Bank of Nova Scotia v. Dunphy Leasing Enterprises Ltd., (1991) 120 A.R. 241 (CA)

• Judge: Laycraft, C.J.A., Stratton and Fraser, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: November 25, 1991
• Citations: (1991), 120 A.R. 241 (CA);1991 ABCA 351;[1992] 1 WWR 577;120 AR 241;83 Alta LR (2d) 289;8 WAC 241

BNS v. Dunphy Leasing Ent. Ltd. (1991), 120 A.R. 241 (CA);

    8 W.A.C. 241

MLB headnote and full text

The Bank of Nova Scotia (appellant/plaintiff) v. Dunphy Leasing Enterprises Ltd. (respondent/defendant)

The Bank of Nova Scotia (appellant/plaintiff/defendant by counterclaim) v. S & D Rent-A-Car Ltd., R.F. Sturgeon Leasing and Warehousers Ltd., Duncan Phyper, Ronald F. Sturgeon and Dunphy Leasing Enterprises Ltd. (respondents/defendants/plaintiffs by counterclaim)

The Bank of Nova Scotia (appellant/plaintiff/defendant by counterclaim) v. 106315 Canada Inc., Duncan Phyper and Dunphy Leasing Enterprises Ltd. (respondents/defendants/plaintiffs by counterclaim)

The Bank of Nova Scotia (appellant/plaintiff/defendant by counterclaim) v. Duncan Phyper (respondent/defendant/plaintiff by counterclaim) and The Canadian Bankers' Association and The Borrower's Advocate Ltd. (interveners)

(Appeal No. 11907)

Indexed As: Bank of Nova Scotia v. Dunphy Leasing Enterprises Ltd.

Alberta Court of Appeal

Laycraft, C.J.A., Stratton and Fraser, JJ.A.

November 25, 1991.

Summary:

Dunphy Leasing, S & D Rent-A-Car and 106315 Canada Inc. (corporate defendants) were affiliated companies financed by the Bank of Nova Scotia. Phyper wholly owned Dunphy Leasing, which in turn wholly owned S & D. Phyper owned 50% of 106315. The bank called all loans and appointed a receiver, who seized and liqui­dated all assets, putting the corporate defen­dants out of business. The bank gave Dun­phy Leasing only 20 hours to respond to a demand to repay $5,000,000. The bank brought separate actions against the corpo­rate defendants and Phyper, seeking judg­ment for the balance owing on the loans after realization on the assets. The actions were consolidated for trial. The defendants each counterclaimed, alleging breach of contract, failure to give reasonable notice of the bank's intention to enforce payment, trespass and conversion by the bank and violation of the federal Interest Act. Addi­tionally, Dunphy Leasing claimed the bank wrongfully appointed a receiver and abused the process of the court.

The Alberta Court of Queen's Bench, in a judgment reported 105 A.R. 161, dismissed the actions of the bank against all four defendants. The court awarded Dunphy Leasing damages on its counterclaim for underrealization of assets, for trespass and conversion and an amount for a tax gross-up. The court awarded S & D damages for underrealization of assets. The bank appealed.

The Alberta Court of Appeal allowed the appeal and ordered a new trial because of reviewable errors in the trial judgment. The errors constituted problems with fact find­ings, the failure to address and resolve the causation issue, the failure to explain the rationale for accepting the defendants' valu­ation of damages and the failure to consider and resolve several material issues.

Banks and Banking - Topic 5327

Loans - Interest on loans - Method of calculation - A loan provided for interest at 24% per annum, payable monthly - The debtor claimed interest should be calcu­lated at the effective rate, not the nominal rate which was more favourable to the bank - The trial judge stated that the agreement was to be construed as provid­ing for the effective rate, the least favour­able to the bank - The Alberta Court of Appeal disagreed - The loan documenta­tion clearly provided that interest was a nominal annual interest rate and not an effective annual interest rate - See para­graphs 94 to 121.

Creditors and Debtors - Topic 1064

Debtors' rights - Before payment - Demand for payment - Sufficiency of - The Alberta Court of Appeal stated that a creditor need not state the reason for demand at the time of demand, but must later be able to establish the default relied on existed at the time of demand - The court thereafter set out two limitations on this general principle - See paragraphs 83 to 85.

Creditors and Debtors - Topic 1065

Debtors' rights - Before payment - Rea­sonable notice of requirement to pay - The Alberta Court of Appeal rejected the sub­mission that a reasonable time to pay could never be more than a few days - It was a question of fact and not limited to any minimum or maximum length of time - See paragraphs 67 to 68.

Damages - Topic 201

Entitlement - Requirement of loss - A debtor claimed the bank wrongfully appointed a receiver and seized and sold the debtor's assets, thereby causing the debtor a loss - The bank contended that even if its conduct was wrongful the debtor suffered no loss where it was insol­vent anyway - The Alberta Court of Appeal stated that a debtor's ability to sustain damages was not contingent on its being solvent when a wrongful act was committed - See paragraphs 52 to 54.

Damages - Topic 508

Limits of compensatory damages - Causes independent of wrongful act - A bank claimed that even if it failed to give a debtor a reasonable time to meet a demand for repayment the debtor was limited to nominal damages unless the bank's conduct was the "sole" cause of the debtor's loss - The Alberta Court of Appeal stated that "while the debtor must show a causal connection between the creditor's tortious acts and the losses suffered, this can be accomplished by establishing the tortious acts were 'either "the" cause ... or "a" cause' of the losses sustained." - See paragraphs 57 to 58.

Damages - Topic 1814

Torts affecting goods - Conversion - Basis for calculation - The trial judge found a bank liable for conversion and trespass in the seizure and sale of the debtor's inventory by the bank's receiver - The trial judge stated that damages for the receiver's failure to account for the debtor's accounts receivable equalled the face value of the receivables absent proof by the bank that the value of the converted inventory was less - The Alberta Court of Appeal held that the bank was not automatically liable for the book value of the accounts receivable - The bank had the onus of proving that the value was less than book value - The proper measure of damages was the true value of the accounts receiv­able - Book value set by the debtor would be the true value absent evidence to the contrary - See paragraphs 46 to 48.

Interest - Topic 2010

Agreement to pay interest - Calculation of interest - Reinvestment principle - The Alberta Court of Appeal stated that "it is entirely appropriate to apply the reinvestment principle so as to require that an interest rate in a contract be interpreted as an effective annual interest rate when interest is payable more frequently than interest is permitted to be calculated ..." - See paragraph 126.

Interest - Topic 3002

Statutory interest - Interest Act - Appli­cation of - A bank submitted that s. 4 of the Interest Act did not apply to a loan agreement where interest was payable monthly, but calculated at a yearly rate - The trial judge held that monthly payment of interest was sufficient to trigger s. 4 - The Alberta Court of Appeal stated that s. 4 applied only if interest was made pay­able at a monthly rate or at any other period of less than a year - See paragraphs 132 to 134.

Practice - Topic 9224

Appeals - New trials - Grounds - Gen­eral - A trial judge made errors in fact findings that impacted on legal issues, failed to address and resolve the issue of causation, failed to explain the rationale for accepting the defendants' valuation of damages and failed to consider and resolve several material issues - The trial was long and complex - The Alberta Court of Appeal stated that a new trial was required - See paragraphs 17 to 29.

Torts - Topic 3093

Trespass - To goods - Conversion - What constitutes - The Alberta Court of Appeal stated that "when a creditor fails to provide reasonable notice to a debtor before ap­pointing a receiver and seizing the debtor's assets, the creditor is liable in tort for trespass and conversion" - See paragraph 56.

Torts - Topic 3107

Trespass - To goods - Conversion - Damages - [See Damages - Topic 1814 ].

Torts - Topic 3107

Trespass - To goods - Conversion - Damages - The Alberta Court of Appeal stated that "to recover damages for trespass to goods, a plaintiff is not required to prove actual damage ... Liability flows from the act of trespass" - See paragraph 60.

Torts - Topic 3113

Trespass - To goods - Trespass - Illegal seizure - [See Torts - Topic 3093 ].

Cases Noticed:

Colautti Construction Ltd. v. Ottawa (1984), 9 D.L.R.(4th) 265 (Ont. C.A.), refd to. [para. 17].

Stein Estate et al. v. Ship "Kathy K" et al., [1976] 2 S.C.R. 802; 6 N.R. 359; 62 D.L.R.(3d) 1, refd to. [para. 19].

Nova, An Alberta Corporation v. Guelph Engineering Company and Daniel Valve Co. et al. (1989), 100 A.R. 241; 70 Alta. L.R.(2d) 97 (C.A.), refd to. [para. 20].

Maryland Casualty Co. v. Roland Roy Fourrures, [1974] S.C.R. 52, refd to. [para. 20].

R. v. Harper, [1982] 1 S.C.R. 2; 40 N.R. 255, refd to. [para. 20].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109, refd to. [para. 28].

Royal Bank of Canada v. First Pioneer Investments Ltd. (1979), 27 O.R.(2d) 352 (H.C.), affd. (1981), 39 C.B.R.(N.S.) 147 (C.A.), revsd. in part, [1984] 2 S.C.R. 125; 54 N.R. 255, refd to. [para. 46].

Banque Provinciale du Canada v. Gagnon et al., [1981] 2 S.C.R. 98; 40 N.R. 40, refd to. [para. 47].

Banque Nationale du Canada v. Corbeil and Equipments Lorac Limitée, [1991] 1 S.C.R. 117; 121 N.R. 134, refd to. [para. 47].

Banque Nationale du Canada v. Atomic Slipper Co. Ltd. (1991), 125 N.R. 161; 40 Q.A.C. 241; 80 D.L.R.(4th) 134 (S.C.C.), refd to. [para. 48].

Bank of Nova Scotia v. Ham and Cahill, [1986] 5 W.W.R. 249; 49 Sask.R. 36 (C.A.), refd to. [para. 54].

Ronald Elwyn Lister Ltd. et al. v. Dunlop Canada Ltd. et al., [1982] 1 S.C.R. 726; 42 N.R. 181, refd to. [para. 56].

Kavcar Investments Ltd. et al. v. Aetna Financial Services Ltd. and Coopers & Lybrand (1989), 35 O.A.C. 305; 70 O.R.(2d) 225 (C.A.), refd to. [para. 57].

G.W.K. Ltd. v. Dunlop (1926), 42 T.L.R. 376 (K.B.), refd to. [para. 59].

Pearson v. Duke, [1931] 2 W.W.R. 442 (Sask. C.A.), refd to. [para. 59].

Leitch & Co. v. Leydon, [1931] A.C. 90 (H.L.), refd to. [para. 60].

Pax Management Ltd. v. Canadian Imperial Bank of Commerce (1990), 1 C.B.R.(3d) 1 (B.C.C.A.), refd to. [para. 62].

Whonnock Industries Limited v. National Bank of Canada (1987), 16 B.C.L.R.(2d) 320 (C.A.), refd to. [para. 67].

Barclay Construction Corp. v. Bank of Montreal (1989), 41 B.C.L.R.(2d) 239 (C.A.), refd to. [para. 68].

Canadian Imperial Bank of Commerce v. Quesnel Machinery Ltd. (1985), 62 C.B.R.(N.S.) 91 (B.C.S.C.), refd to. [para. 69].

Nobes v. Royal Bank of Canada (1981), 49 N.S.R.(2d) 634; 96 A.P.R. 634 (C.A.), refd to. [para. 69].

Mister Broadloom Corporation (1968) Ltd. v. Bank of Montreal et al. (1979), 25 O.R.(2d) 198 (C.A.), refd to. [para. 70].

National Bank of Greece S.A. v. Pinios Shipping Co. No. 1 et al., [1990] 1 All E.R. 78; 104 N.R. 215 (H.L.), refd to. [para. 101].

Metropolitan Trust Co. Ltd. et al. v. Mor­enish Land Developments Ltd., [1981] 1 S.C.R. 171; 34 N.R. 489, refd to. [para. 114].

Bunn v. Lock (1987), 23 O.A.C. 48; 61 O.R.(2d) 772 (C.A.), refd to. [para. 126].

Miglinn and Castleholm Construction Ltd., Re (1974), 5 O.R.(2d) 444 (C.A.), refd to. [para. 126].

Tilson et al. and Dougherty, Re (1975), 8 O.R.(2d) 203 (Div. Ct.), refd to. [para. 126].

Standard Reliance Mortgage Corporation v. Stubbs (1917), 55 S.C.R. 422, refd to. [para. 127].

IAC Ltd. v. Guerrieri (1982), 139 D.L.R.(3d) 352 (Ont. C.A.), refd to. [para. 140].

Keating, Re, [1937] O.W.N. 214 (C.A.), refd to. [para. 141].

Royal Bank of Canada v. Reed and Wake­field Construction Ltd., [1983] 2 W.W.R. 419 (B.C.S.C.), refd to. [para. 141].

Norwood Construction Ltd. v. Post 83 Co-operative Housing Association (1988), 30 C.L.R. 231 (B.C.C.A.), refd to. [para. 141].

Niagara Air Bus Inc. v. Camerman (1989), 69 O.R.(2d) 717 (H.C.), revsd. (1991), 49 O.A.C. 7; 3 O.R.(3d) 108 (C.A.), refd to. [para. 141].

Upper Yonge Ltd. et al. v. Canadian Imperial Bank of Commerce (1990), 75 O.R.(2d) 98 (H.C.), refd to. [para. 142].

McHugh v. Forbes (1991), 4 O.R.(3d) 374 (C.A.), refd to. [para. 142].

Statutes Noticed:

Interest Act, R.S.C. 1970, c. I-18, sect. 4 [para. 133].

Authors and Works Noticed:

Concise Oxford Dictionary (7th Ed. 1987) [para. 138].

Driedger, E.A., Construction of Statutes (2nd Ed. 1983), p. 91 [para. 136].

Fridman, G.H.L., The Law of Torts in Canada (1989), pp. 7 [para. 60]; 323 [para. 58].

Linden, A.M., Canadian Tort Law (4th Ed. 1988), pp. 305-361 [para. 56].

Ogus, A.I., The Law of Damages (1973), p. 23 [para. 59].

Street on Torts (8th Ed. 1988), p. 464 [para. 59].

Vichas, R.P., Handbook of Financial Mathematics, Formulas and Tables (1979), p. 48 [para. 111].

Waldron, M.A., Case Comment: Lynch and Utter v. Elford Estates Ltd.: Reinvestment Revisited (1987), 45 The Advocate 893, p. 894 [para. 121].

Waldron, M.A., Sections 6 and 7 of the Canada Interest Act: Curiouser and Cur­iouser (1984), 62 Can. Bar Rev. 146, pp. 171 [para. 102]; 172 [para. 117].

Woodard, H., Canadian Mortgages (1959), pp. 193-194 [para. 119].

Counsel:

R.K. Laing, V.R. Prather and I.C. Binnie, Q.C., for the Bank of Nova Scotia;

G.L. Ford, for Dunphy Leasing Enterprises Ltd.;

R.A. McLennan, Q.C., and M.G. Crighton, for the Canadian Bankers' Association.

This appeal was heard before Laycraft, C.J.A., Stratton and Fraser, JJ.A., of the Alberta Court of Appeal.

On November 25, 1991, the judgment of the Court of Appeal was delivered and the following opinions were filed:

Fraser, J.A. - see paragraphs 1 to 145;

Stratton, J.A. (Laycraft, C.J.A., concur­ring) - see paragraph 146.