CITATION: Brisbin v. Lunev, 2011
      ONCA 15

DATE: 20110107

DOCKET: C52588

COURT OF APPEAL FOR ONTARIO

Goudge, Sharpe and LaForme JJ.A.

BETWEEN

Brian Brisbin, Murray Beynon, Brisbin Brook Beynon,
          Architects, 2113304 Ontario Inc., 2113305 Ontario Inc. and BBB Architects
          Toronto Inc.

Plaintiffs (Respondents)

and

Sergey Lunev, Semyon Fridland also known as Simon
          Fridland also known as Semyon Fridyland also known as Simon Fridlyand, Dmitri
          Rogojanski also known as Dmitri Rogojansky, West Group Capital Partners Inc.,
          SDS Group Ltd. and B & C Architects Limited.

Defendants (Appellants)

Howard J. Wolch, for the appellants

John Polyzogopoulos and Lou Brzezinski, for the respondents

Heard and released orally: January 5, 2011

On appeal from the order of Justice Elizabeth M. Stewart of
          the Superior Court of Justice dated July 27, 2010.

ENDORSEMENT

[1]

The plaintiffs two major claims in this action are for breach of
    contract by the defendants in failing to issue certain shares to them, and for
    fraudulent misrepresentation in the creation of an alleged sham loan agreement
    where there was no intention that the loan be repaid by the plaintiffs.

[2]

In our view, the motion judge was correct in finding that both claims
    fall within Rule 17(2), specifically 17(2)(f) and (g). The plaintiffs say that
    the contract was negotiated in Toronto, after extensive discussions there. That
    is a reasonable basis to find that for the purposes of jurisdiction, the
    contract was made in Ontario. The fraudulent misrepresentation claim is in tort,
    and does not base itself on the loan agreements themselves. These
    misrepresentations are said by the plaintiffs to take place between the
    plaintiffs and the individual defendants in Ontario where they all reside. That
    is a reasonable basis on which Rule 17(2)(g) is engaged.

[3]

Thus a presumption of jurisdiction
simpliciter
arises. The
    defendants have not displaced this. They basically deny that a contract for the
    shares was made, or that the fraudulent misrepresentations were made. That,
    however, is an issue for trial rather than this motion.

[4]

We agree with the motion judges summary when she says that ...the
    physical and business presences in Ontario of the plaintiffs and the individual
    defendants who control the corporate defendants, as well as the fact that
    Ontario was largely the place of their dealings concerning this enterprise,
    support the conclusion that a real and substantial connection between the
    plaintiffs claims and Ontario exists in this case.

[5]

The appellants concede that if this is so, it follows that there is a
    real and substantial connection between Ontario and the plaintiffs claim for
    unpaid services. The claim for intellectual property infringement on the part
    of subsidiaries of the corporate defendants is so intertwined with the other
    three claims that the same result should prevail.

[6]

We also see no error with the motion judges conclusion that Ontario is
    the convenient forum. She considered a number of factors that favour this
    result, particularly, the predominant location of the parties and the key witnesses
    being in this jurisdiction; the avoidance of a multiplicity of proceedings, the
    failure to show a more convenient forum; and the possible loss to the
    plaintiffs of juridical advantage if the case is not tried in Ontario. Her
    conclusion deserves deference in this court. It is not unreasonable and we would
    not interfere with it.

[7]

The appeal is dismissed. Costs to the respondents fixed at $15,000.00
    inclusive of disbursements and applicable taxes.

S.T. Goudge J.A.

Robert J. Sharpe J.A.

H.S. LaForme J.A.


CITATION:
Buckiewicz v. Buckiewicz, 2011 ONCA 62

DATE: 20110121

DOCKET: C52552

COURT OF APPEAL FOR ONTARIO

Laskin, Lang and LaForme JJ.A.

BETWEEN

Marek Buckiewicz and
Marta
          Donovan

Applicants
          (Marek Buckiewicz, Appellant)

(
Marta Donovan, Respondent
)

and

Irene Buckiewicz

Respondent (Respondent)

Marek Buckiewicz, acting in person

Sharon Davis, for the applicant, Marta Donovan

Jordan D. Oelbaum and Robert Levesque, for the respondent,
          Irene Buckiewicz

Heard: January 20, 2011

On appeal from the order of Justice
          Darla A. Wilson of the Superior Court of Justice, dated July 14, 2010.

APPEAL BOOK ENDORSEMENT

[1]

The order of Penny J. required the appellant to deliver a statement of
    claim.  He has not done so.  And he has not provided an explanation for not
    doing so.  In these circumstances, we see no error in the decision of Wilson J.

[2]

Accordingly, the appeal is dismissed with costs fixed at $5,000,
    inclusive of disbursements and applicable taxes.


CITATION: C.I.F. Furniture
          Limited (Re) , 2011 ONCA 34

DATE: 20100118

DOCKET: C51633

COURT OF APPEAL FOR ONTARIO

Laskin, Armstrong and Juriansz JJ.A.

In the Matter of the Proposal of C.I.F. Furniture
          Limited

David R. Byers and Maria Konyukhova,
          for the appellant, Kari Holdings Inc.

Steven L. Graff, for the
          respondents, The VenGrowth Traditional Industries Fund Inc. and The VenGrowth
          II Investment Fund Inc.

Heard: October 28, 2010

On appeal from the order of Justice
          Geoffrey B. Morawetz of the Superior Court of Justice, dated January 21,
          2010.

Laskin J.A.:

A.

Introduction

[1]

This appeal concerns a priorities dispute between two
    secured creditors of an insolvent corporation.  The insolvent corporation is C.I.F. Furniture Limited.  The sale of its assets in a receivership did
    not generate enough money to satisfy its secured creditors.  The two competing secured creditors are Kari
    Holdings, the holding company of the corporations founders, Hans and Elizabeth
    Kamin, and The VenGrowth group of investment funds, which financed the purchase
    of Karis shares in 2004.

[2]

Kari claims priority for a $1 million secured note
    received as vendor take back financing on the sale of its shares.  VenGrowth claims priority for a $4.35 million
    senior subordinated debenture, used to finance the share purchase.

[3]

The case turns on whether a theory of complete
    subordination or a theory of partial subordination should be used to resolve
    the dispute.  Under the complete
    subordination theory, Kari succeeds; under the partial subordination theory,
    VenGrowth succeeds.

[4]

The motion judge, Morawetz J., applied a partial
    subordination theory and so found in favour of VenGrowth.  On its appeal, Kari submits that the motion
    judge erred in two ways.  First, having
    regard to the factual and contractual matrix, the motion judge erred by not
    applying a complete subordination theory.  Second, the motion judge erred in his application of s. 38 of the
Personal Property Security Act
(PPSA).

[5]

I agree with Morawetz J.s reasons, which I have
    appended to this judgment.  I add brief
    reasons of my own to address the arguments made in this court.  I will first briefly review the financing
    agreements that led to this dispute, then the two competing theories, and
    finally why I agree with the motion judge and reject Karis submissions.

B.

The Financing Agreements

(i)
Background

[6]

The
    Kamins started C.I.F. in the 1960s and incorporated their business in
    1969.  The corporation manufactured and
    supplied custom laboratory systems for laboratory and educational markets in
    North America.

[7]

In
    2004, the Kamins retired and sold their shares in Kari.  As part of the sale price, Kari took back a $1
    million secured note, in turn secured by a general security agreement.  The purchase of Karis shares was financed by
    VenGrowth funds, which included $4.35 million secured by a senior subordinated
    debenture.

[8]

On
    November 30, 2004 Kari perfected its security interest in the note by
    registration under the PPSA.  Two days
    later, on December 2, 2004, VenGrowth perfected its security interest in its
    senior debenture by registering its security interest under the PPSA.  However, Karis priority of registration
    under the PPSA was superceded by an inter-creditor agreement made at the end of
    December 2004.

(ii)      The
    inter-creditor agreement, December 31, 2004

[9]

On
    December 31, 2004, the Bank of Nova Scotia (C.I.F.s operating lender), Kari
    and VenGrowth entered into an inter-creditor agreement.  They agreed on the following priorities among
    them, regardless of the order of registration under the PPSA:

·

First,
    the Bank of Nova Scotia to the extent of its loans to C.I.F. (the bank was paid
    out in December 2006);

·

Second,
    VenGrowth to the extent of its $4.35 million senior subordinated debenture;

·

Third,
    Kari to the extent of its $1 million secured note;

·

Fourth,
    VenGrowth to the extent of the additional loans it had advanced on the purchase
    of Karis shares.

[10]

Thus,
    under the inter-creditor agreement, the VenGrowth senior debenture had priority
    over the Kari note, and the other VenGrowth debt was subordinate to the Kari
    note.  The priority dispute between Kari
    and VenGrowth arose in 2008 when Comerica Bank agreed to provide secured
    financing to C.I.F.

(iii)
        The 2008 financing of C.I.F.

[11]

In
    2008, Comerica Bank agreed to provide secured financing to C.I.F.  The financing took the form of a revolving
    credit facility.   To implement the
    financing, the parties signed several documents of which three are relevant to
    this appeal:  a commitment letter signed
    by Comerica, a credit agreement between Comerica and C.I.F., and, most
    important, an inter-creditor agreement between Comerica and VenGrowth.

(a)
The
    commitment letter

[12]

Comerica
    committed to provide a revolving credit facility to C.I.F.  The commitment letter contains two provisions
    on which Kari relies in support of its appeal.  First, the commitment letter expressly provides that the Kari $1 million
    note is to rank ahead of the Bank.  This
    provision reflects Karis prior registration under the PPSA.  Second, the commitment letter also required
    VenGrowth to provide Comerica with a $1 million guarantee, which would
    terminate on repayment of the Kari note.  VenGrowth delivered this guarantee to Comerica.

(b)
The
    credit agreement between Comerica and C.I.F.

[13]

Under
    this agreement, Comerica agreed to loan C.I.F. up to $2.5 million, secured by a
    general security agreement.  Comerica
    perfected its security interest by registering a financing statement under the
    PPSA.  At April 2009, the balance owing
    on Comericas loan was approximately $1.3 million.

[14]

The
    credit agreement, like the commitment letter, recognized the Kari $1 million
    note as a first priority lien and Comericas security interest as a second
    priority lien.  Moreover, Comericas
    obligations under the agreement were conditional on, among other things,
    delivery to it of the VenGrowth guarantee.

(c)       The 2008 inter-creditor agreement between Comerica and
    VenGrowth

[15]

Under
    this agreement, VenGrowth agreed to subordinate its security to Comericas
    security.

C.

The Dispute and the Two
    Competing Theories

(i)

The dispute

[16]

The
    various financing agreements created what has been called a circularity
    problem.  The problem arises because
    there is no document in which all three parties  Comerica, Kari and VenGrowth
     agreed among themselves on which security interest has priority.  Instead, the key agreements were entered into
    by one or two but not all three parties.  The three important agreements are the 2004 inter-creditor agreement to
    which Comerica was not a party, the 2008 creditor agreement to which neither
    Kari nor VenGrowth was a party, and the 2008 inter-creditor agreement to which
    Kari was not a party.

[17]

Under
    the 2004 inter-creditor agreement, the VenGrowth $4.35 million senior
    subordinated debenture has priority over the $1 million Kari note.  Under the 2008 creditor agreement (and the
    2008 commitment letter) the Kari $1 million note has priority over Comericas
    security.  Under the 2008 inter-creditor
    agreement, Comericas security has priority over VenGrowths security.

[18]

In
    short form, these three agreements provide:

·

V
    ($4.35 million) ranks ahead of K ($1 million)  2004 inter-creditor agreement

·

K
    ($1 million) ranks ahead of C  2008 creditor agreement

·

C
    ranks ahead of V  2008 inter-creditor agreement

[19]

How
    then is this priority dispute to be resolved?  Both sides accept that it should be resolved by applying either a theory
    of complete subordination or a theory of partial subordination.  The two theories are discussed in the reasons
    of the motion judge.  I will review how
    the application of each theory affects the priorities among VenGrowth, Kari and
    Comerica.

(ii)      Complete
    subordination

[20]

Under
    complete subordination, VenGrowth gives up its priority to Comerica:  in other words, VenGrowth agrees not to
    assert a claim against the fund generated by the sale of C.I.F.s assets until
    Comericas claim is satisfied.  But
    because Karis security interest was registered under the PPSA before
    Comericas security interest was registered, Comericas claim cannot be
    satisfied until Karis claim is paid.  Kari therefore benefits indirectly from the agreement between VenGrowth
    and Comerica:  Kari goes to first
    priority and VenGrowth falls to last priority.  If the theory of complete subordination is applied, the priorities are:

·

First,
    Kari;

·

Second,
    Comerica;

·

Third,
    VenGrowth

(iii)     Partial subordination

[21]

Under
    partial subordination, VenGrowth gives the benefit of its first priority to
    Comerica.  The amount of VenGrowths
    claim  $4.35 million  is set aside out of the fund.  That amount is used to satisfy Comericas
    claim.  If Comericas claim is less than
    $4.35 million, it will get all of its claim paid and VenGrowth will get the
    balance.  If Comericas claim is greater
    than $4.35 million it will get the entire $4.35 million, but will receive the
    remainder of its claim only after Kari is paid.

[22]

Partial
    subordination has no effect on Kari.  It
    remains in second priority after VenGrowths first priority to the extent of
    $4.35 million.  While under complete
    subordination, VenGrowth completely steps aside, under partial subordination
    VenGrowth steps aside only to the extent of Comericas claim.  Accordingly, if the theory of partial
    subordination is applied, the priorities are:

·

First,
    Comerica, to a maximum of $4.35 million, and then VenGrowth, to a maximum of
    $4.35 million less Comericas claim;

·

Second,
    Kari;

·

Third,
    Comerica for any claim in excess of $4.35 million;

·

Fourth,
    VenGrowth for all of its remaining claims.

D.

Discussion

[23]

The
    motion judge applied a theory of partial subordination for two main
    reasons.  First, partial subordination
    produced an equitable result because it meant Kari is neither burdened nor
    benefited by the 2008 Inter-Creditor Agreement, whereas complete subordination
    would result in a windfall benefit to Kari at the expense of VenGrowth.  Second, complete subordination could be
    justified only if supported by clear and explicit language, and such clear
    and explicit language is not found in the documents:  see paras. 50-51 of the motion judges
    reasons.

[24]

I
    turn to Karis two submissions.

1.
Having
    regard to the factual and contractual matrix, did the motion judge err by not
    applying complete subordination?

[25]

Whether complete or partial subordination should be
    applied turns on VenGrowths intention, as disclosed by the various
    agreements.  Do the agreements show that
    VenGrowth intended to wholly step aside and go to the bottom of the queue, or
    do they show that VenGrowth intended to step aside only to the extent of Comericas
    interest?

[26]

Kari submits that the agreements, and the factual
    context in which they were signed, show that VenGrowth intended to go to the
    bottom of the queue.  In making this
    submission, Kari relies mainly on five contractual provisions:  the negative covenant in s. 8.2(b) of the Kari
    note, repeated in Karis general security agreement; sections 4(d) and 11 of
    the 2004 inter-creditor agreement between Kari and VenGrowth; the 2008 credit
    agreement between Comerica and C.I.F.; the VenGrowth $1 million guarantee; and
    article 4 of the 2008 inter-creditor agreement between VenGrowth and
    Comerica.  I do not think that singularly
    or collectively these five contractual provisions support Karis position.

[27]

Section 8.2(b) of the Kari note contains a negative
    covenant precluding C.I.F. from granting additional encumbrances without Karis
    consent.  Kari says that the 2008 Comerica
    financing was done without its knowledge and thus breaches s. 8.2(b).  Whether the 2008 financing amounts to a
    breach of this covenant need not be decided on this appeal.  The important point is that VenGrowth was not
    a party to the note or to the financing in 2008.  They therefore do not speak to VenGrowths
    intentions; nor can they affect its priority position.  Karis corollary argument that VenGrowth
    arranged the financing is not supported in the record.

[28]

Sections 4(d) and 11 of the 2004 inter-creditor
    agreement stipulate that nothing in that agreement shall be construed as
    conferring any rights on a third party.  Comerica is a third party, and therefore Kari argues that these
    provisions precluded Comerica from taking the benefit of VenGrowths priority.  In my opinion, these provisions do not assist
    Kari.  The priority given to Comerica was
    conferred not in this 2004 agreement, but in the 2008 inter-creditor
    agreement.

[29]

Nor does the 2008 credit agreement or the commitment
    letter assist Kari.  As VenGrowth was not
    a party to this agreement, or to the commitment letter, their terms cannot
    demonstrate any intention on VenGrowths part to go to the bottom of the
    queue.  These documents do no more than
    acknowledge that the Kari note ranks ahead of Comericas security
    interest.  They do not establish any
    agreement between Kari and VenGrowth or between VenGrowth and Comerica that
    puts Kari in first priority.

[30]

Karis strongest argument rests on the $1 million
    guarantee given by VenGrowth in connection with the Comerica financing.  The guarantee stipulated that it would
    terminate on payment of the Kari note.  Kari contends that this guarantee and its termination provision make no
    sense under partial subordination.  Kari
    says that Comerica insisted on this guarantee because it did not have a
    subordination agreement with Kari.  Functionally, Kari says that the guarantee puts it in first priority
    until it is paid.

[31]

I do not accept Karis contention.  The record is silent on why Comerica insisted
    on this guarantee.  I agree with
    VenGrowth that banks ask for many pieces of security, some they need and some
    they may not need, to protect their position.  It is just as plausible that Comerica asked for this guarantee because
    the guarantee made its interest more secure.  Perhaps more important, there is no term in the guarantee from which one
    can say that by giving it VenGrowth intended to entirely cede its priority to
    Kari.

[32]

Finally, Kari relies on article 4 of the 2008
    inter-creditor agreement between Comerica and VenGrowth.  Article 4 states:

Priorities
    of Indebtedness; Subordination of Junior Creditor Indebtedness

Junior Creditor hereby subordinates, to the extent
    and in the manner provided in this Agreement, all of its rights of payment of
    all of the Junior Creditor Indebtedness to the full and final payment of all of
    the Senior Creditor Indebtedness and the termination of all financing
    arrangements and commitments between the Debtor, the Guarantor and the Senior
    Creditor.

[Comerica is the Senior Creditor and VenGrowth is
    the Junior Creditor.]

[33]

Kari submits that article 4 means VenGrowth is not to
    be paid until Comerica is paid in full.  However, because Karis security interest was registered before
    Comericas security interest, Comerica cannot be paid until Kari is paid.  So, implicitly, by article 4, VenGrowth
    agreed to step aside completely.

[34]

Karis submission does not give effect to the
    qualifying phrase in article 4, to the extent and in the manner provided in
    this Agreement.   Other provisions of
    the agreement show that VenGrowth did not intend to subordinate its entire
    priority position to Kari.  For example,
    articles 2 and 3 state that no third party  and Kari is a third party under
    this agreement  may benefit from anything contained in the agreement.  Article 7a explicitly recognizes that
    VenGrowth agrees to step aside only to the extent of Comericas interest:

Under any circumstances  the Collateral shall be
    applied first to the Senior Creditor Indebtedness until all of the Senior
    Creditor Indebtedness has been fully and finally paid and all of the financing
    arrangements and commitments between the Debtor, the Guarantor and Senior
    Creditor have been terminated, and then to the Junior Creditor Indebtedness.

[35]

For these reasons, I do not agree that the various
    contractual provisions on which Kari relies argue for complete
    subordination.  Moreover, there are
    several compelling reasons to apply partial subordination.

[36]

First, it would be unreasonable to find that VenGrowth
    intended complete subordination.  By 2008,
    Karis financing had already been spent.  Comerica was providing new financing to keep the corporation
    afloat.  As VenGrowth had a big
    investment in the corporation, it made sense for VenGrowth to subordinate its
    interest to Comericas interest.  By contrast,
    it would have made no sense for VenGrowth to subordinate its interest to Karis
    interest.

[37]

Second, as the motion judge pointed out, complete
    subordination would confer a windfall on Kari.  It would go from second to first priority.  Partial subordination leaves Kari in second
    position.  It gets exactly what it
    bargained for in 2004.

[38]

Third, there is no document where VenGrowth agreed to
    subordinate its interest to Karis interest.  Thus, to give effect to Karis position, one would have to infer that
    VenGrowth intended to go to the bottom of the queue.  To draw that inference, one would expect some
    clear and unequivocal language in one of the documents, or at the very least,
    an exchange of correspondence between VenGrowth and Kari.  Nothing of that sort exists.

[39]

I would not give effect to Karis main ground of
    appeal.

2.
Did
    the motion judge err in his application of s. 38 of the PPSA?

[40]

Section
    38 of the PPSA states:

A
    secured party may, in the security agreement or otherwise, subordinate the
    secured partys security interest to any other security interest and such
    subordination is effective according to its terms.

[41]

Section
    38 recognizes that a secured party can, by agreement, subordinate its interest
    to other security interests in the same collateral, and a third party, not
    privy to that agreement, can rely on and enforce that subordination.

[42]

Kari
    argues that as a third party, it can rely on section 38 to enforce what it
    claims is the priority given to it by the 2008 credit agreement between Comerica
    and C.I.F., and the 2008 inter-creditor agreement between Comerica and
    VenGrowth.  This argument simply recasts in
    the context of s. 38 of the PPSA, the main argument Kari advanced on this
    appeal, which I have already rejected.  The motion judge did not give effect to Karis argument under s. 38 and
    I would not do so either.

[43]

VenGrowth
    was not a party to the 2008 credit agreement, and therefore the parties to that
    agreement  Comerica and C.I.F.  could not by themselves subordinate the
    priority interest of the VenGrowth senior debenture to the Kari note.  Further, as I have already discussed, nothing
    in the 2008 inter-creditor agreement shows an intention on VenGrowths part to
    go to the bottom of the queue.  I would
    not give effect to this ground of appeal.

E.

Conclusion

[44]

The
    motion judge was correct in applying the theory of partial subordination to
    resolve the priority dispute between Kari and VenGrowth.  I would therefore dismiss Karis appeal, with
    costs fixed in the agreed upon amount of $17,500, inclusive of disbursements
    and applicable taxes.

RELEASED:  Jan. 18,
    2011                         John Laskin
    J.A.

JL                                                                           I
    agree Robert P. Armstrong J.A.

I
    agree R.G. Juriansz J.A.

Appendix A

CITATION:
C.I.F.
    Furniture Limited (Bankruptcy of), 2010 ONSC 505

COURT FILE NO.:
31-1194593

DATE:
20100121

SUPERIOR COURT OF JUSTICE
    ONTARIO

(COMMERCIAL LIST  BANKRUPTCY
    AND INSOLVENCY)

RE:
IN THE MATTER OF THE PROPOSAL OF C.I.F.
    Furniture Limited, Applicants

BEFORE:
MORAWETZ J.

COUNSEL:
Steven L. Graff and Sandra A. Vitorovich, for The VenGrowth
    Traditional Industries
    Fund Inc. and the VenGrowth II Investment Fund Inc.

Paul G. Macdonald and Myriam M. Seers, for Kari
    Holdings Inc.

ENDORSEMENT

[
1
]       This
    matter involves a priority dispute arising from the sale of assets of C.I.F.
    Furniture Limited (CIF) for proceeds that are insufficient to satisfy the
    security interests of certain secured creditors.  The dispute is between
    Kari Holdings Inc. (Kari) and The VenGrowth Traditional Industries Fund Inc.
    (VenGrowth Traditional) and The VenGrowth II Investment Fund Inc. (VenGrowth
    Investment) and together with VenGrowth Traditional, (VenGrowth).

[
2
]       The
    parties are in agreement that a secondary issue, namely, whether the VenGrowth
    Security Interest only covered the principal amount owing to VenGrowth and does
    not include any payments of interest is moot and consequently need not be
    determined.

Summary of Facts

[
3
]       CIF carried on business for the
    manufacture and supply of custom laboratory systems for markets across Canada
    and the United States.

[
4
]       The business was established in the early
    1960s by Mr. Hans J. Kamin and his spouse, Mrs. Elizabeth M. Kamin.  In
    1969, the Kamins incorporated CIF to continue the business.

[
5
]       Upon retiring in 2004, the Kamins sold
    CIF to an affiliate of VenGrowth (the Purchaser) pursuant to a share purchase
    agreement dated November 23, 2004.  On the closing date (December 7,
    2004), the Purchaser and CIF amalgamated and continued as CIF.  The
    purchase price was $7,057,060.  At the time of closing, VenGrowth
    indirectly held 53% of the issued and outstanding shares in CIF.  At the
    time of the motion, VenGrowth was CIFs 95% majority shareholder and a
    substantial secured creditor.

[
6
]       As part of the share purchase, Kari (the
    holding company of Mr. and Mrs. Kamin) provided the Purchaser with $1,000,000
    in vendor take-back (VTB) financing (the Kari Note), secured by a general
    security agreement dated December 1, 2004 (the Kari GSA), for which a
    financing statement was registered under the
Personal Property Security Act
    (Ontario)
(PPSA) on November 30, 2004 (the Kari Security Interest).

[
7
]       VenGrowth also financed the share
    purchase by advancing the Purchaser the principal amount of $4,350,000, secured
    by a senior subordinated debenture dated December 2, 2004 (the VenGrowth
    Senior Debenture) for which a financing statement was registered under the
    PPSA by VenGrowth on December 2, 2004 (the VenGrowth Security Interest).

[
8
]       VenGrowth also advanced significant
    additional capital to CIF on a junior and/or subordinated basis to Kari, with
    certain of these additional advances being made in December 2004 to finance the
    share purchase.

[
9
]       Following the share purchase, Bank of
    Nova Scotia (BNS) agreed to be the operating lender of CIF.  All parties
    funding the share purchase recognized and agreed that BNS was in priority to
    all other secured creditors.  CIF repaid its obligations to BNS in
    December 2006.

[
10
]     Subsequently, Comerica Bank (Comerica)
    became the operating lender.  Pursuant to a credit agreement between
    Comerica and CIF dated November 28, 2008 (the Comerica Credit Agreement),
    Comerica provided CIF with a revolving credit facility to a maximum of
    $2,500,000.  The facility granted pursuant to the Comerica Credit
    Agreement was secured by a security agreement dated November 28, 2008 (the
    Comerica Security), for which a financing statement was registered under the
    PPSA on November 13, 2008 (the Comerica Security Interest).

[
11
]     Both VenGrowth Traditional and VenGrowth
    Investment guaranteed a portion of the Comerica facility pursuant to the
    following guarantees (the VenGrowth Guarantees):

(a)
        a guarantee dated November
    28, 2008 granted by VenGrowth Traditional in favour of Comerica and limited to
    $462,571; and

(b)
        a guarantee dated November
    28, 2008 granted by VenGrowth Investment in favour of Comerica limited to
    $537,429.

[
12
]     VenGrowth submits that the guarantee of
    VenGrowth Traditional was amended and restated by a guarantee dated April 29,
    2009 limited to $601,342 and that the guarantee of VenGrowth Investment was
    amended and restated by a guarantee also dated April 23, 2009 limited to
    $698,658.

[
13
]     The PPSA registrations are filed in the
    following order of priority:

(i)        Kari  November 30, 2004;

(ii)       VenGrowth  December 2, 2004;

(iii)     Comerica  November 13, 2008.

[
14
]     In 2004, CIF, Kari and VenGrowth entered
    into the following priorities agreements:

(a)       an inter-creditor agreement dated
    December 3, 2004 (the 2004 Inter-Creditor Agreement);

(b)       a subordination agreement dated December
    7, 2004 (the 2004 Subordination Agreement); and

(c)       separate postponement and subordination
    agreements in favour of Kari from each of VenGrowth Traditional, VenGrowth
    Investment, as well as various other CIF creditors, namely, Cinitel Corp.,
    Fallbrook Holdings Limited (Fallbrook), Mr. Bruce Andrew, Mr. Stephen Dulong
    and 1639662 Ontario Inc. (Holdco).

[
15
]     The 2004 Inter-Creditor Agreement granted
    the VenGrowth Security Interest, to the extent of the debt under the VenGrowth
    Senior Debenture, priority over the Kari Security Interest.

[
16
]     Under the 2004 Subordination Agreement,
    VenGrowth Investment and VenGrowth Traditional agreed to postpone and
    subordinate their security interests, pursuant to their respective security, to
    the Kari Security Interest, except that neither of VenGrowth Investment or
    VenGrowth Traditional postponed or subordinated the VenGrowth Security
    Interest.  As stated by counsel to VenGrowth, in other words, all
    advances made by VenGrowth, other than the VenGrowth Senior Debenture, were
    subordinated to Kari.

[
17
]     Comerica was not a party to the 2004
    Inter-Creditor Agreement.

[
18
]     In 2008, CIF secured financing from
    Comerica.  The terms of the financing were set out in a commitment letter
    dated June 5, 2008 pursuant to which Comerica committed to provide a $2.5
    million revolving credit facility to CIF (the Commitment Letter).

[
19
]     The Commitment Letter expressly states that
    the Kari Security Interest will rank in priority to the Comerica Security
    Interest and that the VenGrowth Security Interest will be subordinated to the
    Comerica Security Interest.

[
20
]     The Comerica Credit Agreement recognizes
    the Kari Security Interest as a first priority lien and that the Comerica
    Security Interest as a second priority lien.

[
21
]     The Comerica Credit Agreement included the
    Kari Note as a Permitted Debt, the Kari Security Interest as a Permitted Lien
    and required a subordination of the VenGrowth Security Interest but not the
    Kari Security Interest to the Comerica Security Interest.

[
22
]     VenGrowth was not a party to either the
    Commitment Letter or the Comerica Credit Agreement.

[
23
]     Also, on November 28, 2008, CIF provided
    Comerica with the Comerica Security Agreement.

[
24
]     The Comerica Security Interest also provides
    that each of the VenGrowth Guarantees will terminate upon the payment in full
    of the Kari Note.

[
25
]     On November 28, 2008, VenGrowth and
    Comerica entered into an inter-creditor agreement whereby VenGrowth agreed to
    fully subordinate the VenGrowth Security Interest to the Comerica Security
    Interest (the 2008 Inter-Creditor Agreement).

[
26
]     Kari did not know about the Comerica
    Security Interest until CIF served it with motion materials in these
    proceedings on April 21, 2009.

[
27
]     CIF is insolvent and on April 21, 2009 it
    filed a Notice of Intention to Make a Proposal under the
Bankruptcy and
    Insolvency Act
(the BIA).

[
28
]     On April 29, 2009, A. Farber & Partners
    Inc. (the Interim Receiver) was appointed interim receiver of CIF and by
    order dated May 15, 2009, the Interim Receiver was authorized to market and
    sell the assets.

[
29
]     There is no inter-creditor agreement to
    which Comerica, VenGrowth and Kari are all parties that set out the priorities
    among them.  There is no inter-creditor agreement or subordination
    agreement in which VenGrowth subordinates or postpones the VenGrowth Security
    Interest to the Kari Security Interest.

[
30
]     Kari and Comerica have not entered into any
    agreement between themselves which governs the relative priorities of the Kari
    Security Interest and the Comerica Security Interest.

Analysis

[
31
]     Kari submits that the Kari Security
    Interest ranks in priority to the Comerica Security Interest and the VenGrowth
    Security Interest by operation of the Commitment Letter, the Comerica Credit
    Agreement, the Comerica Security Agreement, the Comerica Security Interest and
    the 2008 Inter-Creditor Agreement (collectively the Comerica Agreements) and
    s. 38 of the PPSA.

[
32
]     Counsel to Kari submits that an objective
    interpretation of the relevant documents demonstrates that both VenGrowth and
    Comerica intended that, as a result of the Comerica Agreements, the Kari
    Security Interest would rank in priority to the Comerica Security Interest and,
    therefore, the VenGrowth Security Interest.  Counsel to Kari submits that
    this position is supported by the repeated references in the Commitment Letter
    and the Comerica Credit Agreement to the first priority position of the Kari
    Security Interest and VenGrowths voluntary agreement to step out of the
    priority queue and back in behind Comerica.

[
33
]     There is, in my view, a fundamental
    weakness in this argument.  VenGrowth is not party to either the
    Commitment Letter or the Comerica Credit Agreement.  These are contractual
    agreements between CIF and Comerica.  Although VenGrowth is the
    substantial controlling shareholder of CIF, this does not mean that the
    contractual agreements of CIF are agreements that bind VenGrowth.  There
    is no stated intention in any document that establishes that VenGrowth intended
    to cede its priority position in all respects to the Kari Security Interest.

[
34
]     When read together, the 2004 Inter-Creditor
    Agreement and the 2008 Inter-Creditor Agreement create a circularity issue as
    between Kari, VenGrowth and Comerica.

[
35
]     Professor Wood commented on this issue in
Circular
    Priorities in Secured Transactions Law
 at pages 7  8:

The real controversy concerns the proper
    interpretation of the subordination agreement.  In the United States, the
    issue is framed as whether SP1 intended a complete subordination of its claim
    or only a partial subordination.  A
complete subordination
occurs
    if the subordination agreement is interpreted as an agreement by SP1 not to
    assert its claim against the collateral until SP3s claim is satisfied.
    It does not involve an agreement by SP1 to turn over the benefit of its
    priority to SP3.  Rather, it is essentially an agreement by SP1 to step
    aside and not assert its claim until SP3s claim has been satisfied.  On
    this view, the competition is resolved by giving first priority to SP2, second
    priority to SP3, and third priority to SP1.  SP2 is the indirect
    beneficiary of the subordination agreement because SP3 cannot satisfy its claim
    until the claim of SP2 is fully satisfied.

Under the competing
partial subordination
    theory
, a subordination agreement is interpreted as an agreement under
    which SP1 agrees to turn over the benefit of its priority to SP3.  The
    priorities are therefore resolved in the following manner.  First, the
    amount of SP1s claim is set aside out of the fund.  Second, the fund is
    used to satisfy SP3s claim.  If there is anything left over, it is paid
    to SP1.  Third, SP2s claim is satisfied out of the fund.  Fourth,
    any remaining balance is distributed to SP3 and then to SP1.

[
36
]     The duelling approaches were also the
    subject of commentary by Professors Cumming, Walsh and Wood in
Personal
    Property Security Law
where the authors explained as follows:

The priority competition is resolved by setting
    aside the amount of SP1s claim.  From this fund, SP3s claim is
    satisfied.  If a surplus remains after SP3s claim is satisfied, it is
    paid over to SP1.  SP2s claim would next be satisfied from the remaining
    funds.  If there is anything left, it is then distributed to SP3, then
    SP1.  In other words, the subordination agreement between SP1 and SP3 is
    effective only as between those parties, and has no effect on the relative
    priority of SP2.

Most subordination agreements provide for a
    postponement of the subordinating creditors claim.  Under a step-aside
    agreement, a secured party may instead agree that it will not make a claim in
    respect of a subordinated debt until the benefiting creditor is paid in
    full.  If this form of agreement is used, there is a greater likelihood
    that it will have the effect of elevating the priority of an intervening
    party.  In the above scenario, SP1 would renounced its claim until SP3 is
    paid in full.  This would seem to have the effect of placing SP1 at the
    end of the queue, with the result that SP2 would obtain first priority followed
    by SP3.

[
37
]     At issue is whether the circularity problem
    should be resolved in favour of VenGrowth or Kari.  A resolution in favour
    of VenGrowth would require the application of the partial subordination
    theory.  A resolution in favour of Kari would require the application of
    the complete subordination theory.

[
38
]     In considering which of these two
    approaches should be applied in these circumstances, in my view, it is
    necessary to consider the impact of agreements to which VenGrowth, Kari and
    Comerica are parties.

[
39
]     As a result of the 2004 Inter-Creditor
    Agreement, the Kari Security Interest is subordinate to the VenGrowth Security
    Interest.  The issue is whether this situation changed as a result of the
    Comerica Agreements.  In my view, it has not.

[
40
]     VenGrowth entered into the 2008
    Inter-Creditor Agreement with Comerica, the result of which is that VenGrowth
    subordinated payment under the VenGrowth Senior Debenture to Comerica.  It
    does not follow that VenGrowth intended that its entire priority position would
    be subordinated to that of Kari.

[
41
]     The Commitment Letter states that the VTB
    from Kari in the amount of $1,000,000 is to rank ahead of Comerica.  This
    statement, at most, provides the understanding on the part of Comerica that
    Karis interest ranks ahead of Comericas position, but there is no agreement
    or acknowledgement by VenGrowth that the Kari Security Interest ranks ahead of
    the VenGrowth Security Interest.

[
42
]     Further, the Comerica Credit Agreement does
    not recognize or state that the Kari Security Interest shall constitute a
    priority claim to the VenGrowth Security Interest.

[
43
]     Section 38 of the PPSA provides that a
    secured party may, in the security agreement or otherwise, subordinate its
    security interest to any other security interest and the subordination is
    effective according to its terms and a third party who is not privy to the
    security agreement or other agreement which contains the subordination clause
    can enforce it.

[
44
]     Counsel to VenGrowth submits that s. 38
    applies only in instances where the secured creditor itself subordinates,
    explicitly or implicitly, its security interest vis-à-vis a third party.
    Counsel cites
Sun Life Assurance Co. of Canada v. Royal Bank
,
37 C.B.R. (4
th
) 169 in support of
    this submission.  I agree with this position.

[
45
]     In this case, the Commitment Letter and the
    Comerica Credit Agreement are the documents that Kari submits evidences the
    intention of VenGrowth to subordinate the VenGrowth Security Interest to the
    Kari Security Interest.  I am in agreement with the submission of counsel
    to VenGrowth that evidence of an understanding involving Comerica and CIF in
    respect of the priority between Kari and Comerica does not establish a
    subordination agreement as between VenGrowth and Comerica in favour of Kari.

[
46
]     The only documents in the Comerica
    Agreement to which VenGrowth is a party are the 2008 Inter-Creditor and the
    VenGrowth Guarantees.  These documents, do not, in my view, result either
    clearly or explicitly, in a subordination of the VenGrowth Security Interest to
    the Kari Security Interest.

[
47
]     Counsel to VenGrowth submits that the
    effect of the 2008 Inter-Creditor Agreement is to provide that a portion of any
    fund paid by CIF to VenGrowth under the VenGrowth Senior Debenture would be
    paid by VenGrowth to Comerica and any funds available for payment by CIF after
    repayment of the amount owing under the VenGrowth Senior Debenture would be
    paid to Kari next in satisfaction of the indebtedness under the Kari
    Note.  A proper interpretation is that under the 2008 Inter-Creditor
    Agreement, any payments received by VenGrowth from CIF pursuant to the
    VenGrowth Senior Debenture (up to a maximum of the VenGrowth Indebtedness)
    would be shared as between VenGrowth and Comerica as follows:

(a)
      first, payment would be made to Comerica in satisfaction of the
    Comerica indebtedness; and

(b)
      secondly, the remaining funds, of the total of the VenGrowth Senior
    Debenture (inclusive of amounts paid in sub (a)), would be payable to VenGrowth
    in satisfaction of the VenGrowth indebtedness.  The total distributed
    under both sub (a) and sub (b) would not be greater than the VenGrowth
    indebtedness.

[
48
]     Counsel to VenGrowth submits that this
    interpretation is consistent with the analysis set out by Grant Gilmore in
Security
    Interests in Personal Property
, where he discusses a situation with three
    creditors, A, B, and C where A and C enter into a subordination agreement, the
    secured assets are sold and there are insufficient funds to satisfy the claims
    of all three creditors. The ensuing distribution was explained by Gilmore as
    follows:

There is a comforting unanimity, among courts
    and commentators, on the proper distribution of funds:

1.         Set aside from the fund the amount of A
    claim.

2.         Pay the amount set aside to

a)   C, to the amount of his claim;

b)   A, to the extent of any balance remaining
    after Cs claim is satisfied.

3.
         Pay B the amount of the fund remaining after As claim
    has been set aside.

4.
       If any balance remains in the fund after As claim has been set
    aside and Bs claim has been satisfied, distribute the balance to

a)   C,

b)   A.

Thus C, by virtue of the subordination
    agreement, is paid first, but only to the amount of As claim, to which B was
    in any event junior.  B receives what he had expected to receive: the fund
    less As prior claim.  If As claim is smaller than Cs, C will collect
    the balance of his claim in his own right, only after B has been paid in
    full.  A, the subordinator, receives nothing until B and C have been paid
    except to the extent that his claim, entitled to first priority, exceeds the
    amount of Cs claim, which under his agreement, is to be paid first.

[
49
]     Counsel to VenGrowth also referenced the
    decision of the Newfoundland and Labrador Court of Appeal in
Hickman
    Equipment
(1985) Ltd., Re
, 2006
    CarswellNfld 245, leave to appeal to Supreme Court of Canada refused,
[2006] S.C.C.A. No. 462.  Counsel to
    VenGrowth submitted in their factum as follows:

42.       The
    Newfoundland and Labrador Supreme Court was recently asked to decide whether by
    virtue of a subordination agreement between party A and C:  (i) C moved up
    to stand in the place of A and thereby gains priority over B; or (ii) while A
    ranks in priority behind C, nonetheless B retains priority over C.

43.       Quoting
    several texts, including the passage from Gilmore above, and Canadian
    jurisprudence, the Appellant in Hickman argued that the ranking of the claims
    and distribution of proceeds is determined apart from the operation of the
    subordination agreement with the subordination agreement applying to determine
    the extent of the share of the distribution that should be paid to the party in
    whose favour the subordination was granted.  Moreover, a creditor in
    second position (such as Kari) should not receive the benefit of a
    subordination agreement to which it is not a party and on which the parties to
    the subordination agreement intended the second position creditor to rely.

44.       The
    central proposition of the case of the Appellants in
Hickman
[and the
    position advanced by VenGrowth herein] was:

Where a subordination is enforced by the
    benefiting creditor [RBC] for its benefit, the amount secured by the
    subordinated security interest simply goes toward satisfying in whole or in
    part two claims as opposed to one:  the benefiting creditors claim
    [RBCs] and the subordinated creditors claim [CIBCs].  The benefiting
    creditor shall receive payment in full of its claim, before the subordinated
    creditor receives any payment on the subordinated debt.  Where there is an
    intervening security interest [GMAC], the result is equitable, because the
    intervening creditor will receive what it expected to receive, the fund less
    the amount secured by the higher ranking subordinated security interest.
    Otherwise, the intervening creditor receives a windfall and the statutory
    rights bestowed on the subordinating creditor to subordinate its security
    interest and the benefiting creditor to enforce the subordination for its
    benefit are thwarted.

The court, finding the arguments set out by the
    Appellant persuasive, adopted the Appellants reasoning.

[
50
]     I am in agreement with the submissions of
    counsel to VenGrowth.  The 2008 Inter-Creditor Agreement can only have an
    impact on determining the extent to which the monies paid to CIF pursuant to
    the VenGrowth Senior Debenture should be paid in favour of Comerica.  In
    this manner, Kari is neither burdened nor benefited by the 2008 Inter-Creditor
    Agreement.  On the other hand, the argument put forward by counsel to Kari
    would result in a windfall benefit to Kari at the expense of VenGrowth.
    The result preferred by VenGrowth produces, in my view, an equitable result.

[
51
]     It seems to me that the result preferred by
    Kari, namely, that of a complete subordination, could only be justified if
    there is clear and explicit language that would result in a complete
    subordination agreement.  Such clear and explicit language is not found in
    the documents.

Disposition

[
52
]     In this case, in the 2008 Inter-Creditor
    Agreement, VenGrowth subordinates only to and for the benefit of Comerica,
    while at the same time preserving its priority position as against third
    parties.  In my view, it is especially telling that s. 2 of the 2008
    Inter-Creditor Agreement provides that all agreements and representations are
    solely for the benefit of the creditors (VenGrowth and Comerica) and that no
    other parties are intended to be benefited in any way by the 2008 Inter-Creditor
    Agreement.  In the face of such explicit language, it seems to me that it
    cannot be said that there was the intention on the part of VenGrowth to effect
    a complete subordination in favour of Kari.  Rather, the effect of the
    2008 Inter-Creditor Agreement is that, with all the priorities remaining the
    same, VenGrowth is to set aside a portion of the funds it receives in trust to
    be paid to Comerica pursuant to the 2008 Inter-Creditor Agreement and that it
    will not receive its priority payment until Comerica has been paid in full from
    payments it receives in its position.

[
53
]     In the result, I find that the VenGrowth
    Security Interest is in priority to the Kari Security Interest to the extent of
    principal owing under the VenGrowth Senior Debenture.  The issue of
    whether priority extends to interest need not be determined.

[
54
]     VenGrowth is to have its costs of this
    motion, as agreed, in the amount of $42,500 inclusive of disbursements and GST.

MORAWETZ J.

Date:
January 21, 2010


CITATION: Citi Cards Canada Inc. v. Pleasance, 2011
      ONCA 3

DATE: 20110106

DOCKET: C52004

COURT OF APPEAL FOR ONTARIO

Blair, Juriansz and LaForme JJ.A.

BETWEEN:

Citi Cards Canada Inc.

Applicant

(Appellant)

and

Charles
          Pleasance, The Canada Trust Company and

The Toronto-Dominion Bank

Respondents

(Respondents in Appeal)

Ian K. Latimer, for the appellant

Richard Horodyski, for the respondents in appeal, The Canada
          Trust Company and The Toronto-Dominion Bank

Heard: October 8, 2010

On appeal from the judgment of Justice D.G. Price of the
          Superior Court of Justice, dated March 24, 2010.

R.A. Blair J.A.:

Overview

[1]

The knotty and interesting question to be determined on this appeal is of
    some importance to debtor/creditor relations and, particularly, to financial
    institutions that advance funding in that milieu.  The issue is whether a
    judgment creditor is entitled to obtain a mortgage statement, unrelated to the
    judgment debt, from a third-party creditor of the debtor so that the creditor
    can pursue a legal remedy to enforce its judgment.  The application judge held
    that the provisions of the
Personal Information Protection and Electronic
    Documents Act
, S.C. 2000, c. 5, s. 7 (PIPEDA) prohibited such disclosure.

[2]

Citi Cards has a credit card-related judgment against Mr. Pleasance in
    the amount of $11,039.77.  It sought to enforce that judgment through a
    sheriffs sale of the Pleasance home.  But the Sheriff would not act on the
    writ of execution without mortgage discharge statements from the mortgagees of
    the property, The Canada Trust Company and The Toronto-Dominion Bank.  The
    mortgagees refused to provide the information to the appellant, however, and
    Citi Cards efforts to enforce its judgment in this fashion have been stymied
    to date.

[3]

We are told that the furnishing of mortgage discharge statements in
    similar situations is a matter of uneven treatment in Ontario.  Some financial
    institutions will provide them; some will not.  The respondents fall into the
    latter category.

[4]

Justice Price dismissed Citi Cards application for an order requiring
    the mortgagees to produce the statements on the basis that they contain personal
    information of the judgment debtor and PIPEDA therefore prohibits the respondents
    from releasing the information.  He also ruled that the appellant had an
    alternative remedy available to it, namely, a motion pursuant to rule 60.18(6)
    of the
Rules of Civil Procedure
to examine Bibi Pleasance  the wife of
    the debtor, who was also joint owner of the home  and that the application should
    be adjourned to enable her to be served with notice of the proceeding, since
    her privacy interests may be affected as well.

[5]

I would dismiss the appeal, for the reasons that follow.

Facts

[6]

Citi Cards obtained judgment against Mr. Pleasance on November 16,
    2004.  It filed a writ of seizure and sale, and sought to have the Sheriff
    seize and sell the Pleasances home at 3011 Saracen Court, Mississauga, in
    order to satisfy the judgment.  Although he is thought to be somewhere in
    Alberta, Mr. Pleasance could not be located for purposes of service, and he is
    unrepresented in the proceedings.  Mrs. Pleasance lives in the targeted premises,
    but no attempt has been made to add her as a party to the action, or to obtain
    an order under rule 60.18(6) to examine her as a non-party.

[7]

Canada Trust holds a first mortgage against the property in the amount
    of $141,000, and Toronto-Dominion Bank a second mortgage in the amount of
    $90,000.  I shall refer to them, together, as the Banks.

[8]

Citi Cards conundrum is both practical and legal: the Sheriff requires
    mortgage discharge statements from the mortgagees showing outstanding balances
    on the encumbrances before commencing a Sheriffs sale of the property.  The
    respondents refused to provide such statements.  They took the position that to
    do so might breach the privacy rights of Mr. Pleasance  much less Bibi
    Pleasance  under PIPEDA.  Citi Cards therefore sought (a) a declaration that
    Citi Cards was entitled to the statements sought; (b) a declaration that the
    respondents were obliged to provide the statements to Citi Cards because it is
    a judgment creditor of one of the mortgagors; and (c) an order compelling the
    respondents to provide the statements.

[9]

However, Citi Cards has made no attempt either to examine Mr. Pleasance
    as a judgment debtor or to examine Bibi Pleasance as a non-party.  The
    appellants explanation for not having pursued Mr. Pleasance is set out in its
    factum as follows:

Citi did not want to
    try to obtain the Statements from Charles by conducting an examination in aid
    of execution.  This examination is usually a very lengthy and costly process
    because judgment debtors who own real property generally try to frustrate a
    creditors ability to enforce its judgment by evading personal service of the
    notice of examination, failing to attend the examination, or agreeing to and
    then neglecting the creditors request to provide documentary information.  An
    attempt to obtain the Statements as part of an examination in aid of execution
    could cost more than the Judgment debt.

[10]

While this
cri de coeur
may be born out of experience, and
    provide an understandable practical reason for the appellants tactics, it does
    not provide an answer in law.  With respect to Bibi, the appellant takes the
    position that her presence in the proceedings is simply not necessary to enable
    the court to adjudicate effectively and completely on the issues raised.

The Decision of the Application Judge

[11]

The application judge dealt with three issues that are pertinent to the
    appeal in the course of his reasons.

[12]

First  in the absence of default under the mortgages  he properly
    rejected Citi Cards argument that it was a mortgagor within the meaning s. 1
    of the
Mortgages Act,
R.S.O. 1990, c. M.40, and therefore entitled to
    redeem the mortgages pursuant to s. 31.  The appellant repeated this argument
    in its factum, but Mr. Latimer fairly conceded the point during oral argument
    and did not pursue it further on appeal.

[13]

Secondly, the application judge held that PIPEDA prohibits the Banks
    from disclosing the mortgage statements to Citi Cards for the purpose of
    facilitating the enforcement of its rights as a judgment creditor.  He
    dismissed the application for the declaratory relief referred to above.  Whether
    he was correct in this regard is the principal issue for determination on the
    appeal.

[14]

Finally, the application judge concluded that he would not make the
    order requiring production of the statements to the appellant, in any event,
    because Citi Cards had another practical remedy available that did not impinge
    upon the privacy rights of the debtor: it could seek an order for the
    examination of Bibi Pleasance in aid of execution, pursuant to rule
    60.18(6)(a).  He granted leave to Citi Cards to amend its Notice of Application
    to seek such an order, and adjourned that aspect of the proceedings to be
    returned on notice to Ms. Pleasance.

Analysis

The Application of PIPEDA

[15]

Whether the provisions of PIPEDA prohibit the Banks from disclosing the
    mortgage statements to the appellant depends upon whether the information
    contained in the sought-after mortgage statements is personal information
    within the meaning of the Act and whether any of the PIPEDA exemptions apply to
    permit disclosure.  These questions must be assessed in light of the purpose of
    the legislation, which is stated in s. 3 to be the following:

The purpose of this
    Part is to establish, in an era in which technology increasingly facilitates
    the circulation and exchange of information, rules to govern the collection,
    use and disclosure of personal information in a manner that recognizes the
    right of privacy of individuals with respect to their personal information and
    the need of organizations to collect, use or disclose personal information for
    purposes that a reasonable person would consider appropriate in the
    circumstances.

[16]

In short, PIPEDA seeks to balance the privacy rights of individuals in
    their own personal information with the needs of organizations to collect, use
    or disclose personal information for reasonable purposes.  Generally speaking,
    in my view, those reasonable purposes will relate to the needs
of the
    organization
.

[17]

PIPEDA prohibits organizations from disclosing personal information
    without the knowledge or consent of the affected individual unless disclosure
    is permitted by one of the exemptions provided in s. 7(3).  Here, Citi Cards
    relies upon two of those exemptions, namely that the disclosure is required to
    comply with an order of the court (para. (c)) and that disclosure is required
    by law (para. (i)).

[18]

The relevant portions of s. 7(3) state:

For the purpose of clause 4.3 of Schedule 1, and
    despite the note that accompanies that clause, an organization may disclose
    personal information without the knowledge or consent of the individual only if
    disclosure is

(c) required to comply with a subpoena
    or warrant issued or an order made by a court, person or body with jurisdiction
    to compel the production of information, or to comply with rules of court
    relating to the production of records;

(i)
    required by law.

[19]

It is accepted that PIPEDA applies to banks: see
Royal Bank of Canada
    v. Welton
(2009), 93 O.R. (3d) 403 (C.A.);
Vanderbeke v. Royal Bank of
    Canada
(2006), 294 F.T.R. 216; Officer of the Privacy Commissioner of
    Canada,
PIPEDA Case Summary #2005-312
.  This is consistent with s. 4(1)
    of the Act, which states in part:

4(1) This Part applies to every organization in
    respect of personal information that

(a) the
    organization collects, uses or discloses in the course of commercial activities[.]

[20]

As the application judge noted, [t]he Banks collect and use the kind of
    information they possess about Mr. Pleasance in the course of their commercial
    activity of mortgage lending.

Personal
    Information

[21]

I also agree with the application judge that the information Citi Cards
    seeks from the Banks is personal information of the debtor.  Personal
    information is defined in s. 2(1) of the Act.  It means information
    about an identifiable individual.
[1]

[22]

This is a very elastic definition, and should be interpreted in that
    fashion to give effect to the purpose of the Act.  There can be no doubt that
    financial information pertaining to a debtor, collected and used by a financial
    institution in the course of a mortgage transaction  including the particulars
    of, and the balance owing on the debtors mortgage  is information about an
    identifiable individual.  Current mortgage balances are not information that
    is publicly available.

[23]

This information is collected and used by the Banks for purposes of
    administering the mortgage; it is not collected or used for purposes of
    facilitating another judgment creditors execution on its judgment.  As the
    purpose of the Act  expressed in s. 3 cited above  indicates, what is
    balanced is the individuals right to privacy in his or her personal
    information, on the one hand, and
the organizations
need to collect or
    use the information, on the other hand.  The Act does not contemplate a
    balancing between the privacy rights of the individual and the interests of a
    third-party organization that may by happenstance have commercial dealings with
    the individual that make the targeted information attractive to it.

The
    Exemptions

[24]

Finally, like the application judge, I do not accept that any of the s.
    7(3) exemptions apply to authorize disclosure of the mortgage statements to
    Citi Cards.  Neither the compliance with a court order nor the required by
    law exemption assists the appellant, in my opinion.

[25]

The order requiring compliance, upon which Citi Cards relies, is the
    order sought on this application.  It is circular to argue that the Banks are
    required to disclose the mortgage statements because disclosure is required by
    an order not yet made.  Even a liberal interpretation of the legislation cannot
    lead to such a pliant result.

[26]

Nor do I accept that the required by law exemption applies.

[27]

Citi Cards submits that the application judge erred in concluding that
    the exemption only relates to the organization in question.  Instead, Citi
    Cards contends, the exemption must be broadly interpreted and should apply
    whenever the organization
or
the individual is required by law to
    disclose the personal information.  In the present context, the argument goes,
    Mr. Pleasance would be required by law to disclose the balance outstanding on
    his mortgages to Citi Cards  if examined in aid of execution  and therefore
    the Banks should be required to do so as well.  There is no good reason why the
    Banks should need or require the consent of the debtor to disclose information
    that the debtor is required by law to disclose, the appellant concludes, and
    PIPEDA was never intended to be used as a shield by an individual to prevent
    third parties from disclosing personal information that the individual is
    required by law to produce.

[28]

There are several flaws in this argument.

[29]

First, it is inconsistent with the plain wording of s. 7(3) of the Act.
    An
organization may disclose
personal information ... only if
the
disclosure is [authorized by one of the exemptions] (emphasis added).  Clearly,
    the disclosure that is the subject of the listed exemptions is the disclosure
    of the organization and not that of the individual whose information is in
    play.

[30]

This makes sense.  Had Parliament intended that organizations would be
    required to disclose personal information of an individual in circumstances
    where, in a commercial context, the individual might be required to do so, it
    could easily have dispensed with the need for consent and created another
    exemption in those circumstances.  Parliament did not do so.  Moreover, if the
    appellants argument is correct, any organization could disclose personal
    financial information about the individual to interested third parties, without
    that individuals consent, any time there is an outstanding judgment against
    the individual.  Such a result would effectively negative the protection
    afforded to the privacy rights of individuals pursuant to PIPEDA.

[31]

Secondly, while Mr. Pleasance might be required to disclose to Citi
    Cards the particulars of his mortgages  including the balances required to
    discharge them  pursuant to an order made in aid of execution, it is not clear
    that he is required by law to volunteer that information in the absence of
    such an order.  No such order has been made here.

[32]

Lastly, the disclosure that is required by law, as contemplated by s.
    7(3)(i), must be required by law independently of PIPEDA.  PIPEDA itself does
    not
require
disclosure in the commercial context: rather, it creates a
    framework in which personal information  otherwise prohibited from being
    disclosed
may
be disclosed if one of the exemptions applies.  I know
    of no law requiring a financial institution to disclose mortgage statements to
    an unsecured judgment creditor seeking to enforce its remedy by way of
    sheriffs sale in the absence of default under the mortgage and steps taken by
    the mortgagee to enforce the mortgage by way of Notice of Sale,
[2]
and counsel have not put forward any.

[33]

The appellant suggests, again, that because rule 60.18(6)(a) permits the
    court to make an order in aid of execution for the examination of a person
    other than the debtor who the court is satisfied may have knowledge of the
    [debtors debts], the application judge had a lawful basis and the authority
    to order the Banks to provide the mortgage statements and, therefore, that they
    should be required by law to do so.  But it does not follow that because the
    Banks might be ordered to disclose, they are presently required by law to do
    so.  This argument, again, has the tinge of circularity to it that was rejected
    in another context above.

[34]

For all of the foregoing reasons, I am satisfied that the Banks are
    prohibited by the provisions of PIPEDA from disclosing the information sought.

Order in Aid
    of Execution: Rule 60.18(6)(a)

[35]

The appellant sought an order directing the Banks to provide the statements
    to it and to its lawyers.  Whether that order was sought pursuant to rule
    60.18(6)(a) is not clear, because the Notice of Application makes no reference
    to the rule.  However, the application appears to have proceeded on that basis,
    and the application judge declined to exercise his discretion to make such an
    order against the Banks because he was of the view that Citi Cards had an
    adequate alternate remedy, namely a motion to obtain similar relief against the
    debtors wife, Bibi Pleasance.  He therefore granted the appellant leave to
    amend the Notice of Application to seek a rule 60.18(6)(a) order against Ms.
    Pleasance and adjourned that part of the proceeding pending service of notice
    on her.

[36]

Citi Cards submits that the application judge improperly exercised his
    discretion in refusing to order the Banks to disclose the statements.

[37]

There may well be situations where a financial institution could be
    ordered to make such information available as the result of a rule 60.18(6)(a)
    motion.  It is not necessary here to consider the ifs, when, and in what
    circumstances such an order might be made, because I am not satisfied that the
    application judge erred in the exercise of his discretion.  He was rightly
    concerned about the privacy rights of Ms. Pleasance  she holds a 50% interest
    in the property sought to be sold  as well as the privacy rights of Mr.
    Pleasance.  In view of his correct decision that PIPEDA prohibits the Banks
    from disclosing the mortgage statements, it was not an error in the circumstances
    to require the appellant to pursue another available alternate remedy in lieu
    of making the order sought.  There is support for the proposition that a
    creditor should exhaust all other reasonable means available before a rule
    60.18(6)(a) order is made: see
C.I.B.C. v. Sutton
(1981), 34 O.R. (2d)
    482 (C.A.):
Bock v. Fairborn
(1990), 40 C.P.C. (2d) 277 (Ont. Dist.
    Ct.);
Parks v. Sullivan
(1982), 29 C.P.C. 124 (Ont. Master);
Bank of
    America Trust and Savings Assn. v. Shefsky
(1997), 24 C.P.C. (4th) 135 (Ont.
    Gen. Div.);
Blastco Corp. v. Pittman Environmental Technologies Inc.
(2001),
    10 C.P.C. (5th) 106 (Ont. S.C.).

[38]

I would not interfere with the exercise of the application judges
    discretion in these circumstances.

Disposition

[39]

For the foregoing reasons, I would dismiss the appeal.

[40]

In accordance with the parties agreement, there will be no costs of the
    appeal.

R.A. Blair J.A.

I agree R.G. Juriansz
    J.A.

I agree H.S. LaForme
    J.A.

RELEASED:  January 6, 2011

[1]
The definition excludes the name, title or business address or telephone
    number of an employee of an organization.  That exclusion has no bearing on
    this appeal, however.

[2]
In such circumstances, the mortgagee is required to give notice to execution
    creditors who have filed writs of execution, as Citi Cards has done here:
Mortgages
    Act
, R.S.O. 1990, c. M.40, s. 31.


CITATION: Dinunzio v. Hamilton (City), 2011 ONCA 65

DATE: 20110124

DOCKET: C51967

COURT OF APPEAL FOR ONTARIO

Laskin, Lang and LaForme JJ.A.

BETWEEN

Teresa
          Dinunzio and Danny Dinunzio, in his personal capacity and on

behalf of
Family Law Act
R.S.O. 1990 claimants

Plaintiffs (Appellants)

and

City
          of Hamilton, Hamilton Police Services Board,

Hamilton Police
          Service, Brian J. Mullan, Ken Leendertse,

Paul F. Ryan, Marco
          Visentini and Dalton Timmis Insurance

Group

Defendants (Respondents)

David Keith Alderson and Javad Heydary, for the appellants

C. Kirk Boggs and Kirk F. Stevens, for the respondents

Heard: January 21, 2011

On appeal from the order of Justice
          Lawrence Patillo of the Superior Court of Justice, dated March 17, 2010.

APPEAL BOOK ENDORSEMENT

[1]

We agree with the reasons of the motion judge.

[2]

The appeal is dismissed with costs of this appeal and the appeal in
    C52523, in the amount of $15,000, inclusive of disbursements and applicable
    taxes.


CITATION: Dinunzio v. Hamilton (City), 2011 ONCA 66

DATE: 20110124

DOCKET:
C
52523

COURT OF APPEAL FOR ONTARIO

Laskin, Lang and LaForme JJ.A.

BETWEEN

Teresa
          Dinunzio and Danny Dinunzio, in his personal capacity and on

behalf of
Family Law Act
R.S.O. 1990 claimants

Plaintiffs (Appellants)

and

City
          of Hamilton, Hamilton Police Services Board,

Hamilton Police
          Service, Brian J. Mullan, Ken Leendertse,

Paul F. Ryan, Marco
          Visentini and Dalton Timmis Insurance

Group

Defendants (Respondents)

David Keith Alderson and Javad Heydary, for the appellants

C. Kirk Boggs and Kirk F. Stevens, for the respondents

Heard: January 21, 2011

On appeal from the order of Justice
          Lawrence Patillo of the Superior Court of Justice, dated July 12, 2010.

APPEAL BOOK ENDORSEMENT

[1]

We agree with the reasons of the motion judge. The appeal is dismissed.


CITATION:
Dunn v. Chubb
          Insurance Company of Canada, 2011 ONCA 36

DATE:
          20110118

DOCKET: C52134 & C52135

COURT OF APPEAL FOR ONTARIO

Goudge, Lang and Karakatsanis JJ.A.

BETWEEN

Frank Dunn

Applicant (Respondent)

and

Chubb Insurance Company of Canada, Chubb Atlantic
          Indemnity Ltd., Zurich Insurance Company, Liberty International Underwriters
          Canada, a Division of Liberty Mutual Insurance Company, Ace Insurance,
          Continental Casualty Company and American Home Assurance Company

Respondents (Appellants)

AND BETWEEN

Douglas Beatty

Applicant (Respondent)

and

Chubb Insurance Company of Canada, Chubb Atlantic
          Indemnity Ltd., Zurich Insurance Company, Liberty International Underwriters
          Canada, a Division of Liberty Mutual Insurance Company, Ace Insurance,
          Continental Casualty Company and American Home Assurance Company

Respondents (Appellants)

Alan L. W. DSilva, Elizabeth Pillon and Ellen M. Snow, for
          the appellant Chubb Insurance Company of Canada

Marcus B. Snowden, for American Home Assurance Company

Kathryn Podrebarac, for Douglas Beatty

Kurt K. Pereira, for Liberty International Underwriters

Thomas G. Heintzman, Q.C., and William G. Scott, for Frank
          Dunn

Heard: October 6, 2010

On appeal from the orders of Justice D. R. Cameron of the
          Superior Court of Justice dated April 23, 2010 and June 15, 2010.

Goudge J.A.:

INTRODUCTION

[1]

This is an appeal from the order of the application
    judge, Cameron J., requiring the appellant insurers (referred to collectively
    as Chubb) to pay 90% of certain defence costs of the respondents Dunn and
    Beatty, pursuant to a directors and officers liability insurance policy. That
    policy covered the period from 1999 to 2001 and will be referred to as the 2001
    Policy. At that time, the respondents were executives covered by the 2001
    Policy.

[2]

The application before Cameron J. has a relatively
    unusual history. It was ordered by this court to resolve the ambiguity in
    Endorsement 3 of the 2001 policy and hence its applicability to the
    circumstances of this case.

[3]

The application judge resolved the ambiguity and held
    that Endorsement 3 applies. For the reasons that follow, I agree and would
    therefore dismiss the appeal.

THE GENESIS OF THE APPLICATION

[4]

The
    application before Cameron J. began with companion applications by the two
    respondents each seeking a declaration of entitlement to reimbursement by Chubb
    of certain defence costs (a defined term referred to as Defence Costs in the
    2001 Policy) that they incurred in respect of specific civil actions and
    regulatory proceedings. At first instance, their claims for Defence Costs
    beyond those already being paid by Chubb were dismissed.

[5]

On
    appeal this court described the relevant circumstances as follows as paras.
    8-11:

8.  The
    insurance policy in issue (the 2001 Policy) was one of many issued by Chubb
    to Northern Telecom Limited (now Nortel Networks Corporation).  It covered the Policy Period from 1999 to
    2001 (the Policy Period).  The 2001
    Policy is a variant of a claims made policy.

9.  During
    the Policy Period, the [respondents] participated in certain conduct that
    became the subject of civil proceedings commenced in 2001 and 2002 (the 2001
    Proceedings).  Chubb acknowledges that
    the 2001 Proceedings triggered coverage under the 2001 Policy.

10.  In 2004
    and subsequent years, further proceedings were brought against the
    [respondents].  These proceedings include
    civil cases as well as regulatory proceedings by the Ontario Securities
    Commission and the United States Securities and Exchange Commission.  All of these proceedings include allegations
    against the [respondents] by reason of their conduct in 2001 (the 2001
    Conduct) as well as their conduct in 2003 to 2004 (the 2003 Conduct).  Counsel refer to these 2004 and subsequent
    civil and regulatory proceedings as the Hybrid Proceedings.  All of the Hybrid Proceedings were commenced
    after the expiration of the Policy Period.

11.  Chubb
    acknowledges that the 2001 Conduct pleaded in the Hybrid Proceedings triggers
    coverage under the 2001 Policy because a claim was made regarding the [respondents]
    2001 Conduct during the Policy Period.  Thus, Chubb accepts that it is responsible for 100 percent of the Defence
    Costs incurred by the [respondents] in the Hybrid Proceedings to the extent
    that those proceedings relate to the 2001 Conduct.  However, Chubb takes the position that it is
    not responsible for the [respondents] Defence Costs in the Hybrid Proceedings
    to the extent that those costs relate exclusively to the [respondents] 2003
    Conduct.  As a result of taking the above
    position, Chubb has been paying 50 percent of the [respondents] Defence Costs
    for the Hybrid Proceedings.

[6]

This court allowed the appeal from the dismissal of the
    respondents applications. It concluded that Endorsement 3 of the 2001 Policy, the
    general allocation mechanism for Defence Costs, which would make Chubb liable
    to pay 90% of those costs of the Hybrid Proceedings if it applied, is ambiguous
    as written. As a consequence, it could not determine the applicability of
    Endorsement 3 to these circumstances. It therefore remitted the applications
    back to the Superior Court of Justice to be heard together as a single
    application to resolve the issue. The result was the order by Cameron J.
    presently under appeal.

[7]

In its reasons, this court addressed a number of other
    issues. It found that Endorsement 10, the special allocation mechanism for
    Defence Costs arising from a Securities Transaction has no application to the
    circumstances of this case. It also concluded that the 2001 Conduct and the
    2003 Conduct are not Interrelated Wrongful Acts as that term is used in the
    2001 Policy. Finally, it concluded that absent an applicable allocation
    provision in the 2001 Policy the approach of allocating 50% of the Defence
    Costs of the Hybrid Proceedings to the 2001 Policy was appropriate. These
    determinations finally settled these various issues, and need not be considered
    in this appeal.

THE DECISION APPEALED FROM

[8]

Before
    outlining the reasons of Cameron J., it is helpful to set out the relevant
    provisions of the 2001 Policy. The applicable ensuring clause is Section 1
    which underlines the basic claims made nature of the Policy:

Insuring Clauses

Executive Liability Coverage
    Insuring Clause 1

1.
The Company shall pay on behalf of each of the
Insured Persons

all
Loss
for which the
Insured Person
is not indemnified by
    the
Insured Organization
and which
    the
Insured Person
becomes legally
    obligated to pay on account of any
Claim
first made against him, individually or otherwise, during the
Policy Period
or, if exercised, during
    the Extended Reporting Period, for a
Wrongful
    Act
committed, attempted, or allegedly committed or attempted by such
Insured Person
before or during the
Policy Period
. [Emphasis in original.]

[9]

The relevant parts of the Definitions Section of the
    2001 Policy are as follows:

Definitions

Claim
means:

...

(ii) a civil proceeding commenced by the service of
    a complaint or similar pleading,

...

against any
Insured
    Person
for a
Wrongful Act
...

Defense
    Costs
means that part of
Loss
consisting of reasonable costs ... incurred in defending or investigating
Claims
...

...

Loss
means the total amount which any
Insured
    Person
becomes legally obgligated to pay on account of each
Claim
and for all
Claims
in each
Policy Period
and the Extended Reporting Period, if exercised, made against them for
Wrongful Acts
for which coverage
    applies, including, but not limited to, damages, judgements, settlements, costs
    and
Defense Costs
...

...

Wrongful
    Acts
means any error, misstatement, misleading statement, act, omission,
    neglect, or breach of duty committed, attempted, or allegedly committed or
    attempted, by an
Insured Person
,
    individually or otherwise, in his
Insured
    Capacity
, or any matter claimed against him solely  by reason of his serving in such
Insured Capacity.
[Emphasis in
    Original.]

[10]

Section 8 is also important. The relevant part is as
    follows:

Limit of Liability, Deductible and
    Coinsurance

8.  For the
    purposes of this coverage section, all
Loss
arising out of the same
Wrongful Act
and all
Interrelated Wrongful Acts
of any
Insured Person
shall be
    deemed one
Loss
, and such
Loss
shall be deemed to have originated
    in the earliest
Policy Period
in
    which a
Claim
is first made against
    any
Insured Person
alleging any such
Wrongful Act
or
Interrelated Wrongful Acts
. [Emphasis in Original.]

[11]

Finally, Endorsement 3 is central. It was effective as
    of August 31, 1998 and replaced the previous general allocation provision in
    the Policy, namely Section 12. As written, Endorsement 3 reads, in part:

EXECUTIVE
    PROTECTION POLICY

ENDORSEMENT

Coverage
    Section:
EXECUTIVE LIABILITY

Company:
CHUBB INSURANCE COMPANY OF CANADA

Effective
    date of this endorsement:
AUGUST 31,
    1998

Endorsement
    No.
3

Issued to:
NORTHERN TELECOM LIMITED

To be
    attached to and form part of Policy No.
8156-36-67

It is agreed that:

1.

This
    endorsement shall not apply to an
Employment-Related
    Claim
.

2.

In
    consideration of the premium paid, it is agreed that subsection 12,
Allocation
, is deleted in its entirety and
    the following is inserted:

Allocation

12.       If both
Loss
covered by this coverage section and
Loss
not covered by this coverage section are incurred, either
    because a
Claim
against an
Insured Person
includes both covered
    and uncovered matters or because a
Claim
is made against both an
Insured Person
and others, including the
Insured
    Organization
, the
Insureds
and
    the Company shall allocate such amount as follows:

(a)       with respect to
Defense Costs
, to create certainty in determining a fair and proper
    allocation of
Defense Costs
, 90% of
    all
Defense Costs
which must
    otherwise be allocated as described above shall be allocatd to covered
Loss
and shall be advanced by the
    Company on a current basis; provided, however, that no
Defense Costs
shall be allocated to the
Insured Organization
to the extent the
Insured Organization
is unable to pay by reason of
Financial Impairment
.

This
Defense Cost
allocation shall be the
    final and binding allocation of such
Defense
    Costs
and shall not apply to or create any presumption of any other
Loss
;

...

[Emphasis in
    Original.]

[12]

The ambiguity found by this court arose because of the
    second use of Loss in the first line of Endorsement 3. Simply put, given the
    definition of Loss, can there be a Loss that is not covered, as that first
    line suggests? It was this conundrum that led this court to direct a new
    hearing.

[13]

The fresh evidence tendered on the application directed
    by this court clarified that the second use of Loss in the first line of
    Endorsement 3 was simply a typographical error, unintended and unnoticed by the
    parties to the 2001 Policy. It should have been lower case loss not the
    defined term Loss. That is not now disputed by Chubb.

[14]

The importance of the possible application of
    Endorsement 3 in the 2001 Policy is clear. After the 2001 Policy, Chubb
    continued for some years to provide Nortel with directors and officers
    liability on much the same terms as the 2001 Policy. As Chubb acknowledged in
    its factum, a loss arising from the 2003 Conduct would have potentially been
    covered under the 2003 Policy. However, Chubb rescinded that policy with
    respect to the respondents. Thus, the extent of coverage of their Defense Costs
    of the Hybrid Proceedings must be determined under the 2001 Policy alone.

[15]

The application judge concluded that Endorsement 3 in
    the 2001 Policy applied to these circumstances and therefore ordered Chubb to
    pay 90% of the respondents Defense Costs to defend the Hybrid Proceedings.

[16]

He found that the Hybrid Proceedings are Claims, and,
    as acknowledged by Chubb, there is Loss included in them, namely the Loss (particularly
    for Defense Costs) arising from the 2001 Conduct. Since a Claim for the 2001
    Conduct was first made in the 2001 Policy Period, s. 8 requires that the Claim
    for the same Conduct in the Hybrid Proceedings is deemed to have originated in
    that earlier Policy Period. That is, it is deemed to be a Claim under the 2001
    Policy, and therefore covered.

[17]

The application judge also found that the Hybrid
    Proceedings include uncovered loss, namely that arising from the 2003 Conduct,
    which is unconnected to the 2001 Conduct and was not the subject of a Claim in
    the 2001 Policy Period.

[18]

As a consequence, the application judge applied
    Endorsement 3 to the Hybrid Proceedings to order that 90% of the Defense Costs
    of those Proceedings be allocated to the covered loss and that Chubb be
    required to pay them.

[19]

Finally, the application judge turned to the costs of
    the application and of the steps leading up to it. This court left that issue
    to him, but set out the costs it would have awarded to the respondents for the
    appeal had it granted the declaration they sought. Since the conclusion reached
    by the application judge now does that, and also effectively reverses the
    result reached on the original companion applications, the application judge
    awarded costs to the respondents for that original hearing, for the appeal to
    this court, and for the application remitted to him. He substantially
    discounted the total amounts sought by the respondents. Having in mind the
    amounts set out for costs of the appeal by this court he awarded the respondent
    Dunn a total of $250,000 and the respondent Beatty a total of $110,000.

THE APPELLANTS POSITION IN THIS COURT

[20]

The appellant acknowledges that the substitution of
    loss for the second use of Loss in the first line of Endorsement 3 of the
    2001 Policy resolves the ambiguity found by this court.

[21]

Nonetheless, it maintains the position that Endorsement
    3 does not apply to the Hybrid Proceedings because those Proceedings are not
    Claims made in the 2001 Policy Period. Its position is encapsulated in its
    factum at para. 57:

57.  By its
    terms, Endorsement No. 3 only applies to allocate between covered Loss and
    uncovered loss in
Claims
made in the
    2001 Policy Period in respect of
Wrongful
    Acts
for which coverage applies. Endorsement No. 3 would only be engaged
    where a
Claim
made during the Policy
    Period contains allegations that would give rise to coverage under the 2001
    Policy (e.g. allegations of
Wrongful
    Acts
committed before or during the Policy Period by an
Insured
in his capacity as a director
    or officer of Nortel) as well as allegations which are excluded from coverage
    (e.g. allegations of wrongful conduct engaged in by an
Insured
in some other capacity). [Emphasis in original.]

[22]

The appellant says this in light of the language of
    Endorsement 3,  the claims made nature
    of the 2001 Policy Period, the time-limited definition of Loss, which
    provides only for Claims made in the Policy Period, and the unreasonable
    commercial consequences of applying Endorsement 3 to proceedings like the
    Hybrid Proceedings. In addition, it criticizes the application judge for
    mischaracterizing the Hybrid Proceedings as being an Interrelated Claim, a
    term not used at all in the 2001 Policy.

ANALYSIS

[23]

Endorsement
    3 in the 2001 Policy is the mechanism by which Defense Costs are to be
    allocated between covered Loss and uncovered loss. It applies if both Loss
    covered by the Policy and loss not covered by the Policy are incurred because
    a Claim includes both covered and uncovered matters. This is clear now that
    the ambiguity caused by the first line of Endorsement 3 has been resolved by
    recognizing that it uses both Loss and loss.

[24]

To
    reiterate, the appellants position in this court is that Endorsement 3 only
    applies where a Claim for covered Loss and uncovered loss is made within the
    2001 Policy Period.

[25]

I
    disagree. The definition of Claim in the 2001 Policy is not time limited. It
    does not require that to be a Claim, it must be made within the Policy Period.
    This is supported by the definition of Loss which refers to all Claims in
    each Policy Period, to distinguish them from Claims made outside the Policy
    Period. Only a Claim made within the Policy Period attracts coverage. Thus the
    Policy clearly contemplates that there can be Claims made within the Policy
    Period, which are covered, and Claims made outside the Policy Period, which are
    not.

[26]

In
    the 2001 Policy as a whole, a claim can be a Claim even if not made in the
    2001 Policy Period. There is nothing in the language of Endorsement 3 itself
    that would suggest that Claim means something different there than in the
    rest of the Policy.

[27]

I
    would therefore conclude that nothing in the wording of the 2001 Policy or in
    Endorsement 3 itself requires that the Endorsement is operative only when the
    Claim concerned is made in the 2001 Policy Period. On the plain meaning of the
    language there is no such limitation.

[28]

Nothing
    in the claims made nature of the 2001 Policy or in the definition of Loss
    alters this conclusion. There is no doubt that both the Insuring Clause and the
    definition of Loss require a Claim to be made during the 2001 Policy Period for
    there to be coverage. Both the insuring clause and the definition of Loss are
    fully operative without the limitation to Claim being advanced by the
    appellant.

[29]

Nor
    does this produce a commercially unreasonable result. Chubbs concern is that
    it could be held to account for 90% of Defense Costs in a proceeding many years
    after the expiration of the 2001 Policy where only 1% of the allegations relate
    to misconduct first reported during the 2001 Policy Period. This concern
ignores
the applicability of
    limitations periods to a proceeding brought so long after the fact. More
    importantly, Endorsement 3 is explicitly designed to create certainty in the
    allocation of Defense Costs where a Claim includes both covered and uncovered
    matters. That is an entirely commercially reasonable objective for Endorsement
    3, and a full justification for the presence of such a provision.

[30]

In
    my view, therefore, the application judge was correct to find that Endorsement
    3 of the 2001 Policy applies to the Hybrid Proceedings. The 2001 Conduct
    included in them is as acknowledged by Chubb to be a covered matter. This is
    because of s. 8 of the Policy. Since the Claim for the Loss the 2001 Conduct
    caused was first made during the 2001 Policy Period, s. 8 deems the Loss found
    in the Hybrid Proceedings to arise out the 2001 Conduct to be a Loss
    originating in the 2001 Policy Period. On the other hand, the 2003 Conduct
    included in the Hybrid Proceedings is an uncovered matter because it was in no
    way a Claim made within the 2001 Policy Period.

[31]

In
    these circumstances, Endorsement 3 dictates that 90% of all Defense Costs for
    the Hybrid Proceedings be allocated to the covered Loss. Chubb must therefore
    pay this allocation.

[32]

I
    conclude that the application judge discharged the task mandated by this court.
    He was presented with fresh evidence that resolved the ambiguity in Endorsement
    3 and, based on that, he determined its application to these circumstances. He
    did so correctly and without contradicting any prior findings of other courts.
    His passing reference in describing s. 8 to Interrelated Claims is of no
    moment either to his reasoning or to the validity of his conclusion.

[33]

I
    would therefore dismiss the appellants argument concerning Endorsement 3.

[34]

I
    would award costs of the various proceedings in this matter on the basis agreed
    to by the parties:

a.

Costs of the prior appeal to this
        court to the respondent Dunn in the amount of $35,000 and costs to the
        respondent Beatty in the amount of $15,000.

b.

Costs of this appeal to the
        respondent Dunn in the amount of $40,000 and to the respondent Beatty in the
      amount of $10,000.

c.

All costs awards are inclusive of
        disbursements and applicable taxes.

[35]

The
    appeal is dismissed.

RELEASED:  JAN 18 2011
    (S.T.G.)

S. T. Goudge J.A.

I agree. S. E. Lang J.A.

I agree. Karakatsanis J.A.


CITATION: Duong v. Linamar Corporation (Eston
      Manufacturing), 2011 ONCA 38

DATE: 20110117

DOCKET: C52382

COURT OF APPEAL FOR ONTARIO

Weiler, Blair and Epstein JJ.A.

BETWEEN

Hoa Duong

Plaintiff (Appellant)

and

Linamar
          Corporation carrying on business as

Eston Manufacturing, and 1455989
          Ontario Ltd.

Defendants (Respondents)

J. Douglas Wright, for the appellant

Malcolm J. MacKillop and Heather Wood London, for the
          respondents

Heard: January 10, 2011

On appeal from the judgment of
          Justice Frank J.C. Newbould of the Superior Court of Justice, dated June 2,
          2010.

APPEAL BOOK ENDORSEMENT

[1]

The issue on this appeal is whether the motion judge erred in granting
    summary judgment.  In our opinion, he did not.

[2]

We dismiss this appeal for the reasons given by the motion judge.  Costs
    of the appeal are fixed in the amount of $5,000, inclusive of disbursements and
    all applicable taxes.


CITATION: Fedel v. Tan, 2011
          ONCA 73

DATE: 20110128

DOCKET: C49693

COURT OF APPEAL FOR ONTARIO

OConnor A.C.J.O., Cronk and Watt JJ.A.

BETWEEN:

Joseph Fedel

Applicant (Respondent)

and

Kenneth Tan, Gum Products International Inc.,
          Quality Powderizing Limited, PG Properties Limited, Gum Products
          International Worldwide Inc., Polenton Pacific Corporation, Sunginvest
          Holdings Ltd.
, Tanvest Ltd.

Respondents (
Appellants
)

Alan J. Lenczner, Q.C., and Jordan Goldblatt, for the
          appellants

A.M. Robinson and A. Stephens, for the respondent

Heard: March 15, 2010

On appeal and cross-appeal from the
          judgment of Justice Peter A. Cumming of the Superior Court of Justice dated
          September 16, 2008, with reasons reported at (2008), 93 O.R. (3d) 274.

ENDORSEMENT

[1]

This endorsement addresses the appellants submission that this courts
    order should set aside para. 1 of the judgment below as it applies to PG Properties
    Limited (PGP).

[2]

We do not accept this submission.  Even if it could be said that the
    amended Notice of Appeal raised this issue, the appellants oral argument on
    appeal did not.  The parties did not engage on this issue before this court.

[3]

Moreover, we find merit in the respondents argument that if this issue
    had been raised, the respondent may well have cross-appealed the trial judges
    conclusion that there was insufficient evidence to quantify the respondents
    claims for damages against PGP other than the claim based on the $160,000 loan.

[4]

In any event, we are satisfied that the finding of oppression against
    PGP in para. 1 of the trial judgment was not based solely on the $160,000
    loan.  Leaving aside that loan, there was ample evidence to support the
    finding.

[5]

We, therefore, decline the appellants request.

D. OConnor A.C.J.O.

E.A. Cronk J.A.

David Watt J.A.