2014 QCCQ 1199, 2014 QCCQ 1199

9162-7273 Quebec inc. c. Global Payment Systems of Canada Ltd. 2014 QCCQ 1199 COURT OF QUEBEC CANADA PROVINCE OF QUEBEC DISTRICT OF MONTREAL CIVIL Division No: 500-22-149300-082 DATE: February 21, 2014 ______________________________________________________________________ BY THE HONOURABLE ELIANA MARENGO, J.C.Q. ______________________________________________________________________ 9162-7273 QUEBEC INC. Plaintiff v. GLOBAL PAYMENT SYSTEMS OF CANADA LTD.

Defendant ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [ 1 ] On September 17, 2007, an agreement entitled "Merchant Agreements", filed as exhibit D-2, intervened between the parties (hereafter "the Agreement"). [ 2 ] The purpose of the Agreement was to allow plaintiff's company to accept credit card payments from its customers; use a point of sale terminal to request authorization of credit and transactions; and deposit its credit card sales drafts, and/or extend Interac Direct Payment (debit) services to its customers. [ 3 ] Defendant provided the point of sale terminal to plaintiff, which allegedly operated a retail clothing store called "Boutique Indigo". [ 4 ] As a result of an investigation relating to plaintiff's irregular use of the terminal, defendant constituted a reserve account to withhold and retain sums necessary to respond to chargebacks in relation to plaintiff's activities and irregular transactions. [ 5 ] Plaintiff is suing defendant, on account, for $55,339.00 (as amended) in an effort to retrieve those sums.

THE EVIDENCE [ 6 ] Plaintiff's sole shareholder, director and employee is one Najet Benzouaoui. [ 7 ] Here is her unlikely story. [ 8 ] In 2005, the year of plaintiff's constitution, it allegedly began operating a clothing store called "Entreprise Styx". Benzouaoui does not remember the location of the store; nor can she recall the city it was in: "24 Q- Il était situé où le magasin Sticks (sic)? R- Je ne me souviens plus très bien. Je vous dis la vérité, je ne me souviens plus. 25 Q- Vous ne vous souvenez pas? R- Non, je ne souviens pas. 26 Q- Si on parle d'une ville?

R- Euh, Montréal, il me semble. 27 Q- Montréal? R- Oui. Il me semble que c'est Montréal, mais je ne pourrais pas vous dire très certainement l'endroit exactement."

(examination after plea, held June 28, 2010, hereafter "the examination," questions 24 to 27) [ 9 ] Eventually, this boutique closed. [ 10 ] In October, 2007, Benzouaoui allegedly opened another store called "Boutique Indigo", at 5831 Du Parc Avenue, in Montreal. It was the same type of store. [ 11 ] Benzouaoui claims she did not enter into a written lease agreement for the rental of the premises. She claims she was sub-letting from an individual whose name she only vaguely remembered: "51 Q- Le bail était au nom de qui?

R- Le bail, je n'ai pas de bail, Monsieur. 52 Q- Non, non, le bail … R- Je ne sais pas à quel nom. 53 Q- Vous ne le savez pas? R- Bien non, je ne sais pas. Moi, j'ai fait une sous- location à cette personne. J'ai répondu à une annonce. 54 Q- O.K. De qui avez-vous sous-loué? R- Je pourrais pas vous dire. 55 Q- Vous n'avez pas de nom? R- Mais, je n'ai pas son nom exactement, en fait. Je sais que c'était un monsieur, un certain Bennett ou quelque chose comme ça, mais le nom au complet je peux pas vous dire. 56 Q- Est-ce que vous avez dans vos papiers le nom de la personne de qui vous avez sous-loué le local?

R- Bien, je ne pense pas, non. 57 Q- Vous ne pensez pas? R- Non" (examination, questions 51 to 57) [ 12 ] The alleged rent was $750.00 per month, paid in cash and, of course, she was not given receipts. [ 13 ] She had a sign made, but couldn't remember by whom or where: "72 Q- Cette affiche a été faite où, qui a fait l'affiche? R- Ah, ça je me souviens pas de ça, par contre.

Ça, je m'en souviens pas du tout." (examination, question 72) [ 14 ] She repeated the same thing at trial; but when the Court questioned her on the subject, she suddenly recalled that she had dealt with an outfit in "Longueuil", on "Chambly" street. [ 15 ] Benzouaoui could not remember when the store allegedly began operating in October, 2007. [ 16 ] She had no pictures of the store, nor any copy of the flyer she claims to have distributed. [ 17 ] She could not remember where the store's cash register came from. At the examination, she stated: "141 Q- Et vous vous l'êtes procurée où? R- Je sais pas.

Ça c'est très vieux. J'en avais des caisses enregistreuses. 142 Q- Vous en aviez?

R- Oui." (examination, questions 141 and 142) [ 18 ] At trial, she claimed she bought it "de quelqu'un". [ 19 ] The stock was allegedly comprised of old left-over merchandise from the Styx boutique, as well as new stock from "Chabanel". [ 20 ] Needless to say, she had no proof that the alleged stock ever existed, other than 2 ancient order slips from 2004, filed as exhibit E-1. [ 21 ] What is more, not only did Benzouaoui not have any documents relating to inventory, such as delivery slips from suppliers, but she also came up empty-handed with regards to sales invoices and purchase orders.

In other words, there exists no record of what was sold, to whom, when and for what price: "113 Q- Est-ce qu'il y a eu des ventes à tous les jours?

R- Je ne sais pas. 114 Q- Vous ne savez pas? R- Je ne sais pas. 115 Q- Quel était le suivi de l'inventaire en stock que vous aviez? R- Bien, c'est-à-dire le suivi? 116 Q- Est-ce que vous aviez un système informatique qui gérait votre inventaire? R- Non, non, pas du tout. 117 Q- Quel était le suivi des ventes? Est-ce que vous avez un rapport de ventes qui illustre ce qui a été vendu au magasin? R- Le rapport des ventes il est fait avec la machine chaque jour. Il sort automatiquement à la fin de la journée. 118 Q- Quelle machine? R- La machine des marchands de Global. 119 Q- Mais, cette machine n'illustre que des montants, elle ne montre aucunement ce qui a été vendu? R- Bien, elle montre en

partie les montants qu'il y a eus et puis ce qui a été vendu. Ça le montre également. C'est un rapport de la journée. 120 Q- Mais, la machine ne détaille pas, par exemple – je donne un exemple – si dans une journée x on a vendu deux pantalons et trois chandails? R- Ah non, non, elle détaille pas ça du tout. C'est pas le but de … 121 Q- Donc, on est d'accord? R- Oui, tout à fait. 122 Q- On est d'accord? R- Oui. 123 Q- Donc, je reviens à ma question: Pour ce qui est de l'inventaire, au niveau des ventes, comment on fait pour savoir ce qui a été vendu? R- O.K. Bien, ça c'est moi qui le fais.

Je veux dire, je n'ai pas besoin de machine pour ça, je suis là, je sais ce que je vends. À chaque jour, je vois bien mes … je vois mes carnets. Je le vois. 124 Q- Vos carnets sont faits sous quelle forme? R- Je vois mon stock et mon carnet. 125 Q- Vos carnets sont faits sous quelle forme? R- Des blocs, des blocs de reçus de ventes. 126 Q- Est-ce que pour chaque vente vous remplissiez ce qui a été vendu? R- Bien oui, tout à fait. 127 Q- Est-ce que vous avez conservé … R- Non, je pense pas. 128 Q- D'accord.

Donc, pour chacune des transactions qui ont pu être faites au moyen du terminal de Global Payment, il n'y a aucun moyen de savoir pour aucune des factures ce qui a été vendu à ces personnes? R- Bien, moi, je le sais, bien sûr ce qui a été vendu. 129 Q- Vous le savez aujourd'hui? R- Non, non, non, pas aujourd'hui, non. 130 Q- O.K. Donc, je prends un exemple et j'ai ici le rapport devant moi de Global Payment pour … […] 131 Q- Je donne un exemple.

R- O.K. 132 Q- Par exemple, le dix-sept (17) novembre, ici, il y a une vente de deux cent … […] 133 Q- Deux cent cinquante-cinq dollars (255 $) le dix- sept (17) novembre deux mille sept (2007) à quatorze heures vingt-deux (14h22), il y a une transaction sur Visa. R- Oui. 134 Q- Est-ce qu'il y a moyen de savoir qu'est-ce qui a été acheté pour deux cent cinquante-cinq dollars (255 $)?

R- Bien, à ce jour, non, je ne peux pas vous le dire. Ça, je ne suis pas capable, je suis pas en mesure de le dire. 135 Q- Donc, vous n'avez conservé aucun document qui reflète aucune des ventes qui ont pu être effectuées? R- Pas à ma connaissance. Je pense pas. 136 Q- Mais, si c'est pas à votre connaissance, c'est à la connaissance de qui? R- Je vous ai répondu non, je ne les ai pas. 137 Q- Donc, vous n'avez rien conservé, c'est ce que je comprends?

R- C'est ce que je vous ai dit. 138 Q- Parfait." (examination, questions 113 to 138) [ 22 ] At trial, when asked why she had no written evidence of anything, Benzouaoui claimed that she had thrown everything out, after defendant started its investigation, because she was "depressed"; not too depressed, however, to send a demand letter, on January 23, 2008 (exhibit P-3) or to institute legal proceedings, on July 24, 2008, claiming $59,176.81. [ 23 ] Benzouaoui kept no accounting or financial records and did not file income or sales tax returns: "145 Q- Est-ce que Boutique Indigo a fait une déclaration d'impôt?

R- Non, elle en a pas fait. 146 Q- Elle en a pas fait? R- Non. 147 Q- Est-ce que vous avez remis vos TPS et TVQ sur les ventes effectuées? R- Non plus. Ça n'a pas été fait encore. 148 Q- Encore? R- Bien, ça n'a pas été fait. Je peux pas faire des déclarations sur cette boutique pour l'instant. 149 Q- Est-ce que vous avez une comptabilité de ce que vous devez au gouvernement sur la TPS et la TVQ? R- Je ne comprends pas votre question. 150 Q- Est-ce que vous savez ce que vous devez aux différents gouvernements? R- Non, je ne le sais pas. 151 Q- Vous ne le savez pas non plus?

R- Non 152 Q- Est-ce que Boutique Indigo a fait des états financiers vérifiés ou non? R- Non, non, non. 153 Q- Sous quelque forme que ce soit. R- Non. Je n'ai pas assez opéré longtemps pour cela." (examination, questions 145 to 153) [ 24 ] Although Benzouaoui claims she operated the store from October, 2007, to January or February, 2008, she only used the terminal for a grand total of 11 days. 176 transactions totalling $79,930.33 were processed.

Of these 176 transactions, 107 were "keyed", not swiped, as they should have been, under the terms and conditions of the Agreement. [ 25 ] Of the 176 transactions, 104 were rejected. [ 26 ] Of the 176 transactions, 172 were processed between November 25 and December 5, 2007. [ 27 ] The transactions were processed in bulk, within minutes of each other and, at times, using the same credit cards during the same operating day. For example, on November 27, 2007, the card ending in "7466", from England, was processed 7 times, between 17:28 and 18:26.

On November 28, 2007, the card ending in "9336", from Azerbaijan, was processed 4 times, between 10:27 and 10:36, and once at 14:20. On November 28, 2007, the card ending in "9571", from England, was processed 4 times, between 14:21 and 15:17. On November 29, 2007, the card ending in "1186", from England, was processed 6 times, between 16:13 and 16:31 and then again the next day at 11:56. On December 2, 2007, the card ending in "5175", from England, was processed 7 times, between 16:07 and 17:11. On December 4, 2007, the card ending in "1000", from England, was processed 7 times, between 14:13 and 15:53.

On December 4, 2007, the card ending in "6697", from Ireland, was processed 13 times, between 20:12 and 20:27. On December 5, 2007, the card ending in "8251", from England, was processed 9 times between 16:57 and 17:27. [ 28 ] As stated by Maria Staniscia, defendant's manager and lead fraud investigator, the chargebacks at issue were initiated by the credit card issuers for reasons of unauthorized activity or fraud.

[ 29 ] Defendant detected signs and patterns of irregular activity and transactions, such as: - the sales amounts (exhibit D-3) which by far surpassed the average sales price of $300.00 disclosed by plaintiff when it entered into agreement D-2 (exhibit D-5); - the series and high ratio of declined transactions within a short period of time; - the use of multiple cards within a short period of time, all of which were declined; - the high volume of manual transactions; - the repeated use of the same card within a small timeframe or over several days; - the extremely high and repeated use of foreign cards versus domestic cards (99%) (exhibit D-7); - the short period of transaction-processing within the same day; - the absence of invoices; - the absence of viable documentation with regards to inventory, such as, but not limited to, bills of lading. [ 30 ] On December 6, 2007, defendant's risk management department deactivated the terminal pending further investigation. [ 31 ] After investigating, defendant concluded that, based on the irregular nature of the transactions processed, the confirmed fraudulent activity and the fact that plaintiff was unable to produce the requested documentation to substantiate the legitimacy of plaintiff's sales, it would withhold the funds as it suspected that plaintiff may have been collusive in this irregular activity.

ANALYSIS [ 32 ] The Court is convinced, based on the preponderance of evidence, that plaintiff did not abide by the terms and conditions of the Agreement. [ 33 ] More specifically, plaintiff did not ensure that each sales draft or other evidence of indebtedness, accurately described the goods sold and delivered to the cardholder or in accordance with his or her instructions (par. 8 of the "Your Responsibilities"

section of the Agreement). [ 34 ] The Court believes that, in fact, no goods were sold, and there were no cardholders. [ 35 ] Benzouaoui's testimony was vapid, flimsy, nebulous, unsubstantiated and, simply stated, incredible.

She was unable to answer the most basic of questions or furnish the most basic of documents; her explanations were unbelievable. [ 36 ] She failed to credibly explain: - why the individual sales amounts were so high (sometimes in the thousands of dollars, often close to $1,000.00 and almost always far from the declared average sale amount of $300.00); - why clients almost always appeared in throngs in a short time frame, and multiple sales were processed within minutes of each other; - why, for example, on December 4, 2007, which was a Tuesday, and closing time was supposedly at 6:00 p.m. (examination question # 94), there would have been a client buying-up a storm, between 8:12 p.m. and 8:27 p.m., using the same card, which was processed 13 times, 11 times manually; - how being "depressed" would have led her to throw out all of the business' records; - why 99% of the alleged customers were foreigners; - why, despite allegedly operating for several months, all of the credit card processing occurred over a period of only 11 days; - why so many were declined (her claim that the terminal was defective was not proven); - why so many transactions were entered manually; - and the list goes on and on. [ 37 ] What is more, plaintiff did not present a single witness to corroborate Benzouaoui's testimony: not a client or supplier or manufacturer or friend or business acquaintaince.

This, in addition to the total absence of basic documentation, such as invoices, speaks volumes. [ 38 ] The Court does not believe that plaintiff operated a clothing store, other than in her imagination. [ 39 ] The total lack of proof is overwhelming and actually only goes to support defendant's position. Benzouaoui's nebulous and unsubstantiated testimony makes her a highly unreliable witness. Unfortunately, as above stated, she was plaintiff's only witness.

[ 40 ] Moreover, the established pattern of suspicious activity, along with plaintiff's lack of evidence, constitute a series of facts which, when taken as a whole, create a very strong presumption of credit card fraud. [1] [ 41 ] Accordingly, and given that plaintiff did not abide by the terms of the Agreement (arts. 8 and 12 of the "Your Responsibilities"

section of the Agreement, as well as arts. 1 and 2 of the "Credit Transactions"

section thereof), defendant was justified in acting as it did (cf. the "Chargebacks"

section thereof, arts. 3 and 9 of the "Term and Termination"

section and the "Risk Management" and "Indemnification" sections). [ 42 ] Plaintiff either knowingly participated in the fictitious transactions which were processed, or did not act as a reasonably prudent person should have, in order to prevent those transactions from occurring. [ 43 ] Plaintiff repeatedly processed transactions manually, although this is not a secured method of processing; and did not follow the rules outlined in the Agreement relating thereto (cf. "Credit Transactions"

section thereof). [ 44 ] Plaintiff completed numerous transactions, as above noted, the circumstances of which would have caused a reasonable person to assume that the transactions were not bona fide , or that the card was stolen, altered or counterfeit. [ 45 ] Finally, in the Agreement, plaintiff acknowledges that defendant had a right to charge back for immediate payment, deduct from any payment due or charge against plaintiff's merchant bank account, if defendant reasonably believed that plaintiff had failed to abide by the terms of the Agreement, that which it did; and where any of the circumstances or elements of a transaction were such that a reasonably prudent person would be put on enquiry as to the genuineness of a transaction or where a transaction was unusual, as was the case repeatedly, plaintiff failed to take reasonable precautions to verify the genuineness and good faith of the transaction. [ 46 ] GIVEN the preponderance of evidence; [ 47 ] WHEREAS plaintiff breached its obligations under the Agreement; [ 48 ] GIVEN arts. 7 and 1375 of the Civil Code of Quebec ; [ 49 ] WHEREAS plaintiff acted in bad faith (although defendant was not obliged to make evidence of bad faith under the circumstances [2] ); [ 50 ] WHEREAS defendant did not breach its contractual obligations towards plaintiff; WHEREFORE THE COURT HEREBY: DISMISSES plaintiff's motion, with costs.

ELIANA MARENGO, J.C.Q. Me Philip Fine Tanny & Fine Lawyers for plaintiff Me Marie-Ève Léveillé Borden Ladner Gervais Lawyers for defendant Date of hearing: January 10, 2014