2008 BCSC 196 Jay & Mereti Holdings Ltd. v. British Columbia Lottery Corporation

Before: The Honourable Mr. Justice Pitfield

Oral Reasons for Judgment

February 20, 2008

Counsel for the Plaintiff:	George F. Gregory
Counsel for the Defendant:	K. Michael Stephens Brent R.H. Johnston
Date and Place of Hearing:	February 12, 2008
	Vancouver, B.C.

[1] British Columbia Lottery Corporation (the "Corporation") applies to set aside an injunction obtained by Jay & Mereti Holdings Ltd. (the "Retailer") without notice. The injunction restrained the Corporation from terminating the Lottery Operations Agreement (the "LOA") governing the relationship between the Retailer and the Corporation.

[2] The Corporation says that there is no basis upon which the Retailer can legally oppose the termination of the LOA without notice for cause, or on seven days' notice without cause, any loss which the Retailer incurred as a consequence of wrongful termination for cause can be fully compensated by an award of damages, and the balance of convenience favours the Corporation.

[3] The Retailer says that there is a fair question to be tried regarding the Corporation’s right to terminate the LOA, damages will not provide adequate compensation for the destruction of its business, and the balance of convenience favours the Retailer.

[4] The learned trial judge who granted the injunction was not available to hear this application. The parties agree that this application must proceed de novo rather than by way of appeal or review: Gulf Islands Navigation Ltd. v. Seafarers’ International Union of North America (Canadian District) and Cunningham and Heinekey (1959), 18 D.L.R. (2d) 625.

[5] The Corporation alleges that the relevant facts, none of which have been proved, are the following.

[6] The Corporation carries on the lottery gaming business for and on behalf of the Province of British Columbia. The Retailer is authorized to sell lottery tickets at two different sites from which it operates a convenience store and gas bar business under a separate agreement between the Retailer and a major oil company.

[7] Sections 8 and 9(a) of the LOA provide for termination as follows:

TERMINATION

8. Either party may terminate this Agreement by giving seven days’ notice in writing to the other party.

9. The Corporation may terminate this Agreement without notice upon the happening of any of the following events, namely:

(a) if the Retailer, or any employee of the Retailer, is in breach of any of the covenants contained herein, or of the application rules and regulations of the Corporation or of ILC, Instructions, Directives or Operating Manuals of the Corporation, as amended from time to time;

[8] The Corporation received a complaint from the purchaser of a Lotto 6/49 ticket. The substance of the complaint was that when she presented a ticket for validation and payment of any winning amount, she was advised that the ticket had already been validated or paid. An investigation ensued.

[9] The Corporation alleges that its investigation indicates the complainant purchased the ticket in question on November 21, 2007, from someone other than the Retailer. The ticket was an advance buy ticket which was valid for five successive Lotto 6/49 draws. The Corporation says that its computer records indicate the ticket was presented for validation at one of the sites operated by the Retailer at 1:58 p.m. on November 29, 2007. The ticket paid $11 in respect of draws made in the period from November 21 through November 29, 2007.

[10] The Corporation says that when an advance buy ticket is presented for validation before completion of all draws on the ticket and a prize has been won the computerized vending machinery produces an exchange ticket which reflects the numbers for the remaining draws appearing on the advance buy ticket. The computer cancels the original ticket. The practices and procedures governing the relationship between the Retailer and the Corporation require return of both the original ticket and the exchange ticket to the ticket holder, that being the complainant in this case. The complainant says the Retailer did not give her the exchange ticket.

[11] The complainant presented the original ticket for further validation on December 6, 2007 at 1:51 p.m. at a site that was not operated by the Retailer. She was advised that the ticket had already been presented for validation. She complained to the Corporation.

[12] The Corporation says that its computer records indicate that the exchange ticket created on November 29, 2007 was presented for validation on December 1, 2007 at 8:10 a.m. at one of the Retailer’s operating sites. The Corporation says the exchange ticket was not validated because the next draw had yet to occur.

[13] The exchange ticket was again presented for validation at one of the Retailer’s sites on December 2, 2007 at 7:05 a.m. The ticket paid a $1 prize. The computer cancelled that exchange ticket and produced a second exchange ticket. That exchange ticket was presented for validation at the Retailer’s same site on December 6, 2007 at 6:28 a.m. The ticket paid a $10 prize. The Corporation says neither of the prizes from the exchange tickets was delivered to the complainant.

[14] The Corporation alleges that it has obtained surveillance video from the Retailer’s site at which the original ticket and the first and second exchange tickets were validated and determined to have been prize winners, albeit of modest amounts. The Corporation says that the only person visible in the surveillance video at the times at which the exchange tickets were validated is the Retailer’s principal. The Corporation says it possesses a DVD which it obtained from the Retailer which is said to contain the video footage on which the Corporation relies.

[15] The investigator reported his opinion that the principal had wrongly taken a player's winning lottery tickets and winnings to Corporation management. On January 9, 2008, the Corporation delivered a letter to the Retailer stating that the LOA between the Retailer and the Corporation had been terminated for cause. The Corporation provided a copy of the termination letter to the oil company. On January 10, 2008, the Retailer commenced an action seeking a declaration that it had not breached the LOA and an injunction requiring reinstatement of the agreement. It obtained the without notice injunction which the Corporation applies to set aside on the same day.

[16] At the without notice hearing, the Retailer advised the court that the oil company by which it had been licensed to operate the convenience stores and gas bars had indicated that if the LOA were not reinstated so that retail lottery tickets could be sold at each of the sites in question, the operating agreement between the oil company and the Retailer governing both sites would be terminated.

[17] There is no affidavit evidence confirming the oil company's advice to the Retailer, but the Corporation does not dispute the Retailer’s claim. There is no evidence to suggest that the oil company’s decision to terminate the convenience store and gas bar operating agreements is dependent upon the allegation that the LOA was terminated for cause. Apparently termination for any reason is sufficient to warrant termination in the oil company’s view.

[18] The criteria by which the propriety of an injunction is to be assessed are well settled: see RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311. The principles are the following:

1. There must be a fair question to be tried;

2. Irreparable harm must be the likely result if the injunction is not granted; and

3. The balance of convenience must favour the granting of the injunction.

[19] In sum, the court must consider whether it is just and equitable to grant, or refrain from granting, the interim injunction.

[20] In this case, the Retailer claims that the Corporation did not have cause to terminate the LOA without notice. In any event, the Retailer claims that because the Corporation is a government monopoly, the Corporation’s right to terminate, whether without notice for cause or on seven days' notice, should be constrained, at least in circumstances where the inevitable effect of termination is the termination of another agreement, the loss of which destroys the Retailer’s capacity to carry on its principal business, that being the operation of two convenience stores and gas bars.

[21] The Retailer cites no judicial authority, nor does it argue from judicial authority by analogy, for the proposition it advances. In my opinion, the Retailer faces a significant challenge in its attempt to constrain the right to terminate on seven days’ notice. It does not plead bad faith on the part of the Corporation. Its argument appears to be directed at the adverse consequences flowing from termination rather than the right of termination itself. With respect, its complaint with respect to the consequences should be directed at the oil company which has licensed its general business operations rather than being directed at the Corporation which has licensed a small part of its operations. On its face, nothing in the LOA appears to fetter the right of either side to terminate the LOA on seven days' notice.

[22] The Retailer presented affidavit evidence which indicates that its claim will be that the Corporation lacked cause because the exchange tickets which the Corporation alleges were played by the Retailer had been found by another customer of the Retailer and presented for validation. The substance of the Retailer's case will then be that the LOA should not have been terminated without notice for cause, but rather on notice, if it was to be terminated at all, and the notice period should have been longer than seven days.

[23] The threshold for the finding of a fair question to be tried is low. I need not be concerned with the question of whether the Retailer’s claim to notice in the circumstances will or will not succeed. I am prepared to conclude that there is an issue to be tried, notwithstanding the difficulties faced by the Retailer given the terms of the LOA to which it is a party.

[24] The second question with which I need to be concerned is whether the Retailer will suffer irreparable harm from termination by the Corporation. Irreparable harm is that which cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other.

[25] The only evidence presented by the Retailer with respect to the measure of its loss is its affidavit evidence that its principal and the principal’s spouse and son rely on the convenience store and gas bar business to generate family income. There is no evidence from which one can assess the economic fortunes of the principal’s family, nor any evidence from which to conclude that other lines of gainful employment will not be available to any of the family members.

[26] In the event of termination for cause, there will be no right to damages. If notice was required it is beyond question that the Retailer’s loss can be measured and compensated in damages. If it should be determined that termination of the LOA resulted in the loss of the Retailer's business and that secondary or derivative loss is compensable, it is a loss which can be quantified and compensated in damages, no matter how difficult quantification might be.

[27] It follows that one of the three cornerstones for injunctive relief is lacking in this case and the Retailer is not entitled to the injunction.

[28] Strictly speaking I need not consider the balance of convenience, but I will state the reasons for which I would conclude that the balance of convenience favours the Corporation rather than the Retailer.

[29] Whatever may be said about the merits of gambling, the lottery regime is based on the premise that the Corporation and its retailers, of whom there are reportedly some 4,200 in the Province, will deal with all customers on a trustworthy basis in accordance with the Corporation's operating principles and standards. The Retailer acknowledges that the integrity of the lottery system depends upon trustworthy and honest conduct by all licensed lottery retailers.

[30] The Corporation claims that approximately 98% of lottery prizes have a value of less than $100. The possibility of winning a small amount and the remote possibility of winning a more substantial prize are the base factors upon which the economic value of the lottery system depends and on which the Corporation relies for customer support. Assessment of the balance of convenience should not be affected by the fact that the amount the complainant lost is modest.

[31] The Corporation must be in a position to demand respect for and compliance with its operating principles. The Corporation has implemented a progressive system of discipline in the event of omissions to comply with operating procedures. Allegations of fraud and theft are identified as grounds for termination without notice. I am satisfied that particulars of the progressive disciplinary system were communicated to this Retailer by the Corporation. The Corporation should not be required to commence an action and seek court approval for the termination of an agreement with any lottery retailer with or without notice.

[32] I am satisfied that damages will afford the Retailer an adequate remedy for any claim it may establish at trial. The Corporation is a Crown corporation and any damage award made against it will be paid. On the other hand, in the event the Corporation were enjoined pending trial but successful at trial in asserting its right to terminate without notice or on seven days’ notice, it could not be fairly or adequately compensated for the damages it suffered as a result of termination delayed by judicial proceedings.

[33] The need to promote and preserve the integrity of the lottery scheme and its appearance of fair play and honest dealing outweighs the need to protect the Retailer from the adverse consequences flowing from termination of any other agreement to which it is a party.

[34] The foregoing factors, and the comparative strengths of the Corporation’s and the Retailer’s cases, compel me to conclude that the balance of convenience favours the Corporation.

[35] The application to set aside the injunction is granted. The Corporation is entitled to costs at Scale B.

"The Honourable Mr. Justice Pitfield"

Citation:	*Jay & Mereti Holdings Ltd. v. British Columbia Lottery Corporation,*
	2008 BCSC 196