Royal Bank of Canada v. First Pioneer Investments Ltd., (1984) 5 O.A.C. 195 (SCC)

• Judge: Estey, McIntyre, Chouinard, Lamer and Wilson, JJ.
• Court: Supreme Court (Canada)
• Case Date: September 17, 1984
• Jurisdiction: Canada (Federal)
• Citations: (1984), 5 O.A.C. 195 (SCC);[1984] 2 SCR 125;5 OAC 195;12 DLR (4th) 1;52 CBR (ns) 225;1984 CanLII 75 (SCC)

Royal Bk. v. First Pioneer Inv. Ltd. (1984), 5 O.A.C. 195 (SCC)

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[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Royal Bank of Canada v. First Pioneer Investments Limited, Hogarth and Spence

Indexed As: Royal Bank of Canada v. First Pioneer Investments Ltd.

Supreme Court of Canada

Estey, McIntyre, Chouinard, Lamer and Wilson, JJ.

September 17, 1984.

Summary:

A car rental franchisor borrowed funds from the Royal Bank of Canada secured by guarantees from the franchisor's principals. Because of a shortage of working capital the franchisor appealed for funds from the Pioneer group of companies, one of which was a successful franchisee. First Pioneer loaned the funds secured by a debenture, which was not registered as required under the Corporation Securities Registration Act. Spence, an employee of First Pioneer, who became an officer and director of the franchisor, began to run the franchisor's operations. Because of circumstances beyond the franchisor's control, the franchisor approached the brink of failure and the bank refused further credit. First Pioneer's debenture was in default, so it appointed Spence as receiver. Although the assets were almost worthless, Spence sold them for $12,730.00 to another Pioneer group and applied the proceeds to partial satisfaction of the debenture. The business subsequently failed and the bank, which knew of the debenture and First Pioneer's intentions throughout, proceeded on its guarantees. The bank then brought an action against First Pioneer and Spence for an accounting, a share of the proceeds of sale and damages, alleging fraud. The issue was whether First Pioneer as the holder of an unregistered debenture could as a secured creditor realize on its security before unsecured creditors could intervene to avoid the transaction.

The Ontario High Court dismissed the action.

The Ontario Court of Appeal dismissed the bank's appeal. The bank appealed.

The Supreme Court of Canada allowed the appeal and held that, although the debenture was not rendered void between the franchisor and First Pioneer by the lack of registration, it was void between First Pioneer and other creditors.

Company Law - Topic 5384

Borrowing - Registration of security interests - Effect of - The Supreme Court of Canada held that the lack of registration of a company's debenture under the Corporation Securities Registration Act, R.S.O. 1970, c. 88, did not render the debenture void between the debenture holder and the corporate debtor, but rendered it void between the debenture holder and other creditors.

Practice - Topic 8800

Appeals - Duty of appeal court regarding fact findings by trial judge - The Supreme Court of Canada affirmed that in the absence of palpable and overriding error on the part of the trial judge which effected his assessment of the facts the findings at trial must be accepted - See paragraph 15.

Cases Noticed:

Re Shelly Films Limited, [1963] 1 O.R. 431, overruled [para. 14].

Stein v. The Ship "Kathy K", [1976] 2 S.C.R. 802; 6 N.R. 359; 62 D.L.R.(3d) 1, appld. [para. 15].

Beaudoin-Daigneault v. Richard (1984), 51 N.R. 288 (S.C.C.), appld. [para. 15].

Re Perrier-Roy Therrien Ltd., [1970] 3 O.R. 765 (Ont. H.C.), consd. [para. 19].

Meharg v. Lumbers (1896), 23 O.A.R. 51 (Ont. C.A.), consd. [para. 19].

Re Crichton Enterprises Limited (1979), 38 N.S.R.(2d) 348; 69 A.P.R. 348; 31 C.B.R.(N.S.) 43, consd. [para. 20].

Baker v. Leeson (1882), 1 O.R. 114, consd. [para. 20].

Althen Drilling Co. Ltd. v. Machinery Depot Ltd. (1960), 23 D.L.R.(2d) 148 (Alta. C.A.), consd. [para. 21].

E.R.C. Clarkson v. McMaster Limited (1895), 25 S.C.R. 96, refd to. [para. 18].

Statutes Noticed:

Corporation Securities Registration Act, R.S.O. 1970, c. 88, sect. 2(1) [para. 17].

Counsel:

Eric R. Murray, Q.C., and Paul S. Rouleau, for the appellant;

A.M. Rock and M.S.F. Watson, for the respondents.

This case was heard on November 9 and 10, 1983, at Ottawa, Ontario, before Estey, McIntyre, Chouinard, Lamer and Wilson, JJ., of the Supreme Court of Canada.

On September 17, 1984, Wilson, J., delivered the following judgment for the Supreme Court of Canada: