Silvercreek II Limited et al. v. The Royal Bank of Canada, 2015 ONSC 1245

COURT FILE NO.: CV-11-9538-00CL

DATE: 20150305

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Silvercreek II Limited and Silvercreek Limited Partnership, Plaintiffs

AND:

The Royal Bank of Canada, Defendant

BEFORE: Justice T. McEwen

COUNSEL: Jonathan Lisus and Daniel Schwartz, for the Plaintiffs

Robb C. Heintzman and Kate Broer and Ara Basmadjian, for the Defendant

HEARD: February 19, 2015

ENDORSEMENT

[1] The defendant, the Royal Bank of Canada (“the defendant”), brings this motion for an order declaring that the plaintiffs Silvercreek II Limited and Silvercreek Partnership (“the plaintiffs”) have irrevocably elected to affirm the Settlement Agreement entered into between the plaintiffs and the defendants on April 7, 2009. Therefore, as a matter of law, the defendant submits that the plaintiffs are precluded from asserting in their Statement of Claim the alternative pleading that the Settlement Agreement should be rescinded. The defendant relies upon Rules 21.01(1)(a) and 51.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] The plaintiffs bring a cross-motion for leave to amend their Statement of Claim in the form attached to their cross-motion record.

[3] For the reasons below I dismiss the motion with costs payable to the plaintiffs.

[4] In support of its motion the defendant primarily relies upon two occasions on which it submits that the plaintiffs irrevocably elected to affirm the Settlement Agreement.

[5] First, the defendant points out that in the original and subsequent pleadings the plaintiffs claimed damages only for breach of the Settlement Agreement between the parties. It was not until the plaintiffs’ issued their Fresh as Amended Statement of Claim that the claim for rescission was made. Since the original and subsequent pleadings did not include a claim for rescission, the defendant submits that this constituted an election to affirm the Settlement Agreement. As a result, the plaintiffs are precluded from seeking to have the Settlement Agreement rescinded in the later Fresh as Amended Statement of Claim.

[6] Second, the defendant submits that during the discovery process the plaintiffs conceded that certain misrepresentations, that are alleged to have been made by the defendant in the Fresh as Amended Statement of Claim as “Absolute Conditions” of any settlement, were known to the plaintiffs and formed part of the terms of the Settlement Agreement. Accordingly, the defendant submits that a right to rescission is not available where the plaintiffs have affirmed the Settlement Agreement after becoming aware of the alleged misrepresentations.

[7] In my view, these are issues to be determined by the trial judge given the nature of the case, the history of the litigation and the timing of the motion.

[8] This action involves a complex business arrangement between the parties in which the plaintiffs operated two hedge funds which held margin accounts with the defendant. Amongst the services provided by the defendant to the plaintiffs was a margin facility which allowed the plaintiffs to borrow money to operate the two hedge funds. During the global financial crisis in 2009 the defendant terminated the agreement. It then took over the assets in the account, managed them and liquidated certain assets of the portfolio. The portfolio totalled approximately $5 billion dollars. The matter is scheduled to go to trial in May, 2015 for six to eight weeks. The plaintiffs seek damages in the amount of $287,800,000.00. Weeks of discovery have been completed, thousands of documents have been produced and hundreds of undertakings have been answered, with some yet to be answered.

[9] Against this backdrop I am not prepared to decide, on a motion, that admissions were made either in the pleadings or at discovery that preclude the plaintiffs from seeking rescission of the Settlement Agreement for material misrepresentation.

[10] The factual matrix is complicated and difficult to fully appreciate on a paper record in the context of a motion. The plaintiffs, in pursuing a claim for rescission rely, at least in part, on alleged misrepresentations that have been revealed (and the plaintiffs say continue to be revealed) since the original and subsequent pleadings were prepared. There is certainly evidence of this in the materials filed which may or may not be ultimately accepted by the trial judge.

[11] In any event, for the purpose of the motion, rule 21.01(a) stipulates that evidence is not to be considered except with leave of the motion judge which was not requested, nor would I have granted it given the complicated circumstances of this case. With respect to rule 51.06 evidence can be considered. I do not find that the discrete admissions given during the discovery process, in and of themselves, constitute admissions that are fatal to the plaintiffs’ claim for rescission of the Settlement Agreement. I do not believe that it is appropriate for me to parse through the transcripts, undertakings and documents to determine the issue. It certainly does not appear as though the plaintiffs’ representatives at discovery were specifically questioned about all of the alleged misrepresentations and when they became known. In my view, a trial judge is in a much better position to determine this issue on the basis of viva voce evidence wherein the evidence can be properly considered in context.

[12] Additionally, with respect to the Fresh as Amended Statement of Claim, the defendant did not oppose the amendment add a claim for rescission over two years ago. It now only raises the issue on the eve of trial. During this timeframe an extensive discovery process has concerning the factual matrix surrounding the rescission claim and expert evidence has been obtained. Further, the defendant, as a result of the pleading for rescission, caused the amount of approximately $19 million dollars to be withheld that would otherwise be owing to the plaintiffs pursuant to the provisions of the Settlement Agreement. While these events are certainly not dispositive of the issue it demonstrates the complicated factual and procedural circumstances that surround this action which are all better dealt with by way of a trial judge on a full evidentiary record.

[13] In any event, I am not satisfied that the plaintiffs cannot pursue a remedy in the form of rescission even where the misrepresentation is brought into the term of the contract: Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423, Keen v. Alterra Developments Limited, (1993), 35 R.P.R. (2d) 278 (Ont. Gen. Div.). In my view the trial judge is in a much better position to construe the Settlement Agreement and determine the parties’ intentions and other admissible extraneous evidence.

[14] The defendant also submits that, in any event, an election must be made now and the plaintiffs must pursue one claim or the other - they cannot pursue two inconsistent rights.

[15] The defendant relies upon a series of cases in which it was held that once an election has been made to pursue a certain legal right it cannot be later retracted and another right pursued: Scarf v. Jardine, (1882) 7 APP. CAS. 345; United Australia Ltd. v. Barkley’s Bank Ltd., (1940) [1941] A.C. 1 (U.K.H.L.); Charter Building Co. v. 1540957 Ontario Inc., 2011 ONCA 487. Based on my findings above this case law is of little assistance to the defendant at this motion.

[16] First, as noted above, I am not satisfied, on the current record, that in fact an election was made on the basis of the pleadings or the answers given at examinations for discovery. Having made that finding, I do not see why such an alternative pleading could not be maintained at trial subject, of course, to the discretion of the trial judge based on the evolution of the case. This conclusion, in my view, is supported by the decision of Savage J. in Deltaport Constructors Ltd. v. Vancouver Port Authority, 2013 BCSC 1705 wherein the doctrine of election was reviewed in detail.

[17] Savage J. found as follows:

For the common law doctrine of election to be engaged by inconsistent pleadings, three requirements must be met. These were recently described by the BC Court of Appeal in Allnorth Consultants Ltd v Tercon Construction Ltd, 2010 BCCA 570 [Allnorth Consultants]. At paragraph 23, the Court stated:

[23] After referring to other authorities, Fruman J. (as she then was) summarized at para. 75 the three requirements of election in the course of litigation as follows:

(i) there must be two alternative and mutually exclusive courses of action; (ii) the party that elected must have known of the facts giving rise to a right to elect between them; and (iii) the other party must have relied on the election to its detriment, in that it adopted or persevered in a line of conduct that it otherwise would have abandoned or modified.

Both parties accept the above to be the correct statement of the law, as do I.

[18] Based on the record before me in the context of a Rule 21.01(a) and 51.06 motion I do not find that the three requirements have been met. This is better left to the trial judge.

[19] Second, while I agree with the defendant that the Court has the jurisdiction to require the plaintiffs to make an election, I am not convinced that it need or should be done at this stage. I have reviewed the case law relied upon by the defendant in this regard, at paragraph 34 of its factum. I also agree that, in certain cases, a forced election is desirable. I do not find however, that it is unreasonable to allow the plaintiffs to maintain alternative claims in the circumstances of this complex case given the above comments.

[20] Lastly, the defendant stresses that the trial could be made much shorter and more manageable if an election were made. This may well be the case. I do not deny that there will be at least some trial economy if an election was made but this is not, in my view, a reason to force an election upon the plaintiffs absent case law requiring them to do so on a principled basis.

Disposition

[21] For the reasons above I would dismiss the motion. It therefore follows, as discussed at the motion, that the amendment sought by the plaintiffs to their Statement of Claim ought to be granted as per the draft prepared by the plaintiffs.

[22] As agreed between counsel costs shall be paid by the defendant to the plaintiffs in the amount of $100,000.00 inclusive.

Justice T. McEwen

Date: March 5, 2015