Executive Summary: Key Legal and Evidentiary Issues

• ATM Cash Systems alleged that DC Payments induced casino operator Vanshaw to breach two exclusive 10-year ATM license contracts valued at approximately $2.5 million in combined consideration.

• Vanshaw's financial distress, triggered by BMO's demand for repayment of a $1.2 million loan, was found to be the independent motivation behind its decision to breach the ATM Cash Contracts.

• The Court determined that Vanshaw — not DC Payments — initiated the deal through Prospect Financial, undermining the Plaintiff's characterization of DC Payments as the active inducer.

• DC Payments relied on both verbal assurances and written representations and warranties from Vanshaw that entering the new agreement would not violate any existing contractual obligations.

• The Plaintiff's request for the Court to recognize a new presumption of intent in the tort of inducing breach of contract was rejected as inconsistent with established common law principles.

• Justice Jugnauth dismissed the claim, finding the Plaintiff failed to prove the elements of inducement and intent on a balance of probabilities.

The parties and the exclusive ATM license

ATM Cash Systems (Canada) Ltd operated an ATM business out of Medicine Hat, Alberta, with Tony Steiert as its president and sole shareholder. Vanshaw Enterprises Ltd., led by its president Kevin Van Der Kooy, owned and operated a casino in the Medicine Hat Lodge. The two companies entered into a pair of 10-year contracts — the first in 2006 for approximately $2,000,000, and the second on October 5, 2012, for an additional $500,000 — granting ATM Cash an exclusive license to place and operate ATMs in the Casino through July 17, 2026. An addendum signed in June 2006 made Vanshaw responsible for filling the ATMs with cash, for which it was to receive $60,000 in $500/month installments. The 2012 extension eliminated the $500/month payment but expressly left the responsibility with Vanshaw "to supply and maintain appropriate cash levels in the machines at all times."

Vanshaw's financial crisis and the search for financing

On February 10, 2015, Vanshaw received a formal demand letter from the Bank of Montreal requesting repayment of a $1.2 million loan. Vanshaw's financial circumstance was such that it could not immediately pay back the loan. Mr. Van Der Kooy began looking for replacement financing from other large financial institutions, without success. Through a contact at ATB Financial, he was put in touch with Jim Sekora, who was working with Gordon Reykdal, the CEO of Prospect Financial Inc. As a creditor of Vanshaw, Prospect Financial had a vested interest in seeing the Casino remain financially viable; it also had an outstanding bridge loan with Vanshaw that was at risk if Vanshaw declared bankruptcy. When Prospect Financial declined to fund the loan directly, Mr. Reykdal recommended that Mr. Van Der Kooy reach out to Jeffrey Smith, the President and CEO of DC Payments.

The deal outline and term sheet

On May 1, 2015, Mr. Reykdal emailed Mr. Smith documents relating to Vanshaw's financials and a separate document titled "Vanshaw Casino Deal Outline." The Deal Outline stated that the Casino needed $1.4 million in financing to address the BMO loan, with the surplus required for other payables and to maintain a float. Among its nine "Conditions and Covenants" was a provision that the ATM contract be pledged as additional security. The Court inferred that Mr. Reykdal drafted this Deal Outline with input from, and the agreement of, Mr. Van Der Kooy acting on behalf of Vanshaw. The Deal Outline evolved into a formal Term Sheet sent from DC Payments' corporate counsel, Paul Carbonelli, to Mr. Smith on June 4, 2015. The Term Sheet provided that DC Payments would make a one-time payment to pay out the BMO loan of $1.2 million, with Vanshaw making a minimum monthly payment of $28,000, payable through a surcharge collected during transactions conducted on DC Payments' ATMs in the Casino. If the aggregate surcharges in a month did not constitute the whole monthly payment, Vanshaw was responsible to make up the difference. The amortization period for the loan was five years. The Term Sheet included Vanshaw's representations and warranties that it possessed all necessary consents, authorizations, licenses, permits, approvals, notices, and filings to enter into the agreement and that doing so would not breach any existing contracts. It also required Vanshaw to deliver a copy of the ATM Cash Contracts to DC Payments prior to the credit facility being established, including a release from the Plaintiff.

Vanshaw's breach and the onset of litigation

On June 5, 2015, Mr. Sekora confirmed to DC Payments that Mr. Van Der Kooy was ready to sign the Term Sheet. When the Term Sheet and final agreements were executed on June 8–9, the parties were represented by counsel. On June 9, 2015, Mr. Van Der Kooy met with Mr. Steiert at a restaurant and explained that the Casino was facing financial difficulties and Vanshaw was going to enter into a new financing agreement with DC Payments, part of which required placing DC Payments' ATMs in the Casino in lieu of those belonging to the Plaintiff. Mr. Van Der Kooy offered Mr. Steiert $1.2 million in "exit money" to buy out the ATM Cash Contracts. Mr. Steiert wanted time to speak with his investor before agreeing. However, within 24 hours, Mr. Van Der Kooy called Mr. Steiert to withdraw the offer and told him that ATM Cash could sue Vanshaw as Vanshaw planned to pursue the financing agreement with DC Payments. On June 11, 2015, the Plaintiff made an ex parte application and obtained an interim injunction to prevent its ATMs from being removed. On June 23, 2015, the Plaintiff filed a Statement of Claim against Vanshaw, DC Payments, and other parties; on that same day, Justice Jeffrey heard the injunction come-back hearing and, not being satisfied that the Plaintiff had demonstrated irreparable harm or that there was a clear breach of the ATM Cash Contracts, set the interim injunction aside. On June 26, 2015, Vanshaw and DC Payments signed an ATM Agreement granting DC Payments an exclusive license over ATMs in the Casino, and an ATM Maintenance & Renewal Agreement. In the DC ATM Agreement, Vanshaw represented and warranted that performing the agreement would not violate or breach any pre-existing contractual arrangement. On July 1, 2015, the Plaintiff's ATMs were removed from the Casino floor and placed into on-site storage, and DC Payments' ATMs were installed in their place. On or about August 18, 2016, the financing deal closed and the loan was funded. On May 8, 2018, the Plaintiff settled its claim with Vanshaw and the other defendants through a Pierringer agreement, leaving only DC Payments and Kevin Van Der Kooy as the remaining defendants. On September 25, 2023, the Plaintiff discontinued its action against Mr. Van Der Kooy, leaving DC Payments as the sole remaining defendant.

The legal framework for inducing breach of contract

The Court applied the seven elements of the tort of inducing breach of contract established by the Alberta Court of Appeal in 369413 Alberta Ltd v Pocklington, requiring proof of: (i) the existence of a contract; (ii) knowledge or awareness by the defendant of the contract; (iii) a breach of contract by the contracting party; (iv) the defendant induced the breach; (v) the defendant, by his conduct, intended to cause the breach; (vi) the defendant acted without justification; and (vii) the plaintiff suffered damages. The parties agreed that the first two elements were made out. At issue were three elements: breach of contract by the contracting party, inducement, and intent. The Court noted that inducing breach of contract is an intentional tort, not a tort of negligence, and that the common law has developed to allow considerable room for the aggressive pursuit of self-interest in commercial competition.

The Court's analysis of inducement

Justice Jugnauth found that Vanshaw did breach the ATM Cash Contracts — both on an anticipatory basis when it signed the DC ATM Agreement that violated the exclusive license granted to the Plaintiff, and when it replaced the Plaintiff's ATMs with DC Payments' machines on July 1, 2015. The Court rejected DC Payments' argument that the Plaintiff had first repudiated the contracts by failing to properly fill the machines, finding that the 2006 Addendum imposed upon Vanshaw the responsibility to fill the ATMs with money, and that the 2012 extension expressly left this responsibility with Vanshaw. However, the Court concluded that DC Payments did not induce the breach for four reasons: Vanshaw was independently motivated to breach the ATM Cash Contracts due to its desperate financial situation; Vanshaw approached DC Payments through Prospect Financial rather than the other way around; the ATM business was not an inducement but rather necessary repayment security without which the financial risk of funding a loan to Vanshaw was too great to close a deal; and the Court did not accept that DC Payments authorized Mr. Van Der Kooy to offer the Plaintiff any "exit money," finding that layering a $1.2 million payout on top of an already risky loan would have been commercially irrational and would have entirely eroded the profit of the proposed deal from DC Payments' perspective.

The Court's analysis of intent

The Court also found that DC Payments did not intend to induce Vanshaw to breach the ATM Cash Contracts. The Plaintiff's invitation for the Court to evolve the common law by recognizing a new presumption of intent — analogizing from the law surrounding fraudulent preferences — was declined. The Court reasoned that the historical development and narrow scope of economic torts militated against such a presumption, citing the Supreme Court's caution in Watkins v Olafson that trial judges should be slow to evolve the common law, and the principle that the legislature should assume the major responsibility for law reform. On the question of wilful blindness or recklessness, the Court found that DC Payments held a bona fide belief that contractual rights would not be infringed. DC Payments sought and received: the ATM Cash Contracts; Vanshaw's verbal assurance that these contracts were not a bar to proceeding; Vanshaw's written representations and warranties to the same effect in the Term Sheet; and Vanshaw's written warranty that proceeding with the transaction would not breach any contractual obligations owed to others. Both parties were represented by counsel during negotiations and execution of the contract. The Court held that sophisticated commercial entities represented by counsel ought to be able to reasonably rely on the representations and warranties given to one another, and that to hold otherwise would import an unacceptable level of uncertainty into commercial transactions. The Court further found that nothing turned on DC Payments' waiver of the requirement for Vanshaw to obtain a release from the Plaintiff, since by the time DC Payments was named as a defendant in the Statement of Claim filed on June 23, 2015, it was obvious that the Plaintiff was not consenting to the termination of the ATM Cash Contracts.

The ruling and outcome

The Honourable Justice D. Jugnauth of the Court of King's Bench of Alberta dismissed ATM Cash Systems' claim in its entirety, finding that the Plaintiff failed to prove on a balance of probabilities that DC Payments induced Vanshaw to breach the ATM Cash Contracts or that DC Payments had the intention to do so. The successful party was DirectCash Payments Inc. Because the Court declined to address justification or damages, no exact monetary amount was awarded or ordered in favour of either party.