Executive Summary: Key Legal and Evidentiary Issues

• Whether a third party may assert a counterclaim and set-off against a plaintiff through a response to a third party notice was a central procedural question.
   
• Bai v. Wang, 2019 BCSC 1594 was raised as authority, though the court found it inapplicable to the facts.
   
• A typographical error in a supporting affidavit created ambiguity over whether the cheque in question was authorized or unauthorized.
   
• Summary judgment was sought against the defendant on the basis that he wrongfully converted funds belonging to the plaintiff.
   
• Triable issues remained as to whether the third party had authority to issue the disputed cheque.
   
• Costs and the allocation of liability among the parties were addressed following the rulings on both applications.
   

Facts of the case

640353 B.C. Ltd., doing business as Chilliwack Mitsubishi ("640"), sued Jurrianus Van Rooyen ("JVR") for $94,500, alleging he had converted its funds by receiving a cheque fraudulently issued to him by Fatmir Shabani ("Shabani"), a rogue employee. JVR responded that he received the funds from Shabani as payment of a pre-existing debt and was unaware the funds had been issued without 640's approval. JVR filed a third party notice against Shabani. Shabani, in turn, filed a response to the third party notice denying both 640's claim and JVR's claim for contribution and indemnity, and asserted a counterclaim and set-off against 640 within that same response. 640 applied to strike Shabani's counterclaim and set-off, and separately applied for summary judgment against JVR for $94,500 plus interest and costs.

Policy and legislative provisions at issue

The application turned on the Supreme Court Civil Rules governing counterclaims and third party claims. Rule 3-4 permits a defendant to pursue a claim against the plaintiff within an action by filing a counterclaim, and allows joinder of other persons where the counterclaim raises questions involving them. Rule 3-5 sets out when a party against whom relief is sought may pursue a third party claim, including where entitled to contribution or indemnity, or where a connected question or issue arises. Shabani also invoked Rule 22-7(3), seeking an order deeming his counterclaim in the response to the third party notice to instead be treated as a third party notice against the plaintiff, arguing the filing was a mere irregularity that should not be set aside.

Reasoning and analysis

Both 640 and Shabani agreed that the Rules contain no provision allowing a third party to advance a counterclaim against the plaintiff through a response to a third party notice. Shabani relied on Bai v. Wang, 2019 BCSC 1594, but the court agreed with 640 that Bai did not support a third party's ability to advance a claim against the plaintiff, since a counterclaim and set-off must be directed against the party whose claim is being countered, and here the third party notice was directed against the defendant, not the plaintiff. The court also addressed a typographical error in the first affidavit of Kalogaras [also spelled "Kalogeras" in the source], which stated that issuing the cheque was "an authorized" use of company funds; counsel for 640 submitted at the hearing that this should read "an unauthorized" use. The court declined to accept this correction by submission, noting it concerned a material fact and that a new sworn affidavit was required to correct it. On the summary judgment application, the court found insufficient evidence to determine whether the cheque had been authorized, characterizing this as a triable issue between Shabani and Kalogaras turning heavily on credibility. JVR was found to be an innocent party entitled to rely on Shabani's representation that he had authority to issue the cheque, with no obligation to verify that authority himself.

Ruling and overall outcome

The court struck Shabani's counterclaim and set-off, found at paragraphs 7 to 33 of Part 1, Division 2, paragraph 1 of Part 1, Division 3, and paragraphs 1 to 3 of Part 3 of his response to the third party notice, characterizing the defect as a nullity rather than a mere irregularity, though it noted Shabani had already commenced a separate action against 640 and Kalogaras within the limitation period. The court dismissed 640's summary judgment application against JVR, concluding a triable defence existed. JVR, as the successful party on the summary judgment application, was awarded his costs of the application, with 640 and Shabani held jointly and severally liable to pay party and party costs on Scale B to JVR. No specific dollar amount for those costs was stated in the decision.