ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: C-3957-06
DATE: 20120127
BETWEEN:
510030 Ontario Inc. Plaintiff – and – Sudbury Regional Credit Union Ltd. Defendant
Paul E. Trenker, for the Plaintiff
Daniel C. Sirois, for the Defendant
HEARD: September 29, 30, 2011; October 6, 7, 2011
Cornell J.
[ 1 ] This is an action by 510030 Ontario Inc. (“510030”) seeking the return of the sum of $96,500, which the plaintiff alleges was improperly taken by Sudbury Regional Credit Union Ltd. (“Credit Union”). Various transfers in various amounts were made between December of 1995 and December of 1996 from 510030’s account to cover the overdraft of 1074146 Ontario Inc. (“1074146”) in support of a guarantee in the amount of $20,000 which 510030 had provided in support of the indebtedness of 1074146. 510030 alleges that these transfers were unauthorized. I find as a fact that these transfers were authorized. Based upon this finding and in accordance with the balance of the reasons which follow, I dismiss the plaintiff’s claim.
Background
[ 2 ] 510030 operates a courier business. Randall Russell (“Russell”) is the sole shareholder of this corporation. Mr. Russell has been involved in this industry for more than 30 years and is a sophisticated business man. 1074146 was established to provide long haul courier service. Ken Russell was the Operations Manager for 1074146. He is Russell’s brother. Judith Cammalucci, who was also a manager with 1074146, is Russell’s sister. The evidence suggests that 1074146 was established to provide a business opportunity or employment for Russell’s brother and sister.
[ 3 ] Both 510030 and 1074146 operated from the same premises located at 764 Notre Dame Avenue, Units 7 and 8, Sudbury, Ontario P3A 2Y4.
[ 4 ] Russell’s sister introduced him to the Credit Union. Russell purchased term deposits and other investments from the Credit Union. Russell dealt primarily with Jocelyne Akey (“Akey”) who has worked with the Credit Union for more than 34 years.
[ 5 ] Russell executed an Operation of Account Agreement with the Credit Union for account number 811718 on April 9, 1994. Section 7 of the Account Agreement provides that the account holder must notify the Credit Union within 30 days of the mailing of a statement of any errors, irregularities or omissions. If the account holder does not raise any concerns within such 30 day period, the Account Agreement provides that the information contained in the statement shall be accepted by all parties to be correct.
[ 6 ] 1074146 negotiated a business loan with the Credit Union. As security for this loan, 510030 signed a guarantee in the amount of $20,000 on August 18, 1995.
Account Transfers
[ 7 ] From time to time, the operating account of 1074146 with the Credit Union would go into overdraft. In order to cover the overdraft and prevent 1074146’s cheques from being returned due to non-sufficient funds, various withdrawals or transfers were made from Russell’s account number 81178 to 1074146’s account. The following transfers were made:
DATE TRANSFER
December 1995 $ 22,000.00 March 1996 $ 30,000.00 May 1996 $ 4,000.00 June 1996 $ 7,500.00 June 1996 $ 7,000.00 August 1996 $ 9,000.00 October 1996 $ 8,000.00 December 1996 $ 9,000.00
TOTAL $ 96,500.00
[ 8 ] 510030, through its principal Russell, denies that these transfers were authorized. The Credit Union refutes this assertion by saying that all of the transfers were authorized and properly documented. This issue is the main issue in this action. There are further issues as to whether or not the plaintiff’s action must fail, even if the transfers were not authorized, as it is statute barred or precluded by operation of the Account Agreement.
Monthly Statements
[ 9 ] Russell testified that he provided the Credit Union with 510030’s address and that this address did not change during the time period in question. He stated that the corporation’s mail would be sorted and that all the Credit Union mail would go directly to him. He received the monthly statements for the period from December of 1995 to and including December 1996. He opened these statements and reviewed them. These statements were admitted as trial exhibits. They show a debit or transfer for all of the amounts which are in dispute.
[ 10 ] When Russell received the statement for August of 1996, he noted that there had been a transfer to 1074146 in an amount of $15,000. He contacted the Credit Union to indicate that this had been done in error. The transaction was reversed on September 10, 1996. Apart from this, Russell made no other requests that other transfers be reversed. During the course of cross-examination, Russell admitted that he checked the statements each month and acknowledged that each of these monthly statements contained the following warning at the bottom of each page: “If this statement does not agree with your record, contact our office within 30 days of mailing”. Russell testified that during the period of time in question, he had no problems in receiving his mail.
[ 11 ] On April 22, 2003, Russell closed account number 81178 and received a bank draft in the amount of $24,602.92, which he negotiated on April 30, 2003.
[ 12 ] Russell indicated that he became aware of the transfers in February of 1998. No objection was taken to these transfers until Russell’s lawyer wrote to the Credit Union by letter dated February 22, 2005.
The Letter
[ 13 ] Russell testified that on July 15, 1998, he attended at the Credit Union office and picked up a letter, the contents of which is as follows:
July 15, 1998
To Whom It May Concern,
RE: 510030 ONTARIO INC. 1074146 ONTARIO INC.
Funds were transferred from the account of 510030 Ontario Inc. to the account of 1074146 Ontario Inc. on a number of occasions from 1995 to 1997. The statements provided indicate dates and amounts of the transfers between the accounts.
Please note that statements for the period of December 1, 1996 - December 31, 1996 are missing. We are making arrangements to obtain micro-fiche for this period.
These transactions were made in error by the Credit Union without proper authority and authorization given by the principal of the account (510030 Ontario Inc. - Randall Russell).
As evidenced by the statement of the account of 1074146 Ontario Inc. these transfers were done in order to “cover” the overdrafts created by the processing of cheques and to allow the business to continue to operate. If you have any further questions, please contact our office.
We apologize for any inconvenience our actions have created.
Yours Truly,
“Jocelyn Akey” Senior Financial Service Representative
[ 14 ] The explanation provided by Russell is that Revenue Canada was conducting an audit of corporate tax returns and that they needed clarification about the transfers which had been made. Russell testified that his request for this letter was readily accepted and that Akey “felt bad” about the misunderstanding and readily provided the letter. Akey’s evidence was substantially different. She testified that she was initially not prepared to provide such a letter but that Russell was very persistent and “would not take no” for an answer. She stated that she felt intimidated by him and provided the letter against her better judgement. She stated that Russell dictated it and she typed it. If asked to do the same thing today, Akey indicated that she would not. It is particularly noteworthy that although Russell asked for the letter, he did not ask for a return of the funds at that time, but instead, requested a return of the funds in February 2005 when his lawyer sent the first demand letter to the Credit Union. Russell’s stated purpose in asking for the letter was for “accounting purposes”.
Procedure
[ 15 ] Russell indicates that these transfers were made without his authorization. He acknowledges that in August of 1996, when he took exception to a transfer in the amount of $15,000, the Credit Union readily reversed the transaction. He relies upon the letter of July 15, 1998, as evidence of the fact that all of these transfers were unauthorized.
[ 16 ] The Credit Union takes a very different view of what transpired. Akey testified that when 1074146’s account when into overdraft, she followed company procedure and called Ken Russell or Judith Cammalucci to request that funds be deposited to cover the overdraft. As those parties were seldom available, Akey usually left a message with the result that Russell would return the call. During the course of these discussions, Akey stated that Russell said that “I am in charge of everything” and “I’m the brains of the family, I am doing this to provide employment for my brother and sister and I am in charge”.
[ 17 ] The documentary evidence shows that after receiving telephone authorization to make a transfer, Akey would complete a deposit slip for the benefit of 1074146’s account as well as a withdrawal slip for the account of 510030. Most of these withdrawal slips contained the notation “As Requested” by Russell. The original slips were retained by the Credit Union. The second copy was mailed to the member. Akey testified that she prepared the slips as well as the envelope and that these deposit and withdrawal slips were mailed each time a transfer was made.
[ 18 ] If the Credit Union received returned mail, they had a policy in place to follow up. Akey testified that none of the mail which was sent to 510030 was ever returned.
[ 19 ] Akey indicated that she knew that she was dealing with Russell during these various telephone conversations as he has a very distinctive voice and the same procedure was followed each time.
Revenue Canada Investigation
[ 20 ] Andre Tessier testified for the Credit Union. He indicated that he had been with Revenue Canada for more than 31 years. At the time in question, he was a fraud investigator. As a result of a referral from the audit division, he began an investigation into the tax returns of 510030. After conducting his investigation, he recommended that two charges be laid. During the course of the preparation of his Prosecution Report, Mr. Tessier analyzed 510030’s Credit Union account number 81178. He concluded that funds in an amount of $79,300 had been loaned to Ken Russell.
Accounting Records
[ 21 ] Sam Lolas has been a chartered accountant since 1988. He is a partner at the accounting firm which is used by 510030. His attendance at court was compelled by way of summons as he indicated that he did not wish to discuss the affairs of his client. The accountant’s working notes for the year end of April 30, 1997, contained hand written notes indicating that there was a receivable from 1074146 for such period in an amount of $79,300 and that this receivable was “as discussed with Randy (Russell)”. This is clear evidence that Russell was aware of the transfers and discussed how they were to be treated for accounting purposes.
Analysis
[ 22 ] The evidence indicates that the version of events as understood by the plaintiff and defendant are diametrically opposed, that is to say, the plaintiff maintains that the transfers were not authorized which is denied by the defendant. I find as a fact that the transfers were authorized by Russell. In coming to this conclusion, I do so for many reasons.
[ 23 ] 510030 had signed a guarantee in an amount of $20,000 in support of the indebtedness of 1074146. As a sophisticated businessman, Russell knew about 510030’s exposure, particularly when he would be contacted by the Credit Union to advise that unless arrangements were made to clear the overdraft, 1074146’s cheques would be returned due to non-sufficient funds. Russell helped to establish 1074146 in order to provide employment for his brother and sister. According to his own evidence, “he was in charge”.
[ 24 ] I am satisfied that the monthly statements were mailed out and came to Russell’s attention. I am satisfied that the withdrawal and deposit slips were completed and mailed to each company at the time that each transfer was made. With one exception, as previously noted, Russell did not object to the transfers until 2005.
[ 25 ] I accept Akey’s evidence with respect to the preparation of the July 15, 1998, letter in that she provided such letter as a result of Russell’s insistence and intimidation. Further, proof of this can be found in the fact that Russell did not give the letter to his accountant, but rather provided instructions to set up such transfers as loans and did not ask for a return of the funds at that time.
[ 26 ] If further support for my view of the evidence is required, it can be found in the fact that Russell made no demand for these funds when he closed the account in 2003, something that can be reasonably expected to have happened in light of Russell’s evidence that he was aware of these transfers in February of 1998.
Limitations Defence
[ 27 ] Even if Russell’s evidence is accepted at face value, he indicated that he was aware of the transfers in February 1998. In view of the fact that Russell discovered the claim prior to January 1, 2004, the limitation period for an action in contract was 6 years with the result that it would have been necessary to commence an action by February 2004. This action was commenced on November 16, 2006, with the result that the appropriate limitation period had expired and the action is therefore statute barred.
Verification Agreement
[ 28 ] The evidence indicates that Russell received both the monthly statements as well as the withdrawal slips each time a telephone transfer was authorized. The Account Agreement provided that any errors or omissions were to be reported within 30 days of the monthly statement being mailed. A notice to this effect was contained on the bottom of each page of the monthly statement. If Russell wanted to dispute any of the transfers which were made (as he did successfully on one occasion), it was necessary for him to do so in accordance with the terms of the Account Agreement which provided that notice of any error or objection must be made within 30 days. As to the enforceability of such a provision, see Don Bodkin Leasing Ltd. v. Toronto Dominion Bank (1998), 40 O.R. (3d) 262, and Arrow Transfer Co. v. Royal Bank of Canada, [1972] S.C.R. 845. Having failed to comply with the terms of the Account Agreement, the plaintiff is now precluded from disputing the transactions which took place in the account during the time period in question.
Conclusion
[ 29 ] The plaintiff’s action is dismissed.
Costs
[ 30 ] The defendant shall have its costs of this action. If the parties are unable to agree upon such costs, they may contact the trial coordinator within 30 days to make arrangements to make submissions on this subject. If no such arrangements are made, it shall be conclusively assumed that the parties have been able to resolve the costs issue.
Mr. Justice R. Dan Cornell
Released: January 27, 2012
COURT FILE NO.: C-3957-06
DATE: 20120127
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 510030 Ontario Inc. – and – Sudbury Regional Credit Union Ltd. REASONS FOR JUDGMENT Cornell J.
Released: January 27, 2012