Eaton et al. v. HMS Financial Inc. et al., (2010) 497 A.R. 156 (QB)

• Judge: Rooke, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: October 05, 2010
• Citations: (2010), 497 A.R. 156 (QB);2010 ABQB 635

Eaton v. HMS Financial Inc. (2010), 497 A.R. 156 (QB)

MLB headnote and full text

Temp. Cite: [2010] A.R. TBEd. DE.035

Heike Eaton, Harlan Light, Douglas Alexander and William Barrett, as representative plaintiffs (plaintiffs) v. HMS Financial Inc. and Skyward Management Inc., Garth S. Bailey, Garth S. Bailey Professional Corporation, 990137 Alberta Ltd., 1037149 Alberta Ltd., operating as Cedar Management, 105382 Alberta Inc., 1070199 Alberta Ltd., 1079373 Alberta Ltd., 993638 Alberta Ltd., A-Z Investment Group, Abba Resources Unlimited, Academy Financial Inc., Academy Financial Planners & Consultants Inc., Ailanthus International Inc., Altruistic Holdings Ltd., Aspire Group International Realty Inc., Bailey & Dawes LLC, Bailey Daws LLP, Bogner Industries Ltd., B.P. Fritz Consulting Inc., The Carpenter's Shop Corporation, Casselman MCS Financial Inc., Cedar Pointe Consulting Group Inc., Chase Forbes Trust Ltd., CLJ Consulting LLC, Commonwealth Marketing Group Ltd., Community Credit Union Ltd., Companions Inc., D.K. Defreitas Professional Corporation, The Dakota Corporation, Dana I. Carlson, Datas Consulting, Defreitas & Associates, Desmond K. Defreitas, Diverse Equities Inc., Ethan Equities Inc., First National Bank of San Diego, Five Continents Consulting, Five Continents Consulting Corporation, Fowlks & Snyder LLP, Global Trustees (NZ) Limited, Graceful Beneficence Guessworks, Guessworks Foundation, The Hillpro Group Inc., Horizon Bank International Limited, Horizon Fiduciary Inc., HSBC Bank Canada, International Investments Inc., Jesco Inc., Kamikey Services Inc., Kelso Enterprises Inc., Kirby Audit Services Inc., Kingdom Advisors, Klass "A" Strategies Inc., La Alta Ltd., Linderhall PTY Ltd., M & M Computer Consulting, M & M Investments 101 Ltd., Magellan Moranda Investments, Marcol Management Ltd., Maritime LLC, McCarthy Tetrault LLP, McCullough Financial Corporation, Michael Grosh Professional Corporation, Mountain Star Capital Corp., Mountain View Credit Union Limited, NDX Development LLC, Numa Ltd., Oxyoke Farms Ltd., Paget Capital Ltd., Paradise Bay Holdings Inc., Phoenix Global Resources Ltd., Pine Grove Management Inc., Richard Fowlks, RLM Consulting LLC, Sellars Financial Inc., Talisman Financial Investments Inc., Tamika Enterprises Inc., Thor Empire Trust, Titania Consulting Inc., TJ Kelly Inc., Tools of the Carpenter, Transmax Technologies Ltd., Triple-SSS Holdings Inc., Tyrolia Foundation, Vitron Consulting Inc., Singer Brothers Holdings, Zurich Ventures Inc., A. Gary Young, Guy Bailey, Alfred Barnfield, Connie Bartel, Robert Bartel, Victor Bauman, Mylo Berstad, Nancy Buford, Cameron Campbell, Rick Childers, Blaine A. Cisna, Kevin Coombes, Ellen Kate Covey, Douglas A. Cowan, Margaret Dart, Stanley Defreitas, Don Dickerson, Eugene Leroy Duce, Arnold Dyck, Juan Exposito, Alfredo Farpon, Ray Fisher, Jack Folsom, Jim Folsom, Richard Fowlks, Barie Fritz, Crystal Anne Fyn, Phyllis Fyn, Robert E. Fyn a.k.a. Colonel Fyn, Allan A. Gray, Michael Grosh, David Guess, Neil Guess, Kendra Haskett, Arnold Henry, David Henry, Gord Hiebert, Samuel Higgins, Winston Indsarsingh, Colleen Jespersen, James Jespersen, Mark Jespersen, Sharrell Jespersen, Wayne Johnson, Terry Kelly, Barbara L. King, Arthur Klassen, Ed Knott, Ruby Leachman, George Lennox, William Lenz, Daniel Lescamela, Willie Lichtner, Lucia Ling, Barbara Lockhart, Ron Lowrie, Don MacGillivray, Danny R. MacNaughton, Norma A. MacNaughton, Peter Manousos, Michael McCullough, William McGrath, Dave Miller, Mohan Maharaj, Rosendo Mendez, Peter Mol, Brad Mooney, Peter Morrisseau, Tom Oldridge, Roy Overton, Gertrude M. Prete, Donald Rabby, Amin Famji, Bilkish Ramji, Stan W. Remin, Jeffrey Robinson, Katherine Rodrigues-Bailey, Daniel Romero, John Romero, Orest Rusnak, Arie Schalk, Randall Seabrook, Claude Seguin, Robert J. Sellars, William Serediuk, Peter L. Sheridan, Janet Stark, Murray Stark a.k.a. Harold Murray Stark a.k.a. Murray H. Stark, Delmer Strobel, Verna Strobel, Cheryl Taylor, Milton Teibe, Robert F. Terborg, Enrique Toscano a.k.a. Chico Toscano, Lee-Anna Toscano, Henk Ujiterlinde, Wilma Ujiterlinde, Heather Vance, Christine Williams, John W. Willock, Margaret Wright, Stan Wright, Claude Zinger, John Doe, Richard Doe and XYZ Corp. (defendants)

(0501 08152; 2010 ABQB 635)

Indexed As: Eaton et al. v. HMS Financial Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Rooke, J.

October 5, 2010.

Summary:

The plaintiffs sued the defendants, including some financial institutions, alleging that they were part of a class of some 1,000 investors who invested approximately $80 million in what they alleged was a fraudulent investment scheme (the HSM scheme). The action was certified as a class action (see 458 A.R. 282). As a result of the withdrawal of claims by the plaintiffs before and after the certification decision, the defendant, Canadian Imperial Bank of Commerce (CIBC), asserted that the only claims remaining against CIBC were "knowing receipt (sometimes also called participation) or [knowing] assistance in a fraud committed by some or all of the HMS Defendants". CIBC applied for summary judgment for dismissal of the action as against it.

The Alberta Court of Queen's Bench dismissed CIBC's application as to knowing assistance but granted it as to knowing receipt.

Trusts - Topic 6153

The trustee - Breach of trust - Liability of stranger to trust - Knowing receipt of trust property - The plaintiffs sued the defendants, including some financial institutions, alleging that they were part of a class of some 1,000 investors who invested approximately $80 million in what they alleged was a fraudulent investment scheme (the HSM scheme) - The action was certified as a class action - As a result of the withdrawal of claims by the plaintiffs before and after the certification decision, the defendant, Canadian Imperial Bank of Commerce (CIBC), asserted that the only claims remaining against CIBC were "knowing receipt (sometimes also called participation) or [knowing] assistance in a fraud committed by some or all of the HMS Defendants" - CIBC applied for summary judgment for dismissal of the action as against it - The Alberta Court of Queen's Bench granted the application as to knowing receipt - It would be inequitable to allow a bank to reduce a defendant's debts to it using misappropriated funds belonging to another party - For the purposes of knowing receipt claims, such applications of funds had been found to constitute receipt by the bank for its own benefit - By contrast, the amounts charged by CIBC in this case were fees charged for the provision of banking services - There was nothing "unjust" about these charges and they were insufficient to ground the claim for knowing receipt - Therefore, the plaintiffs' claim for knowing receipt had no reasonable prospect of success - See paragraphs 25 to 35.

Trusts - Topic 6153

The trustee - Breach of trust - Liability of stranger to trust - Knowing assistance in a fraud - The plaintiffs sued the defendants, including some financial institutions, alleging that they were part of a class of some 1,000 investors who invested approximately $80 million in what they alleged was a fraudulent investment scheme (the HSM scheme) - The action was certified as a class action - As a result of the withdrawal of claims by the plaintiffs before and after the certification decision, the defendant, Canadian Imperial Bank of Commerce (CIBC), asserted that the only claims remaining against CIBC were "knowing receipt (sometimes also called participation) or [knowing] assistance in a fraud committed by some or all of the HMS Defendants" - CIBC applied for summary judgment for dismissal of the action as against it - The Alberta Court of Queen's Bench dismissed CIBC's application as to knowing assistance - With respect to knowing assistance, there was evidence upon which a trial judge could find as a fact that, due to the nature of CIBC's response (or lack thereof or delay in responding), that CIBC participated in a fraud committed by some of the defendants, whether with actual knowledge of that fraud or wilful blindness to it - The merits of this claim would have to be resolved at trial - See paragraphs 36 to 54.

Cases Noticed:

Lameman et al. v. Canada (Attorney General) et al., [2008] 1 S.C.R. 372; 372 N.R. 239; 429 A.R. 26; 421 W.A.C. 26; 2008 SCC 14, refd to. [para. 20].

Papaschase Indian Band No. 136 v. Canada (Attorney General) - see Lameman et al. v. Canada (Attorney General) et al.

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 20].

Jager Industries Inc. v. Canadian Occidental Petroleum Ltd. et al. (2000), 273 A.R. 1; 2000 ABQB 592, refd to. [para. 20].

De Shazo v. Nations Energy Co. et al. (2005), 367 A.R. 267; 346 W.A.C. 267; 2005 ABCA 241, refd to. [para. 21].

V.A.H. v. Lynch et al. (2000), 255 A.R. 359; 220 W.A.C. 359; 2000 ABCA 97, refd to. [para. 21].

Gold v. Rosenberg, [1997] 3 S.C.R. 767; 219 N.R. 93; 104 O.A.C. 1, appld. [para. 24].

Citadel General Life Assurance Co. et al. v. Lloyds Bank of Canada et al., [1997] 3 S.C.R. 805; 219 N.R. 323; 206 A.R. 321; 156 W.A.C. 321, refd to. [para. 29].

Air Canada v. M & L Travel Ltd., Martin and Valliant, [1993] 3 S.C.R. 787; 159 N.R. 1; 67 O.A.C. 1, refd to. [para. 41].

R. v. Sansregret, [1985] 1 S.C.R. 570; 58 N.R. 123; 35 Man.R.(2d) 1, refd to. [para. 43].

R. v. Williams (H.L.), [2003] 2 S.C.R. 134; 308 N.R. 235; 231 Nfld. & P.E.I.R. 1; 686 A.P.R. 1; 2003 SCC 41, refd to. [para. 43].

Witting v. Tauber et al., [2006] A.R. Uned. 73; 2006 ABQB 23, refd to. [para. 43].

Counsel:

Graham McLennan and Stuart Chambers (McLennan Ross LLP) and Craig Gillespie (Cuming & Gillespie), for the plaintiffs;

Webster Macdonald and Gavin Matthews (Blake, Cassels & Graydon LLP), for the defendant, CIBC.

This application was heard on February 10 and 11, 2010, by Rooke, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following reasons for decision on October 5, 2010.