RBC Dexia Investor Services Trust v. Goran Capital Inc.

CITATION: RBC Dexia Investor Services Trust v. Goran Capital Inc., 2016 ONSC 1138

COURT FILE NO.: CV-09-7928CL

DATE: 2016-02-16

SUPERIOR COURT OF JUSTICE – ONTARIO (Commercial List)

RE: RBC DEXIA INVESTOR SERVICES TRUST (Plaintiff/Moving Party/Applicant)

AND: GORAN CAPITAL INC. and GRANITE INSURANCE COMPANY (Defendants/Responding Parties)

BEFORE: HAINEY J.

COUNSEL: Gillian S.G. Scott and Evan Thomas, for the Plaintiff/Moving Party/Applicant Sean N. Zeitz, for the Defendants/Responding Parties Adam D.H. Chisholm and Calie Adamson, for the Pembridge Insurance Company

HEARD: February 10, 2016

ENDORSEMENT

[1] RBC Dexia Investor Services Trust (“RBC”) moves for a Mareva injunction in respect of approximately $1.1 million that belongs to Granite and is currently held in a capital account with RBC (the “Custody Account”).

[2] Granite Insurance Company (“Granite”) has requested that RBC release the funds in the Custody Account to it but RBC has refused to do so pending this motion.

[3] RBC alleges that in 2008 it paid approximately $1.1 million to Granite by mistake. Granite refused to return the money. Granite takes the position that there was no mistake by RBC because Granite was entitled to payment of the money (the “Disputed Funds”).

[4] RBC replaced the $1.1 million it mistakenly paid out of the account using its own funds and has engaged in seven years of litigation with Granite to recover the Disputed Funds.

[5] Until December 2015 the funds held in the Custody Account were subject to regulation by the Office of the Superintendent of Financial Institutions (“OSFI”) so that the funds in the account could not be withdrawn by Granite without OSFI’s approval.

[6] In December 2015, OSFI de-regulated Granite. Following this, on December 22, 2015, Granite directed RBC to transfer the funds held in the Custody Account to its solicitors.

[7] On January 8, 2016, RBC had not yet released the funds in the Custody Account. Granite again directed RBC to transfer the funds and provided RBC with confirmation that OSFI did not object to the funds being released to Granite.

[8] On January 13, 2016, RBC’s legal counsel wrote to Granite’s legal counsel requesting that Granite confirm that it would maintain the funds in the Custody Account until the final disposition of RBC’s claim against Granite in relation to the Disputed Funds. RBC’s counsel indicated that this request was because RBC believed it was apparent “that Granite intends to dissipate all of its assets.” Granite refused. As a result RBC did not release the funds to Granite and brought this motion seeking a Mareva injunction in respect of the funds held in the Custody Account.

[9] The test for the granting of a Mareva injunction is well-established and is set out in the following cases:

(a) Chitel et al. v. Rothbart et al. (1982), 141 D.L.R. (3d) 268 (Ont. C.A.);

(b) RJR-MacDonald Inc. v. Canada, [1994] 1 S.C.R. 311 ; and

(c) Eli Lilly Canada Inc. v. Novopharm Ltd., 2010 FC 241.

[10] The issues that I must decide on this motion can be summarized as follows:

(a) Does RBC have a strong prima facie case to recover the Disputed Funds from Granite?

(b) Has RBC established that there is a real risk that Granite will remove, dispose of or dissipate the funds in the Custody Account to defeat a judgment in favour of RBC?

(c) Will RBC suffer irreparable harm if a Mareva injunction is not granted?

(d) Does the balance of convenience favour the granting of a Mareva injunction?

[11] On the evidentiary record before me I have concluded that RBC has not satisfied the required tests for the granting of a Mareva injunction for the following reasons:

(a) In order to satisfy the requirement of demonstrating a strong prima facie case RBC must persuade me that it is almost certain to succeed at trial to recover the Disputed Funds from Granite. ( see: MFC Structures Limited v. Mady Collier Centre Ltd., 2015 ONSC 211)

I am not persuaded that it is almost certain that RBC will succeed at trial, in part, because of the evidence of Douglas Symons contained at paragraphs 17, 22 and 23 of his affidavit sworn January 26, 2016. His evidence could be accepted by the trial judge thereby defeating RBC’s claim. Further, for the reasons set out at paragraphs 59-64 of Granite’s Responding Factum, I am not satisfied that RBC’s claim, which is based upon a mistake of fact, is almost certain to succeed. The trial judge may accept Granite’s position as articulated in these paragraphs of its factum. For these reasons I find that RBC has not persuaded me that it is almost certain to succeed at trial.

(b) RBC must also satisfy me that there is a genuine risk that Granite’s removal of the funds from the Custody Account is for the purpose of avoiding or defeating a judgment that RBC may obtain against Granite in its claim to recover the Disputed Funds. I accept as a correct statement of the governing law Galligan J.A.’s explanation at para. 52 in the Ontario Court of Appeal’s decision in R. v. Consolidated Fastfrate Transport Inc. (1995), 125 D.L.R. (4th) 1 (C.A.).

Galligan J.A.’s decision requires me to consider the purpose for which Granite wishes to withdraw the funds from the Custody Account. I can only consider granting a Mareva injunction if I conclude that the purpose and intention of Granite is to defeat any judgment that RBC may obtain against it. If I conclude that the purpose of Granite withdrawing the funds from the Custody Account is a legitimate one, the fact that it may affect RBC’s ability to recover on any judgment it may obtain does not justify the granting of a Mareva injunction.

Granite no longer carries on business. It ceased writing new insurance in 1990 and only carried on business thereafter to administer its run-off business. This was completed in 2005. Granite is now winding down its business. This has been known to RBC for some considerable time. In particular, it was made clear to RBC that Granite intended to seek the release of the funds in the Custody Account once it was no longer under OSFI’s control in motion material served upon RBC’s counsel in May 2014.

Granite has made no secret of its intention to remove the funds from the Custody Account once it became de-regulated. I do not consider its request to transfer these funds to its solicitors made in December 2015 to be a “reaction” to RBC’s claim that has been ongoing for over seven years. I am of the view that Granite’s request to release these funds is legitimate and not for an improper purpose.

On the evidentiary record before me I can find no improper motive on the part of Granite in requesting that the funds in the Custody Account be released to it. RBC has, therefore, failed to satisfy me that there is a real risk that Granite will remove or dissipate its assets to defeat a pending judgment in favour of RBC.

(c) Further, RBC has not established that it will suffer irreparable harm if a Mareva injunction is not granted. RBC has only established that it is concerned that it will not be able to collect on a future judgment against Granite if the funds in the Custody Account are not secured through a Mareva injunction. This does not satisfy the irreparable harm requirement. (See Eli Lilly Canada Inc., supra, at para. 32.)

(d) Finally, I find that the balance of convenience favours Granite’s position. The Supreme Court of Canada made it clear in the case of Aetna Financial Services Limited v. Feigelman et al., [1985] 1 S.C.R. 2, at para. 19 that the court should not allow a plaintiff to seize a defendant’s assets in advance of the plaintiff obtaining judgment. In my view, this is essentially what RBC is attempting to do by seeking a Mareva injunction in respect of the funds held in the Custody Account. There is no dispute that these funds belong to Granite and I have found that they are not being withdrawn by Granite for an improper purpose.

For these reasons the balance of convenience favours my decision not to grant a Mareva injunction.

[12] RBC’s motion is, therefore, dismissed for the reasons outlined above.

Pembridge Insurance Company of Canada (“Pembridge”)

[13] Pembridge also participated in this motion to protect an Irrevocable Undertaking dated May 21, 2014 given by Granite not to transfer from its Custody Account up to $175,000 to secure Pembridge’s costs in litigation between Granite and Pembridge.

[14] This Irrevocable Undertaking was incorporated into the Order of Newbould J. dated October 6, 2014.

[15] Granite has agreed to deposit $175,000 of the funds held in the Custody Account into its solicitor’s trust account to be held as security for costs on behalf of Pembridge.

[16] Although there was some disagreement over whether the funds should be paid into court or held in Pembridge’s counsel’s trust account, I am satisfied that the funds should be held in trust by Granite’s counsel.

[17] I order that $175,000 from the funds held in the Custody Account is to be transferred into Lipman, Zener & Waxman’s trust account to be held on account of security for costs for Pembridge. These funds are not to be removed or transferred from the trust account without a further order of the court or the written consent of counsel for Granite and Pembridge.

COSTS

[18] Granite succeeded on the motion and is, therefore, entitled to its costs of the motion. I have considered counsel’s submissions and their costs outlines. I am of the view that costs should be awarded on a partial indemnity scale. In light of the complexity of the motion and the urgency that required additional work on the part of Granite’s counsel, I am of the view that a fair and reasonable amount to be awarded for costs is $25,000 all inclusive of disbursements and tax. RBC is ordered to pay costs fixed at $25,000 to Granite within 30 days of today’s order.

[19] As between Granite and Pembridge the issue was much narrower and should have been settled. I decline to order costs as between Granite and Pembridge because I find that both parties were equally responsible for failing to settle this relatively straightforward issue.

[20] Counsel may attend before me at a 9:30 a.m. appointment if any problems arise settling the terms of my Order.

HAINEY J.

Date: February 16, 2016