Federal Court has jurisdiction to interpret contracts

In Salt Canada Inc. v. Baker, 2020 FCA 127, the Federal Court of Appeal has provided some much-needed clarification on the jurisdiction of the Federal Court, confirming that the Court has jurisdiction to adjudicate contract disputes that arise in the context of patent cases.

The jurisdiction of the Federal Courts has generated a fair amount of controversy since its predecessor the Exchequer Court of Canada was established in 1875. Unlike the provincial superior courts, which have inherent jurisdiction that precedes confederation, the Federal Courts’ jurisdiction is purely statutory. In other words, its jurisdiction turns on whether there is a statutory grant of jurisdiction by Parliament. Questions about the Federal Court’s jurisdiction can arise where cases raise issues (like contract interpretation) that typically fall within the jurisdiction of the provincial courts.

When it comes to patent law, Parliament has granted jurisdiction to the Federal Courts in both the Patent Act and the Federal Courts Act. However, there have been jurisdiction disputes where patent law issues intersect with questions about ownership and licensing, which generally fall within provincial jurisdiction over property and civil rights and are adjudicated by the provincial courts. One example where this controversy has surfaced is for applications under section 52 of the Patent Act, which grants to the Federal Court the jurisdiction to “order that any entry in the records of the Patent Office relating to the title to a patent be varied or expunged.” Courts have routinely issued orders under section 52 where the application resulted from error or mistake and was uncontested. However, in opposed applications where the principle issue was an ownership dispute that turned on contractual interpretation, courts have held that they lacked jurisdiction. That is what occurred in this case. Based on its determination that the application primarily involved matters of contract, the Federal Court dismissed it for lack of jurisdiction.

The Federal Court of Appeal reversed. In a decision written by Justice Stratas, the Court rejected the narrow interpretation of the statutory grant in section 52 that had been adopted by the application judge and other lower courts. Instead, interpreting section 52 in accordance with its text, context and purpose, the Court of Appeal held that the Federal Court’s power under section 52 was a judicial one to determine issues of title—it was not purely administrative. Justice Stratas disagreed that contract interpretation is exclusively a matter of the provincial superior courts, noting that there are numerous examples where the Federal Courts have engaged in contract interpretation within their spheres of jurisdiction, including in tax, intellectual property, administrative law, maritime law, privacy and access to information. Moreover, this approach avoids the problem of litigants having their disputes adjudicated by two different courts. As Justice Stratas rhetorically asked, “it is hard enough for many to pursue a case from beginning to end; why force them to do it twice?” The Court of Appeal therefore held that the Court’s jurisdiction under section 52 did not preclude contract interpretation: “the Federal Court remains free to carry out the task Parliament has given to it—to determine who should be reflected on the records of the Patent Office as the owner of a patent—even if that involves interpreting agreements and other instruments.”

The Court of Appeal also held that the application judge had erred in not following the rule from Kellogg Co. v. Kellogg, [1941] S.C.R. 242, where the Supreme Court held that the Exchequer Court (now the Federal Court) can interpret private contracts as long as it is done under a sphere of valid jurisdiction vested in the Federal Court. Interestingly, although Justice Stratas noted that Kellogg had been applied in numerous cases in the Federal Court, it has almost never been applied in the context of section 52 of the Patent Act. Instead, in determining jurisdiction under section 52, the Federal Court has relied on a line of cases following Lawther v. 424470 B.C. Ltd. ((1995), 60 C.P.R. (3d) 510, 95 F.T.R. 81, where the Court held it had no jurisdiction to determine ownership under section 52 where ownership turns on contractual interpretation. Justice Stratas effectively overturned Lawther, noting that it was not “good law.” He criticized Lawther for taking a “Goldilocks approach to jurisdiction” where the bounds of jurisdiction turn “on the nebulous exercise of assessing whether something is ‘primarily a case in contract’ or whether contractual interpretation will ‘dictate’ the end result”.

The case illustrates that thus far, the Federal Court’s reluctance to engage in contract interpretation in determining ownership under section 52 of the Patent Act has been an outlier from the Court’s approach to its jurisdiction in other matters. With this decision, Justice Stratus has confirmed that for a section 52 application, there is no need to categorize cases into those of contract law and those of patent law, and no need to go across the street to the provincial superior court if contractual matters arise. The decision is also yet another recent example of a trend in the Federal Courts aimed at getting their “own house in order”, so to speak, to borrow a phrase from another decision of the Court of Appeal harmonizing its own jurisprudence on the standard of review (Hospira Healthcare Corporation v. Kennedy Institute of Rheumatology, 2006 FCA 215). Hopefully the trend continues.

This article was originally published by The Lawyer’s Daily, part of the LexisNexis Canada Group Inc.

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