Royal Bank of Canada v. Got (W.) & Associates Electric Ltd. et al., (1994) 150 A.R. 93 (QB)

• Judge: D.C. McDonald, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: February 04, 1994
• Citations: (1994), 150 A.R. 93 (QB);1994 CanLII 8922 (AB QB);[1994] 5 WWR 337;150 AR 93;17 Alta LR (3d) 23;[1994] AJ No 94 (QL)

Royal Bk. v. Got & Assoc. Electric Ltd. (1994), 150 A.R. 93 (QB)

MLB headnote and full text

The Royal Bank of Canada (plaintiff) v. W. Got & Associates Electric Ltd. and Donald E. Sanderlin (defendants)

W. Got & Associates Electric Ltd. (plaintiff by counterclaim/defendant) v. Ernst & Whinney Inc., The Royal Bank of Canada, Gordon McTavish and Robin D. Hood (defendants by counterclaim/plaintiff)

(Action No. 8403-17715)

Indexed As: Royal Bank of Canada v. Got (W.) & Associates Electric Ltd. et al.

Alberta Court of Queen's Bench

Judicial District of Edmonton

D.C. McDonald, J.

February 4, 1994.

Summary:

A bank, as secured creditor, applied for and obtained a court-appointed receiver/manager of the plaintiff company. The bank sued the company in debt for monies owing and sued Sanderlin on his guarantee for the same amount. The com­pany counterclaimed against the bank and its receiver for damages for the loss of the assets of the company as a going concern, lost future profits and goodwill and exemp­lary damages for wrongful seizure. The company claimed the receiver was appointed on the basis of an improper affidavit and that it was not given a reasonable time to respond to any demand for payment before appointing a receiver. The company claimed the receiver was liable for gross mismanage­ment and negligent operation of the business.

The Alberta Court of Queen's Bench allowed the action and the counterclaim. The company was liable for the debt to the bank. The guarantor was discharged from liability by the bank's conduct. The bank was liable to the company for the net value of the company, the value of the debt owed to the bank and the amount of accounts receivable. Additionally the bank, and to a lesser extent ($5,000) the receiver, were liable for $50,000 damages for lost profits. The bank's conduct warranted a $100,000 exemplary damage award.

Banks and Banking - Topic 701

Duties of banks - General - The Alberta Court of Queen's Bench stated that "judges and Masters of this court are entitled to expect of a major chartered bank that the evidence it presents to the court is trust­worthy and above reproach. This is because ... judges and Masters expect bankers to be respectable, honest, and faithful to high standards of morality. When a bank through its representative submits evidence to the court under oath, in support of an ex parte application for equitable relief said to be required urgently to prevent the dissipation of a borrower's assets and to prevent other conduct which might irreparably harm the bank's security, the court is entitled to expect fairness, candour and full disclosure." - See para­graph 148.

Creditors and Debtors - Topic 1065

Debtors' rights - Before payment - Rea­sonable notice of requirement to pay - The Alberta Court of Queen's Bench stated that the factors to be assessed in determining what constituted a reasonable time to pay were "(1) the amount of the loan; (2) the risk to the creditor of losing his money or the security; (3) the length of the relation­ship between the debtor and the creditor; (4) the character and reputation of the debtor; (5) the potential ability to raise the money required in a short period; (6) the circumstances surrounding the demand for payment; and (7) any other relevant fac­tors" - A debtor need not ask for time to pay as a condition of entitlement to rea­sonable notice - Effective notice must be given - See paragraphs 27 to 28.

Damages - Topic 1296

Exemplary or punitive damages - Basis for - The Alberta Court of Queen's Bench stated that the basis for punitive or ex­emplary damages was "actionable injury to the plaintiff done in such a manner that it offends the ordinary standards of morality or decent conduct in the community in such marked degree that censure by way of damages is ... warranted. The object is variously described to include deterrence to other possible wrongdoers, or punish­ment for maliciousness, or supra-compen­satory recognition of unnecessary humili­ation or other harm to which the claimant has been subjected by the censurable act. It is the reprehensible conduct of the wrongdoer which attracts the principle ..." - See paragraph 119.

Damages - Topic 1301

Exemplary or punitive damages - Wrong­ful seizure, detention or conversion of goods - A bank obtained a court-appointed receiver by way of an affidavit that was flagrantly incomplete and mis­leading - The bank obtained the receiving order ex parte, with no intention of giving the debtor advance notice or a reasonable opportunity to pay - The Alberta Court of Queen's Bench stated that the bank's con­duct was open to "grave censure" - A major chartered bank should be trust­worthy and beyond reproach - The bank's conduct constituted a serious affront to the administration of justice and offended "the ordinary standards of morality or decent conduct in the community in such marked degree that censure by way of damages is ... warranted" - The court assessed $100,000 exemplary damages to emphasize that the court would not condone (1) vio­lation of a debentureholder's duty to give a debtor reasonable time to pay and (2) the abuse of the court's process for commercial advantage - See paragraphs 118 to 149.

Damages - Topic 1816

Torts affecting goods - Conversion - Wrongful seizure - Business assets - A bank obtained an ex parte order for a court-appointed receiver without giving the debtor notice or a reasonable oppor­tunity to pay - The receiving order was improperly obtained with a flagrantly incomplete and misleading affidavit - The receiver sold assets, putting the debtor out of business - The Alberta Court of Queen's Bench held that the bank was liable in damages for conversion and tres­pass for the full value of converted assets - The court assessed damages as the value of inventory, accounts receivable, hold­backs, work in progress, shareholder's advances, advances to affiliated companies, marketable securities, goodwill and fixed assets, less liabilities - Damages equalled the net value of the company plus the amount of indebtedness to the bank and the amount of accounts payable, where the debtor was required to discharge the last two debts - See paragraphs 1 to 97.

Guarantee and Indemnity - Topic 2664

Discharge and other defences of surety - Acts of creditor - Wrongful appointment of receiver - [See Guarantee and In­demnity - Topic 2665 ].

Guarantee and Indemnity - Topic 2665

Discharge and other defences of surety - Acts of creditor - Acts affecting surety's risk - A bank obtained a court-appointed receiver without giving notice of its inten­tion to do so and without giving the debtor time to pay - Additionally, the affidavit in support of the application was flagrantly incomplete and misleading - The bank claimed on a guarantee of the debt - The Alberta Court of Queen's Bench held that the guarantor was discharged from liability - The bank's conduct effectively destroyed the guarantor's equitable rights of subrogation and indemnity - The bank's wrongful conduct had considerable "impact on the magnitude or likelihood of the materialization" of the risk the guarantor had assumed - The bank put the principal debtor out of business and thereby increased the guarantor's risk substantially - See paragraphs 150 to 156.

Practice - Topic 5802

Judgments and orders - Ex parte orders - Duty of applicant - The Alberta Court of Queen's Bench stated that a party applying for an ex parte order "had to act in the utmost good faith and make full, fair and candid disclosure of the facts. ... Such disclosure must include facts which would militate against the application ..." - See paragraph 11.

Practice - Topic 5807

Judgments and orders - Ex parte orders - Review of - The Alberta Court of Queen's Bench stated that if an ex parte order "was obtained by fraud, or nondisclosure, the order might be challenged directly, as by an application to set it aside, or by appeal, but not collaterally - i.e., not in a pro­ceeding in which an attack is made on the order incidentally to the cause ... In my view, where, as in the present case, the validity of the order is challenged directly in the very action in which it was made, the challenge being made in the statement of defence and counterclaim, such a chal­lenge may be the equivalent of a direct attack by an application to set the order aside or an appeal." - See paragraph 11.

Receivers - Topic 1607

Appointment - Improper appointment - Damages - The Alberta Court of Queen's Bench stated that "liability in damages has flowed from the private appointment of a receiver when the appointment has been made without giving the debtor a reason­able time to respond to the demand. The liability has rested in trespass and conver­sion. ... damages for trespass are limited to compensatory damages, whereas its dam­ages for conversion will represent the full value of the property converted by the bank to its own use as well as any addi­tional damage which it may have suffered by reason of the conversion which is not too remote" - See paragraph 36.

Receivers - Topic 1607

Appointment - Improper appointment - Damages - A bank improperly appointed a receiver, which put the debtor out of business - The debtor claimed damages for lost profits - The Alberta Court of Queen's Bench stated that "in the context of the remedies for conversion, it is clear that damages for loss of profits conse­quential upon the wrongful taking are recoverable in addition to the value of the property will be allowed, and will not be regarded as double counting" - However, the court stated that the possibility of significant profits was slim and speculative - Accordingly, the court assessed $50,000 damages for future lost profits - See para­graphs 103 to 107.

Receivers - Topic 1607

Appointment - Improper appointment - Damages - [See Damages - Topic 1816 ].

Receivers - Topic 1705

Appointment - Application - Affidavit - Contents of - A bank applied for a court- appointed receiver - It was ex parte in the sense that although the debtor's lawyer was present, he had no instructions from the debtor and could not effectively challenge the information in the affidavit - Four paragraphs in the affidavit were mislead­ing, failed to disclose material facts and lacked candour - The Alberta Court of Queen's Bench stated that the receiving order was obtained ex parte, without genu­ine notice to the debtor and on the basis of flagrantly incomplete and misleading rep­resentations of fact - There was no legal foundation for appointing a receiver absent the defective paragraphs - The court stated that the receiving order did not shield the bank from liability for the improper ap­pointment of the receiver - See paragraphs 17 to 34.

Receivers - Topic 1729

Appointment - By court - Effect of - A court order appointing a receiver was never initially challenged, although it was subsequently found to have been improp­erly obtained by the secured creditor (bank) - The Alberta Court of Queen's Bench stated that "the order stands, and thus affords protection to the receiver for taking possession of [the debtor's] assets and for those of its acts which were coun­tenanced by the order, and it affords pro­tection to third parties who dealt with the receiver in good faith and in reliance upon the order. But the order cannot protect the bank from what would otherwise be its liability." - See paragraph 35.

Receivers - Topic 5406

Liabilities of receiver - Personal liability -[See Receivers - Topic 5804 ].

Receivers - Topic 5804

Duties of receiver - Respecting existing contracts - A court-appointed receiver terminated existing contracts without first obtaining the advice and direction of the court permitting it to do so - The Alberta Court of Queen's Bench held that the receiver breached its fiduciary duty by terminating the contracts and was liable in damages for the debtor's loss - The court previously found the bank appointing the receiver liable for lost profits - The court stated that "the receiver's liability is at best nominal because the loss of such profit ... has already been taken into account ..." - The court assessed the receiver's liability at $10,000, which sum was pro tanto a du­plication of the bank's $50,000 liability - Accordingly, to the extent of $10,000, there was joint and several liability, with fault apportioned 50% to the bank and 50% to the receiver - See paragraphs 157 to 186.

Receivers - Topic 5810

Duties of receiver - Duty of care - The Alberta Court of Queen's Bench discussed the duties of a court-appointed receiver - See paragraphs 157 to 164.

Cases Noticed:

Caisse Populaire de Morinville Savings and Credit Union Ltd. v. Pasay and Pasay (1982), 47 A.R. 311 (Q.B.), refd to. [para. 11].

R. v. Wilson, [1983] 2 S.C.R. 594; 51 N.R. 321; 26 Man.R.(2d) 194; 9 C.C.C.(3d) 97, refd to. [para. 11].

Caisse Populaire Laurier d'Ottawa Ltée v. Guertin (1983), 36 C.P.C. 63; 42 O.R.(2d) 35 (H.C.), refd to. [para. 19].

Aetna Financial Services Ltd. v. Feigelman et al. - see Feigelman et al. v. Aetna Financial Services Ltd., Lax and Burke.

Feigelman et al. v. Aetna Financial Ser­vices Ltd., Lax and Burke, [1985] 1 S.C.R. 2; 56 N.R. 241; 32 Man.R.(2d) 241; [1985] 2 W.W.R. 97; 29 B.L.R. 5; 55 C.B.R.(N.S.) 1; 15 D.L.R.(4th) 161; 4 C.P.R.(3d) 145, refd to. [para. 19].

Dawson v. Yates (1839), 1 Beav. 301; 48 E.R. 956, refd to. [para. 24].

Lister (Ronald Elwyn) Ltd. et al. v. Dun­lop Canada Ltd. (1982), 42 N.R. 181; 135 D.L.R.(3d) 1 (S.C.C.), refd to. [para. 26].

Mister Broadloom Corp. (1968) Ltd. v. Bank of Montreal and Clarkson Co. (1979), 101 D.L.R.(3d) 713; 25 O.R.(2d) 198 (H.C.), revd. (1983), 1 O.A.C. 52; 44 O.R.(2d) 368 (C.A.), refd to. [para. 27].

Bank of Nova Scotia v. Dunphy Leasing Enterprises Ltd. (1991), 120 A.R. 241; 8 W.A.C. 241 (C.A.), refd to. [para. 33].

Bradshaw Construction Ltd. v. Bank of Nova Scotia, [1993] 1 W.W.R. 596; 16 B.C.A.C. 62; 28 W.A.C. 62 (C.A.), refd to. [para. 43].

Banque provinciale du Canada v. Gagnon et al., [1981] 2 S.C.R. 98; 40 N.R. 40; 131 D.L.R.(3d) 174, refd to. [para. 43].

Banque Nationale du Canada v. Corbeil et Equipements Lorac Ltée, [1991] 1 S.C.R. 117; 121 N.R. 134; 35 Q.A.C. 300; 77 D.L.R.(4th) 523, refd to. [para. 43].

Banque Nationale du Canada v. Atomic Slipper Co., [1991] 1 S.C.R. 1059; 125 N.R. 161; 40 Q.A.C. 241; 80 D.L.R.(4th) 134, refd to. [para. 43].

Kohler v. Thorold Natural Gas Co. (1916), 52 S.C.R. 514, refd to. [para. 44].

Hollington v. Hewthorn (F.) & Co., [1943] K.B. 587; [1943] 2 All E.R. 35 (C.A.), refd to. [para. 114].

Rookes v. Barnard, [1964] A.C. 1129; [1964] 1 All E.R. 367 (H.L.), refd to. [para. 119].

Paragon Properties Ltd. v. Magna Invest­ments Ltd. (1972), 24 D.L.R.(3d) 156 (Alta. C.A.), refd to. [para. 119].

Can-Alta Carriers Ltd. v. Ford Motor Credit Co. of Canada Ltd. (1975), 49 D.L.R.(3d) 319 (Alta. C.A.), refd to. [para. 119].

Vorvis v. Insurance Corp. of British Col­umbia, [1989] 1 S.C.R. 1085; 94 N.R. 321; [1989] 4 W.W.R. 218; 58 D.L.R.(4th) 193; 36 B.C.L.R.(2d) 273; 90 C.L.L.C. 14,035; 25 C.C.E.L. 81, refd to. [para. 119].

Massey v. Sladen (1868), L.R. 4 Exch. 13, refd to. [para. 120].

Bank of Montreal v. Wilder, [1987] 2 S.C.R. 551; 70 N.R. 341; [1987] 1 W.W.R. 289, refd to. [para. 152].

Bank of India v. Trans Continental Com­modity Merchants Ltd., [1982] 1 Lloyd's Rep. 586 (Q.B.), refd to. [para. 152].

Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102; 32 N.R. 191; 110 D.L.R.(3d) 424, dist. [para. 153].

Royal Bank of Canada et al. v. McMurchy (1986), 70 A.R. 295 (C.A.), dist. [para. 153].

Pax Management Ltd. et al. v. Canadian Imperial Bank of Commerce, [1992] 2 S.C.R. 998; 141 N.R. 324; 15 B.C.A.C. 81; 27 W.A.C. 81; [1992] 6 W.W.R. 289, refd to. [para. 154].

Doncaster v. Smith (1987), 40 D.L.R.(4th) 746 (B.C.C.A.), refd to. [para 161].

Panamericana de Bienes y Servicios, S.A. v. Northern Badger Oil & Gas Ltd. (Bankrupt), [1991] 5 W.W.R. 577; 117 A.R. 44 (C.A.), refd to. [para. 162].

Statutes Noticed:

Judgment Interest Act, S.A. 1984, c. J-0.5, sect. 2(3) [para. 189].

Rules of Court (Alta.), rule 104 [para. 24].

Authors and Works Noticed:

Cross on Evidence (5th Ed. 1979), pp. 455 to 461 [para. 114].

Prosser and Keeton on Torts (5th Ed. 1984), p. 90 [para. 38].

Rainaldi, Linda D., Remedies in Tort, vol. 1, p. 4-26 [para. 106].

Salmond and Heuston, The Law of Torts (20th Ed. 1992), pp. 101 [para. 37]; 102, 120 [para. 36].

Second Restatement on Torts, s. 222A [para. 38].

Sopinka, John, Lederman, Sydney N. and Bryant, A.W., The Law of Evidence in Canada (1992), pp. 1043 to 1046 [para. 114].

Stevenson and Côté, Civil Procedure Guide (1992), p. 958 [para. 11].

Winfield and Jolowicz on Tort (11th Ed. 1979), p. 468n [para. 36].

Wright, C.A., Linden and Klar, Canadian Tort Law, Cases, Notes and Material (9th Ed. 1990), pp. 2-55 to 2-59 [para. 119].

Counsel:

G.A. Verville, Q.C., C.E. Mostert and B.P. Maruyama, for Royal Bank of Canada;

J.A. Weir, Q.C., and P.J. MacNaughton, for W. Got & Associates Electric Ltd. and Donald E. Sanderlin;

R.G. McLennan and S.J. Livingstone, for Ernst & Whinney Inc.

This case was heard by D.C. McDonald, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following judgment on February 4, 1994.