COURT OF APPEAL FOR ONTARIO

DATE: 20000302

DOCKET: C32855

RE: BANK LEU AG (Plaintiff) –and– GAMING LOTTERY
CORPORATION, HELIX CAPITAL CORPORATION,
HELIX CAPITAL CORP. LTD., MONTREAL TRUST
COMPANY OF CANADA, EQUITY TRANSFER SERVICES
INC., THE ROYAL BANK OF CANADA and GUIDO
FRANZ-JOSEPH BENSBERG (Defendants)

AND BY CROSSCLAIM: GAMING LOTTERY CORPORATION (Plaintiff by
Crossclaim/Appellant) –and– HELIX CAPITAL
CORPORATION, HELIX CAPITAL CORP. LTD., GUIDO
FRANZ-JOSEPH BENSBERG and THE ROYAL BANK OF
CANADA and EQUITY TRANSFER SERVICES INC.
(Defendants to the Crossclaim/Respondent)

AND RE: EQUITY TRANSFER SERVICES INC. (Plaintiff by
Crossclaim/Respondent) –and– GAMING LOTTERY
CORPORATION (Defendant by Crossclaim/Appellant)

AND BY THIRD PARTY
CLAIM: GAMING LOTTERY CORPORATION (Defendant/
Claimant) –and– GARY L. MOORE, STEPHEN E.
DADSON, COGLAN WIZINSKY DADSON & LONGPRÐ,
SANDY ANDERSON, NORTH SHORE CREDIT UNION,
JAMES ERICKSTEEN, CHARLES ANTHONY FERRACONE,
JAMES W. FARRELL, JILL HALL, ROBERT W. HLADUN,
HLADUN & COMPANY, MAX JOSEF STRAUSS, KHADJAVI
STRAUSS, CLAUS KOERNER, PAUL M. STEIN and
CASSELS BROCK & BLACKWELL (Third Parties)

BEFORE: WEILER, ROSENBERG and GOUDGE JJ.A.

COUNSEL: Allan Sternberg, for the appellant Gaming
Lottery Corporation

John Harild, for the respondent Equity
Transfer Services Inc.

HEARD: March 1, 2000

On appeal from the summary judgment of Ground J. dated August 24, 1999.

E N D O R S E M E N T

[1] The only ground of appeal pursued by the appellant is that
contained in paragraph 87 of its factum:

The motions judge should have allowed the GLC
to proceed to trial on its claim that a duty
was triggered on the facts of this case
obliging Equity Transfer not to issue the
certificate where Equity Transfer knew from
its review that neither the transaction nor
the lawyer’s explanation of it made any sense
and where Equity Transfer knew from the
nature of its transfer agency business that
the instruction at the outset to refuse later
on to register a stranger as shareholder
despite the stranger presenting for
cancellation a signed off certificate made no
sense, was unworkable, was inconsistent with
the nature of a share, and inconsistent with
the requirements for and the nature of a
transfer agent’s function.

[2] As a result, GLC asked that the order of Ground J. granting
Equity Transfer’s motion for summary judgment to dismiss GLC’s
crossclaim against Equity Transfer be set aside.

[3] The appellant agrees that Equity Transfer acted in good
faith. The appellant submits that Equity Transfer failed to
exercise its duty of due diligence under s.91(1) of the Ontario
Business Corporations Act. The appellant concedes that this
provision was not brought to the attention of the motions judge.
The motions judge dealt with the matter on the basis that Equity
Transfer had a common law duty to act reasonably. The appellant
submits that, although Equity Transfer spoke to legal counsel, it
did not seek legal advice but only obtained further details of
the transaction. The appellant further submits that, even if
legal advice was obtained, Equity Transfer was under a further
duty not to act until it had obtained an opinion from its own
counsel about whether it was unlawful to sign off on the shares.

[4] Equity Transfer had a concern about issuing a share
certificate that said shares were paid for when they were not and
raised this concern with GLC’s inside counsel. In the
circumstances, Equity Transfer did not fail, either in its
statutory duty of due diligence or its common law duty, and the
motions judge was correct in dismissing the crossclaim against
Equity Transfer.

[5] The motions judge also ordered that Equity Transfer was
entitled on its crossclaim against GLC to contribution and
indemnity from GLC for all amounts for which Equity Transfer
might be found liable in the action. In our opinion, this order
is overly broad and premature and we would amend paragraph 2 of
the order of the motions judge to read as follows:

Equity Transfer Services Inc. is entitled on
its crossclaim against the defendant Gaming
Lottery Corporation, to contribution and
indemnity in accordance with paragraph 9 of
the agreement between them.

[6] Having regard to s.91 of the Ontario Business Corporations
Act, it is our opinion that paragraph 9 of the agreement
providing for indemnification only applies with respect to claims
by third parties. As a result, we would strike paragraph 3 of
the order of Ground J. We would order that Equity Transfer is
entitled to its costs of the motion for judgment on a party-and-
party basis before the motions judge.

[7] There were two issues on this appeal. The respondent has
been successful on the main one. Accordingly, the respondent is
entitled to its party-and-party costs of this appeal.

Signed: “K.M. Weiler J.A.”
“M. Rosenberg J.A.”
“S.T. Goudge J.A.”