the monetary award exceeded $55,000.

About three weeks after the judgment was granted, the defendants retained counsel and moved to set it aside. To be successful on such a motion, a defendant must demonstrate: (1) a reasonable explanation for the failure to file a statement of defence, (2) a defence on the merits, and (3) that the motion to set aside the judgment was brought within a reasonable time. All three prongs of the test must be met. Here, the defendants failed on what might in some circumstances be considered the lowest hurdle: the reasonable explanation.

The defendants' excuse for their delay was that they were “under the impression” that a settlement had been reached with the plaintiffs. The impression arose from a discussion at a trade show with one of the plaintiffs' sales representative. The defendants claimed the sales rep advised the dispute would be settled if the defendants agreed to cease selling and destroy the infringing products and confirmed in writing. Other than the defendants’ say-so in an affidavit, there was no evidence of any effort to formalize the settlement, the existence of which the plaintiffs vehemently denied.

The Court rejected the defendants' version of events and found that their actions reflected “a willful blindness” and a “serious disregard for the legal process” in circumstances that could not “attract the leniency of the Court”. The Court concluded that no reasonable business person would have been under the impression a very defendant-friendly settlement had been reached without speaking with an authorized representative of the settling party or taking any steps to verify the settlement.

Neither the plaintiffs' alacrity nor the defendants' professed lack of sophistication overcame the delay. Although the plaintiffs had proceeded extremely rapidly, they did so within the boundaries of the law. The Court was not persuaded that lack of sophistication caused the defendants’ inertia and ruled that a failure to obtain legal advice does not excuse a failure to comply with the rules.