Date: 19991026
Docket: A992554
Registry: Vancouver
IN THE SUPREME COURT OF BRITISH COLUMBIA
BETWEEN:
LOUIS DION, LEO DION, MCG MILLENNIUM CAPITAL GROUP LTD.,
LEO A. DION FAMILY TRUST and PROMO CONSULTING LTD.
PETITIONERS
AND:
IBC INVESTMENTS LIMITED, GREGORY G. DUREAULT,
OTTAVIO BOFFO, DES BOSA, GAMING PROPERTIES & INVESTMENTS LLC,
BORDER CAPITAL CORP., BORDER CAPITAL (NEVADA) CORP., MILLENNIUM
ENTERTAINMENT GROUP CORP. and BINGONET (CY) LIMITED
RESPONDENTS
REASONS FOR JUDGMENT
OF THE
HONOURABLE MR. JUSTICE MELNICK
R.M. Basham, Q.C. and E. Liu Counsel for the Petitioners
R.J. Olson, S. Coval
and M. Ghikas Counsel for the Respondents
Place and Date of Hearing: Vancouver, B.C.
October 21 and 22, 1999
[1] The petitioners apply for an interlocutory injunction to
restrain the respondents from dealing with certain patents
respecting a system for playing, via television and internet,
bingo over a wide geographic area (the "patents"). They also
seek to restrain the respondents from dealing with the shares
of the company, Millennium Entertainment Group Corp. ("MEC")
that in turn owns the shares of IBC Investments Limited
("IBC"), the company that holds the patents, or from acting in
any manner that prejudices the petitioners' alleged interest(s)
in the patents. The respondents' defend the application on a
number of bases. First, that the petitioners lack standing to
bring the application; second, that the petitioners have not
demonstrated a fair question to be tried; and third, that the
balance of convenience favours not granting an injunction.
[2] Issues also arise as to whether, if an injunction is
granted, the petitioners should be excused from giving an
undertaking as to damages and, if not, whether they should be
required to post security for their undertaking.
[3] What I have said so far is intended as a summary of the
relief sought and the grounds for opposing it. The prayer for
relief is much more detailed, of course, and I do not intend,
by my economy of words, to limit the scope of the relief the
petitioners are seeking. Similarly, I intend to be economical
in my description of the background facts. These include a
complex and interwoven mesh of contracts and parties; some of
the corporate parties having changed their names during the
course of their relatively brief relationship.
I. BACKGROUND:
[4] From at least early 1996, IBC (then known as Millennium
Investments Limited) has been the registered owner of the
patents. The petitioners Louis Dion and Leo Dion have
expertise in the gaming industry including bingo games. They
claim to have extensive contacts in the gaming industry. They
were involved with a lawyer, Gregory Dureault. At one time,
IBC held the patents in trust for the Dions and Dureault.
[5] It was apparently the Dions, or perhaps the Dions and
Dureault, who were responsible for securing the patents from
the inventor. IBC entered into an agreement with the inventor
which included certain obligations to exploit the patents,
register them in various jurisdictions, and pay certain minimum
royalties. It is to everyone's financial advantage for the
patents to be exploited to the fullest extent possible so as to
maximize the financial returns to everyone involved. That
includes the inventor.
[6] While the Dions had certain experience and contacts, they
needed money to fund the exploitation of the patents. Thus,
the Dions and Dureault caused IBC (or perhaps caused MEC to
cause IBC - it doesn't matter) to enter into a joint venture
agreement (the "Patent Venture Agreement") with Gaming
Properties & Investments LLC ("GPI") a company since wound up
and whose position has been assumed by the respondent, Border
Capital (Nevada) Corp. ("Border (Nevada)"). This agreement set
forth the terms under which these two corporations would
exploit the patents within North America. Part of the
agreement is for Border (Nevada) to provide the necessary
funding to exploit the patents and pay certain amounts due to
the inventor from time to time.
[7] To this point in time, neither IBC nor Border (Nevada) has
licensed any gaming opportunities. The petitioners blame the
respondents and vice versa. The two groups (however they may
be defined from time to time) have been singularly unsuccessful
in working together to their mutual benefit.
[8] The Patent Venture Agreement was the first (or one of the
first) documents in which various of the parties have attempted
to define, and refine, their working relationship. There have
been three amendments to the Patent Venture Agreement. The
first two amended, among other things, the definition, and
composition, of the management committee of the joint venture.
The last (the one the petitioners complain of) eliminated the
management committee. This eliminated the participation of
Louis Dion as the representative of IBC. It should be noted
that IBC was a party to all of the agreements which
established, appointed representatives to, and then disbanded
the Management Committee.
[9] There have been other agreements, of course, including an
"Agency Agreement", in which IBC granted the petitioners,
Millennium Capital Group Ltd. ("MCG") and Louis Dion, the right
to market the patent technology worldwide. This is defined as
MCG finding gaming opportunities for consideration and approval
of IBC and the joint venture. There are provisos for MCG
proceeding with a gaming activity itself if the opportunity is
rejected by the joint venture.
[10] There are two Declarations of Trust; both dated May 22,
1997. The first was made by IBC (the "IBC Declaration")
dealing with economic benefits from the patents (none of which
have yet been realized). This agreement is of no particular
significance to this application in my view.
[11] The second is made by MEC (the "MEC Declaration") and,
like the IBC Declaration, it establishes six "Protectors", two
of whom are Leo Dion and Louis Dion. Approval of the
Protectors under each Declaration requires the consent of five
of the six Protectors. The MEC Declaration effects the deposit
of the shares of IBC held by MEC and Mr. Dureault with CIBC
Mellon Trust Company. The petitioners allege that this
transaction was improper because five of the six Protectors
were to approve of the terms of the deposit, and the
transaction was done without the consent of the two Dions.
This would appear to be the case. The petitioners rely on
another agreement dated May 22, 1997 which provides, in part,
as follows at para. 10:
10. Greg Dureault shall cause MEC to lodge with an
accepted recognized corporate professional trust its
shares in IBC Investments Limited upon the terms and
conditions of a trust deed that has received approval
of the protectors (ie: 5 of 6 protectors must so
approve).
[12] The MEC Declaration simply provides that CIBC Mellon Trust
Company "shall not assign, transfer, cloud title to or
otherwise deal with the IBC shares in any matter whatsoever,
without the approval of the Protectors". The expression
"approval of the Protectors" is defined to mean "the prior
written approval of not less than five (5) of six (6)
Protectors, whereby the initial Protectors are the following
individuals: (1) Robert Bosa; (2) Harmen Verbrugge; (3)
Gerardus Nowee; (4) Leo A. Dion; (5) Louis D. Dion; (6) Jose de
Sousa". These are the same Protectors named in the IBC
Declaration and the very Protectors that were to have agreed on
the terms and conditions of the trust deed before its
implementation.
[13] Apart from the obvious fact that their approval to the MEC
Declaration was not secured, none of the petitioners or
Protectors has demonstrated in evidence how he would have
otherwise drafted the document nor how he or anyone else is
prejudiced by the terms of the document. In a letter to Mr.
Louis Dion dated January 12, 1995 and written on IBC
letterhead, Mr. Dureault obliquely suggests that Mr. John Davis
(a lawyer for the petitioners) has "found a problem with the
escrow of shares". Given the date of the letter, this was well
after the fact. Mr. Louis Dion stated in an affidavit of
October 19, 1999 that the MEC Declaration did not address the
fact that IBC was going to be a passive holder of the patents
except to the extent of its obligations under the Patent
Agreement.
[14] However, as I have already observed, the petitioners have
demonstrated that the two Dions who are Protectors were not
consulted and thus the prior approval to the form of the trust
document of five or six Protectors was not secured. Thus Mr.
Dureault did not comply with para. 10 of the Memorandum of
Agreement of May 22, 1997. I observe only that given the
evidence before me on this application, I would be surprised if
such agreement would have been forthcoming, which would have
meant that Mr. Dureault would not have been able to carry out
his obligations under para. 10 of that Agreement. That is an
observation only and not meant to suggest that Mr. Dureault was
therefore justified in proceeding without the required
approval.
[15] Further, a number of the parties in the camps of both the
petitioners and respondents have attempted to resolve their
problems by negotiating dispute resolution mechanisms such as a
Memorandum of Agreement dated July 31, 1998 (the "Arbitration
Agreement"). This agreement has an addendum dated October 16,
1998. Later, many of the parties to this action along with
other parties, not in this action, entered into an agreement on
July 30, 1999, referred to as the "Patent Reorganization and
Settlement Agreement". The parties were apparently unable to
put the terms of this latest agreement (negotiated to settle an
earlier action commenced by the petitioners) into effect and
have common ground on something, namely, that it is now of no
force and effect. Thus, pursuant to the Arbitration Agreement,
an arbitrator has now been appointed to resolve the disputes
between what I will refer to as the Dion Group and the Border
Group. He has not yet formally taken up his duties but counsel
advise me that they expect that the process will take some
months to complete.
[16] I do not intend to detail evidence concerning the numerous
dealings between the parties (which is largely directed to
attempt to demonstrate how the other side has not dealt in good
faith or is attempting to get advantage for itself rather than
for the good of the joint venture) other than to observe the
following. The Border Group has put forward information
intended to demonstrate that the Dion Group is attempting to
get into internet bingo on its own and is not bringing gaming
opportunities to the table. The Dion Group has put forward
information intended to demonstrate that the Border Group is
attempting to shut them out of any effective input into, or
control of, the joint venture.
[17] In June of this year, IBC and Border (Nevada) added Border
(Nevada)'s parent company, Border Capital Corp. ("Border") as a
party to the joint venture. This was at the same time they
abolished the Management Committee. The petitioners say that
this was contrary to the intent of the Arbitration Agreement.
[18] Border (Nevada) had a deal to purchase all of the shares
of the company that holds the inventor's rights. This would
have freed them of the constraints of IBC's obligations to the
inventor (and annual minimum royalties). The respondents say
that this sale didn't complete only because of the commencement
of this action by the petitioners which caused Border
(Nevada)'s financial backer to withdraw. Border (Nevada)
claims it has thus lost a deposit of $650,000. The loss of the
deposit is disputed by the petitioners but, as best I can
determine, the loss is demonstrated by the evidence.
[19] The last of the documents I will refer to are a so-called
"deal sheet" dated April 22, 1997 and a Release Agreement dated
April 22, 1997. The former is a handwritten memorandum
detailing settlement negotiations that took place on that date.
The respondents say that it is superceded by the Release
Agreement. Although dated April 22, 1997, the Release
Agreement and certain other agreements created to formally
reflect the conclusion of the negotiations of April 22, 1997,
were signed on May 22, 1997 although dated for reference April
22, 1997.
II. DISCUSSION:
[20] I agree with the respondents that the effect of the
Release Agreement is that the "deal sheet" is not an agreement
in effect between the parties except to the extent it is
reflected in the Release Agreement.
[21] That still leaves the important question as to whether the
Arbitration Agreement restricts any of the respondents from
having taken any of the actions the petitioners complain of or
whether, for example, IBC and Border (Nevada) were at liberty
to disband the Management Committee and add Border as a joint
venturer. Because the petitioners are not parties to the Joint
Venture and other related agreements, their status to ask for
injunctive relief really depends, in my view, on whatever
status is conferred on them by the Arbitration Agreement.
Further, the Arbitration Agreement provides that it cannot be
used for any judicial purpose, other than enforcing its own
terms. Those terms include:
The current agreements will remain in full force and
effect unless and until a revised agreement has been
signed by all parties, or until the arbitration award
is handed down and made available to the parties;
provided that any future disputes are to be resolved
as per Item #4 or #1 and as otherwise provided for
herein as the case may be as continuing obligations
of the parties hereto with respect to any future
disputes.
[22] Items #1 and #4 of the Arbitration Agreement provide for
dispute resolution mechanisms for past and future
disagreements. Paragraph (or Item) 6 provides for the
formation of an interim committee comprised of representatives
of the Dion Group and the Border Group to conduct certain
business "until a final agreement is reached or a decision of
the arbitrator is made".
[23] The clear message in the Arbitration Agreement is that the
parties thereto (which include all of the petitioners and the
respondents Border, Border (Nevada), IBC, and Dureault) agreed
to leave undisturbed (without admitting the validity or
invalidity of any of them) all agreements then currently in
force. To my mind, this included the Joint Venture Agreement
as it was structured on July 31, 1998, a component of which was
the then Management Committee.
[24] Given the above, the petitioners do have the status to
bring this application notwithstanding that they are not
parties to the affected agreements such as the Joint Venture
Agreement.
[25] I then turn to the more basic issue of whether the
petitioners are entitled to injunctive relief in these
circumstances.
[26] As counsel for both parties have pointed out, the two-
pronged test I must apply is as follows:
First, the applicant must satisfy the court that
there is a fair question to be tried as to the
existence of the right which he alleges and a breach
thereof, actual or reasonably apprehended. Second,
he must establish that the balance of convenience
favours the granting of an injunction. (See British
Columbia (Attorney General) v. Wale, 9 B.C.L.R. (2d)
333 (B.C.C.A.) at p. 345 and Canadian Broadcasting
Corp. v. CKPG Television Ltd., (1992) 64 B.C.L.R.
(2d) 96).
A. A Fair Question to be Tried:
[27] I conclude that there is a fair question to be tried as to
the right or capacity of certain of the respondents to change
the composition of the Joint Venture Agreement and abolish its
Management Committee. Likewise, there is a question as to the
capacity of MEC to have made the MEC Declaration (although,
given the terms of that Declaration, no apparent prejudice is
caused to the petitioners thereby). I am not as concerned, for
the purposes of this application, with the allegations each
side levels at the other of improperly purporting to have the
authority to conduct marketing and development activities
relating to the patents or generally with respect to bingo
played over a wide geographic area. At the end of the day,
either side may well have a claim for monetary compensation
against the other for any gaming opportunities developed
without proper consultation with the other. However, it has to
be said that there is a fair question to be tried as to whether
Border has held itself out as having an authority which goes
beyond that contained in the agreements extant on July 31, 1998
and whether those alleged representations impact negatively on
the ability of MCG to conduct its own marketing.
B. Balance of Convenience:
[28] In assessing the balance of convenience I would apply the
standard of analysis outlined by Mr. Justice Lambert in
Canadian Broadcasting at pp. 102-3.
(i) Adequacy of Damages as a Remedy:
[29] I asked Mrs. Basham, counsel for the petitioners, at the
commencement of this application if this was not a "money
case". That is, if it was not a case in which damages would be
an adequate remedy for the petitioners. After consideration, I
conclude that it is difficult, if not impossible, to quantify
with any degree of certainty, what damages the petitioners
might suffer. As the respondents have demonstrated that they
are prepared to ignore their obligations under the Arbitration
Agreement to abide by the status quo, established by that
Agreement, the petitioners have no assurance that the
respondents won't take other action resulting in who knows what
result with respect to the petitioners' interest in the Joint
Venture. The respondents are, perhaps, justifiably frustrated
by their inability to work with the petitioners and get on with
the exploitation of the patents. It may be that the
petitioners are likewise frustrated with the respondents. It
is not within the scope of this application to sort that out.
That is for the arbitrator. However, if both parties are not
prepared to abide by the Arbitration Agreement, an agreement
they made to try to avoid proceedings such as this, it is
impossible to predict the financial consequences to each side.
I do have a greater concern, however, concerning the
petitioners' ability to made good any award of damages to the
respondents if the injunction is granted than the other way
around. This is a matter, however, that can be addressed, in
part at least, by an undertaking as to damages.
(ii) Irreparable Harm:
[30] Further to what I just said, there exists the possibility
of irreparable harm to both sides, to the petitioners if I do
not grant the injunction and to the respondents if I do. The
latter may be the case if the injunction perpetuates a
stalemate that causes problems with the inventor, financial
hardship for Border (which has already invested a considerable
sum of money into this joint venture (some $6.8 million)), or
an inability of the respondents to exploit the patents.
However, most of the parties to this application sat down and
negotiated the terms of the Arbitration Agreement, and, where
there are conflicting claims of possible irreparable harm, as
here, the issue must be resolved in favour of the parties which
has not precipitated the breach. In saying that, I do not
overlook the respondents' allegations of the Dions' attempting
to exploit the patents outside of the scope of the agreements
to which they are bound. In that regard, Louis Dion's
description in his affidavit of October 19, 1999 of what he
regards as a bona fide gaming opportunity rings hollow to me.
However, it is some of the respondents who have taken positive
action to try to circumvent the terms of the Arbitration
Agreement. Thus, I would resolve this test in favour of the
petitioners. Although not above criticism, the petitioners may
well be irreparably harmed, if the respondents are not enjoined
to abide by the terms of the Arbitration Agreement, by being
made irrelevant to the process of exploiting the patents. In
my view, the interests of the petitioners dictate that they
join with the respondents in defending the patents and the
arbitration proceedings now instituted by the inventor.
(iii) Status Quo:
[31] It will be clear from what I have already stated that I
regard the respondents as primarily responsible for altering
the status quo, which I have found to be the state of affairs
described in the Arbitration Agreement.
(iv) Preservation of the Contested Property:
[32] I conclude that the preservation of the ultimate subject
of the application, the patents, does not require an injunction
because the shares of IBC, the owner of the patents, are lodged
with IBC Mellon Trust Company on terms that require the consent
of one of the Dions before they can be dealt with in any way.
(v) Other Factors:
[33] The parties have agreed upon a process upon which they
have embarked. By that I mean the arbitration process. They
should see it through. It will not take overly long from the
estimate given to me.
C. CONCLUSION
[34] In balancing the above factors, I conclude that the
respondents should be enjoined on an interlocutory basis from
altering the status quo in their relationship as delineated in
the Arbitration Agreement. I do not regard such a direction a
"mandatory injunction" as it was characterized by Mr. Olson,
counsel for the respondents. Even if it is, it does not alter
my view of the appropriateness of the order in these
circumstances. Given what I have found the respondents shall
be enjoined from, I observe that the petitioners' prayer for
relief may be overly broad. I initially indicated that I would
give oral reasons for judgment on November 2, 1999. As I have
chosen to hand down written reasons before that time, counsel
may wish to use the time already set on that date to discuss
appropriate wording for the injunction to reflect these
reasons.
D. UNDERTAKING AS TO DAMAGES
[35] I find no reason to depart from the usual rule that the
petitioners give an undertaking as to damages. If the
respondents ultimately succeed in this case, but in the interim
suffer loss, an undertaking as to damages would help offset the
possibility of not being able to recover these damages from the
petitioners. I considered this factor when looking at the
issue of the adequacy of damages in coming to the conclusion
that an injunction should be granted. The interim loss might
include a failure in the respondents' ability to exploit the
patents due to lack of cooperation from the petitioners, a
default with respect to the agreement with the inventor caused
by the role of the petitioners, or a breach of the spirit and
letter of the Arbitration Agreement by the petitioners' own
actions. I conclude that there must be an undertaking as to
damages in this case.
[36] I am not satisfied that the petitioners have demonstrated
that they have the financial ability to give a meaningful
undertaking. I conclude that they should give security for
their undertaking. Mr. Olson suggested that this should be in
the amount of $6.8 million, the amount that Border has invested
to date. I do not find such a substantial sum is necessary or
appropriate. However, considerable sums of money are at stake
here. The security should therefore be substantial. I would
direct that security be posted in the amount of $1 million.
D. COSTS
[37] Counsel may address me on November 2nd with respect to
costs. In the absence of any submission, I would order costs
to the petitioners on Scale 3.
"T.J. Melnick J"
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