COURT OF APPEAL FOR ONTARIO

DATE: 20000404

DOCKET: C33960

M25678

RE: ANNE OF GREEN GABLES LICENSING AUTHORITY
INC., RUTH MACDONALD and DAVID MACDONALD and
HEIRS OF L. M. MONTGOMERY INC. (Respondents/
Moving Party) v. AVONLEA TRADITIONS INC.
(Appellant/Respondent)

BEFORE: CHARRON J.A. (In Chambers)

COUNSEL: Ronald E. Dimock and Michael Crinson,
for the moving party

Roger Hughes, Q.C. and Trent Horne,
for the respondent

HEARD: April 3, 2000

E N D O R S E M E N T

[1] This action relates to a license agreement respecting
merchandise sold by the appellant Avonlea Traditions Inc. bearing
names and likeness to the character derived from the book “Anne
of Green Gables”, written by the late Lucy Maud Montgomery. For
the purpose of this motion, it suffices to describe the
respondents as the heirs of Lucy Maud Montgomery.

[2] The respondents’ action was allowed by Wilson J. on March
10, 2000 and a judgment was granted enjoining the appellant,
allowing the respondents’ claim for damages and dismissing the
appellant’s counterclaim.

[3] The appellant filed a Notice of appeal on March 28, 2000
resulting in an automatic stay of the judgment for the payment of
money under Rule 63.01(1) of the Ontario Rules of Civil
Procedure.

[4] The appellant moves under Rule 63.02 for a stay of that part
of the injunction that enjoins it from “making, selling, offering
for sale, distributing or otherwise dealing in any goods bearing
the name ANNE OF GREEN GABLES, or other names or indicia under
which the Defendant was previously licensed by the Plaintiffs or
their predecessors” until the hearing of the appeal.

[5] If the stay is granted, the appellant is willing to
undertake “to keep full accounts of any dealing by it with its
Anne merchandise falling within the scope of the injunction” and
“if required”, it “is prepared to pay into Court each month a
reasonable percentage of its net sales for each month as security
for any damages” which might be awarded in the event the appeal
is not successful.

[6] It is common ground between the parties that the appellant
must meet the tripartite test set out in RJR MacDonald Inc. v.
Canada (1994), 1994 117 (SCC), 54 C.P.R. (3d) 114 in order to succeed on this
motion. It is my view that the motion cannot succeed.

[7] First, the appeal must present a serious issue for
adjudication. The appellant, in its notice of appeal, essentially
reiterates the arguments that it advanced at trial in defence of
the respondents’ claim. It is apparent from the extensive reasons
delivered by the trial judge that all of the issues were fully
canvassed and that many of the arguments were unsuccessful
because they were simply not sustainable on the evidence. The
appellant will have to contend with the same evidentiary basis,
or lack thereof, on appeal. Therefore, to the extent that the
appeal reiterates those same arguments, it is not apparent to me
that it presents a serious issue to be determined.

[8] Nonetheless, the court on this motion is not in a position
to assess the merits of the appeal in any depth and, since some
of the legal issues appear to be arguable, I am prepared to
accept, for the purpose of this motion, that the appeal raises
issues of sufficient merit to warrant consideration of the
balance of the test.

[9] As a second criterion, the appellant must show that it will
suffer irreparable harm if the relief is not granted. Ms.
Gallagher, who is the president and appears to be the directing
mind of the appellant corporation, alleges that the continued
injunction will force Avonlea Traditions Co. out of operation
because 70% of its business deals with Anne of Green Gables
products.

[10] In response, the respondents submit that the appellant may
go out of business anyway because of its financial difficulties.
In fairness to the appellant, I recognize that there may be a
certain circularity to this argument to the extent that the
appellant’s present financial difficulties may be due to the
effect of the judgment. However, the record shows that the
appellant’s financial difficulties are not recent and indeed may
not be resolved even if the appeal were to be successful and the
injunction lifted.

[11] On the long-standing nature of the financial difficulties, I
note that the trial judge attributed the appellant’s failure to
pay royalties (almost from the beginning of the 1989 agreement
between the parties) in part to the fact that “from the beginning
Avonlea was under-capitalised and experienced financial
difficulties.”

[12] As to the prospect that the financial difficulties will
likely continue regardless of the outcome of the appeal, I note
the following. The bank has demanded repayment of the sum of
$333,825.33 on or before today’s date by the appellant and Ms.
Gallagher personally. There is no convincing evidence that the
bank may be prepared to waive this demand in the event that a
stay is granted. Further, the damages assessed at trial include
an amount in excess of $200,000 in unpaid royalties that were
admitted by the appellant to be owing as of January 1994. This
admission was subject to certain defences raised at trial that
were entirely unsuccessful as lacking any evidentiary basis. A
few days ago, Ms. Gallagher admitted in her cross-examination
that the appellant is probably not in a position even to pay the
costs assessed by the trial judge. Hence, even if the appellant
were successful on appeal in having the injunction lifted, the
chances of any financial recovery appear to be slight.

[13] Based on the material before the court, I am not satisfied
that the irreparable harm that is envisaged is one that can be
avoided if a stay is granted.

[14] Finally, and perhaps most importantly, it is my view that
the balance of convenience does not favour the appellant. I find
much credence to the respondents’ position that it is they who
will suffer more harm if the status quo that was in existence at
the time of judgment is restored.

[15] At this point in time, the findings of the trial court must
be taken to be prima facie correct. The trial judge has found
that Ms. Gallagher held an irrational yet firm view that the
respondents did not deserve payment of royalties as it was she
who was exerting all of the effort and work. The trial judge also
noted that at the heart of this lawsuit is a “very distorted
sense of fairness” held by Ms. Gallagher that makes her totally
unable to appreciate the respondents’ point of view. In essence
what Ms. Gallagher is seeking on this motion for her company is
the ability to maintain a status quo that was found to be
untenable at trial. There is evidence in the material that Ms.
Gallagher has vowed that she will continue selling the products
even if unsuccessful at trial. In fact, the appellant has
continued to advertise and sell Anne of Green Gables products
after the injunction was issued on March 10, 2000. No credible
explanation has been offered to justify this conduct.

[16] In all the circumstances, I accept the respondents’
submission that if this situation is allowed to continue any
longer, it will cause irreparable harm to the respondents. The
respondents state that the appellant’s long-standing and ongoing
failure to pay royalties has impaired the ability of other
licensees to fairly compete in the market place and has
undermined the Authority’s licensing program. Several licensees
have threatened to discontinue paying royalties if the appellant
is permitted to continue operating its business without paying
royalties. Several other prospective licensees were awaiting the
outcome of the action against the appellant before doing business
with the respondents. While the judgment at trial would have
undoubtedly restored the credibility of the respondents’
licensing program, I accept the submission that a stay of the
injunction at this point in the process would make the situation
worse than it was before trial and that it would cause
irreparable harm.

[17] Finally, the appellant has offered no credible assurance
that it could or even would abide by the terms of its
undertaking. The undertaking is vague in its terms and could not
be explained by Ms. Gallagher on her cross-examination. Further,
the appellant’s promise that it would in fact keep an accounting
and pay monies into court is highly suspect given its exhibited
attitude and past conduct with respect to the payment of
royalties.

[18] For these reasons, the appellant’s motion is dismissed with
costs. I make no comment with respect to the respondents’ request
for an order for security for costs. While this request was made
in the factum, no motion was brought seeking this relief.

(signed) "Louise Charron J.A."