Supreme Court of British Columbia Judgment

BETWEEN:

PLAINTIFF

AND:

DEFENDANTS

Counsel for the Plaintiff: E. Rice, Q.C.

Counsel for the Defendant
Starnet Communications International Inc. and Softec Systems Caribbean Inc.:
L.T. Doust, Q.C.
W.B. Milman

Counsel for the Defendant
Starnet Communications Canada Inc.:
C.J. Ramsey
P.A.Gall

Place and Date of Hearing: Vancouver, B.C.
October 7, 1999

[1] On September 22, 1999, Associate Chief Justice Dohm granted the ex parte application of the plaintiff and issued a Mareva injunction restraining the defendants from dealing in any way with their assets, wherever situated, pending determination of this matter. The order contained an exception permitting the defendants to deal with their assets "as is necessary for such defendants to carry on their ordinary course of business."

[2] In this application, a number of the corporate defendants seek to have that order set aside.

[3] In the underlying action, the plaintiff Las Vegas Casino Inc. ("Las Vegas") claims that Softec Systems Caribbean Inc. ("Softec") breached its contract to provide Las Vegas with computer software which permits internet gamblers to log on to one of Las Vegas' gambling sites and gamble by buying on-line internet dollars using a credit card.

[4] Softec is incorporated in Antigua, but is said to carry on its business out of the Vancouver offices of Starnet Communications International Inc. as part of what counsel referred to as the "Starnet group".

[5] The application before the Associate Chief Justice was ex parte, although counsel did appear on behalf of Starnet Communications Canada Inc. At the time, counsel had only just received the material, however, and he was unable to prepare material in reply or to obtain detailed instructions from his clients. As a result, the application was in effect ex parte with respect to that defendant and in fact ex parte with respect to the others. Thus, none of the material filed by the defendants upon this application was before the chambers judge September 22nd.

[6] Counsel for all parties agree that one judge dealing with another judge's ex parte Mareva injunction has the power to discharge or amend the earlier injunction and is to consider the matter de novo: Wilson J., as he then was, in Gulf Island Navigation Ltd. v. Seafarers International (1959) 18 D.L.R. (2d) 625 (S.C.B.C.).

[7] The defendants have put forward five reasons why the injunction should be set aside: (1) the plaintiff has failed to establish a strong prima facie case; (2) there is no evidence that many of the defendants have assets within this jurisdiction; (3) at the ex parte hearing, the plaintiff failed to make full and frank disclosure; (4) there is no evidence that the defendants are moving their assets from this jurisdiction; and (5) the balance of convenience favours the defendants.

Background

[8] On July 16, 1998, Las Vegas and Softec entered into a written agreement. Pursuant to that contract, Softec was to provide internet gaming software to Las Vegas. The agreement is lengthy. It includes, among other things, the following terms:

(a) disputes in connection with the agreement are to be settled by arbitration "in accordance with any Arbitration Act of British Columbia";

(b) the agreement is shall be governed by and construed in accordance with the laws of the country of Antigua;

(c) Las Vegas has the right, without prior notice to Softec, to inspect and audit Softec's accounting records; and

(d) should Las Vegas fall into arrears in paying its license fee, Softec may terminate the contract upon five days notice.

[9] The scheme set out in the agreement contemplated that the plaintiff would receive most of the revenues and would pay Softec a percentage. However, there were some circumstances in which the defendants processed the transactions and accounted to the plaintiff accordingly.

The Alleged Termination

[10] On July 22, 1999, Softec, taking the position that Las Vegas was in arrears in the amount of $203,416.98 in U.S. dollars, terminated the agreement. On September 16, 1999, the plaintiff filed the Writ and Statement of Claim in these proceedings. According to the Statement of Claim, the plaintiff is a company incorporated in Panama. The material before me suggests that the principle of Las Vegas, Claude Levy, runs the company from Belgium.

[11] These proceedings are an example of how the world of international commerce is changing because of the internet. It appears that all of the parties communicate with one another primarily via e-mail. They rarely if ever meet face to face. The companies tend to be registered in one country, be operated from a second, and carry on business in many others.

[12] The Statement of Claim alleges that the defendants made false and fraudulent statements at the time the original contract was drawn up. The claim alleges further that there were inefficiencies in the software provided by Softec which caused the plaintiff damages, and finally that there were losses consequent upon the termination (which is said to be wrongful) of the contract as the plaintiff has been unable to carry on its business and has thereby suffered extensive losses. Indeed, the Statement of Claim states that these losses would exceed one billion dollars.

[13] For the reasons which follow, I conclude the plaintiff has failed to demonstrate a strong prima facie case.

[14] In an affidavit filed in these proceedings, Mr. Levy, President of the plaintiff, says that material provided by Starnet indicates the defendants' income at a certain period from Las Vegas was $3,122,000 U.S. According to Mr. Levy, if that was the profit made by the Starnet group, the income to Las Vegas, utilizing the formula set out in the contract, should have been $15,610,000 U.S. Mr. Levy bases this allegation upon a "confidential information memorandum" prepared for the Starnet group by Nesbitt Burns Securities Inc.

[15] The Nesbitt Burns report contains a chart which had been prepared by or under the direction of the Vice-President for Finance of both Starnet and Softec, Mr. Benjamin Wong. That table was headed "Sample Licensee Revenue Contribution" and listed a number of "casinos", including Las Vegas, which were at the time licensees of Softec. The revenue contribution of Las Vegas is set at $3,122,000, the figure quoted by Mr. Levy.

[16] However, Mr. Wong, the official responsible for providing the information to Nesbitt Burns, has deposed that figure is the gross amount taken in by Las Vegas in the period, not the net portion payable to the Starnet group.

[17] Upon a review of relevant portions of the Nesbitt Burns report, and of other material filed, I am satisfied it is more likely that Mr. Wong is correct in his explanation than it is that Mr. Levy's interpretation is correct. Among my reasons for so concluding is the fact that Las Vegas had the right to conduct, without notice, an independent audit of Softec's accounting. As well, the material discloses that Softec provided Las Vegas with monthly financial statements. It is unlikely that a sophisticated businessman, in receipt of monthly statements, would suddenly believe that he was entitled to some $15 million American dollars rather than $3 million American dollars.

[18] As a result, on this aspect of the claims, I am satisfied that the plaintiff has not come close to demonstrating that it has a "strong" prima facie case.

[19] Nor has it demonstrated a strong case on the aspect of the alleged losses after termination. The material discloses that shortly thereafter Las Vegas was able to sign an agreement with another software provider and has continued to operate.

[20] That leaves the claim for certain inefficiencies or failings in the software provided to the plaintiff by Softec. While there is some evidence of difficulties, there is nothing that would suggest damages in an amount approaching one billion dollars. Indeed, while I make no comment on what might be offered at trial, on the evidence before me, despite the extravagant profits apparently available to those who offer internet gambling, there is nothing that would indicate a quantum of damages approaching that figure. It appears to be fanciful.

[21] The authorities have long treated a pre-judgment injunction as an extraordinary measure requiring the utmost caution and granted only in circumstances where the plaintiff has demonstrated a strong prima facie case: see Estey J. in Aetna Financial Services Ltd. v. Feigelman (1985) 15 D.L.R. (4th) 161 (S.C.C.) @ 178, and more recently Goldie J.A. in Traff v. Evancic (1995) 55 B.C.A.C. 235 @ 240. In the circumstances, the plaintiff having failed to demonstrate such a case, I need not consider the other submissions.

[22] The defendants' application is allowed. The order of September 22, 1999 is set aside with party and party costs.

"L.P. Williamson, J."

Mr. Justice Williamson