“INCONCEIVABLE!”: Federal Court of Appeal Overturns Judgments for Federal Court’s Error in Failing to Provide Adequate Reasons

In a decision released August 6, 2026, the Federal Court of Appeal in Lounge Medical Spa Ltd. v. DermaSpark Products Inc., 2026 FC 135 overturned the Federal Court’s judgments respecting trademark infringement and damages on the grounds that the lower court failed to provide adequate reasons for its findings.

The first judgment of the lower court stemmed from a motion for summary trial brought by the Respondents, DermaSpark and Pollogen, seeking a finding that the Appellants, Lound Medical Spa Ltd. and Ms. Hamdan, had infringed their trademark rights and damaged their goodwill contrary to sections 19, 20, and 22 of the Trademarks Act. In concluding that sections 19, 20, and 22 had been contravened, the Federal Court ordered the Appellants to pay to the Respondents joint nominal damages in the amount of $50,000 for the infringement, passing off, and dilution of goodwill of Pollogen’s trademarks. The Federal Court additionally ordered that the Appellants pay “jointly, nominal damages in the total amount” of $50,000.

The Appellants thereafter brought a motion for reconsideration under Rule 397(2) of the Federal Courts Rules, seeking a correction in respect of the judgment pertaining to the second award of $50,000. The Federal Court acknowledged that a mistake or oversight had been made and amended that paragraph of the judgment to read that the second award of $50,000 was for punitive and exemplary damages.

The error in the Federal Court’s initial judgment, as noted by the Federal Court of Appeal, stemmed from the Respondent’s draft order provided to the Court, which had been adopted in whole. This finding that the Federal Court had adopted an order with an error within it, which the Federal Court of Appeal explained “could cause a reasonable person to be concerned that the Federal Court did not direct its mind to all the issues and evidence before it,” set the backdrop for the Court of Appeal’s own reasons in concluding the lower court’s reasons were inadequate in that they “do not adequately explain the basis for conclusions” therein.

First, the Court of Appeal took issue with the award of nominal damages for passing off, when neither the Respondents’ motion for summary trial or supporting memorandum of fact and law set forth any legal arguments for the issue. As neither document referred to the statutory provision for passing off, nor the legal test for passing off (and any cases cited within the Respondents’ written submissions touching upon passing off were not relied on for that specific issue), the Court of Appeal found that the lower court had nothing on which to conclude that passing off had occurred. The Court of Appeal also rejected the Respondents’ arguments that the lack of submissions on passing off was strategic, as, according to the Respondents, arguments on this point would not make a difference since nominal damages were sought. The Court of Appeal found this argument unpersuasive, given that the nature and degree of infringement are relevant considerations to the quantum of nominal damages, and in any case, the reasons still lacked sufficient explanation of how passing off was found.

Second, the Court of Appeal took issue with what it called the “moving target” of which registered marks were found to have been infringed. For example, while the lower court’s judgment lists one mark as being infringed (which was one of the marks raised in the respondents’ submissions), that mark was not included in the statement of claim. Additionally, the mark was not served on the Appellants in the Respondents’ request to admit, nor included in the Respondents’ “Authorization for Use” exhibit detailing Pollogen’s trademarks for which DermaSpark is the sole and exclusive licensee within Canada. Another mark found to have been infringed similarly was not included in the “Authorization for Use” exhibit. The Court of Appeal thus found that the Federal Court could not have made the conclusion that these marks were infringed without further justification, which was not included in the reasons.

Third, the Court of Appeal found that the Federal Court’s reasons failed to address a conflict in the evidence on a key issue, that being whether an apparatus used by the Appellants was a counterfeit. The Respondents had sent the Appellants a request to admit, which included the allegation that a particular cosmetic apparatus used by the appellants was a counterfeit. While the Appellants did not serve a response to the request to admit using Form 256, Ms. Hamdan, who was self-represented at the time, emailed the Respondents’ counsel prior to the deadline for response, detailing that she had bought the apparatus legitimately. In this email, she included the machine’s purchase price and serial number, and stated she had a purchase agreement and four witnesses on the matter. The Court of Appeal concluded that while Rule 256 of the Federal Court Rules provides that failure to respond to a request to admit shall be taken as an admission of the facts therein, this conflicting evidence on the counterfeit issue, taken alongside the Appellants’ denial of the counterfeit allegations in the statement of defence, should have alerted the lower court that clarification was needed on the issue. However, the lower court’s reasons did not mention the conflicting evidence and did not provide any contextual evidence that it was considered.

Additionally, the Court of Appeal took issue with the lower court’s lack of explanation as to the quantum of nominal damages and the award of punitive damages. The Court of Appeal was not convinced as to how the facts in the underlying case warranted an award of damages at the higher end of what is typically seen in nominal damages, particularly when much lower damages were awarded in similar cases. Further, the reasons lacked any suggestion that the lower court engaged with the factors to be considered in awarding punitive and exemplary damages. Finally, the Court of Appeal also took issue with the award for costs being set under Column V of Tariff B of the Federal Court Rules, due to, amongst other things, the limited complexity of the issues and the Appellants’ failure to defend the motion for summary trial.

Accordingly, the Court of Appeal granted the appeals, set aside the lower court’s judgment as amended, and remitted the summary trial back to the Federal Court for re-determination in accordance with its reasons.