CITATION: Royal Bank of Canada v. Rastogi, 2011 ONCA 47
DATE: 20110120
DOCKET: C52474
COURT OF APPEAL FOR ONTARIO
Doherty, Watt and Epstein JJ.A.
BETWEEN
Royal Bank of Canada
Plaintiff (Appellant)
and
Ankur Rastogi and Toronto Dominion Bank
Defendants (Respondent)
AND BETWEEN
Ankur Rastogi
Plaintiff by Counterclaim (Respondent)
and
Royal Bank of Canada, RBC Direct Investing Inc., and RBC Dominion Securities Inc.
Defendants by Counterclaim (Appellants)
Martin Greenglass, for the appellants
Christopher J. Cosgriffe, for the respondent
Heard: November 19, 2010
On appeal from the order of Justice Edward P. Belobaba of the Superior Court of Justice dated July 16, 2010, with reasons reported at (2010), 2010 ONSC 3981, 83 C.C.E.L. (3d) 98.
Doherty J.A.:
I
[1] The appellant, the Royal Bank of Canada (RBC), claims that it is entitled to unilaterally and without court sanction effectively freeze accounts belonging to the respondent, Ankur Rastogi (Rastogi), pending the results of its action against Rastogi. Three of those accounts are RBC accounts, two are accounts with the other appellant, RBC Direct Investing Inc. (RBC Direct), an affiliate of RBC, and one account, an account that Rastogi holds jointly with his wife, is with the Toronto Dominion Bank (TD). Belobaba J. (the motion judge) agreed that RBC was entitled to freeze its own accounts but ordered that the accounts at RBC Direct and TD should be released immediately to Rastogi. RBC and RBC Direct appeal from that order. Rastogi has not appealed from the order made with respect to the RBC accounts and the status of these accounts is not in issue on this appeal.
[2] Counsel for the appellants submits that although Rastogi purported to bring the motion under Rule 44, the motion was in reality a motion for summary judgment. Counsel argues that the motion judge effectively gave judgment on some of the claims advanced by RBC and by Rastogi in his counterclaim and that he erred in doing so in the face of several triable issues.
[3] I agree with counsel for RBC that Rule 44 had no application. This was in reality a motion for summary judgment on Rastogi’s entitlement to the funds in his accounts. However, I agree with the motion judge that RBC had no basis in law to prevent Rastogi from accessing his funds in RBC Direct and TD. This was an appropriate case for summary judgment in the terms of the order made by the motion judge. I would vary the parts of the order referable to the accounts at RBC Direct and TD to a judgment in the same terms, and would otherwise dismiss the appeal.
II
[4] In its claim, RBC alleges that between December 2007 and September 2008 Rastogi misused his position as an employee of RBC to establish an arbitrage scheme trading Canadian and US dollars in his RBC accounts. RBC alleges that as a result of this illicit scheme, Rastogi made about $700,000 in net profit and RBC suffered the equivalent loss.
[5] According to RBC’s allegations, Rastogi took advantage of a “loophole” in the RBC online banking system and his access to an employee preferred exchange rate to complete hundreds of currency exchange transactions on his own behalf at the opening of the market each day. He was able to make the trades at prices that ensured him a profit and an equivalent loss to RBC. RBC alleges that in operating the scheme to his personal advantage and the detriment of RBC, Rastogi breached the terms of his contract of employment with RBC and his duty of loyalty to RBC.
[6] Rastogi’s trading was funded with borrowing on his RBC line of credit. The proceeds from the scheme were paid into his RBC accounts. Some of the proceeds were transferred from those accounts to Rastogi’s accounts at RBC Direct. Some of the proceeds were also transferred to Rastogi’s joint account at the TD.
[7] In its lawsuit commenced in the fall of 2008, RBC seeks:
• Damages for unjust enrichment and breach of Rastogi’s employment contract in the amount of $700,000;
• An order tracing the proceeds of the arbitrage scheme including an order tracing those proceeds into the hands of third parties;
• A declaration that the proceeds are held in trust for RBC;
• An interim and permanent injunction restraining Rastogi from dissipating the proceeds of the scheme.
[8] RBC took no steps to obtain any interim relief. Instead, it froze Rastogi’s three accounts with RBC. It also, presumably by virtue of its relationship with RBC Direct, froze both of Rastogi’s accounts with RBC Direct. RBC then commenced this action and, by naming the TD as a defendant, effectively froze Rastogi’s account at TD. Pursuant to s. 437(2) of the Bank Act, S.C. 1991, c. 46, TD declined to pay the funds in the account to Rastogi, pending either a court order or RBC’s consent.[^1] TD is holding the funds pending court order. It takes no position in respect of the competing claims of RBC and Rastogi.
[9] In his defence, Rastogi claims that he never worked for RBC although he acknowledges being employed by its affiliate RBC Dominion Securities Inc. (RBC Dominion). Rastogi admits that he engaged in currency trading on his own behalf. He alleges, however, that he used publicly available information and traded at the rates set by RBC. Rastogi maintains that his trading was well known to the RBC representatives at the branch where he kept his accounts. He contends that he did nothing that breached his contract of employment or made improper use of information available to him as an employee. Rastogi goes on to assert that RBC did not suffer any loss as a result of his currency trading.
[10] Rastogi also counterclaims against RBC, RBC Direct and RBC Dominion. He seeks the return of all funds in his accounts at those institutions, damages for improperly freezing those accounts and damages for wrongful dismissal. Rastogi asserts that the funds in the accounts at RBC Direct and TD do not come exclusively from the profits earned in his currency exchange trading and that, by freezing those accounts without any authority to do so, RBC has made it impossible for him to pay his outstanding debts, such as his mortgage and his daily living expenses.
[11] Rastogi also cross-claims against TD. He seeks an order requiring TD to release the funds in the account jointly held by him and his wife. As indicated above, TD takes no position on this claim.
III
The Motion Judge’s Ruling
[12] RBC claimed that Rastogi owed it some $700,000. There was about $100,000 in Rastogi’s three RBC bank accounts. The credit in those accounts represented a debt owed by RBC to Rastogi. The motion judge held, at paras. 8-12, that RBC could claim a set off of the credits in Rastogi’s account against any debt owed by Rastogi to RBC. The set off claim justified RBC’s refusal to release the funds in Rastogi’s RBC accounts unless ordered to do so following a trial of the merits of the respective claims.
[13] The motion judge determined that RBC Direct had no claim against Rastogi and therefore no debt that it could purport to set off against the credit in Rastogi’s accounts at RBC Direct. The motion judge also rejected the argument that because of the corporate affiliation between RBC and RBC Direct, RBC was entitled to treat Rastogi’s accounts in RBC Direct as if they were accounts in RBC. The motion judge said at para. 13:
More importantly, Direct Investing (“DI”) makes no claim against Rastogi. It has no legal basis, in set off or otherwise, for freezing his accounts and holding on to his funds, absent a court-granted injunction, which in all likelihood would not be granted on these facts. In any event, no such injunction has been sought by DI.
[14] The motion judge found no basis to withhold Rastogi’s funds held by TD (paras. 16-21). He held that RBC’s mere assertion that it was entitled to a tracing order could not provide the basis for withholding Rastogi’s funds. The motion judge also rejected RBC’s contention that s. 437(2) of the Bank Act gave RBC a right to freeze Rastogi’s accounts at TD. The motion judge interpreted s. 437(2) as merely giving TD the option of interpleading the funds into court or holding the funds pending court order once TD was sued. TD had chosen the latter course. The motion judge concluded at para. 21:
RBC’s claim for a tracing order is not enough, absent an injunction or some other court order or at least some proof of legal entitlement, to justify any further retention by the TD Bank of depositor Rastogi’s funds. In my view, these funds should be released immediately.
IV
The Nature of the Motion
[15] Rastogi’s motion was brought under Rule 44. That rule applies to a motion for an “interim order” made under s. 104(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43. That section provides:
In an action in which the recovery of possession of personal property is claimed and it is alleged that the property,
(a) was unlawfully taken from the possession of the plaintiff; or
(b) is unlawfully detained by the defendant,
the court, on motion, may make an interim order for recovery of possession of the property. [Emphasis added.]
[16] Section 104 and Rule 44 speak of recovery of possession of “personal property”. That phrase is not defined in the Act or in Rule 44.
[17] A credit in a customer’s bank account is treated as a debt owed by the banker to the account holder. The relationship between the bank and the account holder is one of debtor and creditor: BMP Global Distributions Inc. v. Bank of Nova Scotia, 2009 SCC 15, [2009] 1 S.C.R. 504, at para. 63. Although RBC Direct is not a bank, I see no reason to treat credits in the RBC Direct accounts any differently. Those credits represented a debt owed by RBC Direct to Rastogi.
[18] The language of s. 104 of the Courts of Justice Act and, even more so, the language of Rule 44, suggest that “personal property” means property that is tangible and capable of physical description. The security requirements addressed in rule 44.03 suggest the same interpretation.[^2] On this interpretation a debt would not constitute “personal property” for the purpose of Rule 44.
[19] It is unnecessary for me to come to any firm conclusion as to whether a debt is included within the phrase “personal property” in s. 104 and Rule 44. Even if the section and the rule could have application to a debt, Rastogi was not seeking an interim order for possession of property, and was not offering to post any security. Rastogi wanted the release of his funds plain and simple. The order made by the motion judge reflects the nature of the relief sought. There is nothing interim about the relief ordered by the motion judge.[^3] The relief granted was not available under Rule 44.
V
Should the Motion be Treated as a Motion for Summary Judgment Under Rule 20?
[20] Rule 37.13(2)(a) states:
A judge who hears a motion may,
(a) in a proper case, order that the motion be converted into a motion for judgment;
[21] The motion judge was not asked to, and did not exercise the power under rule 37.13(2)(a). This court can, however, make the same order: s. 134(1)(a) of the Courts of Justice Act.
[22] An order in the terms contemplated by rule 37.13(2)(a) is discretionary and is clearly not one that will be easily or routinely granted. In CMLQ Investors Company v. CIBC Trust Corporation (1996), 3 C.P.C. (4th) 62 (Ont. C.A.), this court affirmed a motion judge’s exercise of the rule 37.13(2)(a) discretion to grant judgment on a motion for a trial of an issue. The motion judge granted a declaratory judgment and directed a trial on the question of damages. In upholding that decision, this court said at para. 8:
[W]here all of the necessary evidence is before the judge on the motion, and where the parties have had full opportunity of arguing their positions, as was the case here, there is nothing to be gained by either party by adding further proceedings to those already taken.
[23] Counsel for the appellants does not suggest that the record before the motion judge did not contain all of the evidence necessary to determine whether Rastogi was entitled to summary judgment on the issue of his entitlement to the release of the funds held by RBC Direct and TD. The record was extensive. Detailed facta were also filed. [^4]
[24] Counsel for the appellants also does not suggest that RBC did not have a full opportunity to put forward its case on the issue of Rastogi’s entitlement to the funds in the accounts. As I read counsel’s factum, he invites the court to treat this as if it were a motion for summary judgment. Counsel forcefully argues that on the motion record, Rastogi failed to establish that there were no genuine issues requiring a trial in respect of his entitlement to those funds. While counsel for RBC has no difficulty treating this as a motion for summary judgment, counsel for Rastogi contends that it would be unfair to do so as that would put the onus on Rastogi to show that there is no triable issue with respect to his entitlement to the funds.
[25] I agree with counsel for the appellants that Rastogi’s claim to an entitlement to the funds in his RBC Direct and TD accounts can be properly and fairly resolved on this motion. There is no need for further proceedings to make a proper determination on that issue. Nor, given my assessment of the merits, is there any prejudice to Rastogi.
VI
Should Summary Judgment be Granted on Rastogi’s Claim to the Funds held by RBC Direct and TD?
[26] Rastogi’s claim to the funds in RBC Direct and TD is straightforward. The credit in those accounts represents debts owed to him by RBC Direct and TD. He has demanded payment. Neither RBC Direct nor TD advanced any claim against Rastogi, much less a claim that would give rise to any right of set off. Counsel for Rastogi submits that RBC does not, merely by commencing a lawsuit in which it claims a right to the funds, acquire any right to unilaterally prevent Rastogi from obtaining those funds. Counsel contends that, absent a court order, RBC was not entitled to preemptively interfere with Rastogi’s rights in respect of his accounts at RBC Direct and TD.
[27] RBC’s claim that the funds should not be released to Rastogi rests on the assertion that the material filed on the motion demonstrates that RBC has an arguable claim to a restitution order with respect to the funds. RBC asserts that its remedy goes beyond damages and that the funds in those accounts in fact belong to RBC. The restitutionary claim is based on either a constructive trust flowing from Rastogi’s breach of his duties to RBC, or on RBC’s mistaken payment of the funds into Rastogi’s accounts at RBC. RBC maintains that its arguable restitutionary claim, combined with the uncontroverted evidence that some of the proceeds of the currency trading are in the accounts in issue, is enough to give RBC a valid interest in those funds and create what counsel called a “interpleader situation” as between RBC and Rastogi.
[28] RBC’s position confuses its undenied right to pursue its restitutionary claims and any right it has to unilaterally deprive Rastogi of his property while RBC pursues its restitutionary claim. The fact that RBC has an arguable case would certainly preclude Rastogi from obtaining summary judgment on RBC’s restitutionary claim. The mere fact that RBC has an arguable restitutionary claim, however, does not give it any right to interfere with Rastogi’s property pending a determination of the merits of that claim.
[29] RBC’s restitutionary claim comes down to the assertion that the funds in Rastogi’s accounts at RBC Direct and TD belong to RBC and not to Rastogi. If RBC had concerns about the disputed property disappearing before trial, it could have sought an interlocutory injunction. Had RBC chosen to do so, however, it would have been required to show more than an arguable case before it could obtain an order freezing those accounts. Under the well-known tripartite test in RJR MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311, RBC would have been required to show:
• An arguable case (serious issue to be tried);
• Irreparable harm if injunctive relief was not granted;
• The balance of convenience favoured injunctive relief.
[30] RBC cannot escape the tripartite test for injunctive relief because the nature of the property in issue has permitted RBC to unilaterally achieve a de facto injunction without a court order. Surely RBC would not argue that it was entitled to go into Rastogi’s garage and unilaterally seize his vehicles and hold them until trial if it had an arguable case that the vehicles were purchased with the proceeds of the currency trading. I do not see how RBC’s legal position is improved because the assets in issue are debts owed to Rastogi by another bank and an affiliate of RBC.
[31] For whatever reason, RBC has not sought an interlocutory injunction in the two years since it started this action. RBC is not entitled to what would effectively be an interlocutory injunction merely by showing that its allegations, including those related to his restitutionary claims raise arguable issues. On the motion record, Rastogi’s entitlement to the funds vis-à-vis RBC Direct and TD is undeniable. He is their creditor. RBC’s entitlement to the funds is contingent upon RBC establishing the merits of its claim.
[32] Any entitlement RBC has to freeze Rastogi’s accounts pending trial is not improved merely because RBC Direct is a subsidiary of RBC. RBC accepts that the credit in Rastogi’s RBC Direct accounts constituted a debt owed by RBC Direct. While the relationship between RBC Direct and RBC permitted the latter to freeze Rastogi’s accounts by what counsel for RBC referred to as an “internal demand”, the subsidiary status does not make the debts of RBC Direct debts of RBC. The two are separate corporate entities. RBC cannot claim any right to set off of a debt owed by RBC Direct to Rastogi against a debt owed by Rastogi to RBC.
[33] I also agree with the motion judge’s interpretation of s. 437(2) of the Bank Act. That section gives TD the right to hold the funds in Rastogi’s account that it would otherwise be obligated to pay on demand to Rastogi. That right is triggered by RBC’s claim in which it names TD as a defendant. Section 437(2) does not give RBC any rights in respect of the funds in Rastogi’s TD account or inhibit the court’s power to make orders directing payment of funds out of those accounts.
VII
Conclusion
[34] For the reasons set out above, RBC has offered no legal basis upon which either RBC Direct or TD can withhold the funds held by them to the credit of Rastogi. There are no issues requiring a trial in respect of Rastogi’s entitlement to those funds. Rastogi is entitled to summary judgment on his counterclaim to the extent that the claim seeks judgment directing the return to him of all funds held in Rastogi’s accounts at RBC Direct. He is similarly entitled to judgment on the crossclaim to the extent that he seeks judgment directing that TD release all funds in Rastogi’s joint account to him.
[35] All other claims raised in RBC’s statement of claim and Rastogi’s defence and counterclaim remain outstanding. Specifically, and contrary to counsel for the appellants’ contention, this judgment does not decide RBC’s restitutionary claims. Those claims may proceed. If they ultimately succeed, RBC may have practical difficulties obtaining an effective remedy in respect of the funds that are presently held in the RBC Direct and TD accounts. Those difficulties are, however, no different that the difficulties faced by any plaintiff in RBC’s position who advances a restitutionary claim and does not seek, or does not receive, the necessary interlocutory relief.
[36] The order of the motion judge dated August 20, 2010 should be varied to grant judgment in the terms of paragraphs 2 and 3 of that order. The appeal is otherwise dismissed. Rastogi should have his costs of the appeal in the amount of $9,700, inclusive of disbursements and applicable taxes.
RELEASED: “DD” “JAN 20 2011”
“Doherty J.A.”
“I agree David Watt J.A.”
“I agree Gloria Epstein J.A.”
[^1]: There is an indication in the material that TD actually froze the account before notice of the action was given; however, after the notice of the claim was given, TD relied on s. 437(2).
[^2]: Rule 43.01, the interpleader rule, which is often engaged in disputes over bank accounts, defines property as meaning “personal property and includes a debt.” Arguably the phrase “includes a debt” would be unnecessary if a debt was otherwise regarded as personal property for the purpose of the rule.
[^3]: My interpretation about the nature of the relief sought and the order granted on the motion also disposes of counsel for Rastogi’s argument that as Belobaba J.’s order was interlocutory this court has no jurisdiction to hear the appeal.
[^4]: The motion was commenced by Rastogi before RBC filed its defence to the counterclaim. A summary judgment motion by the plaintiff cannot be served until after a defence is delivered: rule 20.01(1). However, the defence was delivered well before the hearing of the motion and I do not understand RBC to claim that it is prejudiced by treating the motion as a summary judgment motion even though it was served with the motion before the defence to the counterclaim was delivered.