Basis for aggravated and punitive damages confirmed and clarified by Federal Court of Appeal

In Bauer Hockey Corp v Sport Maska Inc dba Reebok-CCM Hockey (2014 FCA 158, Mainville JA), the Federal Court of Appeal has confirmed the circumstances in which aggravated damages are available and clarified the availability and required elements for claims for punitive damages.

This case is the result of Bauer Hockey Corp appealing two orders made by Annis J of the Federal Court relating to the ability of Bauer to include claims for aggravated and punitive damages in its statement of claim alleging infringement of the trademark SKATE’S EYESTAY.

Bauer’s initial statement of claim sought aggravated and punitive damages against Sport Maska Inc dba Reebok-CCM Hockey ('Reebok'). However, these claims were struck by the Federal Court as a result of a motion to strike brought by Reebok alleging there were no material facts to support the claims. Bauer subsequently brought a motion to amend the statement of claim with additional information and to reintroduce aggravated and punitive damages but was unsuccessful - the judge finding that the new facts relied upon by Bauer effected no substantial change to the original pleadings. The current case deals with Reebok’s appeal of the judge’s refusal to allow the aggravated and punitive damage claims to be re-introduced to the statement of claim.

The Federal Court of Appeal found that the Federal Court:

1. correctly decided that the claim for aggravated damages may not be reintroduced as Bauer failed to allege humiliation or mental distress, nor is it clear that Bauer, as a corporate entity, would be able to prove any such allegations; and
2. erred in law when it:

a) held that punitive damages are only awarded in situations of litigation misconduct;
b) held Bauer’s claim for punitive damages had no reasonable prospect of success; and
c) denied Bauer’s request to amend its statement of claim to re-introduce a claim for punitive damages.

In coming to its conclusion, the Federal Court of Appeal distinguished punitive damages and aggravated damages and set out the circumstances in which the two might be applied, particularly in the context of a trademark infringement allegation.

The Court of Appeal clarified that punitive damages must be applied with restraint since they are only warranted in exceptional circumstances and are applied to punish a defendant for their behaviour (as opposed to compensating the plaintiff for losses). Punitive damages have been found to be available in all types of cases, including patent and trademark infringement.

The Federal Court of Appeal concluded that it was an error of law to hold that punitive damages are only available when there has been litigation misconduct as this clearly fell outside of the definition and test for punitive damages set out by the Supreme Court (Vorvis v Insurance Corporation of British Columbia ([1989] 1 SCR 1085 SCC 158), at Paragraphs 1104 and 1105; Whiten v Pilot Insurance Co (2002 SCC 18), at Paragraph 67).

Since punitive damages are designed to punish, they are to be applied only in exceptional situations where the conduct of the defendant is so “malicious, oppressive and high-handed that it offends the court’s sense of decency” and the evidence shows “high-handed, malicious, arbitrary or highly reprehensible conduct that departs to a marked degree from the ordinary standards of decent behaviour”. The threshold for an award of punitive damages is therefore quite high (Bauer Hockey Corp v Sport Maska Inc dba Reebok-CCM Hockey (2014 FCA 158), at Paragraphs 19 and 26.).

In trademark infringement cases, the high threshold means intentional and wilful infringement of intellectual property rights is not sufficient to attract punitive damages; additional factors are required. On this basis, Bauer’s original claim for punitive damages was struck properly by the Federal Court as the claim was based solely on Reebok’s alleged wilful infringement and done with knowledge of Bauer’s trademark rights.

In its amended statement of claim, Bauer included further facts underlying the assertion of wilful and intentional infringement, including references to the fact that Reebok previously acknowledged Bauer’s exclusive right to the mark at issue and had received a demand letter from Bauer regarding its initial use of the mark but nonetheless proceeded to use the mark. As a result of the new particulars contained in the amended claims for punitive damages, it could not be concluded that Bauer’s claim for punitive damages had no reasonable prospect of success. As it was not plain and obvious that the amended statement of claim disclosed no reasonable cause of action with respect to punitive damages, the Federal Court judge erred in denying Bauer’s amendment in respect of the claim for punitive damages.

As with punitive damages, aggravated damages are meant to be punitive and may be awarded for conduct that may warrant punitive damages. The significant difference is that aggravated damages are compensatory in nature, awarded when high-handed and oppressive conduct of the defendant has caused the plaintiff additional humiliation and anxiety.

Given the “emotional” aspect of humiliation and anxiety required to support a claim for aggravated damages, it is not clear that such damages are available to corporate plaintiffs as it would be very difficult to show that a corporation suffered anxiety and humiliation. Thus, the Federal Court properly denied Bauer’s claims for aggravated damages in both the motion to strike and the motion to amend the statement of claim.

The key takeaways are as follows:

1. It is not clear that aggravated damages are available to corporations given the “emotional” humiliation and anxiety requirement.
2. Punitive damages are not limited to cases of litigation misconduct.
3. Mere allegations of intentional and wilful infringement of intellectual property rights are insufficient to support a claim for punitive damages.

Jia Xi and Leigh Walters, Sim & McBurney - Sim, Lowman, Ashton & McKay LLP, Toronto