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BETWEEN:

Plaintiff

Defendant

1. The Defendant, Phil McNeil (“McNeil”) admits the facts contained in paragraphs 1 and 2, but otherwise denies each and every allegation in the Statement of Claim except where the same constitutes admissions against the interest of the Plaintiff (“Mac Tools”), and puts Mac Tools to the strict proof thereof.

2. McNeil agrees that he entered into a written distributorship agreement (the “Agreement”) with Mac Tools, through the Mac Tools Division of Stanley Canada Inc.

3. McNeil did not receive a copy of the Agreement until November, 1999.

4. Mac Tools incurred the following obligations as a result of entering into the Agreement:
   1. Provide products manufactured and/or distributed by Mac Tools (the “Product”) to McNeil in a timely and efficient manner;
   2. Maintain an accurate accounting of all monies received from McNeil in satisfaction of his obligations under the Agreement;
   3. Advise McNeil within thirty days of the end of the calendar month of the National Distributor average for the previous calendar month.

5. The Agreement constitutes a franchise under the Alberta Franchises Act, S.A. 1995, c. F.-17.1.

6. Mac Tools breached the duty of fair dealing required under the Alberta Franchises Act and their obligations under the Agreement:
   1. by its failure, from time to time, to provide Product to McNeil in a timely manner;
   2. by its failure to provide proper local and regional administrative support to McNeil;
   3. by providing, from time to time, inferior, defective and substandard Product to McNeil and failing to replace the same in a timely fashion; and
   4. by its failure to maintain an accurate and current accounting of:
      1. all monies received from McNeil; and
      2. all Product returned by McNeil under warranty or otherwise.

7. As a result of Mac Tools’ breach of its statutory duty of fair dealing, McNeil has and continues to suffer damage, particulars of which include the following:
   1. losses resulting from loss of services of Mac Tools;
   2. loss of business opportunities;
   3. loss of profit; and
   4. loss of goodwill.

8. In answer to paragraph 9 of the Statement of Claim, McNeil agrees that on January 6, 1998, McNeil filed a Statement of Claim in the Alberta Court of Queen’s Bench (the “McNeil Action”).

9. The McNeil Action was stayed by Master Funduk based on a decision that any dispute arising under the agreement should be dealt with by way of arbitration as a result of an arbitration clause in the Mac Advantage credit agreement (Arbitration Clause).

10. Master Funduk did not make any findings of fact on the evidence of either party in the McNeil Action.

11. McNeil denies that the appeal of Master Funduk’s Order in the McNeil Action was dismissed, and submits that an application to Justice Chambers was adjourned sine die but has not been rescheduled.

12. The Arbitration Clause requires both parties to engage in a three step process.

13. Mac Tools issued McNeil a Notice to Negotiate (the “Notice”).

14. McNeil responded within 20 days of receiving this notice, as required, on November 5, 1998 and indicated his intention to participate in the process.

15. Mac Tools has failed to communicate with McNeil since receiving McNeil’s response.

16. McNeil sent an e-mail to counsel for Mac Tools, dated December 13, 1999, affirming his intention to proceed with negotiation and requesting Mac Tools to reply. Mac Tools failed to respond to this request.

17. McNeil sent another e-mail to counsel for Mac Tools, dated April 5, 1999, affirming his intention to proceed with negotiation, to which Mac Tools again failed to respond.

18. In answer to paragraph 13 of the Statement of Claim, McNeil agrees that he is the registered domain owner of www.skunclenet.ab.ca (Skunclenet), but denies that he operates Skunclenet or is responsible for any of the content on the Skunclenet web page.

19. Specifically, McNeil has no connection with, and is not responsible for, the views expressed on Skunclenet regarding East Timor, Waco, high school drugs, or photo radar.

Allegations of Defamation

20. The statements that are alleged to be defamatory in the Statement of Claim (the “Statements”) are true or substantially true and therefore McNeil pleads the defence of justification to the allegations in the Statement of Claim.

21. The facts that give rise to the defence of justification include:
    1. In the early 1990s, Richard Cote (“Cote”) was the Vice-President of sales for Mac Tools;
    2. Cote was demoted and subsequently had a job stress related heart attack;
    3. Cote resigned his position after taking six months disability pay because he refused to be the “Axe Man” for the new President of Mac Tools;
    4. After resigning, Cote went to work for a competitor of Mac Tools;
    5. Before his death, Cote indicated to his son that Mac Tools failed to invest in training their distributors;
    6. In September, 1993, McNeil approached Walter Hamilton (“Hamilton”), a District Business Manager (“DBM”), and inquired about the possibility of becoming a distributor for Mac Tools;
    7. Hamilton provided McNeil with an information package that outlined the requirements and the advantages of becoming a Mac Tools distributor. This package included:
       1. a projected operating expense form, which Hamilton and Mac Tools represented as:
          1. demonstrating that McNeil could expect his fixed operational expenses to range from $9 700 to $10 500 annually;
          2. the average expenses of actual distributors with varying years; and
          3. accurate;

    8. a glossy brochure entitled “The Road to Freedom. The Mac Tools Opportunity,” which contained the following representations:
       1. “As a Mac Distributor, you’ll discover that, although you operate an independent business, you’re far from being alone. You’ll have one of the most extensive support systems in the industry right at your fingertips. And you can tap into it as little, or as much as you like.”
       2. “… Your district sales manager is available to help you by offering new ideas and valuable sales tips. Your DSM can tell you about truck displays that move product. Promotional techniques that can increase sales at every stop. Your DSM will even spend time with you on the truck … helping you arrange your initial inventory and establish a weekly route.”
       3. “But the support does not end once you get behind the wheel. Frequent district meetings are a continuing source of guidance. They are your chance to learn about new products and tool applications. Share new ideas. And draw on the knowledge of other Mac Tools Distributors.”
       4. “In today’s competitive climate, a solid customer credit program is a must. It helps move products more quickly than operating on a cash-only basis. And, your customers may be more likely to make major purchases if they are offered a convenient, weekly payment plan.”
       5. “Mac Tools offers an extended customer credit program to help you keep products moving. Your customers will appreciate dealing directly with you and Mac Tools for financing. But, perhaps more important, you’ll like the way a solid credit program helps you move big ticket items more often and without hassles;”
    9. Hamilton told McNeil that Mac Tools would not show potential distributors deceptive numbers because the distributors success was also Mac’s success;
    10. McNeil’s actual operating expenses in the first two years as a distributor were more than three times the figure represented by Hamilton as being the average expense of distributors;
    11. Upon McNeil realising that his operating expenses were significantly higher than those represented to him by Hamilton, McNeil raised the issue with Hamilton, who became abusive toward McNeil and reminded McNeil that Hamilton could “make or break” him;
    12. Hamilton represented to McNeil prior to entering into the Agreement that the territory assigned to McNeil would consist of the same territory the previous distributor had vacated;
    13. McNeil specifically asked whether his territory would include a lucrative pulp and paper mill (the “Mill”), and Hamilton assured McNeil that the Mill would be included in McNeil’s area;
    14. The previous distributor’s territory had included the Mill;
    15. After McNeil entered into the Agreement with Mac Tools, and while McNeil was in training, Hamilton advised McNeil that he had allowed another distributor to assume responsibility for servicing the Mill, but warranted that McNeil’s territory a sufficient number of customers without the inclusion of the Mill;
    16. When McNeil raised the issue of this misrepresentation with Hamilton, Hamilton told McNeil that “if he did not like it then he could quit”;
    17. McNeil opined that he was not in a position to quit his new position because he had already invested a significant amount of money into the distributorship;
    18. Prior to entering into the Agreement, Hamilton represented to McNeil that Mac Tools would be introducing a new software package (“Mobile Tools Assistant”) within a few months at the 1994 Tool Fair in Dallas, Texas, and implied to McNeil that Mobile Tools Assistant would be available to Canadian distributors;
    19. During the entirety of McNeil’s distributorship with Mac Tools, Mobile Tools Assistant failed to become available to Canadian distributors, including McNeil;
    20. In 1994, Hamilton was removed from supervising McNeil due to a change in the structure of the district. For approximately six months, McNeil did not have the support of a DBM;
    21. In spite of this lack of support, McNeil was reasonably successful in filling his orders due to an economic upswing and to McNeil’s own hard work and popularity with the customers;
    22. After approximately six months of having no DBM for McNeil’s district, Frank Quiring (“Quiring”) replaced Hamilton as the DBM. McNeil advised Quiring of Hamilton’s conduct toward McNeil as mentioned in subparagraphs g-p, and Quiring arranged a meeting between McNeil, Quiring, and Eyre at the Orlando Tool Fair in 1995 (“Orlando Tool Fair”);
    23. Neither Eyre, nor any Mac Tools executive or DBM took any action with respect to the problems encountered by McNeil in his dealings with Hamilton as a result of the meeting at the Orlando Tool Fair, or at all;
    24. A distributor from the same district as McNeil, Tim Rempel (“Rempel”) also had problems with Hamilton and a meeting was arranged between Rempel, Quiring and Eyre;
    25. Quiring was transferred to Atlantic Canada shortly after the Orlando Tool Fair, which again resulted in McNeil being left without a DBM for approximately another six months;
    26. After Quiring’s departure, the National Sales Manager of that time, Steve Eyre (“Eyre”), was on medical leave leaving the distributors with very little managerial support;
    27. Many of Mac Tools’ key products were difficult for the distributors to obtain, including:
        1. wrenches,
        2. ratchets, and
        3. sockets;
    28. McNeil had ordered a two piece ratchet set around this time which was kept on back order for over a year;
    29. The failure of Mac Tools to provide adequate support and service to the distributors resulted in the distributors losing profit and the goodwill of their customers;
    30. A new DBM, Adriano Monopoli (“Monopoli”), soon replaced Quiring, although Monopoli was transferred shortly thereafter leaving McNeil’s district without a DBM and the accompanying support;
    31. Monopoli was replaced many months later with Norm Patten (“Patten”);
    32. On July 13, 1996, a meeting was held by two DBMs, Patton and Monopoli, to address the concerns of the distributors in two districts for Mac Tools. Approximately 15 distributors attended this meeting, including McNeil;
    33. The following summary of distributor concerns resulted from the meeting, and was published in a report prepared by Michele Zielinski (Report):
        1. changes being made within Mac Tools head office, which had a direct impact on distributors and their ability to do business, were made without consultation or timely notification to distributors;
        2. when a minimum order charge policy was implemented, the distributors were only given three weeks to prepare for this change, which would significantly impact on the distributors’ ability to maintain their inventory, both financially and operationally, and provide customers with quick turnaround on products;
        3. the mid-range tool box distributed at that time was not designed to meet the needs of the market or compete with the competition. For example, Snap On offered a top and bottom tool box for $2400 as compared with Mac Tools’ bottom only box for $3500;
        4. products in the monthly sales flyers had become repetitive;
        5. creative marketing strategies were needed to lure mechanics in automotive repair or industrial sales;
        6. Mac Tools offered no marketing flexibility or allowance for regional differences. For example, Mac Tools failed to make allowance for the fact that what sells in Ontario may not sell in the Prairies;
        7. order forms for promotional products at times reached the distributor after the deadline for ordering;
        8. the minimum charge resulted in orders being shipped in longer intervals, and communications were delayed as a result of being sent with orders;
        9. in spite of increasing sales, the number of people in Mac Tools’ head office had not changed in proportion to this growth;
        10. distributors received poor customer service from staff at the Mac Tool Canada head office;
        11. Mac Tools failed to respond promptly to technical or operational questions of the distributors;
        12. Where Product was not received by the distributors as ordered, Mac Tools took an inordinate amount of time in correcting the problem;
        13. the lack of customer service provided to Mac Tools’ distributors resulted in the distributors having to find answers in isolation from other distributors, and often involved hours of long distance and cell phone time;
        14. Mac Tools did not provide immediate confirmation to distributors of special orders having been received;
        15. Mac Tools failed to provide notice to distributors of product availability or pricing;
        16. discontinued items failed to appear on invoices;
        17. voice mail notification was often not received for days;
        18. Mac Tools failed to take action in response to problems on a timely basis;
        19. where certain items was ordered, distributors received a different model;
        20. distributors were unable to submit daily orders due to the minimum order charge;
        21. backorder problems persisted and in fact worsened;
        22. the opportunities to order monthly promotional items has arrived the day before the ordering deadline, which requires bulk ordering for the month. The result is that there is no opportunities to stagger or adjust orders;
        23. Mac Tools made picking and shipping errors, which resulted in lost sales for the distributors and increased time to correct the errors;
        24. Mac Tools policy of having a minimum order charge resulted in distributors receiving larger orders less frequently. Some of these orders were sent by ground due to the weight factor, taking over one week to receive. This results in the distributor being required to spend more time processing inventory;
        25. Mac Tools would at times provide distributors with incomplete orders where part of the set was on backorder;
        26. Mac Tools trade marks became less frequent on the lower priced tool boxes. For example the MB1000 tool box did not have identifiable Mac drawer handles, but rather used handles of inferior quality;
        27. Industrial equipment often failed to have identifiable Mac Tools labelling;
        28. Some of the large equipment and kits came with small peel-off decals instead of noticeable crests;
        29. Mac Tools failed to provide allowance for larger sizes of clothing for distributors and customers;
        30. Mac Tools pricing was often not competitive;
        31. price list and catalogues for KD and Lisle products were not available to distributors;
        32. the parts price list was outdated, causing the distributors to lose money;
        33. the MB 2170 toolbox did not have a parts breakdown for three months and, as a result, where there was a problem with a part, that part could not be repaired until the breakdown became available;
        34. distributors were expected to make payments to Mac Tools within 10 days, while credits to distributors were completed in 4-8 weeks;
        35. new distributors are penalised by previous distributors’ poor accounts;
    34. Distributor representative Claude Gaumont (“Gaumont”) hand delivered the Report to Eyre;
    35. The Report resulted in few changes in the way Mac Tools dealt with distributors;