Court File and Parties

COURT FILE NO.: CV-20-644390-00CL

DATE: 20210713

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: TransAsia Private Capital Inc., in its capacity for or on behalf of Asian Trade Finance Fund and Asian Trade Finance Fund 2, sub-funds of TA Asian Multi-Finance Fund TA Private Capital Security Agent Ltd., Applicants

AND:

Export Development Canada, Respondent

BEFORE: C. Gilmore, J.

COUNSEL: George J. Pollack and Chenyang Li, Counsel, for the Applicants

Jamie Macdonald and Erika Woolgar, Counsel for the Respondents/Moving Party

HEARD: June 22, 2021

ENDORSEMENT on stay motion

OVERVIEW

[1] The Respondent party, Export Development Canada (“EDC”), seeks an order temporarily staying this action pending the resolution of a related action, CV-20-00653063 (“the Rutmet Action”).

[2] The Applicants (“TransAsia”) characterize this motion as a delay tactic and an attempt by EDC to avoid its contractual obligations pending the outcome of a separate action which asserts spurious claims. The Applicants submit that the motion should be dismissed.

BACKGROUND

[3] EDC is a Crown corporation which provides export credit insurance to Canadian companies. On December 1, 2016, EDC issued an Accounts Receivable (Shipments) insurance policy (“the Policy”) to Rutmet Inc. (“Rutmet”) in relation to Rutmet’s sales to certain overseas buyers (“the UD Group”). The policy is non-assignable without EDC’s approval.

[4] TransAsia is a lender specializing in short-term trade financing and mid-term supply chain financing with its head office in Hong Kong. TransAsia has no employees in nor does it carry on business in Ontario.

[5] Rutmet is an Ontario company that trades in metal products. The UD Group is one of Rutmet’s customers. It is made up of five different companies located in Singapore, Malaysia, Dubai and the British Virgin Islands (“BVI”). By way of a loan facility agreement, TransAsia advanced $60M USD to Rutmet to allow it to purchase metal products for re-sale to the UD Buyers. TransAsia advanced a further $9.9M USD to Rutmet to purchase raw metal products for re-sale to Mine Craft and Metal Masters.

[6] The Policy covered the receivables financed by TransAsia that Rutmet’s customers did not pay. Given TransAsia’s interest in the Policy by way of the financing package, Rutmet issued a Direction to Pay to EDC on June 3, 2019 naming the Applicant TA Private Capital Security Agent Ltd. (“the TA Security Agent”) as the beneficiary of any proceeds under the Policy. The Direction to Pay does not include any rights to file a claim or sue under the Policy.

[7] Rutmet defaulted on the loans to TransAsia because the UD Group failed to pay the receivables owed to Rutmet. On November 22, 2019, TransAsia and Rutmet entered into a Forbearance Agreement (“the Agreement”) following Rutmet’s default. The Agreement provides that Rutmet’s customers failed to pay Rutmet for transactions financed by TransAsia and that Rutmet owed $51M USD to TransAsia as of November 15, 2019. The Agreement expired on December 13, 2019.

[8] As part of the Agreement, Rutmet signed a Power of Attorney (“the POA”) appointing TransAsia as Rutmet’s attorneys regarding the exercise of Rutmet’s rights under the Policy. The POA sets out as follows:

The undersigned hereby assigns and transfers to TRANSASIA PRIVATE CAPITAL LIMITED, in its capacity as Manager, for and on behalf of Asia Trade Finance Fund 2, a sub-fund of TA Asian Multi-Finance Fund (the “Lender”) and TA PRIVATE CAPITAL SECURITY AGENT LTD (the “Security Agent”), any and all rights and benefits under EDC Policy No. GE 1 45776 (EDC Ref: 2605244) (the “Policy”) issued by Export Development Canada (“EDC”) to the undersigned on or about May 14, 2019.

[9] In October 2019, TransAsia submitted a claim under the Policy on behalf of Rutmet with respect to receivables which were owed by the UD Group to Rutmet. The Applicants provided EDC with a copy of the POA in December 2019. While EDC’s counsel did not accept the Direction to Pay, counsel for EDC acknowledged the validity of the POA by letter dated January 14, 2020 as set out below:

EDC does not agree that TransAsia (as described in your correspondence) submitted a valid claim under the Policy on October 17, 2019 or that EDC has somehow acted in bad faith. Although TransAsia was a beneficiary under the Policy, the Direction to Pay explicitly provided that it did not give TransAsia the right to file a claim under the Policy. Subsequently, Rutmet informed EDC not to proceed with the claim.

EDC agrees that TransAsia is now entitled to submit a claim under the Policy on behalf of Rutmet pursuant to the terms of the Power of Attorney granted by Rutmet to TransAsia as of November 22, 2019. EDC is accordingly processing the claim as submitted by TransAsia on behalf of Rutmet on December 18, 2019 pursuant to the terms of the Policy.

[10] While EDC acknowledged that TransAsia could submit a claim pursuant to the POA, it requested further information in order to consider the coverage available under the Policy. TransAsia requested the information from Rutmet. When the request was refused, TransAsia commenced an application for Receivership over Rutmet’s property in February 2020. As EDC refused to process the claim without the additional information and Rutmet refused to provide the information, TransAsia obtained a Receivership Order which compelled Rutmet to provide the required information. A consent order was issued on March 11, 2021 requiring Rutmet to provide the information required by EDC. Once Rutmet provided the required information, TransAsia abandoned the Receivership in November 2020.

[11] In early March 2020, EDC and TransAsia exchanged correspondence related to a letter from the UD Group claiming that TransAsia had seized certain of their assets (shares of Hangji and GEM) which they purported discharged the debt they owed to Rutmet and therefore discharged the debt owed to TransAsia.

[12] In a letter dated March 26, 2020 from EDC to TransAsia, EDC advised that the UD Group was taking the position that all receivables had been satisfied and no money was owing to Rutmet. EDC advised TransAsia that this was a Dispute pursuant to section 7 of the Policy and an exclusion to coverage.

[13] On July 9, 2020, TransAsia commenced a court proceeding against the UD Group entity in Singapore seeking to enforce a corporate guarantee pledged to guarantee the receivables that the UD Group owed to Rutmet. On May 11, 2021, the High Court of Singapore dismissed the UD Group’s motion for a stay of that proceeding. The UD Group is currently appealing that decision.

[14] TransAsia commenced this Application on July 22, 2020, seeking a declaration in relation to the interpretation of the scope of the exclusion to coverage under section 7 of the Policy.

[15] On August 18, 2020 TransAsia initiated a court proceeding in Dubai against Mr. Gupta (a principal of one of the UD Group entities) to enforce a $30M USD personal guarantee given by Mr. Gupta to Rutmet to guarantee the receivables owed to Rutmet by the UD Group. The Dubai proceedings are ongoing.

[16] In August 2020, the UD Group commenced a claim against TransAsia and EDC (Court File no. CV-20-006455507) claiming that Rutmet’s debt to TransAsia had been indirectly repaid by TransAsia’s seizure of collateral belonging to the UD Group. The UD Group then brought an anti-suit injunction in September 2020 to restrain TransAsia from continuing with related proceedings in Singapore and Dubai and seeking to have all disputes resolved in Ontario (the “UD Action”). TransAsia brought a cross-motion to stay the UD Action. On March 17, 2020 this Court dismissed the anti-suit injunction and permanently stayed the UD Action. The UD Group appealed the March 17, 2020 decision. The appeal has not yet been heard. The UD Group brought a motion for a stay pending appeal which was dismissed on April 28, 2021.

[17] On December 14, 2020 Rutmet issued a Statement of Claim against TransAsia (“the Rutmet Action”) and named EDC, the UIL Buyers, the UD Group and its principal as parties. In that action, Rutmet makes the same allegations as the UD Group with respect to the debt to TransAsia having been indirectly repaid. Rutmet alleges that TransAsia has received payments in excess of the amounts required to satisfy the receivables owed to Rutmet and that therefore nothing is owed to TransAsia under its loan agreements with Rutmet. Rutmet also seeks a declaration that the POA used by TransAsia to file the Claim under the Policy is of no force and effect.

[18] The Rutmet Action has not proceeded quickly as Rutmet is still in the process of serving the overseas defendants.

[19] In January 2021, the UD Group brought an anti-suit injunction motion against TransAsia. The UD Group also sought to consolidate the UD Action with the Rutmet Action and this Application. TransAsia brought a cross-motion for a permanent stay of the UD Action. On March 17, 2021, UD’s anti-suit injunction and joinder motion were dismissed. The Court granted a permanent stay of the UD Action. The UD Group sought a stay of the March 17, 2021 Order from the Court of Appeal. The motion was dismissed on April 28, 2021.

[20] On April 20, 2021, counsel for EDC advised counsel for TransAsia that it had no standing to bring this Application because the POA granted to it by Rutmet is no longer effective. The position taken by Rutmet in the Rutmet Action concerned EDC with respect to its acceptance of TransAsia’s Claim as Rutmet’s attorney. As such, EDC seeks a stay of this Application in order that the issue of the validity of the POA can be determined. EDC takes the position that the validity of the POA is an issue between Rutmet and TransAsia which must be resolved before EDC can properly respond to this Application.

THE POSITIONS OF THE PARTIES

EDC’s Position on the Stay

[21] EDC is seeking a temporary stay of this Application. The parties are in agreement with respect to the test and the law on temporary stays.

[22] EDC submits that the test for a temporary stay is met and that the threshold issue relating to the validity of the POA must be determined first for the following reasons:

a. This Application has the same factual background as the Rutmet Action. Both relate to the failure of the UD Group to pay its receivables to Rutmet.

b. The issue of whether the POA is valid is a threshold issue which overlaps both the Rutmet Action and this Application.

c. Prior to Rutmet issuing its claim, EDC received the Claim on the Policy from TransAsia on the basis that they were submitting it on Rutmet’s behalf. Now that Rutmet disputes the POA, the basis on which EDC accepted the Claim has been called into question. Therefore, the issue of the validity of the POA must be determined before this Application can be adjudicated.

d. The Direction to Pay naming the Applicants as third-party beneficiaries to any Policy proceeds is not an assignment and does not entitle the TransAsia to sue on the Policy. Therefore, the Applicants are not loss payees.

e. The Applicants cannot bring a claim under the Policy as secured creditors of Rutmet because the issue of whether or not Rutmet owes the Applicants anything is subject to Rutmet’s challenge to the POA.

[23] Staying this action will avoid a multiplicity of proceedings. As Rutmet is not a party to this Application, the Rutmet action is the more appropriate action to resolve the POA issue. Further, evidence from Rutmet will be required as the dispute is between Rutmet and the Applicants. Evidence may also be required from the UD Group. The UD Group is a party to the Rutmet action but not to this Application.

[24] If the validity of the POA is determined in the Rutmet action, it will substantially reduce the issues that need to be determined on this Application and reduce the risk of inconsistent judicial findings. Further, findings made in the context of the Rutmet action could render this Application moot.

[25] There will be no injustice to the Applicants if a stay is granted as they will not be deprived of collecting the money they say is owed to them by Rutmet. They are currently prosecuting claims in Singapore and Dubai for the receivables owed to them by the UD Group as per the March 17, 2021 order. That part of the order is not under appeal.

TransAsia’s Position on the Stay

[26] TransAsia submits that EDC’s assertion that it has not denied coverage is wrong. EDC has already adjudicated the Claim for coverage by way of its letter of March 26, 2021. In that letter, EDC relies on section 7 of the Policy which provides that if there is dispute between Rutmet and its customers regarding the receivables owed, EDC will not have any liability with respect to the Claim until the dispute is settled and the loss clearly established.

[27] EDC claims it does not have sufficient information with respect to the POA. This is incorrect. Although not named as a party, EDC participated throughout the Receivership Application and its counsel provided input into the consent Order of Justice Conway. This is because it was EDC who was insisting on certain information from Rutmet in order to process the Claim. EDC took no issue as to the completeness of the information provided by Rutmet pursuant to the consent Order on the Receivership. EDC cannot now complain that it does not have sufficient information about Rutmet’s receivables in order to process the Claim.

[28] TransAsia does not disagree with EDC that the granting of a temporary stay is discretionary, exceptional and that the analysis is a contextual one. EDC has the burden of proving that such an exceptional remedy is required and it has not met that burden.

[29] TransAsia advances three arguments as to why EDC has not met the burden for a temporary stay:

a. The stay is a collateral attack on the March 17, 2021 Order because EDC seeks to revive disputes stayed by Justice Gilmore in the UD Action for litigation in the Rutmet Action as follows:

i. The central basis on which EDC and Rutmet claim the POAs are no longer effective is the allegation that the UD Group has discharged the debt it owes to Rutmet. In the large motion record before the Court in the anti-suit injunction, there was no evidence that TransAsia has seized any assets as alleged.

ii. EDC relies on the spurious and frivolous allegations made in the Rutmet Claim, a Claim which had not even been served at the time EDC filed its materials on this motion. The Rutmet Action is duplicative and derivative of the UD Action and makes the same essential allegations. The Rutmet Claim was commenced solely to bootstrap the UD Group’s defence to the anti-suit injunction and stay motion in order to argue that its dispute with TransAsia was properly before the Ontario Courts.

iii. EDC, a party to the UD Action, could have made submissions during the anti-suit injunction that the POA issues should be litigated in Ontario but EDC took no position on that motion.

iv. EDC is asking the Court to effectively order TransAsia to attorn to Ontario jurisdiction to litigate the dispute raised by the UD Group relating to events in the Middle East via the Rutmet Claim. This is an abuse of process.

b. The POA granted is not a conventional POA in which the grantee acts for the benefit of the grantor. The POA in question is a POA with an interest, which is a POA given as security for payment and is accompanied by an interest in the subject matter of the POA to the grantee. A POA with an interest is not revocable by the grantor.

c. EDC cannot rely on the bald assertions of Rutmet in its Claim that its debts to TransAsia have been paid.

d. EDC is relying on an exclusion to coverage under the Policy and it is EDC’s onus to prove the exclusion applies. It is not TransAsia’s onus to prove there is no Dispute under section 7 of the Policy.

e. A stay would implicitly approve EDC’s conduct. EDC acknowledged the validity of the POA in January 2020 and confirmed it would process TransAsia’s claim. EDC then became aware of the issues related to Rutmet’s receivables in the February 2020 letter sent by the UD Group, in the context of the Receivership in March 2020, and by way of the materials in the anti-suit injunction served in October 2020. However, it was not until April 2021 that EDC advised TransAsia of its position that the POA was not valid or took the position that TransAsia did not have standing in this Application.

f. TransAsia has suffered prejudice as a result of EDC’s actions. Had EDC advised TransAsia of its position a year ago, TransAsia may not have agreed to a voluntary standstill of the Singapore and Dubai actions. TransAsia would likely have moved ahead to obtain a judgment on the merits in those claims. Those results would have directly affected the Rutmet Claim and EDC’s position as to whether there was a Dispute.

g. EDC’s position on this motion is purely tactical and intended to delay the adjudication of the within Application.

h. EDC has all the information it needs as it participated in the drafting of the consent Order in the Receivership proceeding.

i. TransAsia will suffer prejudice if it is forced to litigate in the Rutmet Action issues which it had successfully stayed in the UD Group Action.

j. While all of this litigation is ongoing, TransAsia has not recovered any of the amounts owed to it.

ANALYSIS AND RULING

[30] Section 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and rules 6.01(1)(i) and 21.01(3) of the Rules of Civil Procedure provide the authority to stay a proceeding pending the outcome of another proceeding. The authority is discretionary and is to be exercised sparingly and in special circumstances.

[31] Cases such as Hollinger International Inc. v. Hollinger Inc. [2004] CarswellOnt 3442 (Ont. S.C.J. [Commercial List]) (“Hollinger”) and Gowling Lafleur Henderson LLP v. Meredith, 2011 ONSC 2686 establish that in granting a temporary stay, the Court should consider:

a. Whether there is substantial overlap of the issues in the two proceedings;

b. Whether the two cases share the same factual background;

c. Whether issuing a temporary stay will prevent unnecessary and costly duplication of judicial and legal resources; and

d. Whether the temporary stay will result in an injustice to the party resisting the stay.

[32] In examining part (d) of the test, the Court will balance the prejudice to each party if the stay is granted or refused. Prejudice includes a party’s access to the courts, delay, or harm to a party’s substantive rights (Hollinger, para 7-8).

[33] In Canadian Standards Assn v. P.S. Knight Co., 2015 ONSC 7980, the Court considered the differences between a temporary and permanent stay at para 25 as follows:

Where the moving party seeks only a temporary stay, although the onus on the party seeking the stay to justify the stay does not change, the court may be more prepared to grant the temporary stay where: there is a substantial overlap in the factual background and of the legal issues in the two proceedings; the determination of the issues in one proceeding will have a substantive effect on the determination of the issues in the other; and issuing a temporary stay will avoid unnecessary and costly duplication of judicial resources: Hollinger International Inc. v. Hollinger Inc., supra; Catalyst Fund Ltd. Partnership II v. IMAX Corp., supra; Areva NP GmbH v. Atomic Energy of Canada Ltd., supra; Bank of Montreal v. Ken Kat Corp., 2010 ONSC 1990(Ont. S.C.J.).

[34] While it is true that that the Rutmet Action and this Application share similar factual backgrounds, the Court has a concern with respect to three main issues with EDC’s request: the collateral attack on the disposition of the UD Action; the prejudice to TransAsia given EDC’s delay in taking its position on the POA; and the further prejudice to TransAsia if a stay is granted given the inaction on the part of Rutmet to efficiently advance its claim.

The Delay by EDC in Taking its Position on the POA

[35] In January 2020, EDC recognized TransAsia’s standing to make a claim under the Policy and advised that it would move forward to process the claim. It later determined that it needed more information to process the Claim. The information was provided as a result of the March 11, 2020 Order of Justice Conway. More than a year later, on March 26, 2021, EDC advised TransAsia that there was a Dispute under the Policy and it was deferring any payout until that was resolved. The Dispute is the subject of the Rutmet Claim and was also part of the material before the Court on the anti-suit injunction.

[36] Of course, EDC has been aware of the basis of the Dispute since February 2020 when UD Group wrote to Rutmet advising that it no longer owed Rutmet the loan amount because TransAsia had allegedly seized assets equal to or greater than the amount owed by the UD Group to Rutmet.

[37] For reasons which this Court finds perplexing, EDC did nothing with respect to the POA. It continued with this position throughout 2020 despite being a party to the Rutmet Claim, being a party to the Receivership, being a party to the UD Group Claim, and appearing at the anti-suit injunction motion. EDC did not make its position clear with respect to the Dispute until April 2021 despite having had full knowledge of the challenge related to the receivables since February 2020.

[38] I accept TransAsia’s submission that if it had known about EDC’s position in 2020 it would have pursued its litigation in Singapore and Dubai more aggressively (i.e. not agreed to standstill orders in those actions). The actions would have proceeded and the issue concerning the repayment of the receivables would likely have already been decided on its merits. In short, there has already been considerable prejudice to TransAsia in relation to EDC’s position on the POA. A stay would result in further prejudice.

The Delay in Prosecution of the Rutmet Claim and the Collateral Attack

[39] The Rutmet Claim has not yet been served on all overseas parties despite being issued in December 2020. If a stay is granted, TransAsia would be left at the mercy of Rutmet’s glacial prosecution of its Claim.

[40] Paragraph 1(a) of the Rutmet Claim seeks “A Declaration that its obligations under the Loan Agreements have been satisfied.” Paragraph 1(e) of the Claim seeks a declaration that the POA is of no force and effect. In my March 17, 2021 ruling in relation to the anti-suit injunction (2021 ONSC 1957), I concluded that the anti-suit injunction was not appropriate as all matters were to be litigated in Singapore and Dubai. This included any defences to claims that receivables were owed to Rutmet.

[41] The Rutmet Claim also alleges (at para. 53) that TransAsia has conceded that nothing is owing under the loan agreements by their abandonment of the Receivership. I agree with TransAsia that this makes no sense since TransAsia had already started their litigation in Singapore and Dubai and has never conceded that nothing is owed under the loan agreements.

[42] Therefore, the Rutmet Claim issued in Ontario does appear on its face to be duplicative and lacking foundation as alleged by TransAsia although, of course, that Claim is not before this Court. This Court has already determined that the Receivables issue raised in Rutmet’s Claim is not to be litigated in Canada. The other declaration sought by Rutmet in its Claim related to the POA can be dealt with in the context of this Application.

[43] Therefore, I agree with the TransAsia’s submission that EDC’s position is akin to asking the Court to stay the within Application so that this Court can continue with another action over which it does not have jurisdiction.

Balance of Convenience

[44] Further, and considering the balance of convenience, I do not see that the exceptional remedy of a stay is required where EDC has already made a determination that they are not paying out TransAsia’s Claim. Whether this is labeled a decision to deny coverage as alleged by TransAsia or a deferral based on a dispute as alleged by EDC, a stay will not change anything for EDC with respect to their position on the Claim at this time.

[45] EDC submits that there will be prejudice caused by the possibility of inconsistent decisions as between this Claim and the Rutmet Claim. I reject this argument for two reasons:

a. The Rutmet Claim is proceeding slowly as referred to above and this Application is likely to be determined far sooner than the Rutmet Claim.

b. As both matters are on the Commercial List, TransAsia will ensure that judges hearing these matters are aware of other related matters, just as TransAsia included in its materials for this matter the previous orders of all judges, the anti-suit injunction decision and the reasons on the dismissal of the stay motion.

[46] The fact is, all of EDC’s defences and concerns can be dealt within the context of this Application. The evidence of both Rutmet and the UD Group can also be obtained in the normal course in this Application.

[47] In summary, I find that EDC has not met the test for an interim stay. There is no prejudice to EDC in continuing with the within Application as their position will not change whether the Rutmet Claim and this Application continue in tandem or not. However, if a stay is granted the prejudice to TransAsia is significant given that it has received no payments under the Loan Agreements, the Rutmet Claim is proceeding at a glacial pace, and the Court has already ruled that the issues in the Rutmet Claim related to the receivables are to be litigated in Singapore and Dubai.

ORDERS AND COSTS

[48] Given all of the above, EDC’s motion for a stay is dismissed.

[49] As per the agreement of the parties, the successful party is to be awarded costs of $10,000. EDC will therefore pay to TransAsia costs of $10,000.

C. Gilmore, J.

Date: July 13, 2021