Atlantic Sporting Goods Distributors Ltd. (Bankrupt) v. Bank of Montreal and Thorne Riddell Inc., (1988) 87 N.S.R.(2d) 376 (TD)

• Judge: Tidman, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: September 27, 1988
• Jurisdiction: Nova Scotia
• Citations: (1988), 87 N.S.R.(2d) 376 (TD)

Atl. Sporting Goods v. Bk. of Mtrl. (1988), 87 N.S.R.(2d) 376 (TD);

    222 A.P.R. 376

MLB headnote and full text

Doane Raymond Limited (plaintiff) v. Bank of Montreal and Thorne Riddell Inc. (defendants)

(S.H. No. 46046)

Indexed As: Atlantic Sporting Goods Distributors Ltd. (Bankrupt) v. Bank of Montreal and Thorne Riddell Inc.

Nova Scotia Supreme Court

Trial Division

Tidman, J.

September 27, 1988.

Summary:

The trustee in bankruptcy of Atlantic Sporting Distributors brought an action for damages against the Bank of Montreal (Atlantic's debentureholder) and the receiver appointed by the bank. The action was commenced on behalf of Atlantic and its unsecured creditors. The trustee claimed (1) that the bank had no right to demand payment of the loan, (2) that the demand, if proper, did not allow Atlantic sufficient time to repay the loan and (3) that the receiver improperly sold the debenture security. The bank and receiver counterclaimed for reimbursement of the receiver's actual costs and expenses incurred in the receivership and in defending the action.

The Nova Scotia Supreme Court, Trial Division, dismissed the action and partially allowed the counterclaim. The court held that the bank had the right to demand repayment, Atlantic was given sufficient time to respond to the demand and the sale of Atlantic's assets was proper.

Company Law - Topic 5424

Borrowing - Debentures - Demand for payment - [See Creditors and Debtors - Topic 1065 below].

Creditors and Debtors - Topic 505

Creditors' rights - Payment of debt - Right to demand payment - Atlantic issued a debenture to the Bank of Montreal in 1977 to secure loans - Between 1979-1982 Atlantic repeatedly promised to comply with, then ignored, bank requests to reduce its loans and inventory to alleviate financial pressures - Atlantic was forewarned that the bank would call its loans unless there was financial improvement - On August 11, 1982 the bank demanded payment - The bank agreed to postpone payment after accepting Atlantic's promises to, inter alia, reduce loans and inventory - Atlantic failed to do so - At least 15 of Atlantic's unsecured creditors were pressing for payment - The bank's legal advisers suggested appointing a receiver to protect its security interest - On October 1, 1982, the bank demanded payment of the loans by October 4, 1982 - The Nova Scotia Supreme Court, Trial Division, held that the bank had the right to demand repayment.

Creditors and Debtors - Topic 1065

Debtors' rights - Before payment - Reasonable notice of requirement to pay - A company was in financial trouble between 1979-1982 because of, inter alia, a too high level of inventory - The company's secured creditor (debentureholder) repeatedly requested and was promised that the company would do certain things to correct its financial situation (reduce inventory and loans) - The company did nothing - On August 11, 1982 the creditor demanded payment - Payment was postponed when the creditor again accepted the company's promises to reduce inventory, loans and inject capital - Again, nothing happened - Fifteen unsecured creditors were also pressing for payment - On October 1, 1982 the creditor demanded full repayment, to be made by October 4, 1982 - A receiver took over on October 4 and the company had until October 24, 1982 to repay the loans - The Nova Scotia Supreme Court, Trial Division, held that the company was given a reasonable time to repay, in consideration of the size of the debt, and the company's past inability to obtain financing or inject new capital.

Practice - Topic 6931

Costs - Discretion of trial judge - A receiver claimed that the terms of the debenture entitled it to recover the full amount of its legal fees and costs incurred in defending an action by the company in receivership - The Nova Scotia Supreme Court, Trial Division, held that notwithstanding the terms of the debenture the costs of prosecuting or defending an action must always be in the discretion of the court as provided by rule 63.02.

Receivers - Topic 2884

Property - Sale of property - Duties of receiver - A receiver was appointed for a sporting goods wholesaler - The receiver sold the bulk of the large inventory to a third party for approximately 85 percent of the cost value, after deducting for obsolete inventory - The wholesaler claimed the receiver had a higher duty than to just take reasonable steps to obtain the best price; it claimed the receiver had a duty to obtain the true market value of the inventory - The Nova Scotia Supreme Court, Trial Division, held that no such duty existed - The court stated that the test was whether the receiver acted in a commercially reasonable manner - The court examined the sale and found it to be appropriate and reasonable.

Receivers - Topic 4065

Compensation - Measure of - Costs of defending or prosecuting action - [See Practice - Topic 6931 above].

Cases Noticed:

Ronald Elwyn Lister Ltd. et al. v. Dunlop Canada Ltd. (1982), 42 N.R. 181; 135 D.L.R.(3d) 1 (S.C.C.), refd to. [para. 76].

Mister Broadloom Corporation (1968) Ltd. v. Bank of Montreal et al. (1979), 101 D.L.R.(3d) 713 (Ont. H.C.), revd. 1 O.A.C. 52; 4 D.L.R. (4th) 74 (C.A.), refd to. [para. 76].

British Columbia v. Consolidated Churchill Corp. Ltd. et al. (1979), 90 D.L.R.(3d) 357 (B.C.S.C.), refd to. [para. 94].

Ostrander v. Niagara Helicopters Limited (1973), 19 C.B.R.(N.S.) 5 (Ont. S.C.), refd to. [para. 133].

Brakes Construction Limited v. Bank of Montreal (1982), 46 C.B.R.(N.S.) 81 (N.S.S.C.), refd to. [para. 133].

British Columbia Land Investment Agency v. Inshitaka (1911), 45 S.C.R. 302, refd to. [para. 133].

Royal Bank of Canada v. First Pioneer Investments Limited (1979), 32 C.B.R.(N.S.) 280 (Ont. S.C.), refd to. [para. 133].

Re B Johnson & Co. (Builders) Limited, [1955] 2 All E.R. 755 (C.A.), refd to. [para. 133].

Cuckmere Brick Co. Ltd and another v. Mutual Finance Ltd. [1971] 2 All E.R. 633, refd to. [para. 138].

Saren v. Victoria Trust Company (1984), 49 O.R.(2d) 6 (Ont. H.C.), refd to. [para. 139].

Re Samco Radio and Electronics Limited (1983), 49 C.B.R.(N.S.) 178, (Ont. S.C.), refd to. [para. 161].

Craig v. de Oliveria E. Sousa (1984), 64 N.S.R.(2d) 131; 143 A.P.R. 131 (C.A.), refd to. [para. 168].

Statutes Noticed:

Civil Procedure Rules (N.S.), rule 63.02 [para. 171].

Authors and Works Noticed:

Bennett on Receiverships (1985), generally [para. 139]; pp. 27 [para. 162]; 172 [para. 140].

Counsel:

R.A. Cluney, Q.C., and D.A. Graves, for the plaintiff, Doane Raymond Limited;

W.L. MacInnes, Q.C., for the plaintiff, Atlantic Sporting Distributors Limited;

A.D. Tupper and J. Fichaud, for the defendants.

This action was heard at Halifax, Nova Scotia, before Tidman, J., of the Nova Scotia Supreme Court, Trial Division, who delivered the following judgment on September 27, 1988.