Editor’s Note: Erratum released on December 13, 2013. Original judgment has been corrected with text of erratum appended. IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Conmac Enterprises Ltd. v. 0928818 B.C. Ltd., 2013 BCSC 1973 Date: 20131030 Docket: 13-0108 Registry: Victoria Between: Conmac Enterprises Ltd. Plaintiff And 0928818 B.C. Ltd. Defendant And Conmac Enterprises Ltd. By Way of Counterclaim Corrected Judgment: The text of the judgment was corrected at paragraphs 28 and 71 on December 13, 2013 Before: The Honourable Mr. Justice Steeves Reasons for Judgment Counsel for the Plaintiff: L.

Armstrong Counsel for Defendant: D.D. McKnight Place and Date of Hearing: Victoria B.C September 12, 2013 Place and Date of Judgment: Victoria, B.C. October 30, 2013 Introduction [ 1 ] The defendant purchased the assets of a hotel in Sidney B.C. from the plaintiff with a closing date of August 31, 2012.

There is now a dispute between the parties about post-closing adjustments under the agreement for sale of the assets, including a counterclaim (the “Agreement”). [ 2 ] Specifically, the plaintiff submits that, under the Agreement, the defendant had a limited right to request a formal audit within a specific period of time, 60 days. The defendant failed to exercise that right and, according to the plaintiff, the sum of $271,833 became due and owing for post-closing adjustments.

The plaintiff disputes the deficiencies raised by the defendant and also says that a $300,000 holdback by the defendant is more than sufficient to cover any genuine deficiencies. [ 3 ] The plaintiff now seeks judgment in the amount of $271,833 under the Supreme Court Civil Rules , Rules 9-6 and 9-7. Payment of a small amount paid into court by the defendant’s bank pursuant to a garnishing order is also sought by the plaintiff. [ 4 ] The defendant submits that there was no agreement about the amount of adjustments and therefore the terms of the sales agreement relied on by the plaintiff are not applicable.

A specific concern of the defendant is what it claims is a roughly $347,000 liability for a loyalty rewards program in the liquor store of the hotel. The defendant also submits that this matter is not appropriately dealt with under Rule 9-7 because there are significant issues between the parties that cannot be resolved in a

summary way. [ 5 ] The defendant has also counterclaimed on the basis of misrepresentation and seeks a set-off of damages. The counterclaim

alleges that the plaintiff’s civil claim, garnishing order and affidavit supporting the garnishing order were made for the collateral and improper purpose of attempting to coerce settlement from the defendant. They were also made to garnish monies that the plaintiff knew or ought to have known that the defendant required to operate its business. And, according to the defendant, the plaintiff has embarrassed the defendant, diminished it in the eyes of its bankers and blackened its reputation within the business community.

The counterclaim also alleges that, prior to the issuing of the garnishing order, the plaintiff breached numerous representations and warranties under the Agreement and committed other breaches of the Agreement. [ 6 ] The counterclaim seeks a number of remedies: the setting aside of the garnishing order; an order that the plaintiff be enjoined from filing further garnishing orders before judgment; damages for abuse of process and/or deceit; damages for breach of contract; an injunction restraining the plaintiff from continuing its breach of the Agreement; a set off as between the defendant’s counterclaim and any amount awarded to the plaintiff; and special costs.

Special costs are sought by the defendant because, it is submitted that the plaintiff’s witnesses gave false and perjured evidence. General Background [ 7 ] The defendant is the current owner of a hotel in Sidney, British Columbia. It purchased the hotel from the plaintiff for $16,620,000, plus or minus adjustments (and plus HST). The closing date was August 31, 2012. The sale was pursuant to a lengthy “Asset Purchase Agreement” dated May 29, 2012 (the “Agreement”). [ 8 ] As well as the hotel, the Agreement provided for the sale of a liquor store to the defendant and this included inventory.

The Agreement provided for post – closing adjustments to track this inventory after the closing date.

Section 3.02 of the Agreement is titled “Post-Closing Adjustment”. The following are the applicable provisions of that section:

Section 3.02 – Post Closing Adjustment An adjustment (the “Post- Closing Adjustment”), if any, based on GAAP [generally accepted accounting principles], with respect to the Purchase Price shall be made as follows: (

a) the amount of any Post-Closing Adjustment shall be paid on or before the fifth (5th) Business Day following final determination of the Post-Closing Adjustment in accordance with this

Section 3.02 (the "Post-Closing Adjustment Payment Date") and shall bear no interest (other than default interest, if such Post-Closing Adjustment is not paid by the Post-Closing Adjustment Payment Date, at an annual rate equal to the Prime Rate plus 2% calculated from the Post-Closing Adjustment Payment Date until paid in full, and the amount of any such Post-Closing Adjustment shall be paid by certified cheque or wire transfer of immediately available funds payable to or as directed by the Party entitled thereto; (

b) within sixty (60) days after the Closing Date, the Vendor shall (

i) cause its accountants to prepare the Closing Financial Statements, (ii) prepare a calculation of the assets and the liabilities, all in accordance with GAAP, pursuant thereto and a calculation, in accordance with this

Section 3.02, of the Post-Closing Adjustment, if any, and (iii) deliver to each of the Vendor and the Purchaser a copy of the Closing Financial Statements and said calculations. The items specifically formulating the Post-Closing Adjustments shall be those items or assets and liabilities set out in

Schedule “3.02”. The fees and expenses of such accountants shall be paid by the Vendor. The Purchaser at its own expense shall have the right exercisable within sixty (60) days of its receipt of the Closing Financial Statements to formally audit the Closing Financial Statements , such audit to be attended to diligently by the Purchaser and completed within a reasonable period of time following the delivery of the Closing Financial Statements; [bolding in original] . . . I have italicized the part of s. 3.02(

b) that is at issue in the subject applications. [ 9 ] With regards to “Closing Financial Statements” in

section 3.02 they are defined in

section 1.01 of the Agreement as follows: “Closing Financial Statements” means the unaudited financial statements of the Vendor with respect to the Business, including the balance sheets, income statements, statements of changes in financial position and statements of retained earnings and deficit, together with the notes to such financial statements and the review engagement report of the Vendor’s accountant with respect to such financial statements, for the period between November 1, 2011 and the Closing Date; [ 10 ] The term “Post-Closing Adjustment” is also defined as having “the meaning ascribed thereto in

Section 3.02” and “Post- Closing Adjustment Payment Date” is defined as having “the meaning ascribed thereto in

Section 3.02(a).” [ 11 ] Another relevant

section of the Agreement is 4.05. It is titled “Financial Statements” and it provides that the plaintiff has represented and warranted to the defendant that specific financial statements have been prepared in accordance with GAAP and “applied in a manner consistent with the principles applied during the previous periods.” Further, by means of the Agreement, the plaintiff represented and warranted that the financial statements fairly present: . . . (

i) the assets, liabilities (whether accrued, absolute, contingent or otherwise) and the financial condition of the Vendor as at the date specified therein; (ii) the financial position of the Vendor with respect to the Business as at the date specified therein; and (iii) the sales and earnings of the Vendor for the period then ended; and the statements of income and retained earnings and changes in financial position for the period then ended fairly present the results

of the operations and the changes in financial position for the period then ended of the Business… [ 12 ] The Agreement also speaks to indemnification.

Section 8.04 is as follows: Q4

Section 8.04 – Indemnification by Purchaser The Purchaser shall be liable to the Vendor and shall defend, indemnify and hold harmless the Vendor against any and all Claims incurred by the Vendor resulting from or in consequence of: (

a) the breach or non-fulfillment of any representation, warranty, agreement, covenant or any other statement or obligation of the Purchaser contained in this Agreement or in any other agreement or document required to be entered into with, or delivered to, the Vendor by the Purchaser; or (

b) any Assumed Liabilities. [ 13 ] The Agreement included a holdback in the amount of $300,000. Half of that amount was to be paid by the defendant to the plaintiff on completion of the adjustments, with the balance to be held for one year (section 3.03). As will be seen, the parties refer to a holdback in the amount of $150,000 to reflect the holdback to be held for one year (after payment of the holdback on completion of the adjustments). However, as of the date of the hearing of the plaintiff’s application, a holdback in the full amount of $300,000 was held by the defendant. [ 14 ] Finally, the Agreement included a provision with respect to notices.

Section 13.01 states that any notice or communication under the Agreement shall be in writing and be “sufficiently given to the Party to whom it is addressed” if it is delivered or sent by prepaid registered or certified mail or transmitted by telecopier “to or for such Party at the address or telecopier number of such Party.” Specific names, telephone numbers, fax numbers and email addresses are listed for each party.

The Plaintiff’s application [ 15 ] The following are the events leading up to the plaintiff’s application under Rule 9-7 in this case, in chronological order. [ 16 ] On October 30, 2012 the plaintiff prepared and delivered Closing Financial Statements and the Post-Closing Adjustment Statement dated August 31, 2012 to the defendant pursuant to s. 3.02(

b) of the Agreement. The amount of post-closing adjustments in the statements was $271,833. [ 17 ] As above, by operation of s. 3.02(

b) of the Agreement, the defendant had, at its own expense, “… [t]he right exercisable within sixty (60) days of its receipt of the Closing Financial Statements to formally audit the Closing Financial Statements …” (as long as the audit was “attended to diligently” by the defendant and completed within a reasonable period of time following the delivery of the statements). [ 18 ] The 60-day period in which the defendant had the right to formally audit the statements for the statements delivered on October 30, 2012 expired on December 29, 2012. [ 19 ] Gerald Conrod, an officer of the plaintiff, deposed (in an affidavit filed July 9, 2013) that, on or about December 10, 2012, the plaintiff “acknowledged without agreeing” that the defendant disputed two sums from the post-closing adjustments for questionable receivables and miscellaneous items listed by the defendant.

According to Mr. Conrod, by letter of December 10, 2012, the plaintiff deducted those sums from the amount recorded on the Closing Financial Statements of $271,833 and demanded the balance of $250,251.10. [ 20 ] The defendant says that Mr. Conrod’s statement that there was agreement on the adjustments or their amounts was false and he knew it was false. [ 21 ] Lindsay Ross, a director and solicitor of the defendant, deposed (in an affidavit filed May 27, 2013) that, shortly after receiving the plaintiff’s letter of December 10, 2012, he telephoned the plaintiff’s solicitor. Mr.

Ross advised the solicitor that he received the letter and that there were still substantial adjustments. [ 22 ] One of these adjustments related to a Loyalty Points Program (“LPP”) operated by the liquor store in the hotel. There is a dispute between the parties as to the value of the LPP. The defendant says it amounts to a liability of $347,402 and the plaintiff says any liability is limited to between $12,000 and $18,300. This is discussed in detail below. [ 23 ] Mr.

Ross followed up this conversation with a letter dated December 14, 2012 to the plaintiff’s solicitor: We acknowledge receipt of your fax dated December 10, 2012 for which we thank you. However, we are advised that no understanding has been reached regarding the post closing adjustments for the transaction identified above [the sale of the hotel]. The Purchaser is analyzing the most recent calculations of adjustments, is still reconciling the numbers and may yet require an audit.

Some specific items have been accepted by the Purchaser, namely two payments to Mission Hill [a supplier of liquor], but there are many payments that remain under discussion. Matters are being examined by our clients with respect to the Vendor’s representation and warranties. The Vancouver Island Health Authority has inspected the property and has issues with both the Travelodge swimming pool and the Charles Dickens Pub’s kitchen. Further, the Travelodge franchise agreement includes certain requirements that were not disclosed by the Vendors. These matters will certainly cover the $150,000 holdback.

Consequently, the Purchaser’s position is that there are too many outstanding matters that will offset accepted amounts and therefore there is no agreement on the adjustments. [ 24 ] The defendant did not request an audit under s. 3.02(

b) of the Agreement on or before December 29, 2012. [ 25 ] On December 31, 2012 the defendant sent a letter to the plaintiff’s solicitor as follows: Further to our previous correspondence as well as telephone messages, we confirm that the parties have not reconciled the differences in working capital in each other’s presented working capital position. Accordingly and as indicated in previous correspondence, the Purchaser would like to further audit the books of the Vendor pursuant to

section 3.02 of Asset Purchase Agreement [the Agreement]. At this time, we think it would be fruitful to have a meeting with you, your client’s accountant, our client’s accountant and ourselves to settle the outstanding working capital adjustments as well as the holdback issues that we and/or the Purchaser’s accountant has discussed with your client. Please contact the undersigned to discuss this. [ 26 ] On January 10, 2013 the solicitor for the plaintiff replied to the defendant’s letter of December 31, 2012 via email as follows: Thank you for the letter forwarded with your email of December 31, 2012.

Unfortunately, we have checked our fax log and the letter was not received by fax by ourselves and neither was it received by Mr. Conrod or Mr. McArthur as reqquired [sic] by the agreement between our respective clients. We also attach a copy of the receipt from your office for the financial statements showing that you received them from our client’s accountants on October 30, 2012 which would mean that the 60 day period in which your client could request an audit under

section 3.02(

b) of the Asset Purchase Agreement [the Agreement] expired on December 29th, 2012 not the 31 st . Our client is not prepared to grant an extension of this deadline, therefore, the notice of audit is ineffective. [ 27 ] The plaintiff served a garnishing order on the defendant’s bank on January 16, 2013 and this resulted in payment of a nominal amount ($226.03) into court. According to the defendant this was an attempt to coerce a settlement, it was embarrassing to the defendant, it diminished it in the eyes of its bankers and it blackened the reputation of the defendant within the business community generally.

The defendant also alleges that a statement in the affidavit supporting the garnishing order was knowingly false. That statement was: “In respect of the cause of action, the Defendant is justly indebted to the Plaintiff for $250,251.10 after making all just discounts and it is now justly due and owing.” The defendant says there was no indebtedness and the plaintiff knew there was none. [ 28 ] On June 14, 2013 counsel for the plaintiff sent a letter to counsel for the defendant. Among other things the letter included a new statement of adjustments with a total of $347,974 and payment of that amount was requested.

The issues between the parties then proceeded to court. [ 29 ] According to the defendant, the letter and financial statements, sent on behalf of the plaintiff on June 14, 2013, “re-lit the candle” and gave the defendant another opportunity to request an audit under s. 3.02(

b) of the Agreement. The plaintiff disagrees and relies on the strict wording of s. 3.02(b). [ 30 ] The plaintiff now seeks through its application under Rule 9-7,

summary judgment against the defendant in the amount of $271,833 (not $347,974). An order is also sought requiring the defendant/garnishee to pay to the plaintiff the sum of $226.03 paid into court by the defendants bank on February 12, 2013. Alternatively, the plaintiff seeks damages for breach of contract. Interest at the contractual rate of 2.00% greater than the prime rate, and costs are also sought by the plaintiff.

The defendant’s counter claim and set-off [ 31 ] The defendant has filed a counterclaim and set-off, as amended on June 26, 2013. [ 32 ] Attached to the counterclaim is a long list, over four pages, with titles such as “Line Item #8” and “Line Item #10.” There is no evidence or other explanation to identify the source of the line items. These go into considerable detail about the concerns the defendant has with the condition of the hotel. As examples, there are allegations of problems with wooden bed frames, countertops, and a dishwasher/grease trap. Some items include costs, some do not.

At the hearing of this matter I expressed to counsel for the defendant my concern that the list of items was not a proper pleading or evidence. [ 33 ] The counterclaim alleges that the plaintiff’s civil claim, garnishing order and affidavit supporting the garnishing order were made for the collateral and improper purpose of attempting to coerce settlement from the defendant. They were also made to garnish monies that the plaintiff knew or ought to have known that the defendant required to operate its business.

And, according to the defendant, the plaintiff has embarrassed the defendant, diminished it in the eyes of its bankers and blackened its reputation within the business community. [ 34 ] The counterclaim also alleges that, prior to the issuing of the garnishing order; the plaintiff breached numerous representations and warranties under the Agreement and committed other breaches of the Agreement. [ 35 ] The counterclaim seeks a number of remedies: the setting aside of the garnishing order; an order that the plaintiff be enjoined from filing further garnishing orders before judgment; damages for abuse of process and/or deceit; damages for breach of contract; an injunction restraining the plaintiff from continuing its breach of the Agreement; a set off as between the defendant’s counterclaim and any amount awarded to the plaintiff; and special costs.

Analysis

[ 36 ] I will consider the plaintiff‘s application for

summary judgment (under Rule 9-7) first. Then I will consider the defendant’s counter claim and set-off. [ 37 ] As a preliminary matter, it is submitted by the defendant that the plaintiff’s application should not proceed at all under Rule 9-7 because the complexity of the issues require a full hearing of the evidence. The defendants say that to proceed would be litigation in slices. [ 38 ] As will be seen, I conclude that the issues on the plaintiff’s application (and the defendant’s counterclaim below) and set off can be adjudicated on the basis of affidavit evidence under Rule 9-7.

It is possible to resolve the dispute between the parties on affidavit evidence alone and it would not be unjust to do so. Plaintiff’s application for

summary judgment [ 39 ] As above, the plaintiff seeks

summary judgment in the amount of $271,833. The basis for the plaintiff’s application is s. 3.02(

b) of the Agreement. [ 40 ] It is not in dispute that the defendant did not request an audit pursuant to

section 3.02(

b) until December 31, 2012. Since the 60- day period during which an audit could be requested expired on December 29, 2012, the defendant’s request for an audit did not comply with the Agreement. It has not been argued by the defendant that some latitude should be given to it since its request for an audit was merely two days late. Similarly, it is not submitted by the defendant that the reference in its letter of December 14, 2012 to “may yet require an audit” somehow complies with s. 3.02(b). [ 41 ] The primary response of the defendant is one involving the

interpretation of s. 3.02(

b) of the Agreement. It is submitted that the failure to comply with that provision does not deem the defendant to have accepted the financial statements of the plaintiff. Rather, at the most, according to the defendant, it loses the right to an audit. In my view, this is an interpretive issue that is appropriately dealt with under Rule 9-7. [ 42 ] It is clear that the defendant had a right to an audit under the Agreement but it was not an indefinite one with respect to time: it required the defendant to make a request for an audit within 60 days of delivery of the adjustment statements.

As I understand it, the defendant accepts that point to the extent that they acknowledge that they lost the right to an audit by not making a request for one within 60 days, as required by s. 3.02(b). However, the defendant strenuously objects to the proposition that it should be deemed to have accepted the veracity of the audited adjustment statements. [ 43 ] The submission of the defendant is that there is a distinction to be made between the right of an audit of the plaintiff’s financial statements and a right to question the plaintiff’s statements. “Audit” is not defined in the Agreement.

It has otherwise been defined as “[a]n examination of books of account and supporting evidence to determine the reliability of the information recorded” ( Daphne Dukelow and Betsy Nuse, The Dictionary of Canadian Law , 2d ed ,(Toronto: Carswell,1995) sub vervo “audit”, citing Toromont Industrial Holdings Ltd. v. Thorne, Gunn, Helliwell & Christenson (1975), 10 O.R. (2d) ). A dictionary meaning of audit is: “an official examination and verification of accounts” ( The Canadian Oxford Dictionary , 1 st ed, sub vervo “audit”.). [ 44 ] It follows from these

definitions that the defendant’s failure to invoke its right to an audit in a timely manner does not mean it still somehow has a right to examine and/or verify the plaintiff’s adjustment statements. An audit is an opportunity to do just that and that opportunity expired on December 29, 2012 by operation of s. 3.02(

b) of the Agreement. [ 45 ] A related matter is the June 14, 2013 communication from the plaintiff to the defendant that included a new statement of adjustments. The defendant says this “re-lit the candle” with respect to the operation of s. 3.02(b). That is, the defendant had the opportunity to make a new request for an audit under s. 3.02(b), which they have done in a timely manner. [ 46 ] In my view the defendant’s submission on this point does not accord with the provisions of the Agreement. Under s. 3.02(

b) the plaintiff was to provide the “Closing Financial Statements” to the defendant “within sixty (60) days after the Closing Date.” The plaintiff complied with this requirement. The 60-day period for the defendant to request an audit began on the date that the statements were provided by the plaintiff. Clearly, the intention of the parties when they drafted the Agreement was that there was only one opportunity to request an audit under s. 3.02(b).

That opportunity was to be exercised within60 days after receipt of the “Closing Financial Statements” which were produced by the plaintiff 60 days after closing. [ 47 ] For the above reasons, I allow the plaintiff’s application for judgment in the amount of $271,833. The plaintiff is also entitled to $226.03, the amount paid into court pursuant to the January 2013 garnishing order.

Defendant’s counterclaim and set-off [ 48 ] The defendant objects to the plaintiff filing a garnishing order with accompanying affidavit that, among other things alleged by the defendant, attempted to coerce a settlement and to diminish the reputation of the defendant. Damages for abuse of process, breach of contract and other relief are sought, including special costs. The legal basis includes the tort of abuse of process, including attempting to obtain a settlement by “legal blackmail”, and the tort of deceit. [ 49 ] There are problems with how the defendant has presented its counterclaim.

These relate to the long list of items attached to the counterclaim itself. They go into considerable detail about what appear to be the defendant’s view about deficiencies in the hotel and liquor store. These include problems with bathroom countertops, stove repairs, delaminating pots and pans in the kitchen and repairs to the racks to hold liquor, among many other items. The items are numbered but with some numbers are missing and there is no apparent context for them.

Some are costed and some are not. [ 50 ] More significantly for the purposes of the counterclaim, the items attached to the counterclaim are not included in any affidavit

evidence and, therefore, they are not evidence, nor are they a proper form of pleadings. I am unable to give any weight to them. [ 51 ] I turn to the substance of the defendant’s counterclaim and set-off by addressing specific issues raised by the defendant. The LPP [ 52 ] There is a dispute between the parties about the amount of adjustments with regards to the LPP. [ 53 ] Affidavit evidence on behalf of the defendant on this issue is from Andrew Ahmed Mackellar Hashmi. He is the Chief Financial Officer for the defendant and a chartered accountant. In an affidavit filed August 19, 2013, Mr.

Hashmi said that he attended at the liquor store on September 1, 2012 and: 11. … I observed a variety of merchandise situated in the comer of the premises. I asked Nick Coates [general manager and employee of the defendant] what the merchandise was for, and I was informed that it represented prizes that were distributed to customers who participated in the Loyalty Points Program (''LPP”). Mr.

Coates explained to me that the LPP was a sales promotion whereby participating patrons of the Liquor Store were awarded points when they purchased products from the Liquor Store, which points were redeemable for various merchandise, including items such as televisions, bar fridges, sporting goods, clothing, caps and the like. 12. At that time, I asked Mr. Coates if there was any document recording the points accumulated under the LPP, and he advised me that there was, and that he would obtain a copy for me. 13. On the following Monday, September 3, 2012, Mr.

Coates presented me with a document entitled “Customer Loyalty Program Activity Period From 11/1/2006 To 9/2/2012” (“CLPA”) … 14. When I reviewed the CLPA in detail, I noted that it was 60 pages in length and that the total customer file current loyalty points balance, as at September 2, 2012, was 408,183. 15. After reviewing the CLPA, I realized that I had not seen a recording of that contingent liability in any of the financial statements of the Plaintiff that I reviewed prior to the Closing Date. 16.

I have since reviewed the Plaintiff’s financial statement for the year 2008, and it identifies a liability associated with the LPP in the amount of $112,954.00. The total number of LPP points earned, as at October 31, 2008, was 132,716, which translates to an assigned value of $0.851 for each of the LPP points earned to that same date. Attached as Exhibits “C” and “D”, respectively, to this Affidavit are true copies of the Conmac Enterprises Ltd.

General Ledger Report 01/10/2008 to 31/10/2008 and Customer Loyalty Program Activity Period From 11/1/2006 to 10/31/2008 from which documents I derived the foregoing figures. 17. At the rate of $0.851 per point, the total liability under the LPP as at September 2, 2012, as reflected in the CLPA, would have been $347,402.00 rounded down (408,183 points x $0.851). Attached as Exhibit “E” to this Affidavit are my calculations showing how I arrive at the figure $347,402.00. … [ 54 ] For its part, the plaintiff relies on the evidence of Nick Coates.

He is a former employee of the plaintiff and the general manager of the hotel, including the liquor store. Mr. Coates deposed in an affidavit sworn August 19, 2003 that LPP is popular and it does creates loyalty and good will. He also deposed as follows : … 3. I began working for Conmac [the plaintiff], the former owner of the Complex [the hotel, liquor store and other operations], on or about February 1, 2000. 4. I was hired by 0928818 on or about September 1, 2012, when 0928818 purchased the Complex from Conmac. 5.

On or about November 1, 2006, the Liquor Store implemented a loyalty points program (“Loyalty Points Program”). 6. The Liquor Store awards points to customers through the Loyalty Points Program based on their purchases. 7. The Loyalty Points Program entitles customers to redeem their accumulated points for reward items offered by the Liquor Store. 8. The reward items consist of items such as, but not limited to, beer and liquor signage, clothing, cameras, iPods, DVD players, and televisions. 9.

Most of the reward items offered through the Loyalty Points Program are supplied by beer and liquor distributors for the Liquor Store through a discount allowance. 10. Many beer and liquor suppliers offer the Liquor Store a discount allowance when the Liquor Store places a specific order for their product. 11. As an example of how a discount allowance works, a supplier may have a promotion where if the Liquor Store purchases S5,000.00 worth of product, the Liquor Store would receive an item such as an electronic item, a gift card, or recreational equipment. 12.

The items received as a result of the supplier’s discount allowance are then offered to customers as reward items through the Loyalty Points Program. Where gift cards are received as a result of the supplier’s discount allowance, the gift cards are used to purchase other items to offer as reward items.

… [ 55 ] Mr. Coates also deposed that most of the reward items are supplied by beer and liquor suppliers through a discount allowance. When the liquor store is low on these items they are purchased from various retailers. He estimated the cost spent on re-stocking reward items at $500 per year. Further: … 19.

Approximately once per month, the manager of the Liquor Store will print off the Loyalty Points Program activity from the POS [point of sale system], listing each customer’s name, their current point balance, the number of points redeemed and earned, and the total monetary value of purchases at the Liquor Store. 20. Customers are awarded one point for every $10.00 they spend at the Liquor Store. 21. In 2010 and most of 2011, the point’s redemption ratio was typically between 300 to 400 points per $100.00 retail value of the reward item, depending on the reward item. 22.

Towards the end of 2011, and for 2012, the point’s redemption ratio was typically between 400 and 500 points per $100.00 retail value of the reward item, depending on the reward item. 23. In 2010, 55,107 points were redeemed for an estimated retail value of $18,300.00 in reward items. 24. In 2011, 50,795 points were redeemed for an estimated retail value of $17,000 in reward items. 25. In 2012, 47,496 points were redeemed for an estimated retail value of $12,000 in reward items. … [ 56 ] The primary difference between the calculations used by Mr. Hashmi and by Mr. Coates is that Mr.

Hashmi assumes that there is a direct cost for each loyalty point, $0.851. On the other hand, Mr. Coates describes a redemption ratio of 300 to 400 points per $100.00 of retail value in 2010 and most of 2011, depending on the reward item. The ratio for part of 2011 and 2012 was 400 to 500 points per $100 of retail value. [ 57 ] The result is a significant difference between the parties on the valuation of the LPP. According to Mr. Hashmi there is a liability of $347,402 that the plaintiff did not disclose. For his part, Mr.

Coates describes a much lower figure, something in the order of $12,000 to $18,300 per year. [ 58 ] I note in his affidavit Mr. Hashmi said at para. 15 that the LPP was not recorded as a contingent liability in any financial statements of the plaintiff. However, in the next paragraph, he said that he had “since reviewed” the 2008 statements and he noted a liability in the amount of $112,954.00. From this I conclude that the defendant’s concern is with the amount of liability recorded by the plaintiffs rather than a failure to record any liability. [ 59 ] Mr. Coates is the person managing the LPP.

His description of the valuation and accounting of the program reflects his knowledge. There is logic to the approach used by Mr. Hashmi but it does not take into account redemption ratios and it does not account for suppliers paying for most of the prizes. For these reasons I prefer the evidence of Mr. Coates over that of Mr. Hashmi. [ 60 ] The result is that, if there is an adjustment required for the LPP, it is substantially less than the amount calculated by Mr. Hashmi and it can be very easily provided for under the $300,000 holdback.

I might add that there is a suggestion in argument that somehow the plaintiff was hiding the LPP by questionable accounting practices. This is only speculation and there is no evidence to support that contention. [ 61 ] I deny the defendant’s counterclaim on this issue. Garnishing order [ 62 ] With respect to the garnishing order obtained by the plaintiff, the defendant alleges that it was done to coerce the latter into a settlement. Assuming that objective is objectionable, there is no evidence to support this allegation.

As well, the allegation in the counterclaim that the application for a garnishing order essentially defames the defendant is more properly plead as defamation. [ 63 ] The affidavit supporting the garnishing order states that the defendant is “justly indebted” to the plaintiff and all accounts are “now justly due and owing.” This is standard language used when seeking a garnishing order and it was open to the defendant to challenge the evidence supporting the order and its substance under the garnishing proceedings. [ 64 ] I can find no basis for the counterclaim on this issue.

Did the defendant “accept” the plaintiff’s figures? [ 65 ] On December 10, 2012 counsel for the plaintiff wrote to the defendant that the latter “had accepted” the amounts determined by the former’s accountants with respect to adjustments. [ 66 ] Shortly after receiving this letter Mr. Pearson, on behalf of the defendant, telephoned the plaintiff’s solicitor to say there had been no agreement and that there were still substantial adjustments, including the LPP.

He repeated this in a letter of December 14, 2012 and also said that the situation “may yet require an audit.” Then there was the letter from the defendant suggesting an audit; this was on December 31, 2012, two days after the time period under s. 3.02(

b) had expired.

[ 67 ] The problem, according to the defendant, is that Mr. Conrod, in an affidavit filed July 9, 2013 on behalf of the plaintiff, deposed: On or about December 10, 2012 the Plaintiff acknowledged without agreeing that the Defendant disputed two sums from the PCA’s: $4,612.24 for questionable receivables; and $16,969.66 for miscellaneous items the Defendant had listed. [ 68 ] I am asked to find that this statement was knowingly false and even perjurious. I reject this extreme allegation. Mr. Conrod may have been wrong or mistaken but that does mean he was dishonest.

Further, even if a deponent is wrong, it does not necessarily follow that the error is determinative. In this case, the issue is whether the defendant complied with s. 3.02(

b) and whether the defendant agreed to the amount of adjustments is not relevant to that issue. Finally, I note that the original statement from the plaintiff about an agreement on the cost of adjustments indicated that any alleged agreement was subject to additional changes. Amicable settlement? [ 69 ]

Section 13.05 of the Agreement states that the parties “shall attempt, in good faith, to settle amicably” any and all disputes relating to the Agreement or its breach prior to submitting any disputes to a court. The defendant submits that the plaintiff had breached this provision by means of the subject action and application. That is, the plaintiff has not sought to settle the disputes in this application amicably before coming to court. [ 70 ] It is of some significance that there is no evidence that the defendant invoked s. 13.05 of the Agreement prior to making its counterclaim and set-off applications.

It appears the first time it came up was in legal argument, well after the parties had fully joined on the issues in dispute. I also note the defendant’s allegations of false testimony and perjury on the part of the plaintiff.

In these circumstances, and at this late stage, I conclude that the opportunity for an amicable settlement is past. [ 71 ] For all of these reasons I deny the defendant’s counterclaim and the defendant’s application to stay the plaintiff’s application [ 72 ] The plaintiff is entitled to ordinary costs for its application and response to the counterclaim and set-off. “Steeves, J.” IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Conmac Enterprises Ltd. v. 0928818 B.C. Ltd., 2013 BCSC 1973 Date: 20131213 Docket: 13-0108 Registry: Victoria Between: Conmac Enterprises Ltd. Plaintiff And 0928818 B.C. Ltd.

Defendant And Conmac Enterprises Ltd. By Way of Counterclaim Before: The Honourable Mr. Justice Steeves Corrigendum to Reasons for Judgment Counsel for the Plaintiff: L. Armstrong Counsel for Defendant: D.D. McKnight

Place and Date of Hearing: Victoria B.C September 12, 2013 Place and Date of Judgment: Victoria, B.C. October 30, 2013 Date of Corrigendum: December 13, 2013 [1] Upon hearing submissions from counsel on December 12, 2013, paragraphs 28 and 71 of the judgment dated October 30, 2013 are amended as follows: [2] Paragraph [28] should read: On June 14, 2013 counsel for the plaintiff sent a letter to counsel for the defendant. Among other things the letter included a new statement of adjustments with a total of $347,974 and payment of that amount was requested.

The issues between the parties then proceeded to court. [3] Paragraph [71] should read: For all of these reasons I deny the defendant’s counterclaim and the defendant’s application to stay the plaintiff’s application. “Steeves, J.”