Provincial Drywall Supply Ltd. v. Toronto-Dominion Bank et al., (2001) 153 Man.R.(2d) 161 (CA)

• Judge: Scott, C.J.M., Huband and Philp, JJ.A.
• Court: Court of Appeal (Manitoba)
• Case Date: March 13, 2001
• Jurisdiction: Manitoba
• Citations: (2001), 153 Man.R.(2d) 161 (CA);2001 MBCA 38

Prov. Drywall Supply v. TD Bk. (2001), 153 Man.R.(2d) 161 (CA);

    238 W.A.C. 161

MLB headnote and full text

Temp. Cite: [2001] Man.R.(2d) TBEd. MR.035

Provincial Drywall Supply Limited (plaintiff/respondent) v. The Toronto-Dominion Bank and Dunwoody Limited, as Agent of the Toronto-Dominion Bank (defendants/appellants)

(AI 00-30-04394; 2001 MBCA 38)

Indexed As: Provincial Drywall Supply Ltd. v. Toronto-Dominion Bank et al.

Manitoba Court of Appeal

Scott, C.J.M., Huband and Philp, JJ.A.

March 13, 2001.

Summary:

The plaintiff supplied construction materials to a drywall subcontractor (GRH). GRH was a T-D Bank customer, operating under a line of credit and overdraft. The credit arrangement required all GRH accounts receivable to be deposited with the Bank. GRH was in financial trouble, always exceeding its credit limit and forcing the bank to either overdraw the limit or return cheques NSF. Finally, upon learning that Revenue Canada had a large claim against GRH for unpaid source deductions, the Bank closed GRH's account. Dunwoody was retained by the Bank to recover the accounts receivable. GRH was now bankrupt and the plaintiff was still owed monies for materials supplied to various construction sites. The plaintiff brought an action against the Bank and its agent (Dunwoody) on the basis that the Bank, as constructive trustee, breached the trust provisions of the Builders' Lien Act (i.e. failing to pay the plaintiff from trust funds received by GRH instead of using the funds to reduce GRH's indebtedness to the Bank) (phase 1 claim). The plaintiff also claimed damages for delay in receiving trust funds and the legal costs incurred in re­covering them (phase 2 claim).

The Manitoba Court of Queen's Bench, in a judgment reported 140 Man.R.(2d) 1, allowed the action. The Bank was liable as a constructive trustee for GRH's breach of the trust provisions of the Act. Damages equalled the monies owed by GRH to the plaintiff in 1986 ($54,197.71), the legal costs (solicitor and client basis) incurred by the plaintiff in related proceedings to recover trust monies ($177,696.27), prejudgment interest to January 31, 1999, at prime plus 1.25% on the monies owed and legal fees expended ($471,723.44) and interest from February 1, 1999 to the date of payment at prime plus 1.25%. The court subsequently awarded the plaintiff double party and party costs because the plaintiff was more suc­cessful than its unaccepted offer to settle. The defendants (bank and Dunwoody) appealed. The plaintiff cross-appealed.

The Manitoba Court of Appeal allowed the appeal and dismissed the cross-appeal. The trial judgment was set aside and the plain­tiff's judgment against the bank was reduced to $37,102.37. The bank was liable on the phase 1 claim, but the phase 2 claim, added by amendment at the commencement of the trial, was statute barred as adding a new cause of action after the limitation period had expired. The court stated, alternatively, that the phase 2 claim failed on the merits.

Banks and Banking - Topic 3124

Bank deposits - Duties of bank respecting deposits - Duty of inquiry - [See Banks and Banking - Topic 3305 ].

Banks and Banking - Topic 3305

Bank deposits - Trusts - Appropriation of trust monies by bank - The plaintiff sup­plied materials to a subcontractor (GRH) - GRH was a T-D Bank customer, operating under a line of credit and overdraft - The credit arrangement required all GRH accounts receivable to be deposited with the Bank - GRH was in financial trouble, always exceeding its credit limit and forc­ing the bank to either overdraw the limit or return cheques NSF - The Bank closed GRH's account and retained Dunwoody to recover the accounts receivable - GRH was now bankrupt and the plaintiff remained unpaid - The plaintiff sued the Bank as a constructive trustee, submitting that it was liable for GRH's breach of the trust provi­sions of the Builders' Lien Act (i.e. deposited monies were not held in trust, but converted to reduce GRH's in­debted­ness to the Bank) (phase 1 claim) - The plaintiff also claimed damages, by way of amendment of pleadings at the commence­ment of the trial, for delay in receiv­ing trust funds and the legal costs incurred in recovering them (phase 2 claim) - The trial judge allowed both claims - The Bank was liable as a con­struc­tive trustee - The Bank knew that the deposited monies were trust funds subject to statutory condi­tions, knew that the plaintiff and other trust benefici­aries were unpaid and knowingly assisted in the misappropriation or conver­sion of the funds - The Manitoba Court of Appeal affirmed the Bank's liability on the phase 1 claim (for a lesser amount), but set aside the judgment on the phase 2 claim, which was statute barred as being a new cause of action added after the limitation period expired (i.e., amendment of pleadings should not have been granted) - Alter­na­tively, the phase 2 claim should have been dismissed on its merits.

Banks and Banking - Topic 3306

Bank deposits - Trusts - Use of trust funds for bank purposes - [See Banks and Banking - Topic 3305 ].

Banks and Banking - Topic 3312

Bank deposits - Trusts - Constructive trusts - [See Banks and Banking - Topic 3305 ].

Banks and Banking - Topic 3321

Bank deposits - Statutory trusts - General -[See Banks and Banking - Topic 3305 ].

Mechanics' Liens - Topic 7525

Trust fund - Bank deposits - Duty of bank - [See Banks and Banking - Topic 3305 ].

Mechanics' Liens - Topic 7544

Trust fund - Administration of fund - Duties of trustee (incl. loan repayments) - Section 6(1) of the Builders' Liens Act empowered a contractor/trustee who bor­rowed money to pay for labour or materials to repay the loan from what would otherwise be trust funds - The Manitoba Court of Appeal held that the words "in respect of a contract or sub-contract" in s. 6(1) meant that money­lenders were protected under s. 6(1) only as to moneys borrowed specifically for indi­vidual contracts - Section 6(1) did not apply to a general financing arrangement under which credit was granted to enable the contractor/trustee to conduct business operations, which may include the prepay­ment of trust obligations, but not exclusively so - The court stated that s. 6(1) would apply "where a contract­or/trustee ... presents a contract to its banker and on the strength of the security of the expected eventual payment borrows a specific amount necessary to pay its workers on that particular contract or its materials supplier on that particular con­tract. And when the contractor/trustee is ultimately paid, it can then properly use what would otherwise be trust funds to retire the bank loan." - See paragraphs 39 to 44.

Practice - Topic 2101

Pleadings - Amendment of pleadings - General principles - The Manitoba Court of Appeal restated that "where the factual underpinnings in the statement of claim disclose the facts and issues upon which the proposed amendments can be based (the factual foundation), amendments will generally be allowed so long as any preju­dice to the opposite party can be equitably addressed by way of an award of costs and/or an adjournment. ... If the amend­ments requested would permit a cause of action to be set up which, at the date of the amendment, would be barred because of the expiry of the limitation period, such an amendment may only be allowed under 'special circumstances'" - See paragraph 64.

Practice - Topic 2111

Pleadings - Amendment of pleadings - Prohibition against adding new action which is statute barred - [See Banks and Banking - Topic 3305 ].

Cases Noticed:

Thomson v. Clydesdale Bank Ltd., [1893] A.C. 282 (H.L.), refd to. [para. 25].

Citadel General 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. 33].

Glenko Enterprises Ltd. v. Keller (Ernie) Contractors Ltd. et al. (1996), 110 Man.R.(2d) 27; 118 W.A.C. 27 (C.A.), dist. [para. 34].

Ontario Electrical Construction Co. v. Guttman (S.I.) Ltd. (1996), 10 O.T.C. 51; 29 C.L.R.(2d) 146 (Gen. Div.), affd. (1997), 104 O.A.C. 232 (C.A.), refd to. [para. 42].

ASL Paving Ltd. v. Magnus Construction Ltd. and Royal Bank of Canada (1994), 120 Sask.R. 104; 68 W.A.C. 104 (C.A.), refd to. [para. 43].

Glenko Enterprises Ltd. v. Keller (2000), 150 Man.R.(2d) 1; 230 W.A.C. 1 (C.A.), refd to. [para. 49].

Thorp v. Holdsworth (1876), 3 Ch. D. 637, refd to. [para. 62].

Read v. Brown (1888), 22 Q.B.D. 128 (C.A.), refd to. [para. 63].

Cooke v. Gill (1873), L.R. 8 C.P. 107, refd to. [para. 63].

Miller v. Jaguar Canada Inc. et al. (1997), 123 Man.R.(2d) 161; 159 W.A.C. 161 (C.A.), refd to. [para. 64].

Stelman v. McCarthy et al. (1997), 119 Man.R.(2d) 141 (Q.B.), refd to. [para. 67].

Hercules Management Inc. v. Gordon (1994), 91 Man.R.(2d) 216 (Q.B.), refd to. [para. 71].

Solomon v. Smith and Montreal Trust Co. (1987), 49 Man.R.(2d) 252 (C.A.), refd to. [para. 74].

Castelein v. Boux (1934), 42 Man.R. 97 (C.A.), refd to. [para. 86].

Minneapolis-Honeywell Regulator Co. v. Empire Brass Manufacturing Co., [1955] S.C.R. 694, refd to. [para. 86].

Toronto-Dominion Bank v. Forsythe et al. (2000), 131 O.A.C. 14; 47 O.R.(3d) 321 (C.A.), refd to. [para. 116].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 118].

International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574; 101 N.R. 239; 36 O.A.C. 57, refd to. [para. 118].

Canson Enterprises Ltd. et al. v. Boughton & Co. et al., [1991] 3 S.C.R. 534; 131 N.R. 321; 6 B.C.A.C. 1; 13 W.A.C. 1, refd to. [para. 118].

Norberg v. Wynrib, [1992] 2 S.C.R. 226; 138 N.R. 81; 9 B.C.A.C. 1; 19 W.A.C. 1, refd to. [para. 118].

Statutes Noticed:

Bank Act, S.C. 1991, c. 46, sect. 437(3) [para. 24].

Builders' Lien Act, R.S.M. 1987, c. B-91; C.C.S.M., c. B-91, sect. 6(1) [para. 39]; sect. 6(4) [para. 81]; sect. 8 [para. 46].

Authors and Works Noticed:

Jacob, J., and Goldrein, I.S., Pleadings: Principles and Practice (1990), p. 2 [para. 62].

Counsel:

D.G. Douglas and A.J. Stacey, for the appellants;

B.A. Johnstone and J.A. Mercury, for the respondent.

This appeal and cross-appeal were heard on November 29-30 and December 13, 2000, before Scott, C.J.M., Huband and Philp, JJ.A., of the Manitoba Court of Appeal.

On March 13, 2001, the following judg­ment was delivered by the Court.