Mac ’ s Convenience Stores Inc. Plaintiffs - v. -, 2013 ABQB 138

Court of Queen ’ s Bench of Alberta Citation: Mac ’ s Convenience Stores Inc. v. 1144317 Alberta Ltd., 2013 ABQB 138 Date: 20130304 Docket: 1103 19475 Registry: Edmonton Between: Mac ’ s Convenience Stores Inc. Plaintiffs - and - 1144317 Alberta Ltd., 1389476 Alberta Ltd., Syed Yousuf Usman and Nuzhath Fathima Quraishi, Defendants And Between 1389476 Alberta Ltd., 1114317 Alberta Ltd., Syed Yousuf Usman and Nuzhath Quraishi Plaintiffs by Counterclaim - and - Mac ’ s Convenience Stores Inc., Craig Moan, Greg Allan, Doug Hartell and Lina Clarke Defendants by Counterclaim _______________________________________________________ Memorandum of Decision

of W. S. Schlosser, Master in Chambers _______________________________________________________ [ 1 ] This is an application to strike portions of a (now) Counterclaim under Rule 3.68. There is a further application for security for costs. [ 2 ] The facts are fairly straightforward. The Numbered Companies operated three Mac ’ s stores: ‘ 138 ’ operated one store in Wetaskiwin and another in Edmonton; ‘ 111 ’ operated a Mac ’ s store in Spruce Grove. The Numbered Companies provided a total of just under $45,000.00 as security deposits to operate these three stores.

The individual Defendants, Syed Usman and Nuzhath Quraishi, owned and operated the Numbered Companies. [ 3 ] There was an ATM machine in the Edmonton store. Mac ’ s agreed to install it. The Number Company Defendants agreed to fill it with cash and provide an accounting. [ 4 ] In December 2010, Mac ’ s accused the individual Defendants or their staff of having stolen some $368,000.00 from the cash machine in the Edmonton store. The contracts for all three stores were terminated, which deprived the Defendants of their livelihood. The individual Defendants were forced into Bankruptcy but have been discharged.

Both are employed and work for relatively modest wages. [ 5 ] The Numbered Companies had a separate action for the return of the deposits, plus funds owing to the Numbered Companies immediately prior to termination. The individual Defendants sued for their (alleged) treatment at the hands of Mac ’ s employees when money was found to be missing. [ 6 ] Mac ’ s started a separate action for the missing money. That action is based on fraud and conversion. The two actions have now been consolidated. The Mac ’ s action is treated as the Claim. The other action is now the Counterclaim.

Mac ’ s has brought an application to strike a portion of the Counterclaim, and, for security for costs. Application to Strike [ 7 ] The allegations sought to be struck are contained in paragraphs 23-27 of the now Counterclaim. They have to do with assault, extortion, defamation and unlawful confinement. Counsel for the Plaintiffs by Counterclaim concedes that the allegation that Syed Usman was ‘ deprived of his human rights ’ is not a cause of action.

However, the other allegations are allegations of fact that would, if proved, support a cause of action, or enhanced damages. [ 8 ] Mac ’ s has tendered evidence that casts doubt on these allegations. On the basis of their evidence we can conclude (at the very least) that the facts pleaded in the Statement of Claim are overstated. But this is a characteristic of most pleadings and it does not amount to a Significant Deficiency contemplated by Rule 3.68. The inconsistencies in the evidence also suggest that credibility will be an issue.

Clashing evidence and issues of credibility are barriers to striking out under Rule 3.68, at least to the extent that they suggest triable issues. Donaldson v. Farrell , 2011 ABQB 11 per Graesser J. is instructive. [ 9 ] The Rule 3.68 application is dismissed. Security for Costs

[10] Mac’s has provided a pro forma Bill of Costs for just under $25,000.00. They are seeking $21,745.68. [11] Security for costs is a discretionary remedy. Rule 4.22 provides: 4.22 The Court may order a party to provide security for payment of a costs award if the Court considers it just and reasonable to do so,taking into account all of the following: (

a) whether it is likely the applicant for the order will be able to enforce an order or judgment against assets in Alberta; (

b) the ability of the respondent to the application to pay the costs award; (

c) the merits of the action in which the application is filed; (

d) whether an order to give security for payment of a costs award would unduly prejudice the respondent’s ability to continue theaction; (

e) any other matter the Court considers appropriate. The Individuals [12] The individual Plaintiffs by Counterclaim are discharged bankrupts. Both are employed, though for relatively modest wages.I cannot conclude that these two individuals would be unable to pay this costs award. It may not happen overnight but Rule 4.22(b)makes no mention of instant satisfaction. A job in the province with residence here is an ‘asset in Alberta’ for the purposes of 4.22(a). [13] The merits of the Counterclaim are slight but the Respondents are in no position to strike it out.

Giving security for Mac’scosts is likely to prejudice the ability to continue the action. [14] The actions, once separate, are now consolidated. I note that security for costs of the Counterclaim, even if this impaired thelikelihood of the Counterclaim proceeding, would not have the effect of depriving the Plaintiffs by Counterclaim/Defendants of what istruly a defence. The Claim and Counterclaim are based on related facts but they are free standing. The only set-off that could be affectedwould be “procedural set off”. Price Waterhouse Ltd. v. M.

Young and Sons Scrap Metals Ltd. (1991) (AB KB),Carswell Alta. 373, 4 CPC (3d) 185, 123 AR 321 at paras. 18 at seq. per Funduk (M). This is one of the considerations that may beappropriate under Rule 4.22(

e) but it is neutral here. [15] On balance, it is my view that security for costs of the Counterclaim should not be ordered against the two individualPlaintiffs by Counterclaim. The application for security for costs against the two individuals is dismissed. The Numbered Companies [16] The Numbered Companies are in a somewhat different position. The starting point is

section 254 of the Alberta BusinessCorporations Act, RSA 2000, c. B-9:

254 In any action or other legal proceeding in which the plaintiff is a body corporate, if it appears to the court on the application of a defendant that the body corporate will be unable to pay the costs of a successful defendant, the court may order the body corporate to furnish security for costs on any terms it thinks fit. [ 17 ] This

section is qualified and explained by Rule 4.22. [ 18 ] The Numbered Companies are shell companies incorporated for the sole purpose of operating the three Mac ’ s Stores. It is conceded that they have no assets and they would not be in any position to respond to a costs award unless the corporate veil was lifted. Their interest in the lawsuit relates primarily to the precipitous termination of the agreement and return of the deposits. Somewhat surprisingly, no claim has been made for future profits. [ 19 ] The merits of the Counterclaim are no stronger for Numbered Companies.

They do not have an ability to pay a cost award and the Applicant will not be able to enforce a judgment for costs against them. However, an Order for Security for Costs would certainly prevent the Numbered Companies from continuing their claim. [ 20 ] Rule 4.22 (

d) allows the Court to consider any other matter it finds appropriate. These Numbered Companies are closely held and, in terms of the lawsuit, are the alter-egos of the individual Plaintiffs by Counterclaim.

They are necessary and proper parties to the cross-actions. [ 21 ] Given that the individual Plaintiffs by Counterclaim would be able to satisfy a cost award in the amount put forth by the Applicant; though satisfaction may take some time, it is sufficient for the individual Plaintiffs by Counterclaim to undertake to jointly and severely respond to any cost award the Numbered Companies might be exposed to in this litigation, up to the amount set out in the Applicant ’ s pro-forma Bill of Costs. The Counterclaim of the Numbered Companies is stayed until this undertaking is provided.

Strength of the Claim [ 22 ] There is one final point that deserves comment. [ 23 ] The Plaintiff ’ s say their claim is a strong one. They treat it as though it were virtually a debt action. They assert this as grounds for security for costs of the Counterclaim. However, the strength of a competing claim does not necessary detract from the merits of the action in which the application is filed (4.22(c)). While 4.22(

e) is very wide, the strength of a competing claim, is usually just a red herring to put us off the scent. [ 24 ] Rule 4.22 allows one party to seek security for costs against another. In an earlier incarnation, the rule only contemplated security for costs in favour of a defendant against a plaintiff (Rule 593). Rule 593(1.1) was added in 1997, which contemplated security for costs against a defendant. The new Rule is framed in universal language.

This application is not a Plaintiff ’ s application for security against the Defendant so the strength of the Applicant ’ s related claim, if it is not a red herring, is of little or no weight. And there is a further related consideration Timing of the Application [ 25 ] How the claim will ultimately be determined remains to be seen. However, I note that the Plaintiffs by Counterclaim took over operation of this cash machine in about November 2009; approximately a year before the discrepancies were discovered. The amount of the missing money is not insignificant. It could not have been taken all at once.

Even if the funds were taken out in equal monthly instalments, this would have required the theft of approximately $30,000.00 a month (or $1,000.00 per day), which seems disproportionately large in this size of operation. [ 26 ] Mr. Usman reviewed the documents furnished in support of the $368,000.00 claim and said that he has discovered $341,360.00 in errors. He suggest that it will be necessary to compare and reconcile the cash machine numbers with the bank deposits in

order to come out with an accurate assessment of the loss - if any. An undertaking to produce the bank statements was requested at Examinations on Affidavits. It was taken under advisement but the statements have not been furnished. Given that some doubt has been cast upon the Applicant ’ s claim and given that the size and strength of the Applicant ’ s claim cannot be determined with any confidence at this stage , it is impossible to say (in any event) that the merits overwhelmingly favour the Applicant. That is, it is appropriate to consider the stage of the lawsuit and the state of production of Records at the time the application is made. This is a consideration which falls under 4.22(

c) or 4.22(e). [ 27 ] The Applicant has been partially successful. If the parties cannot agree on costs they may apply within 30 days of the date of this Memorandum. I note that the Defendant 1114317 Alberta Ltd. is misnamed in the Statement of Claim as ‘ 1144317 Alberta Ltd. ’ Heard on the 13 th day of November, 2012. Dated at the City of Edmonton, Alberta this 4 th day of March, 2013. W. S. Schlosser M.C.C.Q.B.A. Appearances: Brian Doherty Doherty Schuldhaus LLP for the Plaintiffs Arif Chowdhury Fasken Martineau DuMoulin LLP for the Defendants