SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 06-CL-6558

DATE: 20131218

RE: CENTURY SERVICES INC. and CLAIRVEST GROUP INC., Plaintiffs

AND:

NEW WORLD ENGINEERING CORPORATION, FRED W. BAIN, JOHN CHEONG, LAI LI CHONG, JULIA CHEONG a.k.a. IOULIA KLENKINA, ROBERTO BUSTAMANTE, and ROBERT BUSTAMANTE c.o.b. CANADA STAGE DESIGNS, ATIQUE CHOUDRY, HINGSON CORPORATION, HINGSON DEVELOPMENT CORPORATION, HINGSON CAPITAL CORPORATION, HINGSON MEDIA CORPORATION, CIRCA CANADA INCORPORATED, GREENFIELD CAPITAL ENGINEERING INC., IMAGE NIGHTCLUB INCORPORATED, BANZAI RESTAURANTS INC., EIGHT RESTOLOUNGE INCORPORATED, BUSTAMANTE HOLDINGS CORPORATION, 1249492 ONTARIO INC., BLUE GIANT PRODUCTIONS INC. ENGINEERED CONSTRUCTION LIMITED, DANIEL DISTRIBUTION CORPORATION, BORDEN LADNER GERVAIS LLP, GOODMAN & CARR LLP, FOGLER RUBINOFF LLP, MAGNUS VERBRUGGE, GARY KISSACK, BARRY FILLIMORE, TD WATERHOUSE CANADA INC., BULENT PAKDIL, HATICE PAKDIL, ALLEN DEVERA and THE TORONTO-DOMINION BANK, Defendants

BEFORE: STEWART J.

COUNSEL:
Ruth Promislow, for the Plaintiffs

Catherine Francis, for the Royal Bank of Canada

HEARD: September 24, 2013

ENDORSEMENT

[1] The Plaintiffs seek an order requiring the Royal Bank of Canada (“RBC”) to comply with the Order of Lederman J. dated July 31, 2006 (the “Freezing Order”) by restoring John Cheong’s 569 Account to the state it was in when the bank received notice to freeze the account and return all funds removed by Cheong.

Background

[2] In accordance with the Freezing Order, RBC and other financial institutions were ordered to freeze the bank accounts of Cheong and others. Certain designated accounts, which included the 569 Account, were temporarily exempt from the Freezing Order to permit Cheong to have access to a maximum amount of $240,000 for living expenses, business expenses and legal fees. The designated accounts are referred to herein as the Released Accounts.

[3] Pursuant to the Freezing Order, the Receiver was provided with access to the records, statements and other documentation pertaining to the Released Accounts for the purpose of determining how and when Cheong had exercised access to the permitted $240,000.

[4] Also pursuant to the Freezing Order, the Receiver was given the power to direct RBC to freeze the Released Accounts once this access had been fully exercised by Cheong.

[5] In December 2006, the Receiver determined that Cheong had obtained full access to the $240,000 from the Released Accounts pursuant to the Freezing Order.

[6] By correspondence dated December 6, 2006, the Receiver directed RBC to freeze the 569 Account pursuant to the power granted and set out in the Freezing Order. Attached to the Receiver’s correspondence to RBC was a copy of the Freezing Order. A copy of the Freezing Order had been served on RBC earlier in the proceedings.

[7] RBC does not dispute that it received the Freezing Order and this direction from the Receiver to freeze the 569 Account pursuant to it. RBC also admits that the 569 Account was, in fact, frozen by it for a lengthy period of time but that the freeze was allowed to lapse for reasons which have not yet been explained.

[8] RBC’s records for the 569 Account show that as of March 6, 2007 a “deposit only” message had been placed on the 569 Account, as follows:

06 March 2007

Deposit only message entered on all accounts as per the instruction of Cheryl Penner, RBC Law Group. Court order from July 5th 2005 has instructed the bank to ‘freeze’ all personal accounts and Hingson Corporation accounts. All client concerns should be directed to George Benchetrit, Chaitons LLP, 416-222-8888. Jeff Vail 416-3131-5786

[9] Internal investigations undertaken by RBC have pointed to the possibility that the “deposit only” notification was removed on April 11, 2012.

[10] Between August 2012 and May 2013 Cheong proceeded to remove a total of approximately $100,000 from the 569 Account using his RBC online banking privileges. Cheong apparently used these funds to reduce outstanding balances on his credit cards owing to RBC.

Issue

[11] Can RBC be required on this motion to restore the 569 Account to the state it was in before the funds were removed?

Discussion

[12] As RBC has noted in argument, RBC was not named as a defendant in the action against Cheong and the various other Defendants. The Plaintiffs did not assert in that action any claims against RBC and did not seek any priority over the rights of RBC in relation to the 569 Account or any other accounts held by Cheong at RBC.

[13] However, the funds in the RBC accounts have been found by the Court following trial to be the proper subject matter of the tracing order granted, being loan proceeds obtained from the Plaintiffs by Cheong and others by fraudulent means.

[14] The Plaintiffs argue that RBC has failed to comply with the Freezing Order and must be required to restore all funds removed from the account in question.

[15] On this motion, the Plaintiffs rely upon Rule 60.01 of the Rules of Civil Procedure as well as the Court’s inherent jurisdiction to fashion a remedy. Particular reliance is placed on Rule 60.11(9) which provides that:

Order that Act be done by Another Person

(9) Where a person fails to comply with an order requiring the doing of an act, other than the payment of money, a judge on motion may, instead of or in addition to making a contempt order, order the act to be done, at the expense of the disobedient person, by the party enforcing the order or any other person appointed by the judge. R.R.O. 1990, Reg. 194, r. 60.11 (9).

[16] This motion does not seek an order holding RBC in contempt of the Freezing Order.

[17] RBC takes the position that the appropriate remedy for breach of a court order is either a contempt proceeding pursuant to Rule 60.11 or, alternatively, an action for damages. I note that Rule 60.11(9) addresses circumstances that might arise in a contempt proceeding in which a third party may be ordered to do what the person in contempt has failed to do, at that person’s expense.

[18] RBC further asserts that if the Plaintiffs or the Receiver were to commence a civil action for damages, issues of duty of care, standard of care, causation, contributory negligence and potential set-off would be raised. These issues are not capable of being addressed on a summary motion of this nature.

[19] I find that I must agree with the position advanced by RBC in response to this motion. In my view, neither Rule 60.11(9) nor the exercise of inherent jurisdiction operate to justify the making of an order on this motion requiring RBC to pay back the funds removed from the 569 Account by Cheong in these circumstances.

Conclusion

[20] The motion is therefore dismissed, but without prejudice to the Plaintiffs’ entitlement to bring a motion seeking a contempt order against RBC or to commence an action based upon such causes of action against RBC that may be considered to arise from these events.

Costs

[21] If the subject of costs cannot be agreed upon by the parties, brief written submissions may be delivered on behalf of RBC within 20 days of the date of this decision, and on behalf of the Plaintiffs within 10 days thereafter.

STEWART J.

Date: December 18, 2013