COURT OF APPEAL FOR ONTARIO

CITATION: Royal Bank of Canada v. Ultimate Holographic Reproductions Inc., 2014 ONCA 38

DATE: 20140117

DOCKET: C56917

Rosenberg, MacPherson and LaForme JJ.A.

BETWEEN

Royal Bank of Canada

Plaintiff (Respondent)

and

Ultimate Holographic Reproductions Inc., Salvatore C. Vivona and Leonhard Schuko

Defendants (Appellant)

Alfred S. Schorr, for the appellant

Nicole Brown Dunbar, for the respondent

Heard: January 8, 2014

On appeal from the judgment of Justice Alan C. R. Whitten of the Superior Court of Justice, dated March 27, 2013.

ENDORSEMENT

[1] The appellant argues that the motion judge erred in granting summary judgment because the respondent did not comply with the terms of the Regulations to the Canada Small Business Financing Act, S.C. 1998, c. 36. Section 14(1) of the Regulations provides as follows:

A lender must, when making a loan referred to in any of paragraphs 5(1)(a) to (c), take valid and enforceable first-ranking security in the assets of the small business whose purchase or improvement is to be financed by the loan.

[2] Due to an error by the respondent it did not have first-ranking security in the assets of the small business. The appellant argues that because the lender did not comply with s. 14(1), its guarantee was not valid. He also argues that article (3) of the guarantee violated the terms of the Act and regulations. Article 3 provides that the Bank was not bound to exhaust its recourse against the customer or others before being entitled to payment from the guarantors.

[3] In granting summary judgment, the motion judge held that the statute and regulations only determine the extent of the risk to the lender and not the contractual relationship between the parties. This holding is consistent with other decisions of the Superior Court of Justice. For example, in ACFMD 2005 Inc. et al. v. Pizza One Group Inc. et al., 2006 19426, Ground J. held at para. 4, that any breach of the regulations would only affect the claim by the bank against the government for reimbursement. Further, the Act does not give any right of action to the borrower or the guarantors.

[4] In this case, we need not decide that the Act and regulations give no remedy to the borrower or guarantors or that breach of the Act and regulations would have no effect on the validity of the guarantee. We are satisfied that the failure of the bank to obtain first-ranking security in the circumstances of this case does not invalidate the guarantee nor provide the appellant with any remedy. The appellant adduced no evidence on the motion for summary judgment that he was in any way misled by the respondent when he entered into the guarantee. The respondent was therefore entitled to enforce the guarantee in accordance with its terms.

[5] We are also satisfied that article 3 of the guarantee did not violate the Act or regulations. The article is not inconsistent with anything in the Act or regulations. In particular, the guarantee is not inconsistent with s. 37 of the Regulations which simply requires the lender to realize on any security, guarantee or suretyship before submitting a claim to the Minister under s. 38. The demand made by the respondent in this case is consistent with the Regulations.

[6] Accordingly, the appeal is dismissed. The respondent is entitled to its costs which we fix at $8,000 inclusive of HST and disbursements.

“M. Rosenberg J.A.”

“J. C. MacPherson J.A.”

“H. S. LaForme J.A.”