i Trade Finance Inc. v. Webworx Inc. et al., [2011] N.R. TBEd. MY.020

• Judge: Binnie, LeBel, Deschamps, Fish, Charron, Rothstein and Cromwell, JJ.
• Court: Supreme Court (Canada)
• Case Date: November 04, 2010
• Jurisdiction: Canada (Federal)
• Citations: [2011] N.R. TBEd. MY.020;2011 SCC 26;276 OAC 141;[2011] 2 SCR 360;416 NR 166

i Trade Finance v. Webworx Inc. (SCC) - Personal property security - Tracing

MLB being edited

Currently being edited for N.R. - judgment temporarily in rough form.

[French language version follows English language version]

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

Temp. Cite: [2011] N.R. TBEd. MY.020

i Trade Finance Inc. (appellant) v. Bank of Montreal (respondent)

(33394; 2011 SCC 26; 2011 CSC 26)

Indexed As: i Trade Finance Inc. v. Webworx Inc. et al.

Supreme Court of Canada

Binnie, LeBel, Deschamps, Fish, Charron, Rothstein and Cromwell, JJ.

May 20, 2011.

Summary:

Using their company, Webworx Inc., Ablacksingh and others defrauded i Trade Finance Inc. of more than $11 million. In excess of $5 million had not been recovered (the purloined funds). Using some of the purloined funds, Ablacksingh, personally, had purchased shares in a Bank of Montreal (BMO) Nesbitt Burns investment account. The shares were jointly held by Ablacksingh and Ramsackle, who were also joint BMO MasterCard holders. They pledged the investment account property to BMO for an increased credit limit. BMO accepted the pledge and increased the credit limit without any knowledge of the fraudulent scheme. Some additional documentation was executed (a collateral agency agreement and a "Notice and Direction" confirming that a security interest had been granted in the investment account), but no written security agreement was ever signed or registered. i Trade sued Webworx et al., obtaining a judgment and a tracing order. i Trade sought to recover funds that it traced to the BMO investment account.

The Ontario Superior Court ruled in favour of i Trade. BMO appealed.

The Ontario Court of Appeal, in a decision reported at (2009), 252 O.A.C. 291, allowed the appeal. The funds were awarded to BMO. i Trade appealed

The Supreme Court of Canada dismissed the appeal.

Banks and Banking - Topic 8

General and definitions - Tracing - Using their company, Webworx Inc., Ablacksingh and others defrauded i Trade Finance Inc. of more than $11 million - In excess of $5 million had not been recovered (the purloined funds) - Using some of the purloined funds, Ablacksingh, personally, had purchased shares in a Bank of Montreal (BMO) Nesbitt Burns investment account - The shares were jointly held by Ablacksingh and Ramsackle, who were also joint BMO MasterCard holders - They pledged the investment account property to BMO for an increased credit limit - BMO accepted the pledge and increased the credit limit without any knowledge of the fraudulent scheme - i Trade sued Webworx et al. - Belobaba, J., granted i Trade a judgment and a tracing order - The tracing order excluded assets in the hands of "bona fide purchasers for value without notice" - i Trade sought to recover funds that it traced to the BMO investment account (the disputed funds) - Kiteley, J., ruled in favour of i Trade - BMO's appeal was allowed - The Supreme Court of Canada dismissed i Trade's appeal - Having determined that BMO's receipt of the pledge gave BMO an enforceable Personal Property Security Act (Ont.) (PPSA) interest, the court considered whether that also made BMO a "purchaser", qualifying it for the exception in Belobaba, J.'s order - While the PPSA's priority rules did not apply (because i Trade's interest was not covered by the PPSA), recourse to the principles of law and equity did not render the PPSA meaningless - BMO had a statutory security interest - If BMO was found to be a bona fide purchaser for value without notice, i Trade's equitable proprietary right would be defeated by the transaction in which BMO acquired its statutory security interest - It was undisputed that if BMO was a "purchaser", its purchase was bona fide and made for value (the increased credit) - BMO fit both the definition of "purchaser" in the PPSA and the meaning of that term in equity because it had acquired an interest in the shares credited to the investment account - Therefore, BMO fit within the exception to the tracing order - i Trade's right to recover the disputed funds was limited by the tracing order - See paragraphs 58 to 68.

Equity - Topic 1002

Equitable relief - General - Interplay between equitable and statute-based remedies - [See Banks and Banking - Topic 8 .]

Equity - Topic 1007

Equitable relief - General - Tracing - [See Banks and Banking - Topic 8 .]

Personal Property - Topic 6002

Security interests - General - Application of legislation (incl. exceptions) - [See both Personal Property - Topic 6005 ].

Personal Property - Topic 6005

Security interests - General - Creation of or revival of - Using their company, Webworx Inc., Ablacksingh and others defrauded i Trade Finance Inc. of more than $11 million - In excess of $5 million had not been recovered (the purloined funds) - Using some of the purloined funds, Ablacksingh, personally, had purchased shares in a Bank of Montreal (BMO) Nesbitt Burns investment account - The shares were jointly held by Ablacksingh and Ramsackle, who were also joint BMO MasterCard holders - They pledged the investment account property to BMO for an increased credit limit - BMO accepted the pledge and increased the credit limit without any knowledge of the fraudulent scheme - i Trade sued Webworx et al. - Belobaba, J., granted i Trade a judgment and a tracing order - The tracing order excluded assets in the hands of "bona fide purchasers for value without notice" - i Trade sought to recover funds that it traced to the BMO investment account (the disputed funds) - Kiteley, J., ruled in favour of i Trade - BMO's appeal was allowed - The Supreme Court of Canada dismissed i Trade's appeal - The appeal turned on the single issue of whether BMO was a bona fide purchaser for value without notice - This required, first, a determination of i Trade's interest in the disputed funds - i Trade's claim to the disputed funds arose from Belobaba, J.'s judgment, which gave i Trade an equitable proprietary interest in the shares credited to the investment account - Because that right arose from a court order and not from a "transaction ... that in substance creates a security interest" (Personal Property Security Act (Ont.) (PPSA), s. 2), i Trade's interest was not governed by the PPSA - See paragraphs 29 to 32.

Personal Property - Topic 6005

Security interests - General - Creation of or revival of - Using their company, Webworx Inc., Ablacksingh and others defrauded i Trade Finance Inc. of more than $11 million - In excess of $5 million had not been recovered (the purloined funds) - Using some of the purloined funds, Ablacksingh, personally, had purchased shares in a Bank of Montreal (BMO) Nesbitt Burns investment account - The shares were jointly held by Ablacksingh and Ramsackle, who were also joint BMO MasterCard holders - They pledged the investment account property to BMO for an increased credit limit - BMO accepted the pledge and increased the credit limit without any knowledge of the fraudulent scheme - i Trade sued Webworx et al. - Belobaba, J., granted i Trade a judgment and a tracing order - The tracing order excluded assets in the hands of "bona fide purchasers for value without notice" - i Trade sought to recover funds that it traced to the BMO investment account - Kiteley, J., ruled in favour of i Trade - BMO's appeal was allowed - The Supreme Court of Canada dismissed i Trade's appeal - BMO's receipt of the pledge gave it an enforceable security interest under the Personal Property Security Act (Ont.) (PPSA) - The substance of the transaction between Ablacksingh and Ramsackle and BMO was to create a security interest - The purpose of the interest was to secure payment or performance of Ablacksingh's and Ramsackle's obligations in relation to the increased credit limit - Under s. 2(a)(i) of the PPSA, a "pledge" was one of the transactions to which the PPSA applied - The court rejected i Trade's assertion that Ablacksingh and Ramsackle lacked rights in the shares when they were pledged as collateral to BMO because Ablacksingh knew that they had been obtained with funds attributable to the fraud - The key was that, at the time when Webworx acquired the funds, it had i Trade's consent to their use, which brought into play the principle that a contract tainted by fraud was not void, but voidable - Webworx was entitled to use the funds - i Trade's consent to that use had not been revoked - Ablacksingh and Ramsackle were able to acquire "rights" in the shares using the proceeds of paycheques and corporate loans from Webworx - These rights were sufficient for them to pledge shares to BMO and thereby create a security interest - See paragraphs 33 to 57.

Personal Property - Topic 6215

Security interests - Priorities - Tracing - [See Banks and Banking - Topic 8 .]

Cases Noticed:

B.M.P. Global Distribution Inc. et al. v. Bank of Nova Scotia et al., [2009] 1 S.C.R. 504; 386 N.R. 296; 268 B.C.A.C. 1; 452 W.A.C. 1; 2009 SCC 15, refd to. [para. 21].

Barclays Bank Ltd. v. Simms (W.J.) Son and Cooke (Southern) Ltd. et al., [1979] 3 All E.R. 522 (Q.B.), refd to. [para. 21].

Innovation Credit Union v. Bank of Montreal, [2010] 3 S.C.R. 3; 407 N.R. 294; 362 Sask.R. 1; 500 W.A.C. 1; 2010 SCC 47, refd to. [para. 26].

434438 B.C. Ltd. et al. v. R.S. & D. Contracting Ltd. (2002), 171 B.C.A.C. 111; 280 W.A.C. 111; 2002 BCCA 423, refd to. [para. 45].

Bawlf Grain Co. v. Ross (1917), 55 S.C.R. 232, refd to. [para. 45].

Allcroft v. Adams (1907), 38 S.C.R. 365, refd to. [para. 45].

Bertrand et al. v. Racicot et al., [1979] 1 S.C.R. 441; 44 N.R. 602, refd to. [para. 45].

United Shoe Machinery Co. of Canada v. Brunet, [1909] A.C. 330 (P.C.), refd to. [para. 45].

Citadel General Life Assurance Co. et al. v. Lloyd's 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. 47].

R. v. Canadian Imperial Bank of Commerce (2000), 138 O.A.C. 127; 51 O.R.(3d) 257 (C.A.), refd to. [para. 48].

Authors and Works Noticed:

Bennett, Frank, Bennett on the PPSA (Ontario) (3rd Ed. 2006), p. 15 [para. 30].

Cuming, Ronald C.C., Walsh, Catherine, and Wood, Roderick J., Personal Property Security Law (2005), pp. 85, 96, 97 [para. 30]; 422 [para. 55].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (5th Ed. 2006), pp. 286 [para. 46]; 293 [para. 45].

Goode, Roy, Commercial Law (4th Ed. 2009), pp. 34, 35 [para. 47].

MacDougall, Bruce, Personal Property Security Law in British Columbia (2009), p. 35 [para. 39].

Maddaugh, Peter D., and McCamus, John D., The Law of Restitution (Looseleaf), pp. 5-4, 5-39 [para. 31].

McLaren, Richard H., Secured Transactions in Personal Property in Canada (2nd Ed.) (Looseleaf), § 1.02 [para. 30].

Oosterhoff, Albert H., Text, Commentary and Materials on Trusts (7th Ed. 2009), pp. 735, 736 [para. 31].

Smith, Lionel, The Law of Tracing (1997), p. 386 [para. 60].

Swan, Angela, Canadian Contract Law (2nd Ed. 2009), pp. 656 [paras. 45, 50]; 657 [para. 46].

Ziegel Jacob S., and Denomme, David L., The Ontario Personal Property Security Act: Commentary and Analysis (2nd Ed. 2000), pp. 26 [para. 64]; 71, 72 [para. 30].

Counsel:

Benjamin Salsberg and Fay Zalcberg, for the appellant;

Joshua J. Siegel and Michael Collis, for the respondent.

Solicitors of Record:

Seon Gutstadt Lash, North York, Ontario, for the appellant;

Rubenstein, Siegel, North York, Ontario, for the respondent.

This appeal was heard on November 4, 2010, by Binnie, LeBel, Deschamps, Fish, Charron, Rothstein and Cromwell, JJ., of the Supreme Court of Canada. On May 20, 2011, Deschamps, J., for the court, delivered the following judgment in both official languages.