COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Bank of Montreal v. Peri Formwork Systems Inc.,

2012 BCCA 4

Date: 20120106

Docket: CA038150

Between:

Bank of Montreal

Respondent

(Petitioner)

And

Peri Formwork
Systems Inc.

Appellant

(Respondent)

And

No.
249 Seabright Holdings Ltd., Squamish Pointe Limited Partnership, Bel-Tar
Holdings Ltd., Pointe of View Developments (Squamish) Inc., Pointe of View
Limited Partnership, POV (Squamish) Inc., 963341 Alberta Inc., 687866 Alberta
Inc., 1128356 Alberta Inc., 1047013 Alberta Inc., Pointe of View Marketing
& Management Inc., Klapstein Family Trust, Balboa Trust, Pacific Pointe
Trust, Randy Klapstein, Thomas Ivanore, Leading Edge Forming Ltd., All Seasons
Roofing (2001) Ltd., L & A Equipment Ltd., Valley Truss Ltd., Varsteel
Ltd., RJM Investments Corp., Ring Creek Management Ltd., Alpine Pacific
Construction Group Ltd., Friction Fit Insulation Inc., Westwood Mechanical
Ltd., and Garibaldi Electrical Contractors Ltd., B & B Excavating and
Landscaping Corp., West Vancouver Trading Inc. dba Squamish Interiors, and
Canadian Mortgage and Housing Corporation

Respondents
(Respondents)

Before:

The Honourable Chief Justice Finch

The Honourable Madam Justice Prowse

The Honourable Madam Justice Newbury
The Honourable Madam Justice Garson
The Honourable Mr. Justice Hinkson

On appeal from:
Supreme Court of British Columbia, April 23, 2010,
(
Bank of Montreal v. No. 249 Seabright Holdings Ltd.
, Vancouver No.
H091697)

Counsel for the Appellant:

M.G. Armstrong

Counsel for the Respondent, Bank of Montreal:

H.M.B. Ferris and K.
  Robertson

Counsel for the Respondent, The Bowra Group Inc (Receiver)

A.M. Gunn

Place and Date of Hearing:

Vancouver, British
  Columbia

September 30, 2011

Place and Date of Judgment:

Vancouver, British
  Columbia

January 6, 2012

Written Reasons by:

The Honourable Madam Justice Garson

Concurred in by:

The Honourable Chief Justice Finch

The Honourable Madam Justice Prowse

The Honourable Madam Justice Newbury

The Honourable Mr. Justice Hinkson

Reasons for Judgment of the Honourable
Madam Justice Garson:

Introduction

[1]

Sometimes a construction lender is faced with a difficult choice when a
debtor defaults before a project is complete, that is, whether to realize on
its security and liquidate the underlying asset or lend further monies in the
hopes that completing the project will increase the likelihood of full
repayment of the debt.  In this case the lender, the Bank of Montreal, chose
the latter course and applied to court for the appointment of a receiver in
order to finish the construction project.  Thus, construction continued.

[2]

The Bank sought, and eventually obtained, an order pursuant to ss. 32(5)
and (6) of the
Builders Lien Act
, S.B.C. 1997, c. 45,

that its
subsequent advances would rank in priority to builders liens filed before the
money was advanced.  It is this priority order that is the subject of this
appeal.  In ordering that the appellants previously filed builders lien would
rank subsequent to the debt incurred after the Bowra Group (the Receiver) was
appointed, the chambers judge construed ss. 32(5) and (6) as permitting
him to make such an order despite the fact that the advances were not made to
the original debtor, but rather to a receiver, and despite the fact that the
loan was a new loan on different terms than the existing mortgage security.

[3]

On appeal, the lien holder, Peri Formwork Systems Inc., argues that the relevant
provisions of the
Builders Lien Act
cannot be interpreted so broadly and
the chambers judge erred in so doing.  The respondents, the Bank of Montreal and
the Receiver, contend that the chambers judge correctly interpreted the
legislation.

[4]

In the alternative, the respondents argue that the chambers judge could
have made the same order under the umbrella of the extant proceeding under the
Companies
Creditors Arrangement Act
, R.S.C., 1985, c. C-36.  The appellant says that
the
CCAA
proceeding had terminated when the Receiver was appointed because
the debtor failed to achieve a reorganization.

[5]

Until now, ss. 32(5) and (6) have not been considered by this Court.

[6]

Before turning to the analysis of the issues raised on this appeal, I
will describe in more detail the background to this dispute.

Facts

[7]

This appeal concerns a builders lien filed on a five-phase residential
land development project in Squamish known as Coastal Village.

[8]

The Bank of Montreal was a lender to the owners and developers of the
project pursuant to a February 2008 lending commitment of up to $37,968,750
plus interest at bank prime plus 1/4 percent.  The loan was payable on demand,
or failing demand, by July 31, 2009.  Payment of the loan was secured in part by
a mortgage registered against title to the property.

[9]

Peri Formwork was subcontracted to supply concrete formwork equipment and
did so for all phases of the development.  It was not paid by the contractor
who, in turn, had not been paid by the owners.

[10]

On June 21, 2009, the Bank of Montreal made demand on the owners for repayment
of its loan.  The balance outstanding on the loan as at June 30, 2009, was
$29,002,860.

[11]

On July 21, 2009, the owners sought and received a stay of proceedings
under the
CCAA
.  In the initial
CCAA
order, Mr. Justice Rice ordered
that:  a) the stay of proceedings did not prevent the filing of builders liens
or the commencement of legal proceedings to enforce those liens; b) the owners
were permitted to borrow up to $2 million by way of debtor-in-possession
financing (DIP financing) from the Bank of Montreal; c) the DIP financing was
given priority over all other security interests including the builders liens.

[12]

On July 28, 2009, Peri Formwork filed a builders lien claim in the
amount of $357,984.52.

[13]

As at November 3, 2009, the amount due to the Bank of Montreal pursuant
to the initial lending commitment in 2008 was $29,509,603.72.  In addition, the
Bank had advanced $2 million in DIP financing pursuant to the
CCAA
stay
order for a total lending commitment of $31,509,603.72.

[14]

On October 13, 2009, in the
CCAA
proceeding, further DIP
financing from the Bank of Montreal was approved in the amount of $21 million.
That order included a term providing that the DIP financing security interest had
priority over all other creditors including builders lien claims.  Peri
Formwork and other builders lien claimants unsuccessfully opposed the priority
order and then filed an appeal from the order.  However, those appeals became
moot and did not proceed because on December 8, 2009, the
CCAA
stay order
was not renewed, the owners having failed to achieve a restructuring
arrangement.  By December 8, 2009, the Bank of Montreal had not provided any further
DIP financing.

[15]

The Bowra Group, which had been the monitor appointed in the
CCAA
proceedings,

was appointed Receiver by Mr. Justice Rice on December 8, 2009.  One of the
terms of the December 8, 2009, order was that the Receiver was permitted to
borrow up to $21 million to complete the construction of the project and to provide
security through a Receivers Borrowing Charge on the property.

[16]

The Bank of Montreal sought an order giving the Receivers Borrowing
Charge priority over lien claims.  The priority sought by the Bank was opposed
by Peri Formwork and other lien claimants.  The question of priority was not determined
in the December 8 order; instead, that order gave the Bank and the Receiver
liberty to apply at a later date for an order determining priorities.
Paragraph 19 of the order provided:

THIS COURT
ORDERS that, the Receiver be at liberty and it is hereby empowered to borrow
from Bank of Montreal by way of a revolving credit or otherwise, such monies
from time to time as it may consider necessary or desirable, for the sole
purpose of completing construction, on the Property as described in the
Monitors First Report to Court filed August 6, 2009, provided that the
outstanding principal amount of such borrowing does not exceed the principal
amount of $21,000,000 (or such greater amount as this Court may by further
Order authorize) at any time, and a rate of interest not to exceed 1% above the
Bank of Montreals prime rate of interest, as the Receiver deems advisable for
such period or periods of time as it may arrange, for the purpose of funding
the exercise of the powers and duties conferred upon the Receiver by this
Order, including interim expenditures.  The whole of the Property shall be and
is hereby charged by way of a fixed charge (the Receivers Borrowing Charge)
as security of the payment of the monies borrowed, together with interest and
charges thereon, in priority to all security interests, trusts, liens, charges
and encumbrances, statutory or otherwise, in favour of any person, save and
except the Receivers Charge and save and except claims of builders liens filed
prior to the date of this Order.
This Order shall be without prejudice to
the right of the Receiver or the Bank of Montreal to apply to the Court for
priority of any funds advanced or to be advanced under the Receivers Borrowing
Charge pursuant to paragraph 19 of this Order over any and all builders liens
or claims of builders lien.
[Emphasis added.]

[17]

On December 9, 2009, the Bank of Montreal commenced foreclosure
proceedings and on January 27, 2010, Mr. Justice Pitfield granted an order
nisi
.
He also ordered that the December 8, 2009 order appointing the Bowra Group as Receiver
be incorporated in the foreclosure order in the same manner and effect as if
the Bowra Group Inc. was appointed in the [foreclosure] proceedings.

[18]

As is explained in more detail below, the loan authorized by the order
made December 8, 2009, has different terms than the original lending
commitment.

[19]

On April 23, 2010, pursuant to clause 19 of the December 8, 2009, order,
the Bank applied for an order giving the $21 million Receivers Borrowing Charge
priority over the lien claims filed prior to December 8, 2009, including Peri
Formworks lien claim.

[20]

At the hearing, Mr. Justice Rice gave the following brief reasons for
judgment:

I really do appreciate the input
on this, all of you.  Its always informative, and I certainly took to heart
what Mr. Armstrong said that I  but I did come really to the conclusion that
the new regime, which has been in for a few years, allows the advances to
climb, climb, climb.  I accept the submissions of Ms. Ferris.  The order will
be according to the first option that  the one that weve used before, Ms.
Ferris.

[21]

The lien claims over which the Bank of Montreal obtained priority totalled
$2,050,672.96.  The Receiver made arrangements with certain claimants to pay
them $1.655 million for past services, which payment was to be made from the
$21 million facility.  The amount of the distributions to the other lien
claimants has not been disclosed to the Court or to Peri Formwork.  The latter
was not included as a payee in the proposed distribution to the lien claimants.

[22]

Before December 8, 2009, it was the assessment of the monitor that the
sale of the development on an as is basis, that is, without continuing
construction, would result in a significant shortfall to the mortgagee.  The monitor
projected that a sale of the project after completion of phases two and three would
likely result in a substantial reduction of the shortfall.

Issues on Appeal

[23]

The appellant says the chambers judge misinterpreted ss. 32(5) and (6)
and that he ought not to have granted priority to the Receivers Borrowing Charge
over its builders lien claim.  It says that the judge erred in the following
ways:

·

The word further advances in s. 32(5) must be a reference to
the original loan and does not include a new loan that is secured by a different
charge on different terms than the original mortgage.

·

The term further advances in s. 32(5) does not include a loan
to a receiver; it can only be a reference to a loan to the same borrower. To
interpret s. 32(5) as including loans to a receiver conflicts with the
priorities established by s. 21.

·

Even if s. 32(5) could be construed as including loans to
receivers and the Bank is correct that s. 32(5) permits the priority it
asserts, the Bank has not complied with s. 32(6) and the chambers judge erred
in failing to consider and apply s. 32(6).

·

The chambers judges reasons are insufficient for meaningful
appellate review.

[24]

The Bank and the Receiver also argue that this Court should dismiss the
appeal on the ground that there are other sources of jurisdiction to grant the impugned
priority order, either under the
CCAA
proceeding or the Courts inherent
jurisdiction.  Subsumed in this issue is the question of whether the
CCAA
proceeding was effectively terminated upon the appointment of the Receiver when
the
CCAA
stay order expired.

Analysis

I.        Statutory provisions

[25]

The statutory provisions that are pertinent to this appeal are ss. 21
and 32 of the
Builders Lien Act
.  I have emphasized the particular words
that require interpretation in this appeal.

[26]

Section 21 of the
Act
reads as follows:

A claim of lien filed under this
Act takes effect from the time work began or the time the first material was
supplied for which the lien is claimed, and it has priority over all judgments,
executions, attachments and
receiving orders
recovered, issued or made
after that date.

[27]

The pertinent parts of s. 32 are:

32 (1) Subject to subsection (2), the amount secured in
good faith by a registered mortgage as either a direct or contingent liability
of the mortgagor has priority over the amount secured by a claim of lien.

(2) Despite subsection (1), an advance by a mortgagee
that results in an increase in the direct or contingent liability of a
mortgagor, or both, under a registered mortgage occurring after the time a
claim of lien is filed ranks in priority after the amount secured by that claim
of lien.

(3) In a proceeding for the enforcement of a claim of
lien,

(a) the court may order the sale of mortgaged land at
an upset price of at least the amount secured by all registered mortgages that
have priority over the claim of lien, court ordered costs and the costs of the
sale, and

(b) the amount secured by any registered mortgages must
be satisfied out of the proceeds of the sale in the order of their priorities
and in priority over the claim of lien to the extent provided under this
section.

(4) A mortgagee who applies mortgage money in payment of
a claim of lien that has been filed is subrogated to the rights and priority of
the lien claimant to the extent of the money applied.

(5) Despite subsections (1) and (2) or any other
enactment, if one or more claims of lien are filed in a land title office in relation
to an improvement,
a mortgagee
may apply to the court for an order that
one or more
further advances
under
the
mortgage are to have
priority over the claims of lien.

(6) On an application by a mortgagee under
subsection (5), the court must make the order if it is satisfied that

(a) the advances will be applied to complete the
improvement, and

(b) the advances will result in an increased value of
the land and the improvement at least equal to the amount of the proposed
advances.

II.       Order could be made under the extant CCAA
proceeding

[28]

I find it convenient to turn initially to the Banks argument that,
although the chambers judge explicitly stated that he was exercising his
jurisdiction under the
Builders Lien Act
, he could have made the same
order under the
CCAA
.

[29]

The order was made in the same proceeding that was commenced under the
CCAA
on July 21, 2009.  The initial
CCAA
order was renewed on seven occasions
but was allowed to expire on December 8, 2009.  The Bank argues that, despite the
expiry of the stay, the
CCAA
proceeding remained extant.  I find it
useful to consider the general purpose and goal of a
CCAA
proceeding in
order to judge whether this proceeding could be said to have continued in
furtherance of that purpose after December 8, 2009.

[30]

The purpose of the
CCAA
was discussed by this Court in
Chef
Ready Foods Ltd. v. Hongkong Bank of Canada
(1990), 51 B.C.L.R. (2d) 84
(C.A.) at 88:

The purpose of the C.C.A.A. is to
facilitate the making of a compromise or arrangement between an insolvent
debtor company and its creditors to the end that the company is able to
continue in business... When a company has recourse to the C.C.A.A. the court
is called upon to play a kind of supervisory role to preserve the status quo
and to move the process along to the point where a compromise or arrangement is
approved or it is evident that the attempt is doomed to failure.

[31]

In
Century Services Inc. v. Canada (Attorney General)
, 2010 SCC
60, Deschamps J., for a majority of the Supreme Court of Canada, discussed
limitations on the exercise of
CCAA
authority.  One of the issues in
Century
Services
was whether the chambers judge had jurisdiction under the
CCAA
to maintain the stay once the debtor, concluding that reorganization was not
possible, made an assignment into bankruptcy.  The Court held that the
CCAA
and
Bankruptcy and Insolvency Act,
R.S.C., 1985, c. B‑3,
share the remedial goal of avoiding social and economic costs upon liquidation of
a debtors assets and that the
CCAA
stay could be used as a bridge to
foster a harmonious transition from the
CCAA
scheme to the
BIA
scheme.  In discussing the limitations of
CCAA
authority, the Court held
that:

[59]      Judicial discretion must of course be exercised in
furtherance of the
CCAA
s purposes.  The remedial purpose I
referred to in the historical overview of the Act is recognized over and over
again in the jurisprudence.  ...

The legislation is remedial in the purest sense in that it
provides a means whereby the devastating social and economic effects of
bankruptcy or creditor initiated termination of ongoing business operations can
be avoided while a court-supervised attempt to reorganize the financial affairs
of the debtor company is made.

(
Elan Corp. v.

Comiskey
(1990), 41 O.A.C. 282,
at para. 57,
per
Doherty J.A., dissenting)

...

[71]      It is well established
that efforts to reorganize under the
CCAA
can be terminated and the stay
of proceedings against the debtor lifted if the reorganization is "doomed
to failure" (see
Chef Ready
, at p. 88;
Philip's Manufacturing
Ltd., Re
(1992), 9 C.B.R. (3d) 25 (B.C.C.A.), at paras. 6-7). However, when
an order is sought that does realistically advance the
CCAA
's purposes,
the ability to make it is within the discretion of a
CCAA
court.

[32]

In the case at bar, the proceedings had reached the point where it had
become obvious that the reorganization was doomed to failure and, for all
intents and purposes, the
CCAA
action had ended.  Unlike the case in
Century
Services
, the stay order expired and there was no assignment into
bankruptcy; instead, the Bank of Montreal moved immediately to appoint the Receiver
and very quickly to foreclose on the asset. This action precluded the goal of
reorganization.

[33]

That the courts jurisdiction under the
CCAA
proceeding was
exhausted and that this was recognized by all parties is demonstrated by the
fact that, although DIP financing was authorized prior to the contentious loan,
the Bank chose not to make use of this mechanism.  I see this as a tacit
acknowledgment by the Bank that the DIP loan was no longer appropriate because
the
CCAA
order had expired.

[34]

Redfern Resources Ltd. (Re)
, 2011 BCCA 333 (Chambers), concerned
an application for directions as to whether or not leave to appeal was required
pursuant to s. 13 of
CCAA
. Tysoe J.A. decided that leave was not
required because the order under appeal was not made under the
CCAA.
Although
the proceedings remained styled as a
CCAA
proceeding, the original stay
order had expired and the debtor was assigned into bankruptcy.  In concluding
that jurisdiction under the
CCAA
proceedings was exhausted, Tysoe J.A.
held at para 8:

In my opinion, the order or
decision of Burnyeat J. was not made under the
CCAA
.  The efforts
to reorganize Redcorp had come to an end, and there was no ongoing attempt to
have Redcorp file a plan of arrangement.  Alvarez & Marsal Canada Inc.
simply filed its application in the
CCAA
proceeding as a matter of
convenience.  The fact that Alvarez & Marsal Canada Inc. was appointed
in the
CCAA
proceeding did not require the application to be filed in
that proceeding.  Alvarez & Marsal Canada Inc. could have, and more
properly should have, commenced a separate proceeding.  Alvarez &
Marsal Canada Inc. was not appointed as interim receiver or receiver pursuant
to the
CCAA
, but rather pursuant to the
BIA
and the
Law and
Equity Act
, R.S.B.C. 1996, c. 253 ...

[35]

In conclusion, when the last order expired on December 8, 2009, the
CCAA
proceeding was effectively terminated.  The object of a
CCAA
proceeding
is to allow the debtor to remain in possession of the secured asset while he
has an opportunity to achieve a reorganization.  Ms. Ferris, counsel for the
Bank, argues that the appointment of a receiver does not necessarily preclude
the goal of reorganization and that, in this case, it may yet happen.  Here, as
in
Redfern
, the efforts to reorganize [the debtor] had come to an
end.  The order appointing the Receiver was made pursuant to the courts
jurisdiction under the
Law and Equity Act
, R.S.B.C. 1996, C. 253, and
the then applicable
Supreme Court Rules
, B.C. Reg. 221/90.  Therefore, I
do not agree that there was any life remaining in the
CCAA
proceeding.  It
ended on December 8, 2009, and as a result, the priority order made by the
chambers judge could not be made under the umbrella of the
CCAA
proceeding.

III.      Order could be made under the courts
inherent jurisdiction

[36]

As to the respondents next alternative argument, that the court had
inherent jurisdiction to grant priority to the Bank in this case based on
Robert
F. Kowal Investments Ltd. v. Deeder Electric Ltd.
(1975), 9 O.R. (2d) 84, I
am of the view that there is no merit to the proposition that the court has an
inherent jurisdiction that could override the specific statutory language found
in the
Builders Lien Act
(see
Baxter Student Housing Ltd. v. College
Housing Co-operative Ltd
., [1976] 2 S.C.R. 475 at 480, citing
Montreal
Trust Co. v. Churchill Forest Industries (Man.)
Ltd., [1971] 4 W.W.R. 542.)
This argument was not pressed on appeal and need not be considered further.

IV.      Insufficient reasons for judgment

[37]

The chambers judges reasons were brief but, taken in the context of the
entire record of the proceedings, it is my view that their brevity does not in
this case pose a barrier to appellate review.  At the chambers hearing, counsel
for the Bank argued that the court had jurisdiction to give priority to its $21
million loan in a number of ways:  making an order granting priority under the
courts equitable jurisdiction; granting priority through application of ss.
32(5) and (6) of the
Builders Lien Act
and amending the receivership
order to state that the Bank will advance the money and that the loan meets the
requirements of s. 32(6); discharging the lien under s. 24 of the
Builders
Lien Act
after the Bank posts nominal security; or making an order in the
CCAA
proceeding granting priority.  After a lively exchange between counsel and
the bench, the chambers judge accepted her argument in favour of a broad
interpretation of the exception created by ss. 32(5) and (6).  I would not
accede to this ground of appeal.

V.       Interpretation
of s. 32(5)

[38]

I now turn to what I conclude is the determinative issue on this appeal,
that is, the question

of what constitutes a further advance under s. 32(5).

[39]

To recapitulate, the Receivers Borrowing Charge was created in the
order of December 8, 2009, which also provided for the appointment of the Receiver.
Paragraph 19 of the order, quoted above, authorizes the Receiver to borrow up
to $21 million from the Bank of Montreal for the sole purpose of completing
construction.  The order was, in turn, registered on title as a Certificate of
Pending Litigation by the Bank of Montreal pursuant to the court order
authorizing it.

[40]

The appellant argues that the Receivers Borrowing Charge cannot be
given priority pursuant to ss. 32(5) and (6) as it is a new loan, to a
different borrower.  The loan has a far different principal amount and a
different interest rate than the original loan.  It also includes for instance
a success fee of at least $300,000 to be paid from the first advance.

[41]

The appellant notes too that the owners inability to meet their
financial obligations in June 2009 was precipitated by the Banks decision to
curtail advances under its existing mortgage loan.  At the time, the Bank had
advanced only $29 million of the $38 million loan limit.  The appellant argues
that the Bank could have chosen at that time to maintain its existing loan
facility and apply for priority to the lien claims pursuant to s. 32(5) but
chose not to take that course of action.  Rather, it petitioned for foreclosure
on the existing mortgage and obtained an order authorizing the loan of $21
million on the security of the Receivers Borrowing Charge, not the foreclosed
mortgage.

[42]

The appellant also observes that the notice of motion originally brought
by the Bank asked for an order deeming the $21 million loan to be a further
advance under the existing security agreement.  The appellant says that the
reason the Bank sought the deeming order was to shoehorn its way into s.
32(5).  The chambers judge did not make the requested deeming order.

[43]

The Bank and the Receiver note that the remaining loan facility was
insufficient to meet the estimated costs of completion.  The Bank says it was
compelled to obtain an order
nisi
of foreclosure because it needed
vesting orders so as to be in a position to transfer completed condominium
units to purchasers.

[44]

At the hearing before the chambers judge that led to the order under
appeal, the Banks counsel took the position that the $21 million loan was the
same mortgage.  On appeal, the Bank takes a somewhat different position; it
argued that there is nothing in s. 32(5) that requires further advances to be
either from the original mortgagor or pursuant to the original mortgage.  The
Bank says that to construe the section in such a restrictive manner would
defeat the sections purpose because usually when an owner/developer defaults
there will
not
be (as was the case here) sufficient room in the existing
financing arrangement, on the existing terms, to complete construction.  The
Bank argues the section is designed to permit a lender to choose to finance
construction to completion, regardless of the terms of its existing security.  It
says that, in order to achieve the goals of s. 32(5), it is important not
to place too restrictive an interpretation on the section.  The Bank (and to a
somewhat lesser extent, the Receiver) argues that the section should be given a
more expansive interpretation and not the more restrictive approach contended
for by the appellant.

[45]

In its factum and in its oral submission, the Receiver appears to
interpret the $21 million loan in this case as a further advance under the same
mortgage and the section as requiring the further advance to be from the same
lender.

(a)
Rizzo Shoes

[46]

I now proceed to interpret s. 32(5).  In doing so, I draw upon the
approach taken by the Supreme Court of Canada in
Rizzo Shoes Ltd. (Re)
,
[1998] 1 S.C.R. 27.  In that case
,
the Court was required to interpret
the
Employment Standards Act,
R.S.O. 1980, c. 137; specifically, the
provision of that
Act
that provided for payment of severance pay to
employees whose employment has been terminated.  The question for the Court was
whether it could be said that the employees employment was terminated when
that termination came about as a consequence of the employers bankruptcy.

[47]

Speaking for the Court, Iacobucci J. concluded that it was consistent
with the object and purpose of that
Act
to interpret the provision under
consideration as including a termination brought about by bankruptcy.

[48]

The first step in his route to that conclusion was an examination of the
plain meaning of the section under consideration.  At para. 20, he noted that a
plain reading of the section favoured a more restrictive interpretation:

At the heart of this conflict is
an issue of statutory interpretation. Consistent with the findings of the Court
of Appeal, the plain meaning of the words of the provisions here in question
appears to restrict the obligation to pay termination and severance pay to
those employers who have actively terminated the employment of their employees.
At first blush, bankruptcy does not fit comfortably into this interpretation.
However, with respect, I believe this analysis is incomplete.

[49]

At para. 21, Iacobucci J. cited with approval Elmer Driedgers oft-cited
enunciation of the principled approach to the interpretation of statutes:

Although much has been written about the interpretation of
legislation (see, e.g., Ruth Sullivan,
Statutory Interpretation
(1997);
Ruth Sullivan,
Driedger on the Construction of Statutes
(3rd ed. 1994)
(hereinafter
Construction of Statutes
); Pierre-André Côté,
The
Interpretation of Legislation in Canada
(2nd ed. 1991)), Elmer Driedger in
Construction
of Statutes
(2nd ed. 1983) best encapsulates the approach upon which I
prefer to rely. He recognizes that statutory interpretation cannot be founded
on the wording of the legislation alone. At p. 87 he states:

Today there is only one principle or approach, namely, the
words of an Act are to be read in their entire context and in their grammatical
and ordinary sense harmoniously with the scheme of the Act, the object of the
Act, and the intention of Parliament.

[50]

At para. 22, Iacobucci J. noted the remedial directive from the Ontario
Interpretation
Act
, R.S.O. 1980, c. 219:

I also rely upon s. 10 of the
Interpretation
Act
, R.S.O. 1980, c. 219, which provides that every Act shall be deemed to
be remedial and directs that every Act shall receive such fair, large and
liberal construction and interpretation as will best ensure the attainment of
the object of the Act according to its true intent, meaning and spirit.

(It should be noted that s. 8 of British Columbias
Interpretation
Act
, R.S.B.C. 1996, c. 238, mirrors this wording: Every enactment must be
construed as being remedial, and must be given such fair, large, and liberal
construction and interpretation as best ensures the attainment of its objects.)

[51]

Justice Iacobucci then applied those interpretive guides to the issue before
the Court.  He found that the Ontario Court of Appeal had failed to place
sufficient importance on the object and scheme of the
Act
:

[23]      Although the Court of
Appeal looked to the plain meaning of the specific provisions in question in
the present case, with respect, I believe that the court did not pay sufficient
attention to the scheme of the
ESA
, its object or the intention of the
legislature; nor was the context of the words in issue appropriately
recognized. I now turn to a discussion of these issues.

[52]

And finally, at para. 27, he held that a literal interpretation of the
Act
was incompatible with the remedial purpose of the legislation:

In my opinion, the consequences
or effects which result from the Court of Appeals interpretation of ss. 40 and
40
a
of the
ESA
are incompatible with both the object of the Act
and with the object of the termination and severance pay provisions themselves.
It is a well established principle of statutory interpretation that the
legislature does not intend to produce absurd consequences. According to Côté,
supra
,
an interpretation can be considered absurd if it leads to ridiculous or
frivolous consequences, if it is extremely unreasonable or inequitable, if it
is illogical or incoherent, or if it is incompatible with other provisions or
with the object of the legislative enactment (at pp. 378-80). Sullivan echoes
these comments noting that a label of absurdity can be attached to
interpretations which defeat the purpose of a statute or render some aspect of
it pointless or futile (Sullivan,
Construction of Statutes
,
supra
,
at p. 88).

(b)      Application
of
Rizzo Shoes
interpretive principles to s. 32(5)

i.        Plain
meaning interpretation

[53]

Applying the analysis employed in
Rizzo Shoes
to this case, the
first step is to consider the plain meaning of s. 32(5).

[54]

I begin by noting that mortgage is not a defined term in the
Builders
Lien Act

nor in any other relevant statute
.

[55]

Unlike s. 32(1), reference is not made in s. 32(5) to a registered
mortgage but simply to a mortgage, arguably suggesting that the mortgage
referenced in the provision under consideration need not be the same mortgage as
the mortgage originally registered.  However, at odds with this interpretation
is the fact that the plain meaning of the words further advances appears to
require the advance to be made pursuant to a pre-existing mortgage through
which money has already been lent.

[56]

Also, it should be noted that the opening words of s. 32(5), Despite
subsections (1) and (2), appear to relate back to the mortgage security in
place when the lien is filed.  The language further advances must be
interpreted with consideration of s. 32(5)s reference to ss. 32(1) and (2).  This
supports the conclusion that ss. 32(5) and (6) are exceptions to the priority
rules established in ss. 32(1) and (2).  In my view, the fact that s. 32(2)
contemplates an increase in the debtors liability under an existing mortgage
and subordinates the lenders priority, speaks in favour of the view that the
exception under ss. 32(5) and (6) addresses a narrower set of circumstances: where
the lender is willing to make further advances but only if they can be given
priority.

[57]

Thus a plain reading of the section would favour an interpretation that
the further advances relate to the original mortgage.

ii.       Scheme
and Purpose of the
Act

[58]

Following the
Rizzo Shoes
approach, the next issue for consideration
is the overall scheme and purpose of the
Act
and provisions in
question.

[59]

The purpose of the
Builders Lien Act
and its predecessor statutes
was discussed by this Court in
Northern Thunderbird Air Ltd. v. Royal Oak &
Kemess Mines Inc.
, 2002 BCCA 58.  Beginning at para. 24, the Chief Justice,
speaking for the Court, said:

[24]      The purpose of the predecessor statute to the one
presently under consideration, was considered by McLachlin J.A. (as she then
was) in
Kettle Valley Contractors Ltd. v. Cariboo Paving Ltd.
(1986), 1
B.C.L.R. (2d) 236 (C.A.). She cited at 251
Hickey v. Stalker
53 O.L.R.
414, [1924] 1 D.L.R. 440 (C.A.) as correctly stating the purpose of mechanics
lien legislation:

Speaking generally, the object of the
Mechanics Lien Act
is to prevent owners of the land getting the benefit of buildings erected and
work done at their instance on their land without paying for them.

[25]      I would, as well, look
at the matter from the perspective of those who supplied the materials or did
the work on the land. The corollary of the principle expressed in
Hickey
(supra)
is that the purpose of the
Act
is to protect those who
contribute to the erection of buildings, or other physical improvements on
another's lands, and to ensure their payment by granting them a security
interest in the land. The protection and the security in favour of a lien
claimant come at the expense of the land owner, and of others having claims
against the owner relating to the improvement which may be unsecured.

[60]

Thus, one important purpose of the statutory scheme is to ensure that
contractors and workers are paid for materials provided and for services
rendered.

[61]

The current
Builders Lien Act
came into force on February 1,
1998.  One goal in revamping the scheme was to bring commercial certainty to
construction projects affected by the legislation (
Marbella Pacific
Construction Ltd. v. Fast Trac Bobcat & Excavating Services & Coast
Aggregates Ltd.
, 2002 BCSC 803 at para. 36).  The importance of this
objective was noted in
Nita Lake Lodge Corp. v. Conpact Systems (2004) Ltd.
,
2006 BCSC 885 at para.14:

... Certainty in relation to
rights and obligations arising in the construction industry is a worthy
objective.  That certainty is best provided by requiring strict adherence
to a clearly stated legislative scheme that was not intended to create or
negative a contractual right but to create security in relation to the
performance of a contract.

[62]

The purposes of the
Builders Lien Act
are pursued through a
legislative scheme that employs three main mechanisms: the right to a lien,
holdback provisions and the creation of a trust (
Marbella Pacific
Construction Ltd.
at para. 29).  These mechanisms create rights unknown to
common law.  The jurisprudence is clear that because the
Act
creates new
rights, the threshold question of entitlement is strictly construed; it is only
once entitlement is established that the
Act
is to be construed
liberally and with consideration to its remedial purpose, see:
Clarkson Co.
v. Ace Lumber Ltd.
, [1963] S.C.R. 110 at 114 and
Chaston Construction
Corp. v. Henderson Land Holdings (Canada) Ltd.
, 2002 BCCA 357 at para. 50.
This principle is consistent with concern for certainty and fairness to all
stakeholders in the construction industry.

[63]

The combined effect of ss. 32(1) and (2) is to protect a secured
lenders priority status regarding debt incurred by a borrower pursuant to a
registered mortgage before a lien is filed.  This protects secured lenders by affording
them priority over funds lent or promised before a lien is registered; thereby
permitting lenders to adequately assess the value of their security when
deciding whether or not to make an advance under a loan.  Pursuant to s. 32(2),
where a secured lender provides an advance after a lien has been filed, the
lien holder is given priority.  This protects the lien holder, who has provided
work and/or materials, and ensures that the secured creditor does not lend
money without notice that its claim is subordinate.  Overall, the lien holder
is given priority status but the secured lender is protected by fair notice,
thereby pursuing the goals of protection and certainty.

[64]

Subsections (5) and (6) create an exception to this general scheme
whereby advances made after a lien has been filed may obtain priority through a
court order.  Such an order is mandatory when the requirements of ss. 32(5) and
(6) are met; the provision therefore gives the court no room to contemplate the
fairness or desirability of allowing the application.

[65]

The British Columbia Law Institute and the British Columbia Ministry of
Employment and Investment addressed the purpose of the exception in
Questions
and Answers on the New Builders Lien Act
(Vancouver, British Columbia:
British Columbia Law Institute, 1997) at 17.4:

Where a project encounters difficulties and the market value
of the partially completed improvement is less than the amount of the advances
already made by the lender, everyone loses.  The lender is not fully paid off
and there is no money left for the lien claimants.  The lender, however, might
be prepared in principle to
continue
to advance money
under its
mortgage
if it could be assured that those additional advances would have
priority over the liens.  If this were done, the project could be completed.
Its value would probably match or exceed the amount of the lenders claim,
raising the possibility that something will be left for the lien claimants.
This outcome would be in the best interests of all concerned but the basic
priority rule impedes such an arrangement.

For this reason, the Act creates an exception to the basic
priority rule.  Where lien claims have been registered, the lender may apply to
the court for an order that one or more
further advances under its mortgage
are to have priority over the lien claims. The court must make that order if it
is satisfied that:

(a) the advances will be applied to complete the
improvement, and

(b) the advances will result in an increased value of the
land and the improvement at least equal to the amount of the proposed advances.

... An order made under this provision permits work on the
improvement to continue.

[Emphasis added.]

[66]

While this excerpt considered the original wording of s. 32, which was
subsequently re-enacted in 1998, the provisions remain sufficiently similar
that this statement is instructive.  I agree with the description of the
legislative purpose as set out in the above excerpt.

[67]

In its factum, the Bank argues that a remedial reading of the
legislation is necessary to give any effect to the subsections.  The Bank
contends:

The narrow interpretation put
forward by the appellant would mean that an order under subsections (5) and (6)
could only be made in very limited circumstances.  Such an order could only be
made where: 1) there are still advances left to be made under the original
registered mortgage; and 2) the creditors have not sought the appointment of
a receiver or trustee to step into the shoes of the owner/original mortgagor.
Such an interpretation would defeat the remedial purpose of the 1997 amendments
to the
Builders Lien Act
and is inconsistent with the practical reality
of the construction industry and construction financing.  It would mean that
these subsections would rarely operate to allow an improvement to be
completed.  Where a project runs into difficulty, it is unlikely that there
will be funds left unadvanced under the original financing commitment.  It is
also unlikely that a mortgagee would be prepared to allow the defaulting owner
to remain in control of the projects completion in circumstances where the
project runs into difficulty.  Far more likely is the appointment of a receiver
(by instrument or court order) or trustee to take control of the asset
comprising the project.

[68]

The purpose of ss. 32(5) and (6), interpreted within the overall scheme
of the
Builders Lien Act
, is consistent with the goal of promoting the
interests of multiple stakeholders in the industry by, in specific
circumstances, enabling the completion of projects that encounter financial difficulty.
The lender must satisfy the court that the advances will increase the value of
the land, that the increase in value will at least match the value of the
advance, and that the loan will be applied to complete an improvement.  These
requirements protect the lien holder by providing assurance that the advance
will not ultimately increase the proportion of the secured debt ranking in
priority to the lien.

[69]

The question that remains however is just how broad the Legislature
intended the exception to be.  In other words, whether the words further
advances are broad enough to include any loan secured by a mortgage or whether
additional advances given by the same mortgagee that are not secured by the
pre-existing registered mortgage excluded.  I agree with the Bank that the
scenario in which ss. 32(5) and (6) come into play will almost always be one of
financial difficulty.  However, I do not think that the plain meaning of s.
32(5) may be stretched so far that, upon application by the creditor, any loan
secured by a mortgage may fit within s. 32(5).  This is an overly broad
construction of the provision in question.  It is both inconsistent with the
plain meaning of the provisions and unnecessary to fulfil the remedial purposes
of the
Act
.  To give the words further advances any meaning, the Legislature
must be presumed to have intended there be a link to the original mortgage.  In
this case there was no link because of the order
nisi
and the existence
of a new loan secured by an entirely new charge.  I cannot read this
legislation as extending so far as is contended for by the respondent Bank.

[70]

My conclusion that the loan to the Receiver does not have priority over
previously filed liens is dispositive of this appeal.  The Court agreed to sit
as a division of five judges because the respondents contended that we should
overrule our previous decision in
Yorkshire Trust Co. v. Canusa Construction
Ltd.
(1984), 10 D.L.R. (4th) 45 (B.C.C.A.)

concerning the question
of whether, pursuant to s. 21, liens take priority over loans to receivers.  Given
my conclusion as to the breadth of s. 32(5), it is not necessary to decide this
alternate but related ground of appeal.

VI.      Section 32(6)

[71]

Given that I have decided the loan to the Receiver is not a further
advance, it is unnecessary to consider the alleged failure of the chambers
judge to consider this subsection.

Summary of Conclusions

[72]

In summary, I conclude that the $21 million loan made to the Receiver in
this case was not a further advance within the meaning of s. 32(5) because it
is a new loan.  The words further advance must refer back to the original
lending commitment.

[73]

While
Rizzo Shoes
is authority that legislation ought to be
interpreted in a manner that is harmonious with the overall scheme of the
Act
under consideration and the intention of the legislature, that does not in my
view enable a court to rewrite legislation in a manner that would stretch the
ordinary meaning of the words to the extent argued here by the Bank.

Disposition

[74]

I would allow the appeal and restore the appellants lien claim to hold
priority over the Receivers Borrowing Charge.

[75]

The Bank sought introduction of new evidence on this appeal.  That fresh
evidence consisted of several affidavits of the Receiver, email exchanges and
receivers certificates.  As I have not found that material of assistance in my
analysis, I would dismiss the application for new evidence.

The Honourable Madam Justice Garson

I agree:

The Honourable Chief Justice
Finch

I agree:

The Honourable Madam Justice
Prowse

I agree:

The Honourable Madam Justice
Newbury

I agree:

The Honourable Mr. Justice
Hinkson


COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

First Majestic Silver Corp. v. Davila Santos,

2012 BCCA 5

Date: 20120106

Docket:
CA038977

Between:

First
Majestic Silver Corp., First Silver Reserve Inc.
and Minera el Pilon, S.A. de C.V.

Respondents

(Plaintiffs)

And

Hector
Davila Santos and
Minera Arroyo Del Agua, S.A. de C.V.

Appellants

(Defendants)

Before:

The Honourable Madam Justice Levine

The Honourable Mr. Justice Tysoe

The Honourable Madam Justice Bennett

On appeal from: Supreme
Court of British Columbia, March 25, 2011
(
First Majestic Silver Corp. v. Davila
, 2011 BCSC 362)

Counsel for the Appellants:

D. P. Church, Q.C.
  and M. W. Bühler

Counsel for the Respondents:

B. Cramer

Place and Date of Hearing:

Vancouver, British
  Columbia

December 6, 2011

Place and Date of Judgment:

Vancouver, British
  Columbia

January 6, 2012

Written Reasons by:

The Honourable Mr. Justice Tysoe

Concurred in by:

The Honourable Madam Justice Levine

The Honourable Madam Justice Bennett

Reasons for Judgment of the Honourable
Mr. Justice Tysoe:

Introduction

[1]

The defendants appeal an order of a chambers judge striking out a
paragraph of their statement of defence and denying the defendants leave to
amend their statement of defence to include certain proposed amendments.

[2]

The judge made his ruling under Rule 9-5(1)(a) of the
Supreme Court
Civil Rules
on the basis that the proposed defences were bound to fail.

[3]

For the reasons that follow, I agree with the conclusions of the judge
and would dismiss the appeal.

Background

[4]

The pleadings in this action are complex but, as I understand it, the
main thrust of the claim is that the defendants wrongfully appropriated a
corporate opportunity of the plaintiff, First Silver Reserve Inc. (First
Silver), when, in August 2007, the defendant, Minera Arroyo Del Agua S.A. de
C.V. (Minera Arroyo), acquired a silver mine and mill in Mexico known as the
Bolaños property. The claims pleaded by the plaintiffs include breach of
fiduciary duty, breach of trust, breach of statutory duties, fraud,
interference with economic interests, conspiracy and misrepresentation.

[5]

The defendant, Hector Davila Santos, had been the majority shareholder
and a director and officer of First Silver. In 2004, Mr. Davila Santos learned
that the owner of the Bolaños property was interested in selling it and there
were negotiations between him and the owner. The plaintiffs plead that Mr.
Davila Santos conducted the negotiations on behalf of First Silver and its
wholly owned subsidiary, the plaintiff, Minera el Pilon, S.A. de C.V. The
defendants plead that these negotiations were conducted on the understanding of
First Silvers directors that, if First Silver was not willing or did not have
sufficient funds to purchase the Bolaños property, Mr. Davila Santos was free
to purchase it for his own account.

[6]

In April 2006, the plaintiff, First Majestic Silver Corp. (First
Majestic), entered into a share purchase agreement with Mr. Davila Santos for
the purchase of all of his shares in First Silver. Half of the purchase price
was payable on the closing of the transaction with the other half of the
purchase price payable in equal instalments on the first and second
anniversaries of the closing. The plaintiffs plead that Mr. Davila Santos
misrepresented to First Majestic that he was personally entitled to acquire the
Bolaños property, in order to induce it to agree to a clause in the share
purchase agreement stating that he had an interest in the Bolaños property (and
giving First Majestic a right of first refusal in respect of the negotiation
and purchase of the property). The share transaction closed on May 30, 2006,
and Mr. Davila Santos ceased to be an officer and director of First Silver
shortly thereafter.

[7]

The plaintiffs plead that First Majestic came to understand in July 2006
that Mr. Davila Santos did not have a personal right to acquire the Bolaños
property and that it was a corporate opportunity of First Silver.

[8]

The Bolaños property was acquired by Minera Arroyo under an agreement entered
into in August 2007. The defendants admit that Minera Arroyo is owned by Mr.
Davila Santos and members of his family.

[9]

After First Majestic became the majority owner of First Silver, it did
two things that are relevant to the proposed defences in question. First, it
raised funds through public offerings in order to make payments due under the
share purchase agreement and, in that regard, it issued prospectuses in July
2006 and May 2007. Secondly, it acquired the shares of the minority shareholders
of First Silver by way of a plan of arrangement approved by the Supreme Court
of British Columbia on September 8, 2006. The minority shareholders exchanged
their shares in First Silver for shares in First Majestic on a two-for-one
basis, and First Silver became a wholly owned subsidiary of First Majestic.

[10]

Neither the prospectuses nor the documents relating to the plan of
arrangement made reference to First Silver having an interest in, or a cause of
action relating to, the Bolaños property. First Silver provided a letter dated
August 2, 2006 to the firm preparing the fairness opinion in respect of the
plan of arrangement stating that there had been no irregularities involving
First Silver, its directors or management.

[11]

In their statement of claim, the plaintiffs plead that First Majestic
and First Silver should be regarded as one business enterprise and that Mr.
Davila Santos violations of fiduciary duties to First Silver should be
regarded as violations of fiduciary duties owed to First Majestic.

The Proposed Defences

[12]

The following is the paragraph in the statement of defence struck by the
chambers judge:

41A.     In order to make the May
30, 2007 payment, First Majestic was required to go into the public markets to
borrow funds. Despite intending to assert that Davila Santos had acted
fraudulently, First Majestic, through its senior representatives, including
Neumeyer, failed to disclose this information to First Majestics potential
shareholders in its Prospectus, despite, a statutory obligation that it make
full, true and plain disclosure, therein.

[13]

The following are the proposed paragraphs that the chambers judge did
not allow to be included in the amendments sought by the defendants:

39A.     As a result of FSRs conduct set out in paragraphs
38 to 39 herein, while in possession of the knowledge identified in paragraphs
24D, 28, 31A, 31E, 31G, 31I and 31J herein, the Plaintiffs can not bring or
maintain the claims made in the Second Further Amended Statement of Claim, for
the following reasons:

a.         FSR
brought a proceeding in the Supreme Court of British Columbia and obtained an
order which approved the Plan of Arrangement as being fair to the shareholders
of FSR and binding on FSR and its shareholders. The evidence and other
materials put forward by FSR in support of the relief sought on that
proceeding, explicitly or implicitly, included statements to the effect that
(1) there had been no material wrongdoing by the past directors of FSR, and (2)
that a claim to or in relation to the Bolanos Property was not an asset of FSR.
In the circumstances, these issues are
res judicata
, and it is an abuse
of process for FSR to make the claims that it is now making in the within
proceeding against the Defendants. Furthermore, FSR is estopped from now making
such claims against the Defendants.

b.         by
taking the steps necessary to conclude the Plan of Arrangement, including by
seeking and obtaining the approval of its shareholders  including Davila
Santos, who remained a shareholder of FSR  for the Plan of Arrangement without
stating that (1) there had been material wrongdoing by Davila Santos against
FSR, and (2) that a claim to or in relation to the Bolanos Property was an
asset of FSR, FSR has acquiesced in and/or waived and/or ratified the conduct
that forms the basis for its claims against the Defendants in this action,
thereby precluding FSR from making such claims. Furthermore, FSR is estopped
from making such claims in this proceeding; and

c.         in the
circumstances pleaded above, the Plaintiffs lack clean hands to seek equitable
relief in relation to claims of wrong-doing by the Defendants in relation to
the Bolanos Property.

* * *

41.1     In order to have
sufficient funds to pay to Davila Santos the full amount due to him on closing
of the Share Purchase Agreement, First Majestic was required to go into the
public markets to raise funds. First Majestic issued its final prospectus for
this financing on or about July 19, 2006. Despite intending to assert that
Davila Santos had acted fraudulently, First Majestic, through its senior
representatives including Neumeyer, failed to disclose this information to
First Majestics potential investors in its prospectus, despite a statutory
obligation that it make full, true and plain disclosure therein.

[14]

In addition, the chambers judge did not allow amendments to para. 70 of
the statement of defence to the extent that it relied on the facts pleaded in
the proposed para. 41.1 to support defences of waiver, acquiescence, estoppel
and lack of clean hands.

[15]

The defendants also sought to add paras. 41B and 41C to their statement
of defence. These paragraphs related to lack of disclosure to stock exchanges. The
defendants are not appealing from the judges order to the extent that he
refused to allow these paragraphs to be added to the statement of defence.

[16]

The defendants are also not appealing from the judges order to the
extent that he found the proposed defences of
res judicata
, estoppel and
acquiescence alleged in proposed para. 39A were bound to fail. The appeal is restricted
to the proposed defences of abuse of process, waiver, lack of clean hands and
ratification.

Discussion

[17]

I wish to make two observations before considering the proposed defences
in detail. In proposing the defences, the defendants are relying on
non-disclosure in the two prospectuses in question and in the proceeding in
which the plan of arrangement was approved (the plan approval proceeding). This
does not involve a consideration of whether the non-disclosure gives rise to
claims in favour of investors who participated in the two First Majestic
financings or the minority shareholders of First Silver. Whether the
non-disclosures could give rise to such claims is irrelevant to the question of
whether the defendants should be allowed to put forward these defences.

[18]

The second observation is that none of the proposed defences goes to the
merits of the allegations made by the plaintiffs. The position of the
defendants is that the proposed defences give them defences to the plaintiffs
claims or the relief sought, in whole or in part, even if the plaintiffs
allegations are true.

[19]

In striking paragraph 41A and refusing the application of the defendants
to add paragraphs 39A and 41.1, the chambers judge applied the well-known test
articulated in
Hunt v. Carey Canada Inc.
, [1990] 2 S.C.R. 959 at 980, 74
D.L.R. (4th) 321; namely, assuming that the facts as stated in the statement
of claim can be proved, is it plain and obvious that the plaintiffs
statement of claim discloses no reasonable cause of action?  Of course, this
test was expressed in the context of a claim being struck from a statement of
claim. In the context of a possible defence being struck from a statement of
defence, the test is whether it is plain and obvious that the pleading does not
disclose a reasonable defence.

[20]

The Supreme Court of Canada recently had occasion to comment on motions
to strike in
R. v. Imperial Tobacco Canada Ltd.
(
sub. nom. British
Columbia v. Imperial Tobacco Canada Ltd.; Knight v. Imperial Tobacco Canada
Ltd.
), 2011 SCC 42, 335 D.L.R. (4th) 513. Chief Justice McLachlin made,
among others, the following comments:

[17]      ... A claim will only be struck if it is plain and
obvious, assuming the facts pleaded to be true, that the pleading discloses no
reasonable cause of action:
Odhavji Estate v. Woodhouse
, 2003 SCC 69,
[2003] 3 S.C.R. 263, at para. 15, 233 D.L.R. (4th) 193;
Hunt v. Carey Canada
Inc.
, [1990] 2 S.C.R. 959, at p. 980, 74 D.L.R. (4th) 321. Another way of
putting the test is that the claim has no reasonable prospect of success.

* * *

[21]      Valuable as it is, the motion to strike is a tool
that must be used with care. The law is not static and unchanging ...
Therefore, on a motion to strike, it is not determinative that the law has not
yet recognized the particular claim. The court must rather ask whether,
assuming the facts pleaded are true, there is a reasonable prospect that the
claim will succeed. The approach must be generous and err on the side of
permitting a novel but arguable claim to proceed to trial.

[22]      A motion to strike for failure to disclose a
reasonable cause of action proceeds on the basis that the facts pleaded are
true, unless they are manifestly incapable of being proven:
Operation
Dismantle Inc. v. The Queen
, [1985] 1 S.C.R. 441, at p. 455, 18 D.L.R.
(4th) 481. No evidence is admissible on such a motion: r. 19(27) of the
Supreme
Court Rules
(now r. 9‑5(2) of the
Supreme Court Civil Rules
).

* * *

[25]      ... The judge on a
motion to strike asks if the claim has any reasonable prospect of success. In
the world of abstract speculation, there is a mathematical chance that any
number of things might happen. That is not what the test on a motion to strike
seeks to determine. Rather, it operates on the assumption that the claim will
proceed through the court system in the usual way  in an adversarial system
where judges are under a duty to apply the law as set out in (and as it may
develop from) statutes and precedent. The question is whether, considered in
the
context of the law and the litigation process
, the claim has no reasonable
chance of succeeding.

Again, of course, these comments were made in the
context of a motion to strike a claim and must be adapted to the present
situation where it is a pleaded defence and a proposed defence that are under
consideration.

[21]

With these principles in mind, I will now consider whether it is plain
and obvious that the potential defences of abuse of process, waiver, lack of
clean hands and ratification have no reasonable prospect of success on the
basis of the pleaded facts in relation to the plan approval proceeding and the
two prospectuses in question.

(a)
Abuse of Process

[22]

The doctrine of abuse of process is a very broad and flexible mechanism
to enable judges to prevent abuses of the courts process. In
Toronto (City)
v. C.U.P.E., Local 79
, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 35, the
Supreme Court of Canada adopted descriptions of the concept of abuse of process
as proceedings unfair to the point that they are contrary to the interest of
justice and oppressive treatment.

[23]

The concept of abuse of process is used in a variety of contexts. For
example, in
Toronto (City) v. C.U.P.E., Local 79,
it was used to prevent
an attempt to relitigate an issue which had already been adjudicated upon in
circumstances where the requirements of the doctrine of issue estoppel had not
been met. In the present case, the defendants say the doctrine of abuse of
process should be used to prevent the plaintiffs from bringing a subsequent
action based upon allegations that are inconsistent with allegations made in
support of a previous action (being the plan approval proceeding).

[24]

The defendants submit the chambers judge erred in focusing on the
concept of an election between inconsistent rights rather than on the type of
mischief prevented in the case of
Vanmills Establishment v. Coles
(1992), 8 C.P.C. (3d) 178 (B.C.S.C. Chambers). In that case, a former
shareholder of a bankrupt company had sued the trustee in bankruptcy, alleging
that his negligence and wrongdoing had caused loss to the former shareholder
when he sold his legal and beneficial interest in his shares to Mr. Coles. The
former shareholder then sued Mr. Coles alleging that he held the beneficial
interest in the shares in trust for the former shareholder. In dismissing the
second action, Mr. Justice Cohen said the following:

[10]       This is not a matter
of a litigant pursuing inconsistent remedies, where no election is necessary
until judgment. There can be no doubt that in the instant action Crux is
attempting to pursue inconsistent rights. Crux elected in his action against
Sigurdson to claim that he had disposed of his legal and beneficial interest in
the C.I.S. shares to Coles. Having elected to sue Sigurdson on that basis, I
find that Crux cannot now sue Coles in the instant action on the basis that he
retained a beneficial interest in the C.I.S. shares. In my opinion, his
election in his action against Sigurdson is binding upon him. The principle
that, in the case of inconsistent rights, a plaintiffs irrevocable and
unequivocal election is deemed to be made by the commencement of an initial
action is established in
Scarf v. Jardine
(1882), 7 App. Cas. 345, 30
W.R. 893 (H.L.) and
Ashmore v. Bank of British North America
(1913), 4
W.W.R. 1014, 18 B.C.R. 257, 13 D.L.R. 73 (C.A.).

[25]

In
Vanmills Establishment
, Cohen J. made reference to an election
having been made, and there is jurisprudence that supports the notion that the
doctrine of election governs this type of situation: see, for example,
Commonwealth
Investors Syndicate Ltd. v. Laxton
(1992), 15 B.C.A.C. 282, 68 B.C.L.R.
(2d) 145, and
Allnorth Consultants Limited v. Tercon Construction Ltd.
,
2010 BCCA 570, 79 B.L.R. (4th) 238, leave to appeal to S.C.C. refused, [2011]
S.C.C.A. No. 78. However, there is support for the defendants position that
this type of defence falls under the rubric of abuse of process. In
Mystar
Holdings Ltd. v. 247037 Alberta Ltd.
, 2009 ABQB 480, 10 Alta. L.R. (5th)
260, Mr. Justice Brooker considered the existence of inconsistent allegations
within the context of the courts inherent jurisdiction to prevent abuses of
the courts process. He expressed the principle in the following terms:

[49]      In general, I am
persuaded that a party is not free to deliberately argue diametrically
inconsistent facts in various actions, thus
knowingly
advancing
irreconcilable positions which are not articulated as alternative claims.

[26]

The flaw in the defendants position is that there were no statements
made in the plan approval proceeding that are inconsistent with the allegations
in this action. There was simply no mention in the plan approval proceeding of
the Bolaños property or a possible claim against the defendants. Silence does
not equate to a representation or an allegation that First Silver did not have
any interest in the Bolaños property or that First Silver did not have a cause
of action against the defendants. None of the allegations made in this action
is inconsistent with any statement in the materials filed in the plan approval
proceeding.

[27]

The defendants rely on the fact that First Silver provided to the firm
which prepared the fairness opinion on the plan of arrangement a letter stating
that there had been no irregularities involving First Silver, its directors or
management. Mr. Davila Santos was no longer a director of First Silver at
the time of the plan of arrangement, and this letter cannot reasonably be
construed as a comment on the actions of past directors.

[28]

The chambers judge commented that the plan of arrangement and the
lawsuit can quite easily stand together without clashing (para. 37). So too
can the materials filed in the plan approval proceeding and the allegations in
this lawsuit quite easily stand together without clashing. This is not a
situation of diametrically inconsistent facts or irreconcilable positions. In
my view, the defence of abuse of process has no reasonable chance of succeeding
in these circumstances, and it is plain and obvious that it is bound to fail.

(b)
Waiver

[29]

The defendants wish to rely on the defence of waiver in relation to both
the plan of arrangement and the prospectuses.

[30]

The availability of the defence of waiver was described by the Supreme
Court of Canada in
Saskatchewan River Bungalows Ltd. v. Maritime Life
Assurance Co.
, [1994] 2 S.C.R. 490 at 500, 115 D.L.R. (4th) 478:

Waiver will be found
only where the evidence demonstrates that the party waiving had (1) a full
knowledge of rights; and (2) an unequivocal and conscious intention to abandon
them.

Mr. Justice Major, for the Court, also commented at 501
that, while hard and fast rules for what constitutes waiver should not be
proposed, the overriding consideration in each case is whether one party
communicated a clear intention to waive a right to the other party.

[31]

Here, there is no pleading that the plaintiffs communicated to the
defendants an intention to waive their causes of action against the defendants.
There cannot be waiver in the air.

[32]

In addition, simple non-disclosure of potential causes of action in the
prospectuses and the materials filed in the plan approval proceeding does not
evince an unequivocal intention to abandon those causes of action. While the
unequivocal intention to relinquish a right may be inferred from the conduct of
a party, it cannot reasonably be inferred from silence, without something more.
The defendants do not propose to plead anything more than simple non-disclosure.

[33]

In my opinion, the facts pleaded in para. 41A of the statement of
defence and proposed paras. 39A and 41.1 cannot give rise to a defence of
waiver.

(c)
Lack of Clean Hands

[34]

The plaintiffs are seeking, among others, equitable remedies such as
equitable tracing, constructive trust and disgorgement of profits. The
defendants wish to plead that the plaintiffs are not entitled to equitable
remedies on the basis that they lack clean hands.

[35]

In dealing with this potential defence in connection with the non-disclosure
in the prospectuses, the chambers judge referred at para. 26 to the following
passage from I.C.F. Spry,
The Principles of Equitable Remedies
, 6th ed.
(UK: Sweet & Maxwell, 2001) at 169-170, quoted with approval and applied by
this Court in
DeJesus v. Sharif
, 2010 BCCA 121, 71 B.L.R. (4th) 159 at
para. 86:

...it must be
shown, in order to justify a refusal of relief, that there is such an
immediate and necessary relation between the relief sought and the delinquent
behaviour in question that it would be unjust to grant that particular relief.
... So it was once emphasised that general fraudulent conduct signifies
nothing; that general dishonesty of purpose signifies nothing; that attempts to
overreach go for nothing; that an intention and design to deceive may go for
nothing,
unless all this dishonesty of purpose, all this fraud, all this
intention and design, can be connected with the particular transaction, and not
only connected with the particular transaction, but must be made to be the very
ground upon which the transaction took place,
and must have given rise to
this contract.

[Emphasis
added.]

[36]

The chambers judge then reasoned that the defence of lack of clean hands
with respect to the prospectuses was bound to fail:

[27]      Applying that analysis,
the purchase of Mr. Davilas shares had no direct relationship to First
Majestics prospectuses. The plaintiffs do not have to rely on the prospectuses
to found their claim. The fact that the plaintiffs may have issued shares in
order to fund the transaction has no direct nexus with the transaction with Mr.
Davila and does not affect him; in fact, the prospectuses were issued after the
share purchase transaction between him and First Majestic was concluded.

I agree with this reasoning. In addition, there is no
direct relationship between the prospectuses and the Bolaños property.

[37]

The chambers judge did not specifically deal with the potential defence
of lack of clean hands in connection with the approval of the plan of
arrangement, but the same reasoning applies. There is no direct relationship
between any non-disclosure in the plan approval proceeding and the purchase of
Mr. Davila Santos shares or the Bolaños property.

[38]

The defendants say there is an immediate and necessary relation
between the approval of the plan of arrangement and the plaintiffs pleading
that First Majestic and First Silver should be regarded as one business
enterprise so that any violations of fiduciary duties owed to First Silver are
regarded as violations of fiduciary duties owed to First Majestic. The
plaintiffs make this plea in an attempt to take advantage of the holding in
Manley
Inc. v. Fallis
(1977), 2 B.L.R. 277, 38 C.P.R. (2d) 74 (Ont. C.A.), that a
breach of duty owed to a subsidiary can lead to a finding of a breach in favour
of its parent company.

[39]

In my view, there is insufficient nexus between the approval of the plan
of arrangement and this plea of the plaintiffs. While it is true that First
Silver became a subsidiary of First Majestic as a result of the plan of
arrangement, there is no direct relationship between the plan of arrangement
and the allegation of breach of fiduciary duty. Although some of the activities
of Mr. Davila Santos pre-date the plan of arrangement, the consummation of the
alleged breach of fiduciary duty occurred when Minera Arroyo acquired the
Bolaños property in August 2007, almost a year after the plan of arrangement
was approved. Also, I am unable to see how improper non-disclosure in
connection with First Silver becoming a wholly-owned subsidiary of First
Majestic would have a bearing in deciding whether a breach of duty owed to
First Silver should also be regarded as a breach in favour of First Majestic.

[40]

In addition to the lack of sufficient nexus between the plea of lack of
clean hands and the equitable remedies sought by the plaintiffs, there is no
proposed plea demonstrating why the non-disclosure would constitute a lack of
clean hands. For example, there is no proposed plea of a requirement on the
plaintiffs to disclose what the defendants say should have been disclosed. Nor
is there a proposed plea that the plan of arrangement would not have been
approved or that the financings would not have been successful had the
disclosure been made. By itself, non-disclosure does not equate to a lack of
clean hands.

[41]

In my view, the proposed plea of lack of clean hands to defeat the
plaintiffs requests for equitable relief has no reasonable prospect of success,
and it is plain and obvious that the plea is bound to fail.

(d)
Ratification

[42]

The defendants argue that the plaintiffs effectively ratified the
alleged wrongdoings of Mr. Davila Santos by failing to disclose the opportunity
to purchase the Bolaños property in the plan approval proceeding and by
providing the letter for the purpose of the fairness opinion that there had
been no irregularities involving First Silver, its directors or management. The
defendants cite no authority for this proposition and do not address the
holding of the chambers judge that the concept of ratification only applies in
the context of an agency relationship in situations where the principal
ratifies actions of his or her agent. There is no allegation of agency in the
pleadings.

[43]

Outside the context of an agency relationship, the effect of an
assertion that the plaintiffs ratified the alleged wrongdoings of Mr. Davila
Santos is very similar, if not identical, to an assertion that the plaintiffs
waived their rights with respect to those wrongdoings. To say that a person has
ratified a wrongdoing seems equivalent to saying that the person has waived
their rights with respect to the wrongdoing.

[44]

When discussing the potential defence of waiver, I concluded that
silence, without something more, does not evince an unequivocal intention to
abandon causes of action. Similarly, mere silence does not amount to
ratification. In an agency situation, silence is not ratification: see
Community
Savings Credit Union v. United Assoc. of Journeymen, Local 324
, 2002 BCCA
214, 22 B.L.R. (3d) 313 at para. 36. The same principle would apply if a
defence of ratification existed outside an agency relationship.

[45]

Hence, it is my view that a defence of ratification, if known to law
outside an agency relationship, has no reasonable prospect of success in these
circumstances, and that it is plain and obvious that the proposed defence is
bound to fail.

Conclusion

[46]

It is for these reasons that I would dismiss the appeal.

The Honourable Mr. Justice Tysoe

I agree:

The
Honourable Madam Justice Levine

I agree:

The
Honourable Madam Justice Bennett


COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Royal Bank of Canada v. Skrapec,

2012 BCCA 10

Date: 20120106

Docket: CA039224

Between:

Royal Bank of
Canada

Respondent

(Plaintiff)

And

Barry A. Skrapec

Appellant

(Defendant)

Before:

The Honourable Chief Justice Finch

The Honourable Madam Justice Prowse

The Honourable Mr. Justice Chiasson

On appeal from: Supreme
Court of British Columbia, June 28, 2011
(
Royal Bank of Canada v. Skrapec
, Kamloops Registry 45419)

Oral Reasons for Judgment

Appellant appearing In Person:

Counsel for the Respondent:

J. Coulter

Place and Date of Hearing:

Vancouver, British
  Columbia

January 6, 2012

Place and Date of Judgment:

Vancouver, British
  Columbia

January 6, 2012

[1]

FINCH C.J.B.C.
: On 28 June 2011, the Supreme Court of British
Columbia granted judgment in favour of the plaintiff bank against the defendant
in the following terms:

1.

The
Defendant, Barry A. Skrapec, pay to the Plaintiff the sum of $33,144.57 as at
March 1, 2011 plus interest to May 30, 2011 at the rate of the Royal Bank of
Canadas prime lending rate of interst plus 3% per annum (currently $5.24 per
diem for 90 days) being the amount of $471.60 for a total owing of $33,616.17;

2.

The
Defendants Amended Counterclaim be dismissed;

3.

Costs to
the Plaintiff from the Defendant, Barry A. Skrapec, on the basis of Scale C.

4.

The requirement that the Defendant, Barry A. Skrapec, endorse this Order
approving it as to form be dispensed with.

[2]

On 28 July 2011, the appellant faxed a notice of appeal to the Registry
of this Court for filing.

[3]

On 23 September 2011, the defendant filed an appeal record in the
Kamloops Registry of this Court.

[4]

Counsel for the plaintiff pointed out to the defendant that the record
did not comply with the
Rules of Court
.

[5]

On 6 October 2011, the defendant filed a supplemental appeal record.

[6]

On 24 October 2011, the defendant filed transcripts of the proceedings
in the Kamloops Registry, and on the same day filed his factum.

[7]

The plaintiff now applies to quash or dismiss the appeal as one
completely devoid of merit.

[8]

The judgment in the plaintiffs favour was granted on a proper
evidentiary foundation. There was evidence on which the Court could find that
the defendant was indebted to the plaintiff in the amount claimed. Although the
defendant advanced arguments against the plaintiffs claim, the judge found
that there was nothing that could constitute a defence in law.

[9]

On this appeal the defendant has not identified any arguable issue or
ground of appeal on which the judgment appealed from could be varied or set
aside. To permit any further steps to be taken in the appeal would be to
countenance an abuse of the Courts process.

[10]

I would quash the appeal as devoid of any merit. The plaintiff is
entitled to its costs of this proceeding.

[11]

The appellants signature on the order to be entered is dispensed with.

[12]

PROWSE J.A.
: I agree.

[13]

CHIASSON J.A.
: I agree.

[14]

FINCH C.J.B.C.
: The appeal is dismissed with costs to follow.

The Honourable Chief Justice Finch


COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

R. v. Dhesi,

2012 BCCA 9

Date: 20120110

Docket: CA039531

Between:

Regina

Respondent

And

Gurvinder Dhesi

Appellant

Before:

The Honourable Madam Justice Prowse

(In Chambers)

On
appeal from the Provincial Court of British Columbia, December 15, 2011

(
R. v. Dhesi
,
Surrey Registry, Docket Number 179141)

Application
for Judicial Interim Release

Counsel for the Applicant:

D.G. Butcher, Q.C.

Counsel for the Respondent:

W.P. Riley

Place and Date of Hearing:

Vancouver, British
  Columbia

January 5, 2012

Place and Date of Judgment:

Vancouver, British
  Columbia

January 10, 2012

Reasons for Judgment of the
Honourable

Madam Justice Prowse:

[1]

On October 6, 2011, a Provincial Court judge convicted Mr. Dhesi of
importing 68 kilograms of cocaine into Canada and possession of cocaine for the
purpose of trafficking.  Mr. Dhesi was sentenced on November 25, 2011 to nine
years imprisonment.  He is applying for judicial interim release pending his
appeal.

[2]

By way of brief background, Mr. Dhesi is a truck driver who was
dispatched in July 2009 by his then employer to transport cargo from Richmond,
B.C. to California, and to return with another cargo of goods from California
to British Columbia.  The trailer attached to his truck was loaded with cargo
at a warehouse in California and then sealed.  When Mr. Dhesi drove through the
border into Canada, he was referred to a Customs warehouse for a secondary
inspection of the truck.  The referral was purely random.  Six boxes of cocaine
with a street value estimated at 2.5 million dollars were found in the trailer
on top of other cargo. It was established at trial that the seal to the truck
could be bypassed by way of a bolt/nut mechanism on the right trailer door.
There was evidence indicating that the right trailer door had been tampered
with after the doors had been sealed; that Mr. Dhesi had purchased a drill and
drill bit shortly prior to driving the load into Canada; that other tools in
the truck were consistent with the type which could be used to tamper with the
door; and that a bolt which appeared identical to that on the right-hand door was
found in a bag which contained other items linked to Mr. Dhesi.  Based on this
and other circumstantial evidence, the trial judge concluded that the cocaine
was loaded on to the truck at some time after the doors were sealed and that
Mr. Dhesi knew that he was transporting cocaine into Canada with a view to
delivering it to third parties.

[3]

Under s. 679(3) of the
Criminal Code
, R.S.C. 1985, c. C-46 (the
Code
),
in order to secure his release pending appeal Mr. Dhesi must establish that:

(a)      the appeal ... is not
frivolous;

(b)      he will surrender himself into custody in accordance
with the terms of the order and;

(c)      his detention is not necessary in the public
interest.

[4]

Crown counsel has conceded that the requirements of s. 679(3)(a) and (b)
have been met; that is, that the appeal is not frivolous, and that Mr. Dhesi
would surrender himself into custody as and when required to do so.

[5]

I agree that Mr. Dhesi has satisfied the first two requirements under s.
679(3).  With respect to the question of surrender, I note that Mr. Dhesi was
released on $40,000 cash bail pending his trial, and there is no suggestion
that he breached the terms of his bail.  Further, he has ties in the community,
including a common law wife, daughter, and employment.  He has also surrendered
his passport.

[6]

The only question which remains is whether Mr. Dhesi has established
that his detention is not necessary in the public interest.  This involves two
considerations:  (1) the protection and safety of the public, and (2) the
maintenance of the publics confidence in the administration of justice.

[7]

With respect to the first consideration, it is not suggested that if Mr.
Dhesi were released on bail he would re-offend or that he would present a
danger to the public.  In that regard, it is important to emphasize that he
does not have a criminal record other than the convictions which are the
subject of this appeal.

[8]

The second consideration ‒ the effect Mr. Dhesis release pending
appeal would have on the publics confidence in the administration of justice ‒
requires balancing Mr. Dhesis interest in the reviewability of the decision
under appeal with the interest of the public in the enforceability of his
conviction and sentence pending appeal.  The leading case in this jurisdiction
which discusses that analysis is
R. v. Mapara
, 2001 BCCA 508
at paras. 32-36 where Madam Justice Ryan, speaking for the Court, stated:

[32]      An analysis of the section's objectives was
undertaken by Arbour J.A. (as she then was) in
R. v. Farinacci
(1993),
86 C.C.C. (3d) 32 (Ont. C.A.). She said at pp. 47-8:

Section 679(3)(c) of the
Criminal Code
provides, in
my opinion, a clear standard against which the correctness of any decision
granting or denying bail pending appeal can be reviewed. The concerns
reflecting public interest, as expressed in the case-law, relate both to the
protection and safety of the public and to the need to maintain a balance
between the competing dictates of enforceability and reviewability. It is the
need to maintain that balance which is expressed by reference to the public
image of the criminal law, or the public confidence in the administration of
justice. The public interest criterion in s. 679(3)(c) of the
Code
requires a judicial assessment of the need to review the conviction leading to
imprisonment, in which case execution of the sentence may have to be
temporarily suspended, and the need to respect the general rule of immediate
enforceability of judgments.

Public confidence in the administration of justice requires
that judgments be enforced. The public interest may require that a person
convicted of a very serious offence, particularly a repeat offender who is
advancing grounds of appeal that are arguable but weak, be denied bail. In such
a case, the grounds favouring enforceability need not yield to the grounds
favouring reviewability.

On the other hand, public confidence in the administration
of justice requires that judgments be reviewed and that errors, if any, be
corrected. This is particularly so in the criminal field where liberty is at
stake. Public confidence would be shaken, in my view, if a youthful first
offender, sentenced to a few months' imprisonment for a property offence, was
compelled to serve his or her entire sentence before having an opportunity to
challenge the conviction on appeal. Assuming that the requirements of s.
679(3)(a) and (b) of the
Criminal Code
are met entitlement to bail is
strongest when denial of bail would render the appeal nugatory, for all
practical purposes. This same principle animates the civil law dealing with
stays of judgments and orders pending appeal. It is a principle which
vindicates the value of reviewability.

[33]      In
R. v. Baltovich
(31 March 2000), No.
C12090 (Ont. C.A., in Chambers), Rosenberg J.A. quoted the above passage from
Farinacci
with approval. Noting the appellant in that case was a mature offender with no
previous record, and there was no suggestion he represented a danger to the
public or would interfere with the administration of justice, Rosenberg J.A.
concluded (para. 25) that the matter that is most influential on the question
of the public interest is the strength of the grounds of appeal.

[34]      I agree with the analyses in
Farinacci
and
Baltovich
.
Public confidence in the administration of justice requires that verdicts,
properly rendered, be enforced. Where an appellant establishes that he or she
does not pose a flight risk and is unlikely to re-offend, the public interest
also acknowledges that actual punishment for a crime be avoided if strong
grounds exist for setting aside the verdict.

[35]      In
Demyen
when Culliton C.J.S. speaks of the
necessity for the appellant to show something more than the requirements of
paragraphs (a) and (b) of s. 679(3) to establish that his detention is not
necessary in the public interest, he must be referring to the necessity for the
appellant to show that the principle of enforceability is outweighed by that of
reviewability. In my view the strength of the interest of reviewability must
primarily be measured by examining the likelihood of the success of the appeal.
Very strong grounds will tip the scale in favour of reviewability.

[36]      Depending on the
demonstrated strength of the grounds, other factors, such as the circumstances
of the offence - for example, pre-meditated violence - and, inordinate delay
will be matters to weigh in the balance. The essential question, however, will
be whether the appellant has been able to establish that enforceability is
outweighed by reviewability.

[9]

It is apparent from these passages that a significant factor to be considered
in engaging in this balancing exercise is the relative strength of the proposed
grounds of appeal.

[10]

The trial judge stated the critical issue before him as whether the
Crown had established, beyond a reasonable doubt, that Mr. Dhesi knowingly transported
cocaine into Canada or whether, as suggested by the defence, Mr. Dhesi was what
was referred to at trial as a blind courier.  In answering that question, the
trial judge observed that the evidence was purely circumstantial, but he was
persuaded that the only rational conclusion on the evidence was that Mr. Dhesi
knew that he was transporting a large quantity of cocaine across the border for
distribution to third parties.

[11]

Counsel for Mr. Dhesi submits that the guilty verdict was unreasonable
or unsupported by the evidence and, in particular, that the trial judge made
findings of fact and drew inferences critical to his decision which were not
supported by the evidence.  He refers, in particular, to the trial judges
finding that the bolt on the right-hand door had been newly installed around
July 24, 2009, and his finding, based on what he concluded were unique
markings, that the bolt appeared identical to the bolt found in the bag
containing documents linked to Mr. Dhesi.  Counsel submits that there was no
evidence to support the timing of the installation of the bolt on the door, or
that the bolt found in the bag had unique markings.  He submits that the
trial judge placed considerable weight on these findings in concluding that
Mr. Dhesi was knowingly involved in the transportation of the cocaine into
Canada.  He also submits that the evidence supported other rational inferences
which were inconsistent with Mr. Dhesis guilt.

[12]

Although conceding that Mr. Dhesis appeal is not frivolous, Crown counsel
submits that it is weak.  In his view, the conclusions of the trial judge were reasonable
and fully supported by the evidence.

[13]

It is difficult to determine the relative merits of an appeal at such an
early stage of the proceedings.  Based on the information and submissions
before me, while I agree that the appeal is not frivolous, I would certainly not
describe the proposed grounds as strong.  As observed by Crown counsel, an
appellant faces an uphill battle in attempting to overturn findings of fact and
inferences drawn from those facts by a trial judge.  It is arguable that the
trial judge went too far in drawing certain inferences upon which he relied in
concluding that Mr. Dhesi was guilty of the charges against him, but I do not
find the arguments to be such as to tilt the balance in favour of reviewability
over enforceability.

[14]

Further, it is not only the relative merits of the appeal which must be
balanced in determining the effect of Mr. Dhesis proposed release on the
publics perception of the administration of justice.  The Court must also
consider that these are very serious charges, as reflected in the sentence
imposed of 9 years.  These offences involved a very large quantity of cocaine
valued at almost 2.5 million dollars.  The  distribution of this quantity of
cocaine would necessarily have involved further criminal activity on the part
of individuals in Canada, not to mention the damage which would be inflicted on
members of the public affected by its distribution, both direct users and
others.

[15]

I have taken into account the fact that Mr. Dhesi appears to have been
an otherwise law-abiding member of the community with no prior criminal record;
that he has been regularly employed and is supporting a family; and that there
is no suggestion that he represents a danger to the community if released on
bail.  On balance, however, and having particular regard to the seriousness of
the offences and what I view to be the relative lack of strength of the grounds
of appeal, I am not persuaded that Mr. Dhesi has satisfied the third criterion
for his release; that is, using the words of s. 679(3)(c), Mr. Dhesi has not
persuaded me that his detention is not necessary in the public interest.  I
would, therefore, dismiss his application for bail pending appeal.

[16]

During the course of the hearing, I canvassed with counsel the prospect
of expediting this appeal.  Given my conclusion that Mr. Dhesi should be
detained pending his appeal, it is important that steps be taken to have the
appeal heard as soon as possible.  (I would have been of the same view even if
I had ordered Mr. Dhesis release, given the public interest in having
serious matters like this brought to a final resolution as soon as practically
possible.)

[17]

I am advised by counsel for Mr. Dhesi that the transcripts of the trial
should be available next week and that he will be able to file his factum on or
before February 29, 2012.  I would, therefore, direct that the appellants
factum be filed on or before February 29, 2012; that the Crowns factum be
filed on or before March 30, 2012; and that a date be set in April 2012 for the
hearing the appeal.  Counsel should take steps to reserve an April hearing date
upon receipt of these reasons.  I understand that dates are presently available
on April 16, 17, 19, 24, and 30
th
, but these should be confirmed
with the Registry.  If problems arise with respect to this proposed schedule,
they should be brought to my attention as early as possible.

[18]

In the result, Mr. Dhesis application for release pending appeal is
dismissed.

The
Honourable Madam Justice Prowse