SOCIETY OF COMPOSERS, AUTHORS v. MUSIC PUBLISHERS OF, 2012 FCA 179

Federal Court of Appeal Cour d'appel fédérale Federal Court of Appeal Cour d'appel fédérale Date: 20120614 Docket: A-499-11 Citation: 2012 FCA 179 CORAM: SHARLOW J.A. PELLETIER J.A. MAINVILLE J.A. BETWEEN: SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA Appellant and IIC ENTERPRISES LTD. C.O.B. AS CHEETAH'S NIGHTCLUB Respondent Heard at Vancouver, British Columbia , on May 15, 2012. Judgment delivered at Ottawa, Ontario , on June 14, 2012. REASONS FOR JUDGMENT BY: SHARLOW J.A. CONCURRED IN BY: PELLETIER J.A. MAINVILLE J.A. Date: 20120614 Docket: A-499-11 Citation: 2012 FCA 179 CORAM: SHARLOW J.A. PELLETIER J.A. MAINVILLE J.A.

BETWEEN: SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA Appellant and IIC ENTERPRISES LTD. C.O.B. AS CHEETAH'S NIGHTCLUB Respondent REASONS FOR JUDGMENT SHARLOW J.A. [ 1 ] The issue in this appeal is whether a collective society that elects statutory damages under subsection 38.1(4) of the Copyright Act , R.S.C. 1985, c. C-42, in respect of royalties owed in British Columbia is entitled to prejudgment interest pursuant to subsection 1(1) of the Court Order Interest Act , R.S.B.C. 1996, c. 79, from the date on which the royalties were payable.

A prothonotary and a judge of the Federal Court concluded that the answer is no. I respectfully disagree, and would allow the appeal. Facts [ 2 ] The appellant Society of Composers, Authors and Music Publishers of Canada (“SOCAN”) is a collective society. It owns or administers the right of public performance in Canada, and the right to authorize such public performances, in most popular works in current use in Canada . By virtue of a tariff approved by the Copyright Board and published in the Canada Gazette (“Tariff 3C”), SOCAN was entitled to collect royalties from licencees for the calendar years 2005 to 2010.

The royalties for each year were payable on January 31 of the following year. [ 3 ] In the years 2005 to 2010 inclusive, the respondent IIC Enterprises Ltd. (“IIC”) was a licencee under Tariff 3C. It operated a nightclub in Kelowna, British Columbia called “Cheetah’s Nightclub” at which it presented to the public performances of musical works by means of recorded music that included works in the SOCAN repertoire. IIC paid part of the royalties due for 2005, and nothing for subsequent years.

As of February 1, 2011 its unpaid royalties totalled $20,383.37. [ 4 ] On February 23, 2011, SOCAN filed a statement of claim in the Federal Court seeking judgment against IIC in the amount of the unpaid royalties, plus prejudgment interest and costs. According to the statement of claim, the statutory basis for the claim for unpaid royalties is subsection 68.2(1) of the Copyright Act , which reads as follows: 68.2

(1) Without prejudice to any other remedies available to it, a collective society may, for the period specified in its approved tariff, collect the royalties specified in the tariff and, in default of their payment, recover them in a court of competent jurisdiction. 68.2

(1) La société de gestion peut, pour la période mentionnée au tarif homologué, percevoir les redevances qui y figurent et, indépendamment de tout autre recours, le cas échéant, en poursuivre le recouvrement en justice. [ 5 ] The statement of claim also gives notice that SOCAN may elect in the alternative to claim statutory damages under subsection 38.1(4) of the Copyright Act . To understand that provision it is necessary to consider all of

section 38.1 of the Copyright Act , which reads as follows:

38.1.

(1) Subject to this section, a copyright owner may elect, at any time before final judgment is rendered, to recover, instead of damages and profits referred to in subsection 35(1), an award of statutory damages for all infringements involved in the proceedings, with respect to any one work or other subject-matter, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $500 or more than $20,000 as the court considers just. 38.1.

(1) Sous réserve du présent article, le titulaire du droit d’auteur, en sa qualité de demandeur, peut, avant le jugement ou l’ordonnance qui met fin au litige, choisir de recouvrer, au lieu des dommages-intérêts et des profits visés au paragraphe 35(1), des dommages-intérêts préétablis dont le montant, d’au moins 500 $ et d’au plus 20 000 $, est déterminé selon ce que le tribunal estime équitable en l’occurrence, pour toutes les violations — relatives à une oeuvre donnée ou à un autre objet donné du droit d’auteur — reprochées en l’instance à un même défendeur ou à plusieurs défendeurs solidairement responsables.

(2) Where a copyright owner has made an election under subsection (1) and the defendant satisfies the court that the defendant was not aware and had no reasonable grounds to believe that the defendant had infringed copyright, the court may reduce the amount of the award to less than $500, but not less than $200.

(2) Dans les cas où le défendeur convainc le tribunal qu’il ne savait pas et n’avait aucun motif raisonnable de croire qu’il avait violé le droit d’auteur, le tribunal peut réduire le montant des dommages-intérêts préétablis jusqu’à 200 $.

(3) Where (

a) there is more than one work or other subject-matter in a single medium, and (

b) the awarding of even the minimum amount referred to in subsection (1) or (2) would result in a total award that, in the court’s opinion, is grossly out of proportion to the infringement, the court may award, with respect to each work or other subject-matter, such lower amount than $500 or $200, as the case may be, as the court considers just.

(3) Dans les cas où plus d’une oeuvre ou d’un autre objet du droit d’auteur sont incorporés dans un même support matériel, le tribunal peut, selon ce qu’il estime équitable en l’occurrence, réduire, à l’égard de chaque oeuvre ou autre objet du droit d’auteur, le montant minimal visé au paragraphe (1) ou (2), selon le cas, s’il est d’avis que même s’il accordait le montant minimal de dommages-intérêts préétablis le montant total de ces dommages-intérêts serait extrêmement disproportionné à la violation.

(4) Where the defendant has not paid applicable royalties, a collective society referred to in

section 67 may only make an election under this

section to recover, in lieu of any other remedy of a monetary nature provided by this Act, an award of statutory damages in a sum of not less than three and not more than ten times the amount of the applicable royalties, as the court considers just.

(4) Si le défendeur n’a pas payé les redevances applicables en l’espèce, la société de gestion visée à l’article 67 — au lieu de se prévaloir de tout autre recours en vue d’obtenir un redressement pécuniaire prévu par la présente loi — ne peut, aux termes du présent article, que choisir de recouvrer des dommages- intérêts préétablis dont le montant, de trois à dix fois le montant de ces redevances, est déterminé selon ce que le tribunal estime équitable en l’occurrence.

(5) In exercising its discretion under subsections (1) to (4), the court shall consider all relevant factors, including

(5) Lorsqu’il rend une décision relativement aux paragraphes (1) à (4), le tribunal tient compte notamment des facteurs suivants : (

a) the good faith or bad faith of the defendant; (

b) the conduct of the parties before and during the proceedings; and (

c) the need to deter other infringements of the copyright in question.

a) la bonne ou mauvaise foi du défendeur;

b) le comportement des parties avant l’instance et au cours de celle-ci;

c) la nécessité de créer un effet dissuasif à l’égard de violations éventuelles du droit d’auteur en question.

(6) No statutory damages may be awarded against (

a) an educational institution or a person acting under its authority that has committed

an act referred to in

section 29.6 or 29.7 and has not paid any royalties or complied with any terms and conditions fixed under this Act in relation to the commission of the act; (

b) an educational institution, library, archive or museum that is sued in the circumstances referred to in

section 38.2; or (

c) a person who infringes copyright under paragraph 27(2)(

e) or

section 27.1, where the copy in question was made with the consent of the copyright owner in the country where the copy was made.

(6) Ne peuvent être condamnés aux dommages-intérêts préétablis :

a) l’établissement d’enseignement ou la personne agissant sous l’autorité de celui-ci qui a fait les actes visés aux articles 29.6 ou 29.7 sans acquitter les redevances ou sans observer les modalités afférentes fixées sous le régime de la présente loi;

b) l’établissement d’enseignement, la bibliothèque, le musée ou le service d’archives, selon le cas, qui est poursuivi dans les circonstances prévues à l’article 38.2;

c) la personne qui commet la violation visée à l’alinéa 27(2)

e) ou à l’article 27.1 dans les cas où la reproduction en cause a été faite avec le consentement du titulaire du droit d’auteur dans le pays de production.

(7) An election under subsection (1) does not affect any right that the copyright owner may have to exemplary or punitive damages.

(7) Le choix fait par le demandeur en vertu du paragraphe (1) n’a pas pour effet de supprimer le droit de celui-ci, le cas échéant, à des dommages-intérêts exemplaires ou punitifs. [ 6 ] As SOCAN is a collective society, any election it wishes to make for statutory damages must be made under subsection 38.1(4) , which provides that the statutory damages are “in lieu of any other remedy of a monetary nature under the Copyright Act ”. The Copyright Act provides for a number of remedies “of a monetary nature” as that phrase is used in subsection 38.1(4) .

One of them is subsection 68.2(1), the basis of SOCAN’s claim against IIC for unpaid royalties. [ 7 ] IIC was served with the statement of claim but did not file a notice of appearance. For that reason, all proceedings in the Federal Court proceeded ex parte . [ 8 ] On August 15, 2011, SOCAN filed a notice of motion seeking default judgment. In the notice of motion, SOCAN stated that it elected to recover statutory damages pursuant to subsection 38.1(4) .

It claimed statutory damages equal to seven times the amount of unpaid royalties, plus prejudgment interest at an annual rate of 3%, and costs of $3,000. [ 9 ] The motion was heard by a prothonotary. He determined ( 2011 FC 1088 ) that IIC was liable for the unpaid royalties in the amount claimed, and that SOCAN was entitled to make an election under subsection 38.1(4) . After considering the relevant factors, he determined that a multiplier of six would be appropriate.

He also awarded costs totalling $3,360 (including HST), prejudgment interest at the annual rate of 2.5% from February 23, 2011 (the date on which the statement of claim was filed), and interest on the judgment at the annual rate of 3%. [ 10 ] The prothonotary declined to award prejudgment interest from the date on which the cause of action arose. He explains why at paragraphs 25 and 26 of his reasons:

[25] According to SOCAN, the cause of action for each year’s licence fees arose on February 1 of each year because the provisional licence fees for each year were due on January 31 of that year, but not paid. While that may be, statutory damages are awarded “in lieu of any other remedy of a monetary nature” provided by the Copyright Act . By electing statutory damages, SOCAN has essentially waived its right to pursue its claim for provisional licence fees, and any interest that may have accrued.

In short, SOCAN can’t have its cake and eat it too. [26] In any event, I am not prepared to grant pre-judgment interest before the issuance of the Statement of Claim for the following reasons. First, SOCAN has failed to establish any contractual or statutory right to charge interest on outstanding licence fees. Second, there has been substantial delay by SOCAN in bringing the present action to recover license fees dating back to 2006.

Third, the claim for statutory damages was first made and only crystallized when the proceeding was instituted. [ 11 ] The prothonotary’s judgment is dated September 21, 2011 and reads as follows: 1. The Defendant shall pay to the Plaintiff statutory damages in accordance with the Copyright Act , in the amount of $122,300.22, which is six times the provisional licence fees of $20,383.37 (including GST/HST) owed by the Defendant to the Plaintiff under Tariff 3C for the years 2005 through to 2011. 2.

The Defendant shall pay to the Plaintiff pre-judgment simple interest at the rate of 2.5% on the amount referred to in paragraph 1 above, from February 23, 2011 to the date of judgment. 3. The Defendant shall pay to the Plaintiff forthwith its costs of this motion, hereby fixed in the amount of $3,000.00 plus HST, being the total amount of $3,360.00. 4. This Judgment shall bear interest at the rate of 3.0% per annum from its date. [ 12 ] SOCAN appealed paragraph 2 of the judgment to a judge of the Federal Court pursuant to Rule 51 of the Federal Courts Rules, SOR/98-106.

The judge agreed with the decision of the prothonotary and dismissed the appeal ( 2011 FC 1399 ). SOCAN now appeals to this Court. [ 13 ] At the hearing of this appeal, counsel for SOCAN was asked to provide further written submissions on a number of points. Those submissions were received and have been considered. Analysis [ 14 ] SOCAN argues that, by the combined operation of subsection 36(1) of the Federal Courts Act , R.S.C. 1985, c.

F-7, and subsection 1(1) of the Court Order Interest Act , the prothonotary was obliged to award prejudgment interest on the statutory damages for each of the years 2005 to 2010 inclusive as of the date SOCAN’s cause of action for that year’s royalties arose. [ 15 ] SOCAN submits that its cause of action for statutory damages arose in British Columbia on the same date as the cause of action for recovery of the unpaid royalties, which for each year was February 1 of the following year, which is the day after payment of the royalties was due.

That is the date on which all of the facts had occurred that entitled SOCAN to sue IIC for the unpaid royalties or statutory damages: see Markevich v. Canada , 2003 SCC 9 at paragraph 27 . I agree, and I note that neither the prothonotary nor the judge in this case said anything to the contrary. [ 16 ] According to SOCAN’s calculation, the amount of prejudgment interest that should have been awarded under subsection 1(1) of the Court Order Interest Act , given the annual rate of 2.5% determined by the prothonotary, is $8,995.89.

I have no reason to doubt the correctness of SOCAN’s calculation, assuming subsection 1(1) applies. I turn now to that issue. [ 17 ] I note parenthetically that there is jurisprudence to the effect that at common law, a court has the inherent jurisdiction to award prejudgment interest in certain circumstances: see the discussion in Bank of America v. Mutual Trust Co . [2002] 2 S.C.R. 601 , 2002 SCC

43 . In this case, however, SOCAN’s claim for prejudgment interest is not based on the common law. It is based solely on subsection 36(1) of the Federal Courts Act and subsection 1(1) of the Court Order Interest Act . Therefore, its entitlement must be determined according to those provisions only. [ 18 ]

Section 36 of the Federal Courts Act deals with prejudgment interest on judgments of the Federal Court. Subsection 36(1) provides that for a cause of action that arises in a province, prejudgment interest is awarded in accordance with the law of that province. For a cause of action that arises outside a province or in more than one province, prejudgment interest is awarded in accordance with subsections 36(2) to (5). Subsection 36(6) provides that prejudgment interest cannot be awarded for a period prior to

section 36 coming into force. Subsection 36(7) provides that

section 36 does not apply in respect of a claim under or by virtue of Canadian maritime law. [ 19 ] In this case the cause of action arose in British Columbia after

section 36 of the Federal Courts Act came into force, and does not involve Canadian maritime law. Therefore, subsection 36(1) of the Federal Courts Act applies. It reads as follows: 36.

(1) Except as otherwise provided in any other Act of Parliament, and subject to subsection (2), the laws relating to prejudgment interest in proceedings between subject and subject that are in force in a province apply to any proceedings in the Federal Court of Appeal or the Federal Court in respect of any cause of action arising in that province. 36.

(1) Sauf disposition contraire de toute autre loi fédérale, et sous réserve du paragraphe (2), les règles de droit en matière d’intérêt avant jugement qui, dans une province, régissent les rapports entre particuliers s’appliquent à toute instance devant la Cour d’appel fédérale ou la Cour fédérale et dont le fait générateur est survenu dans cette province. [ 20 ] SOCAN’s cause of action is within the scope of subsection 36(1) of the Federal Courts Act unless another Act of Parliament provides otherwise. [ 21 ] The Copyright Act says nothing about prejudgment interest, and I have been unable to find any other Act of Parliament that could possibly be interpreted to preclude an award of prejudgment interest on a monetary award made under the Copyright Act .

It follows that in this case, subsection 36(1) of the Federal Courts Act applies. SOCAN’s entitlement to prejudgment interest must be determined by the law of British Columbia . [ 22 ] Prejudgment interest is the subject of

Part 1 of the Court Order Interest Act of British Columbia .

Part I is not lengthy. It is quoted below (my emphasis): 1.

(1) Subject to

section 2, a court must add to a pecuniary judgment an amount of interest calculated on the amount ordered to be paid at a rate the court considers appropriate in the circumstances from the date on which the cause of action arose to the date of the order.

(2) Despite subsection (1), if the order consists in whole or part of special damages, the interest on those damages must be calculated from the end of each 6 month period in which the special damages were incurred to the date of the order on the total of the special damages incurred (

a) in the 6 month period immediately following the date on which the cause of action arose, and (

b) in any subsequent 6 month period.

(3) For the purpose of calculating interest under subsection (2), and despite subsection (2), if the date of the order occurs (

a) before a date 6 months after the date on which the cause of action arose, or (

b) after the end of a 6 month period but before the end of the subsequent 6 month period, interest must be calculated from the date on which the special damages were incurred to the date of the order.

(4) If part of an order represents income loss arising from personal injury or death and one or more payments have been made before the date of the order to replace, provide indemnification for, compensate for or protect against some or all of the income loss or for any other purpose related to the income loss, the amount of the income loss on which interest may be calculated under this

section must be reduced by the amount of each such payment as of the date of the receipt of the payment. 2. The court must not award interest under

section 1 (

a) on that part of an order that represents pecuniary loss arising after the date of the order, (

b) if there is an agreement about interest between the parties, (

c) on interest or on costs, (

d) if the creditor waives in writing the right to an award of interest, or (

e) on that part of an order that represents nonpecuniary damages arising from personal injury or death. 3. If an order is obtained by default under

an Act or the Supreme Court Civil Rules, the registrar of the court may exercise and carry out the powers and duties of the court under this Part. 4. If a party pays money into court in satisfaction of a claim and another party does not accept the payment and obtains an order for an amount equal to or less than that paid into court, the court must, despite

section 1, award interest only as if the date of payment into court had been the date of the order. 5 . Interest added to an order for payment under this Part must be included in the order for enforcement purposes. 6 . This Part does not apply to a cause of action that arose before June 1, 1974. [ 23 ] A judgment for statutory damages under subsection 38.1(4) of the Copyright Act is a “pecuniary judgment” within the meaning of that phrase as used in subsection 1(1) of the Court Order Interest Act of British Columbia .

It is well established by the jurisprudence of the British Columbia courts that where subsection 1(1) applies, an award of prejudgment interest from the date on which the cause of action arose is mandatory (subject to the exceptions in subsection 1(2), subsection 1(4), or

section 2): see, for example, Gould v. Royal Trust Corp. of Canada , 2010 BCSC 16 . None of the stated exceptions apply in this case. [ 24 ] The prothonotary construed SOCAN’s election for statutory damages in lieu of judgment for unpaid royalties as implicitly including a waiver of its statutory entitlement to prejudgment interest on unpaid royalties, which I assume was intended to invoke paragraph 2 (

d) of the Court Order Interest Act . Generally, a party is not taken to have waived a statutory entitlement in writing unless the writing that is alleged to constitute the waiver is explicit, or sufficiently explicit in its intent that it would be unreasonable to characterize it as anything but a waiver of the statutory entitlement. Here, the election for statutory damages is necessarily a waiver of the right to judgment for unpaid royalties, but it cannot reasonably be taken as evidence of an intention on the part of SOCAN to waive any other statutory entitlement.

In my view, the prothonotary erred in characterizing SOCAN’s election for statutory damages as a waiver of its entitlement to prejudgment interest under the Court Order Interest Act . [ 25 ] I conclude that SOCAN is entitled in this case to prejudgment interest on the statutory damages awarded by the prothonotary from the date on which the cause of action arose.

Under subsection 1(1) of the Court Order Interest Act , the court has no discretion to choose any other period for which prejudgment interest is payable. [ 26 ] The use of a multiplier for statutory damages results in a judgment that exceeds the amount of the royalties payable. From the point of view of a licencee under Tariff 3C, that result may seem harsh, but it is the intended consequence of the policy underlying subsection 38.1(4) of the Copyright Act .

It may be that in some circumstances, the mandatory addition of prejudgment interest to the full amount of the statutory damages from the date on which the royalties were payable represents an unreasonable windfall to the collective society and a correspondingly undue burden on the debtor. However, there are two ways in which the potential harshness of the lack of judicial discretion may be alleviated. [ 27 ] First, a defendant may have recourse to

section 4 of the Court Order Interest Act . It provides that in certain circumstances, a defendant may avoid prejudgment interest by making a payment into court in satisfaction of the claim.

[ 28 ] Second, the court has the discretion to determine the appropriate rate of interest. In that regard, the British Columbia courts have determined that subsection 1(1) of the Court Order Interest Act requires prejudgment interest to be awarded on punitive damages, but the judge has the discretion to set the applicable rate of interest on the punitive damages at a nominal rate: see J.L.M. v. P.H. (1998), 109 B.C.A.C. 165 .

By analogy, the court may exercise its discretion to determine the rate of interest on statutory damages at an annual interest rate that combines a normal rate of interest on the unpaid royalties, and a lesser rate on the remainder. [ 29 ] In this case, the prothonotary determined that the multiplier for the statutory damages should be six, and that the annual rate of prejudgment interest should be 2.5%.

The record affords no basis upon which this Court would be justified in changing either the multiplier or the rate of interest determined by the prothonotary, and I would decline to do so. [ 30 ] As mentioned above, SOCAN has determined that the amount of prejudgment interest at an annual interest rate of 2.5% from the date the cause of action arose would be $8,995.89. SOCAN is entitled to prejudgment interest in that amount. Conclusion [ 31 ] For these reasons, I would allow the appeal and set aside the judgment of the Federal Court judge.

Making the judgment that should have been made, I would allow the Rule 51 appeal and vary paragraph 2 of the judgment of the prothonotary so that it reads as follows: 2. The Defendant shall pay to the Plaintiff pre-judgment interest in the amount of $8,995.89. [ 32 ] SOCAN has asked for costs in this Court and in the Federal Court. Generally, the successful party in a proceeding in this Court is entitled to costs. However, this appeal is unusual in that IIC has taken no

part in the proceedings and the principal objective of SOCAN in pursuing this appeal is to establish a principle that will have consequences in all of its claims arising in British Columbia . It has succeeded in that objective but in the circumstances, I would award no costs. “K. Sharlow” J.A. “I agree J.D. Denis Pelletier J.A.” “I agree Robert M. Mainville J.A.” FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-499-11 STYLE OF CAUSE: Society of Composers, Authors and Music Publishers of Canada v. IIC Enterprises Ltd. c.o.b. as Cheetah’s Nightclub PLACE OF HEARING: Vancouver , British Columbia DATE OF HEARING: May 15, 2012 REASONS FOR JUDGMENT BY: SHARLOW J.A. CONCURRED IN BY: (PELLETIER AND MAINVILLE JJ.A.) DATED: June 14, 2012 APPEARANCES : Christopher S. Wilson Esther Jeon FOR THE APPELLANT N/A FOR THE RESPONDENT SOLICITORS OF RECORD : Bull, Housser & Tupper LLP Vancouver, British Columbia FOR THE APPELLANT