1998 Carswell NB 431

Royal Bank v. Bell

Royal Bank of Canada, Plaintiff and Lawrence Bell, Anne Disher, Hugh J.Flemming, James M. Grant, Willard Jenkins, Ronald Lister, Barry Morrison,Joseph Streeter, David Case, and Edgar Gerhardt, Defendants

New Brunswick Court of Queen's Bench

Deschênes J.

November 25, 1998

Heard: March 16, 1998Heard: March 17, 1998Judgment: November 25, 1998Docket: S/C/1303/94

Counsel: George S. Glezos, Esq. and Brian Stilwell, Esq., for the Plaintiff.

Frederick C. McElman, Esq., for the Defendants.

Subject: Civil Practice and Procedure; Corporate and Commercial

Practice --- Summary judgment -- Requirement to show no triable issue.

Cases considered by Deschênes, J.:

Bank of Montreal v. Mitchell (1997), 143 D.L.R. (4th) 697, 25 O.T.C. 344 (Ont. Gen. Div. [Commercial List]) -- applied

Cannon v. Lange (1998), 163 D.L.R. (4th) 520, 199 N.B.R. (2d) 168 (N.B. C.A.) -- applied

Royal Bank v. Darlington (April 19, 1995), Doc. B310/93, B311/93, B312/93, B58/94, B73/94, B128/94 (Ont. Gen. Div.) -- distinguished

Statutes considered:

Security Frauds Prevention Act, R.S.N.B. 1973, c. S-6

Generally -- referred to

Rules considered:

Rules of Court, N.B. Reg. 82-73

R. 22 -- pursuant to

R. 22.04(3) -- referred to

R. 22.05(2)(a) -- pursuant to

R. 22.06 -- referred to

MOTION by bank for summary judgment for payment by defendants under letters of credit.

Deschênes, J.:

1 Royal Bank seeks a summary judgment against all defendants pursuant to Rule 22 of the Rules of Court. The motion for judgment relates to amounts paid by the Royal Bank (the Bank) pursuant to demands for payment under letters of credit opened in favor of the Committee of Lloyd's. All defendants were "names" or underwriting members of the Society of Lloyd's. (The defendant names)

2The Bank contends that there is no defence to its claim against the defendant names and no merit to their counterclaim against it.

3 The defendant names have defended upon the following grounds:

a. Royal Bank honoured the demands for payment under the letters of credit after it had been provided with sufficient evidence of fraud perpetrated by "Lloyd's";

b. the Council of Lloyd's failed to regulate the market and the syndicates which they joined, and deliberately and recklessly failed to disclose to them material information relating to asbestosis;

c. Royal Bank failed to fulfill its duty as advisor to and fiduciary of the defendant names when it opened the letters of credit;

d. the letters of credit were defective and not in accordance with the defendant names' instructions;

e. Royal Bank paid the wrong beneficiary;

f. Royal Bank honoured the demands for payment without having the proper documents presented to it; and

g.the indemnity provisions of the applications for the standby letters of credit are unenforceable as a result of alleged breaches of the Security Frauds Prevention Act, R.S.N.B. 1973, c. S-6. (See Part I, par. 2 of Applicant's brief)

4 In their counterclaim, the defendants seek:

a. a declaration that the indemnity agreements between the defendant names and Royal Bank are void;

b. a declaration that their contracts with "Lloyd's" are void ab initio pursuant to the Securities Frauds Prevention Act, supra; and

c. a declaration that Royal Bank is liable to indemnify the defendant names for all amounts which they may be called upon to pay "Lloyd's" and judgment for any amounts that they pay or may be called upon to pay "Lloyd's". (See p. 3, par. 3 of the Applicant's brief)

5 In support of its contention that there is no defence to the action, the Bank filed the affidavit of Alan McNish, Julie Cope, Michael Norwell and John Neima. These affidavits provide the background in support of the Bank's contention that there is no merit to the defence of this action in that the defendant "names" had not established fraud by the beneficiary of the letters of credit to the knowledge of the bank who was accordingly required by law to honour all demands for payment under the letters of credit. In a valiant attempt to convince this Court, the Bank filed two banker's boxes of documentary evidence in support of its position. Most of the documentary evidence filed with the Court consists of exhibits referred to in Mr. McNish's affidavit (Exhibits 2 to 29) which in turn are essentially letters and other types of documents containing allegations of fraud made by the defendants and received by the Bank prior to October 1994, documents which were also produced before Mr. Justice Blair of the Ontario Court (General Division) by 18 individual "names" (none of the defendants in this action were amongst the "names" before Mr. Justice Blair). The 134-page decision of Mr. Justice Blair released on April 19, 1995 (the Darlington action) is contained in Exhibit 1 attached to Mr. McNish's affidavit. In his decision, (Royal Bank v. Darlington (April 19, 1995), Doc. B310/93, B311/93, B312/93, B58/94, B73/94, B128/94 (Ont. Gen. Div.) ), Mr. Justice Blair concluded that the "fraud" defence put forward by the "names" could not succeed as the allegations made and the documentation and materials upon which they relied were not sufficient to constitute clear and obvious fraud established to the knowledge of the banks which were, accordingly, required to honour the letters of credit. Blair J. allowed the application for declaratory relief filed by the banks (one of which was the Royal Bank) and directed the "names" to reimburse the banks for payments made on the letters of credit. What should be added, however, is that the application for declaratory relief before Mr. Justice Blair in Darlington was converted into a trial which commenced on September 19, 1994 and concluded on October 7, 1994. At that trial, evidence was tendered, by agreement, by way of affidavits and exhibits and by way of viva voce evidence. As the defendants put it in par. 3 (p. 2) of their brief, "the material the plaintiff attempts to introduce (i.e. in the within motion for summary judgment) was only presented to a judge in other jurisdictions (i.e. as in the Darlington case) after either extensive pre-trial proceedings or full trial proceedings in which the evidence could be discovered, tested and defined."

6 Is this an appropriate case for the granting of a summary judgment?

7In Cannon v. Lange (1998), 163 D.L.R. (4th) 520, 199 N.B.R. (2d) 168 (N.B. C.A.), Drapeau J.A., speaking for the Court of Appeal reaffirms the criterion for the granting of a summary judgment under rule 22 of the Rules of Court as follows:

The wording of Rule 22.04 sets the standard at a high level. It provides that the court may grant judgment only where there is no merit to the defence or no merit to the claim, or part thereof. The wording leaves no room for anything but a very stringent test. Practical experience with the civil process inspired the trial lawyers and judges who drafted Rule 22.04 to choose its wording. The wording reflects their conviction that, except in clear cases, the best truth-finding device is a trial.

Stratton C.J.N.B., writing for a unanimous Court, articulated the test in the oft-quoted case of Ripulone v. Pontecorvo (1989), 104 N.B.R. (2d) 56 (C.A.) at p. 63. He held:

...Summary judgment should be granted only when there is no reason for doubt as to what the judgment of the court should be if the matter proceeds to trial. The moving party's case must be unanswerable.

8 With respect to the nature of the material which a Court will consider under Rule 22, the Court said:

This Court's approach has also been consistent with respect to the nature of the material which the court must consider on a motion under Rule 22: the court has an obligation to consider not only the pleadings, but also any admissible evidence, namely statements of fact within the personal knowledge of the deponents, presented by way of affidavits and of any cross-examination on those affidavits. ... Rules 22.02, 22.03, 22.05(2)(b) and 39 are unambiguous and they permit no doubt on this question.

In dealing with any motion for summary judgment, the court must undoubtedly take a hard look at the pleadings and the evidence to determine whether there is truly some merit to the action or defence, or part thereof. The court's ability to do so will necessarily depend on the nature and quality of the evidentiary record which the parties can place before it. In some cases, perhaps not this one, the evidentiary constraints imposed by Rules 22 and 39.01(4) will make a judgment without trial inappropriate.

Common sense should move the parties to put their best foot forward on a motion under Rule 22. Such a course of conduct is particularly wise for a respondent, since he or she has the most to lose. As stated by the Ontario Court of Appeal in 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), 21 O.R. (3d) 547 at 557, in a vernacular expression, the respondent "must lead trump or risk losing." It will rarely be sufficient for the respondent to promise that evidence, which is admissible pursuant to Rule 39.01(4), will be produced at trial: absent a compelling explanation, the respondent is required to produce admissible evidence which will prevent a conclusion that the action or defence is bereft of merit. I have no doubt that, where the ends of justice require, the court will allow all appropriate accommodations including leave to file further affidavit evidence.

It is up to the moving party to satisfy the court that an apparent factual controversy or credibility conflict is a sham. If material facts remain genuinely in dispute after the court has taken a hard look at the evidence and the pleadings, it is not appropriate to grant summary judgment (see RCL Operators Ltd.). Likewise, where there is an unresolved genuine credibility conflict relating to a material question, it is not appropriate to grant summary judgment.

9 Is this a case where the circumstances demonstrate "a clear absence of merit" in defending Royal Bank's claim? Is this one of those "clearest of cases" which is "unanswerable" and where a trial is not required since "there is no reason for doubt as to what the judgment of the Court should be"?

10A close look at the evidentiary record before me has led me to the conclusion that the granting of a summary judgment in this case would be inappropriate.

11 The Bank has unquestionably shown that clearly ascertainable sums of money were paid by it as a result of calls made by what the Bank considered to be the "beneficiary" of the letters of credit authorized by each of the defendants. The Bank has also shown that prior to making any disbursements to the beneficiary, it had perused all of the documentation delivered to it by all defendants in support of the latter's contention that each of them had established fraud by the beneficiary of the letters of credit to the knowledge of the Bank and that it (i.e. the Bank) had concluded that the defendants had not established clear and obvious fraud to the knowledge of the Bank. (See affidavit of Alan McNish)

12 The initial decision as to whether or not the information provided to the Bank by the defendants was sufficient to establish clear and obvious fraud by the beneficiary of the letters of the credit is for the Bank to make. Whether or not that decision was justified, however, belongs to the courts where the Bank's decision is seriously put in issue. My view is that "reasonable" judges may well have different opinions on such issues as much as "reasonable bankers" have.

13 The case of Bank of Montreal v. Mitchell (1997), 143 D.L.R. (4th) 697 (Ont. Gen. Div. [Commercial List]) illustrates a few reasons why, in my opinion, this is not a proper case to grant summary judgment. Mitchell was in fact a case where a group of banks had refused to honour the calls made by Lloyd's under letters of credit because the names alleged fraud on the part of Lloyd's and provided what appears to be equivalent material (i.e. equivalent to the material provided in this case) to the banks to substantiate the fraud. It is clear that "reasonable bankers" may differ on such an issue. In Mitchell, a reference is also made to the Darlington case whether Blair J. was commenting on a trial expected to take place in the U.K. and which was expected to last a few months dealing with some of the issues upon which I am now being asked to grant summary judgment. The U.K. trial involved an action by Lloyd's upon the letters of credit which the bank had refused to honour because they (banks) felt a case of clear and obvious fraud on the part of Lloyd's had been made out by the names/customers. Lloyd's was successful in obtaining judgment against the banks in the U.K. because the bank failed to plead and prove fraud against Lloyd's. What was expected to take a few months in the U.K. trial, however, was obviously the bank's obligation to prove fraud by Lloyd's. The comments of Blair J. in Darlington as recited in Mitchell at p. 712 are as follows:

It was said at the outset of these proceedings that the U.K. trial, when it takes place, is estimated to last several months. One might be forgiven, it seems to me, for asking -- rhetorically, at least -- how bankers, who are neither lawyers nor judges, could be expected to determine that clear or obvious fraud had been established when it is expected to take a court such a long time to assess the evidence in that regard!

14 In this application for summary judgment, I am essentially being asked by the Royal Bank to assess all the material provided by the defendants alleging fraud on the part of Lloyd's, including the pleadings between the parties as well as the affidavits in support of and in opposition to the motion for summary judgment and to conclude that Royal Bank's claim for reimbursement/indemnification against the defendants in "unanswerable", thus depriving the defendants of a trial because, as Royal Bank must show, "there is no doubt as to what the judgment of the Court should be." As mentioned previously, I do not share the Bank's views on this point. A trial was needed in Darlingtonand one was expected in the U.K. to sort out the same kind of issues I am being asked to adjudicate upon by way of motion for summary judgment.

15 With due respect to those who do not share my views, it simply does not make any sense to me to ask for summary judgment against the defendants herein on the basis that Royal Bank's claim is "unanswerable". I am not satisfied that there are no "genuine issues" to be tried between the parties on the facts or on the law on the question of whether or not the material provided to the Royal Bank justified, on an objective basis, Royal Bank's decision to honour Lloyd's calls on the letters of credit; the fact that other courts have ruled unfavourably against other names on this issue or that other banks have made the same decision as the Royal Bank did in this case based upon equivalent information provided by other defendants is, in my view, of no moment when related to my decision to grant or refuse summary judgment.

16 The defendants have also raised issues with relate to Royal Bank's entitlement to indemnification on the basis of Royal Bank's conduct when it opened the letters of credit and when it paid Lloyd's calls. The defendants have alleged failure by the Bank to fulfill its duty as adviser to and fiduciary of the defendants when the letters of credit were opened, failure to prepare such letters in accordance with the defendants' instructions and failure to pay the proper beneficiary and honouring calls without proper documents. In addition, the defendants allege that the claim for reimbursement by the Bank is unenforceable for failure to comply with the Security Frauds Prevention Act of this province.

17 The affidavits filed by the defendants provide some evidence of alleged statements and/or conduct of representatives of the plaintiff which could constitute a breach of duty by the Bank as a fiduciary or advisor susceptible of having an impact on the Bank's claim against the defendants or on the defendants' counterclaim against the Bank. The defendants' allegations as to the applicability of the Security Fraud Prevention Act of New Brunswick to the letters of credit so as to make them unenforceable does raise a triable issue, an issue which, in my view, cannot be determined by a summary judgment application as that question of law is not the only issue. (See Rule 22.04(3))

18 I have examined the evidentiary record before me and am not convinced that there are no "genuine issues" of facts or law between the parties herein on the defendants' refusal to indemnify the Bank by reason of the Bank's conduct as alleged; nor am I convinced that a trial of those issues should not be allowed on the basis that there is no doubt as to what the decision of the Court would be. I should add, however, that although the motion was unsuccessful, it was nevertheless justified. (See Rule 22.06)

19 For those reasons, the motion for summary judgment is dismissed. The motion for summary judgment dismissing the defendant's counterclaim is also dismissed, all with costs in the cause.

20 Pursuant to Rule 22.05(2)(a), Royal Bank has asked that the Court direct the defendants to pay into Court the whole or part of its claim or, in the alternative, that the defendants be required to provide security for costs. In my view, I have not been provided with a sufficient evidentiary basis to give such a direction. In fact, I have not been provided an evidentiary basis of any kind. In addition, although I have refused to grant a summary judgment, I was informed by the parties that many matters had to be dealt with before the case could be set down for trial. My refusal to grant a summary judgment makes it obvious that a trial will be necessary but I have purposely not ordered that the action be set down for trial as I am not satisfied that the parties are ready to go to trial. Under Rule 22.05(2)(a), the Court can only direct payment into Court or security for costs "where it is ordered that an action proceed to trial", an order which has not been rendered.

21 The alternative relief sought is also refused.

22 Costs of the motion shall be costs in the cause.

Motion dismissed.

END OF DOCUMENT