IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
Royal Bank of Canada v. Zuk, |
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2017 BCSC 2069 |
Date: 20171115
Docket: S128215
Registry: Vancouver
Between:
Royal Bank of Canada
Plaintiff
And
Carolyn
Judith Zuk, Janis Gayle Zuk
and Allan Ross Zuk
Defendants
Before: The Honourable Madam Justice Donegan
Reasons for Judgment
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Counsel for the Plaintiff: |
J. Van Netten |
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Counsel for the Defendants: |
D.A. McMillan |
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Place and Date of Hearing: |
Vancouver, B.C. July 27, 2017 |
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Place and Date of Judgment: |
Vancouver, B.C. November 15, 2017 |
[1] The plaintiff, Royal Bank of Canada (the “Bank”), and the defendant, Carolyn Judith Zuk, bring summary trial applications seeking judgment in their favour. At issue is the enforceability of Ms. Zuk’s personal guarantee by which she guaranteed payment to the Bank the indebtedness of a now bankrupt company up to a certain sum. The Bank seeks judgment in the amount of approximately $190,000.00, plus interest and special costs. Ms. Zuk seeks to have the action against her dismissed. In the event she is found liable on the guarantee, Ms. Zuk seeks to have the issue of damages adjourned.
[2] The Bank is a Canadian chartered bank.
[3] Ms. Zuk is an accountant. She was formerly married to Kevin Zuk, who was the president and sole director of a British Columbia company first known as Silverado Consulting Ltd. and, later, Silverado Drilling Corporation (“Silverado”). Silverado provided drilling services related to the mining and resource sector.
[4] On October 7, 2008, Ms. Zuk signed a written guarantee whereby she guaranteed payment to the Bank of the indebtedness of Silverado up to $545,000.00, plus interest (the “Guarantee”). Mr. Zuk’s parents (the two other named defendants in this action) also signed written guarantees regarding Silverado’s indebtedness to the Bank. I will detail further aspects of the Guarantee in my analysis.
[5] At the time, Carolyn Zuk was an officer of Silverado. She performed bookkeeping services for Silverado, but otherwise had no involvement in its operations or business affairs.
[6] Also on October 7, 2008, Silverado entered into written agreements with the Bank for loan financing. The most significant agreement was a Master Lease Agreement whereby the Bank, at Silverado’s request, agreed to purchase certain equipment required by Silverado in exchange for monthly payments of about $8,000.00, for a term of 60 months (the “Lease Agreement”). The Lease Agreement contemplated that after 60 months of lease payments, Silverado could purchase the equipment for $1.00.
[7] The Lease Agreement was signed by Kevin Zuk on behalf of Silverado.
[8] Also on October 7, 2008, Silverado entered into a written credit agreement with the Bank whereby the Bank agreed to provide Silverado with more traditional credit facilities as follows:
a) a $20,000.00 demand loan;
b) an $80,000.00 term facility; and
c) a business Visa with a maximum borrowing limit of $40,000.00
(the “2008 Credit Agreement”)
[9] The 2008 Credit Agreement was signed by Kevin Zuk and Carolyn Zuk, on behalf of Silverado.
[10] Also on October 7, 2008, as security for the Lease Agreement and the other lending to Silverado, the Bank obtained a General Security Agreement (“GSA”).
[11] Also on October 7, 2008, Silverado entered into a written agreement with the Bank for the provision of business Visa accounts (the “Visa Agreement”). The Visa Agreement was signed by Kevin Zuk and Carolyn Zuk on behalf of Silverado.
[12] On May 16, 2010, Mr. Zuk and Ms. Zuk separated permanently and have lived separate and apart since then.
[13] In August 2010, a bank account manager asked Carolyn Zuk to provide the Bank with a current personal statement of affairs document. Ms. Zuk was told this document was required in connection with Silverado’s year-end review. On August 19, 2010, Ms. Zuk faxed the required completed document to the Bank. On her cover sheet, she wrote, in part, “Please note that Kevin and I are currently separating and therefore the information will be changing in the near future…”
[14] Between August 12, 2010 and October 17, 2011, Silverado and the Bank entered into several written agreements continuing and amending the credit facilities established for Silverado by the 2008 Credit Agreement. These include:
1. On August 12, 2010, a written credit agreement (the “2010 Credit Agreement”), whereby the Bank agreed to provide Silverado with the following credit facilities:
i. Facility No. 1 – a line of credit in the amount of $20,000.00 (the “Line of Credit”);
ii. Facility No. 2 – a $23,000.00 term loan; and
iii. Facility No. 3 – business Visa accounts to be governed by the 2010 Credit Agreement and any separate agreements between Silverado and the Bank (i.e. the Visa Agreement);
2. On or about December 17, 2010, the 2010 Credit Agreement was amended by written agreement to cancel the $23,000.00 term loan and a demand loan in the amount of $30,000.00, with interest accruing on any amounts owing and all principal and interest payable in full on April 30, 2011 (the “Demand Loan”);
3. On March 18, 2011, the Demand Loan was amended by written agreement to extend the term of the Demand Loan by 12 months, with all principal and interest payable in full on April 30, 2012;
4. On October 17, 2011, the 2010 Credit Agreement was amended by written agreement to increase the amount of the Line of Credit to $40,000.00 with interest accruing on any amounts owing at the Bank’s prime rate, plus five percent per year.
[15] The Bank extended funds to Silverado pursuant to the Visa Agreement, the Demand Loan and the Line of Credit.
[16] Under the Visa Agreement, the rate of interest applied to the Visa accounts was the rate specified on each account statement. The rate for each account was 19.99%.
[17] Under the Demand Loan and the Line of Credit, Silverado was required to repay the Bank all funds advanced to it, plus all fees (including legal fees), costs and expenses incurred by the Bank regarding enforcement of the 2010 Credit Agreement. The Bank was allowed to request re-payment of any amounts outstanding upon demand.
[18] As of March 15, 2012, Silverado was indebted to the Bank as follows:
a) Under the Demand Loan – a total of $21,670.45;
b) Under the Line of Credit – a total of $30,053.04; and
c) Under the Visa Agreement (under four separate Visa accounts) – a total of $48,372.53.
[19] The Bank leased the equipment to Silverado under the Lease Agreement. In December 2011, Silverado stopped making its lease payments.
[20] As of May 16, 2012, Silverado was indebted to the Bank under the Lease Agreement for a total of $173,668.64.
[21] By letter dated March 16, 2012, the Bank issued a demand to Ms. Zuk pursuant to the Guarantee for payment of Silverado’s indebtedness in regard to the Demand Loan, the Line of Credit and the Visa Agreement in the amounts set out above.
[22] By letter dated June 1, 2012, the Bank then issued a demand to Ms. Zuk pursuant to the Guarantee for payment of Silverado’s indebtedness under the Lease Agreement in the amount set out above.
[23] Ms. Zuk has not made any payments pursuant to these demands.
[24] Kevin Zuk is bankrupt. Silverado is bankrupt and was the subject of a receivership.
[25] On June 27, 2012, the Bank appointed Grant Thornton Limited as its receiver for the enforcement of its security pursuant to the terms of the GSA. The receiver is also the trustee in bankruptcy of Silverado pursuant to a Bankruptcy Order made by this Court on August 7, 2012.
[26] After its appointment, the receiver took possession of the assets of Silverado and liquidated them. Title to the assets of Silverado, excluding one particular asset, were disputed. The proceeds of the sale of the disputed assets, plus interest, were held in trust by the receiver pursuant to an agreement between the parties claiming an interest in those disputed funds. Those parties were the Bank, the receiver, Canada Revenue Agency and another company – Eagle Vision Mulching Inc. The sale of the disputed assets did not include an allocation of the purchase price among the various disputed assets.
[27] The Bank commenced a petition proceeding for distribution of the disputed funds. That proceeding is defended (the “Receivership Proceeding”).
[28] On June 5, 2017, Mr. Justice Kent ordered in the Receivership Proceeding, that:
a) $189,031.35 of the disputed funds be paid to Her Majesty the Queen in Right of Canada in payment of its priority claim for source deductions against the property and the company; and
b) the remainder of the disputed funds continue to be held in trust by the receiver subject to the competing claims of the Bank and Eagle Vision Mulching Inc. As of the date of the hearing of the application in the case at bar, the Bank has not received any proceeds from the sale of the disputed assets.
[29] On November 22, 2012, the Bank filed its Notice of Civil Claim in the case at bar. On January 18, 2013, the other two named defendants filed their Response to Civil Claim. Ms. Zuk filed her Response to Civil Claim on February 5, 2013.
[30] The Bank and the other two defendants settled and on March 13, 2015, the Bank filed a Notice of Discontinuance in their favour.
[31] On March 17, 2015, the Bank filed a Notice of Application for a summary determination in regard to its claim against Carolyn Zuk. That application was ultimately adjourned generally. On March 31, 2015, the Bank filed an Amended Notice of Civil Claim and, shortly thereafter, filed a Notice of Intention to Proceed.
[32] After several other pre-trial steps were taken, on July 11, 2017, Carolyn Zuk filed the summary trial application in the case at bar seeking dismissal of the action. On July 20, 2017, the Bank filed its amended summary trial application seeking judgment in its favour.
[33] As of July 17, 2017, the Bank had received $254,430.41 from a combination of amounts flowing from Janis and Allan Zuk, proceeds from the bankruptcy of Kevin Zuk and proceeds from the receivership of Silverado.
[34] The Bank applied these received funds to the indebtedness of Silverado, ultimately eliminating the balances owed under the Demand Loan, the Line of Credit and the Visa accounts. The Bank also applied some of the received funds to reduce Silverado’s indebtedness under the Lease Agreement (interest and a small amount of principal), to pay taxes and to pay some legal fees incurred. The details of the amounts applied to Silverado’s indebtedness to the Bank are accurately summarized in the Bank’s written submissions.
[35] As of July 12, 2017, the Bank asserts the total amount owing under the Guarantee is $189,001.78 in relation to the indebtedness under the Lease Agreement, plus legal and enforcement costs amounting to nearly $110,000.00.
[36] The Bank seeks to resolve all issues in this summary trial. Ms. Zuk agrees the issue of her liability under the Guarantee is suitable for summary trial determination, but contends that if an assessment of damages is necessary (i.e. the liability issue does not resolve in her favour), the issue of damages should be adjourned.
[37] Ms. Zuk submits it would be premature to determine quantum of damages in this hearing because the outcome of the Bank’s efforts to recover disputed assets in the Receivership Proceedings is not yet known. Based upon recent disclosure, Ms. Zuk seeks to conduct further pre-trial discovery procedures relative to defences she intends to raise on the issue of damages, including improvident realization and failure to provide an accounting.
[38] I will first consider suitability of the liability issue. Although the parties agree the matter of Ms. Zuk’s liability under the Guarantee is suitable for resolution by way of summary trial, I must nonetheless be satisfied of this.
[39] Summary trials are governed by Rule 9-7 of the Civil Rules, which allows a party to apply for judgment on an issue or generally.
[40] Rule 9-7(15) of the Civil Rules sets out the scope of a summary trial application:
(15)On the hearing of a summary trial application, the court may
(a) grant judgment in favour of any party, either on an issue or generally, unless
(i) the court is unable, on the whole of the evidence before the court on the application, to find the facts necessary to decide the issues of fact or law, or
(ii) the court is of the opinion that it would be unjust to decide the issues on the application,
(b) impose terms respecting enforcement of the judgment, including a stay of execution, and
[41] In Gichuru v. Pallai, 2013 BCCA 60, our Court of Appeal discussed the suitability and nature of summary trials generally at paras. 28-35:
[28] A summary trial is governed by R. 9-7 of the Supreme Court Civil Rules (previously R. 18A of the Supreme Court Rules). Subrule (2) permits a party to an action, to which a Response to Civil Claim has been filed, to apply to the court for judgment under the rule, either on an issue or generally. In support or response to the application for a hearing by summary trial, subrule (5) provides that a party may tender evidence in a variety of forms: (i) affidavit; (ii) answers to interrogatories; (iii) examination for discovery transcripts; (iv) admissions; and (v) expert reports.
[29] The scope of a summary trial application is set out in R. 9-7(15) of the Supreme Court Civil Rules:
(15) On the hearing of a summary trial application, the court may
(a) grant judgment in favour of any party, either on an issue or generally, unless
(i) the court is unable, on the whole of the evidence before the court on the application, to find the facts necessary to decide the issues of fact or law, or
(ii) the court is of the opinion that it would be unjust to decide the issues on the application,
(b) impose terms respecting enforcement of the judgment, including a stay of execution, and
(c) award costs.
[30] In Inspiration Management Ltd. v. McDermid St. Lawrence Ltd. (1989), 36 B.C.L.R. (2d) 202 (C.A.), the court confirmed that the court under this rule "tries the issues raised by the pleadings on affidavits", that "a triable issue or arguable defence will not always defeat a summary trial application", and that "cases will be decided summarily if the court is able to find the facts necessary for that purpose, even though there may be disputed issues of fact and law" provided that the judge does not find "it is unjust to do so" (p. 211). In determining the latter issue (whether it would be unjust to proceed summarily), the Chief Justice identified a number of relevant factors to consider (at p. 215):
In deciding whether it will be unjust to give judgment the chambers judge is entitled to consider, inter alia, the amount involved, the complexity of the matter, its urgency, any prejudice likely to arise by reason of delay, the cost of taking the case forward to a conventional trial in relation to the amount involved, the course of the proceedings and any other matters which arise for consideration on this important question.
[31] To this list has been added other factors including the cost of the litigation and the time of the summary trial, whether credibility is a critical factor in the determination of the dispute, whether the summary trial may create an unnecessary complexity in the resolution of the dispute, and whether the application would result in litigating in slices: Dahl v. Royal Bank of Canada et al., 2005 BCSC 1263 at para. 12, upheld on appeal at 2006 BCCA 369.
[32] All parties to an action must come to a summary trial hearing prepared to prove their claim, or defence, as judgment may be granted in favour of any party, regardless of which party has brought the application, unless the judge concludes that he or she is unable to find the facts necessary to decide the issues or is of the view that it would be unjust to decide the issues in this manner. This requirement was underscored by Madam Justice Newbury in Everest Canadian Properties Ltd. v. Mallmann, 2008 BCCA 275:
[34] It is trite law that where an application for summary determination under Rule 18A is set down, the parties are obliged to take every reasonable step to put themselves in the best position possible. As this court noted in Anglo Canadian Shipping Co. v. Pulp, Paper & Woodworkers of Canada, Local 8 (1988) 27 B.C.L.R. (2d) 378 (B.C.C.A.) at 382, a party cannot, by failing to take such steps, frustrate the benefits of the summary trial process. Where the application is brought by a plaintiff, the defendant may not simply insist on a full trial in hopes that with the benefit of viva voce evidence, 'something might turn up': see Hamilton v. Sutherland (1992), 68 B.C.L.R. (2d) 115, [1992] 5 W.W.R. 151 (B.C.C.A.) at paras. 66-7. The same is true of a plaintiff where the defence has brought the R. 18A motion. [Emphasis added.]
[33] Newbury J.A. discussed this issue in greater depth in Brown v. Douglas, 2011 BCCA 521 at paras. 29 and 30, which passages were relied upon by the trial judge (at para. 24):
[29] I should also advert briefly to an argument made by the plaintiffs at the oral hearing of this appeal - that the summary trial judge should not have proceeded at all under Rule 18A in the face of their lack of evidence as to what counsel referred to as "proof of damages". ... It was said that in the circumstances, the summary trial judge should have dismissed the defendants' motion for judgment and permitted the plaintiffs to address this matter on a later occasion. In this regard, the plaintiffs cited the comments of this court in Placer Development Ltd. v. Skyline Explorations Ltd. (1985), 67 B.C.L.R. 366, where Taggart J.A. described three options available to counsel faced with an application brought against his or her client under R. 18A. These options were:
1. He may agree that the case is an appropriate case for a summary trial and he may decide to seek judgment on the merits in favour of his client.
2. He may decide that it is a wholly inappropriate case for summary trial and he may decide to oppose the application for summary trial on the basis of material already filed and on the basis of additional material including affidavits that tend to show that the case is inappropriate for disposition under the rule.
3. He may decide that the case is an inappropriate case for summary trial but he may decide to file affidavits and other material tending to show that while it is not an appropriate case for summary trial, if there is to be a summary trial the judgment should be in favour of his client [At 384-5.]
The Court went on to observe that the language of what was then R. 18A(3) - more latterly, R. 18A(11) and now R. 9-7(11) - clothes the judge with a "broad discretion" to refuse to proceed where the judge is unable to find the facts necessary to decide the issues of fact or law or if it would be unjust to decide the issues.
[30] The authorities are clear, however, that (as counsel for the plaintiffs acknowledged at the hearing of this appeal) counsel acting on behalf of the respondent to an application for summary judgment who takes the second course described in Placer "runs a risk". This is the risk that the court will not agree that the case is not appropriate for summary trial and may give judgment against his or her client. This point was made in Inspiration Management, supra, where the Chief Justice observed at 214 that "There is no room in the proper construction of R. 18A for a respondent's veto." The point was also made at greater length in Anglo Canadian Shipping Co. v. Pulp, Paper and Woodworkers of Canada, Local 8 (1988), 27 B.C.L.R. (2d) 378. There a plaintiff had sued for judgment under R. 18A, giving the defendant two months' notice of its application. The defendant did not examine the plaintiff for discovery within that period and on the day scheduled for trial, argued that it had been prevented from exploring arguments it might wish to make with respect to mitigation. The trial judge nevertheless granted judgment to the plaintiff under R. 18A and awarded damages of some $42,000. On appeal, this court rejected the defendant's argument that judgment should not have been granted. Lambert J.A. stated:
In my opinion, the summary trial procedure contemplated by R. 18A cannot be open to being frustrated by one of the parties delaying the pre-trial procedures until it is too late for the summary procedure to use them effectively.
I am not suggesting that there was any intentional delay in this case. But it must be the case that if adequate notice is given to an opposing party that a summary trial application is going to be brought on, there then falls on that party an obligation to take every reasonable step to complete as much of the pre-trial procedures as is necessary to put him in the best mastery of the facts that is reasonably possible before the summary trial proceedings are heard. He cannot, by failing to take those pre-trial procedures, frustrate the benefits of the summary trial rule.
... In my opinion, it is not in this case appropriate that the judgment be set aside, on the ground that sufficient facts were not available to one of the parties to lay before the court on the summary trial application. [At 381-2.; emphasis added.]
Anglo Canadian Shipping has been cited and applied by this court on many occasions: see, e.g. Everest Canadian Properties Ltd. v. Mallmann 2008 BCCA 275 at paras. 34; Gilmour Estate v. Parchomchuk, 2011 BCCA 207 at paras. 19; Dixon v. British Columbia Snowmobile Federation, 2003 BCCA 174 at para. 5; Strathloch Holdings Ltd. v. Christensen Bros. Foods Ltd. (1997), 29 B.C.L.R. (3d) 341 (C.A.) at para. 12.
[34] In summary, the jurisprudence is clear that, subject to certain guidelines, the decision as to the suitability of proceeding by way of summary trial to determine an action (or issue), is a discretionary one. Appellate deference is given to the exercise of discretionary powers in the absence of a clear conclusion that the discretion has been wrongly exercised, in that no weight or insufficient weight has been given to relevant considerations (see Creasey v. Sweny (1942), 57 B.C.R. 457 at 459 (C.A.); Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3 at para. 104; Stone v. Ellerman, 2009 BCCA 294, 92 B.C.L.R. (4th) 203 at para. 94, leave to appeal ref'd [2009] S.C.C.A. No. 364; and Bell v. Levy, 2011 BCCA 417 at para. 75), or it appears that the decision is clearly wrong and may result in an injustice (see Taylor v. Vancouver General Hospital (1945), 62 B.C.R. 42 at 50, [1945] 3 W.W.R. 510 (C.A.)).
[35] The authorities are also clear that a summary trial, although heard on affidavits in chambers, remains a trial of the action for which the plaintiff (even if not the applicant) retains the onus of proof of establishing his or her claim(s) and the defendant (even if not the applicant) retains the burden of establishing any defence that is raised. Mr. Justice Wood, writing for the Court in Miura v. Miura (1992), 66 B.C.L.R. (2d) 345 (C.A.), clarified this issue (at page 352):
There is no reason why the onus should be reversed simply because the defendant moves for judgment under Rule 18A, thus requiring the plaintiff to prove her case in a summary trial proceeding. ...
... the onus of proof does not shift simply because a trial is conducted summarily under rule 18A [now R. 9-7]. As in an ordinary trial, the party asserting the affirmative of an issue must prove it on a balance of probabilities. I believe that such a result is also consistent with what was said by McEachern, C.J.B.C. in Inspiration Management et al. v. McDermid et al. [citation omitted] at page 215 of the report:
The test for R. 18A, in my view, is the same as on a trial. Upon the facts being found the chambers judge must apply the law and all appropriate legal principles. If then satisfied that the claim or defence has been established according to the appropriate onus of proof he must give judgment according to the law unless he has the opinion that it will be unjust to give such judgment.
Indeed, the respondents gave express notice to Mr. Gichuru of his burden in the application by referring to the first paragraph of this passage in their summary of the legal basis for their application to strike Mr. Gichuru's action.
[42] Having considered these principles in the context of this case, I find I am able to find the facts necessary to decide the issues of fact and law on the issue of liability and that it is just to do so. Determination of the liability question largely depends on contractual interpretation and the application of legal principles. There are no factual issues in dispute or credibility issues to resolve. I see no danger of inconsistent rulings on liability and damage assessments in the event the issue of damages needs to be considered and/or adjourned. The agreement of experienced counsel, the monetary amount involved and the saving in time and expense all favour a summary trial.
[43] I turn now to consider Ms. Zuk’s liability under the Guarantee.
[44] There is no issue that Silverado is indebted to the Bank pursuant to the Lease Agreement. There is also no issue that Ms. Zuk signed the Guarantee, that the Bank issued a proper demand to her and that she has made no payments in respect of Silverado’s indebtedness to the Bank.
[45] Ms. Zuk contends that she should be discharged from any obligations under the Guarantee because the Bank failed in its overall and ongoing duty of disclosure to her as guarantor. Specifically, she argues that there were material variations in the debt obligation of Silverado subsequent to the Guarantee for which the Bank provided her no notice and for which she provided no consent. As an “accommodation surety,” Ms. Zuk contends that she was entitled to be released from her guarantee in the absence of an explicit waiver of her right to disclosure of material facts affecting her liability under the Guarantee. Further, she submits that the Bank misrepresented the true purpose for obtaining her personal statement of affairs in August 2010, inducing her into unknowingly increase her risk thereby vitiating the guarantee.
[46] In order to put these various arguments in their appropriate legal framework, I will first outline several general applicable legal principles.
[47] The threshold for concluding that a change to a loan agreement constitutes a material variation or alteration is a fairly low one. In Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 at para. 10, the Supreme Court of Canada cited with approval, the following from Lord Westbury in Blest v. Brown (1862), 4 De G.F. & J. 367, at 376:
Apart from any express stipulation to the contrary, where the change is in respect of a matter that cannot "plainly be seen without inquiry to be unsubstantial or necessarily beneficial to the surety," . . . the surety, if he has not consented to remain liable notwithstanding the alteration, will be discharged whether he is in fact prejudiced or not.
[48] Professor McGuiness in The Law of Guarantee, 3rd. Ed. (Markham, Ont: LexisNexis, 2013) summarized the standard in modern Canadian law at p. 924 this way:
Alterations to the principal contract are generally presumed to be material, for they will be so held unless they are plainly insubstantial or necessarily beneficial to the surety.
[49] In Royal Bank of Canada v. Samson Management and Solutions Ltd., 2013 ONCA 313, leave to appeal ref’d [2013] SCCA No. 301, the Ontario Court of Appeal found an increase in the amount of the debt guaranteed to be a material alteration: para. 59.
[50] Under the common law, a guarantor will be released from liability on the guarantee where the creditor and principal debtor agree to a material variation or alteration of the terms of the contract without the guarantor’s consent. The underpinnings of this rule are based on fairness. It would be unfair to bind the guarantor to agreements made after the execution of the guarantee: Conlin at paras. 2-3.
[51] Guarantors can, however, contract out of the common law rule regarding material variations. Where a guarantor signs a guarantee agreement that specifically contemplates and allows for subsequent material alterations, courts will typically enforce those agreements. These “contracting out provisions” must be clear if they are to be enforced: Conlin at paras. 4-6.
[52] Although there is no general duty of disclosure on the part of the creditor toward the guarantor, a duty may arise in some situations: Toronto-Dominion Bank v. Rooke (1983), 3 D.L.R. (4th) 715, 49 B.C.L.R. 168 (C.A.).
[53] For example, where there are unusual circumstances known by the creditor, but not known by the guarantor, that would likely impact the guarantor’s decision to sign the guarantee, the creditor may have a duty to disclose this information: Rooke at paras. 21-23.
[54] In Collum v. Bank of Montreal, 2004 BCCA 358, at para. 40, Saunders J.A. set out factors for determining whether a failure to disclose information should result in a guarantee being set aside:
[40] From these cases I draw the following. The first question is whether the information not disclosed was material, that is, whether it would be likely to affect the mind of a reasonable guarantor in the position of Mrs. Collum as that was known to the Bank. If not, that is the end of the matter. If it is material, one must ask, accepting the test from Rooke, whether the information is of facts "connected to the dealings between debtor and creditor which are the subject of the guarantee", that the surety would expect not to exist. If so, the issue is whether there are aspects of this case that prevent Mrs. Collum from avoiding the guarantee, such as issues of independent legal advice, her own state of knowledge, or the terms of the prior guarantee.
[55] Guarantees can be structured around a particular obligation or a range of obligations. Under such a specific guarantee (such as a term loan), the guarantor is only liable with respect to the defined debt of the principal, not any subsequent loans advanced by the lender to the principal debtor: The Law of Guarantee at p. 323.
[56] By contrast, under a continuing/all accounts guarantee, the guarantor is liable for all of the debts accumulated by the principal, usually up to a certain amount. The amount and duration of the liability is bounded by the wording of the guarantee agreement. Where a guarantor has agreed to a continuing/all accounts guarantee, there is typically language within the guarantee agreement that relieves the creditor from obtaining the consent of the guarantor before extending further debt to the principal. Lauwers J.A., writing for the majority in Samson, described the purpose of a continuing/all accounts guarantee as follows:
[32] …The purpose of a continuing all accounts guarantee is to allow the customer and the lender to alter their business arrangements without having to involve the guarantor.
[57] In Citadel General Assurance Co. v. Johns-Manville Canada Inc., [1983] 1 S.C.R. 513 at 521-522, McIntyre J. drew a distinction between compensated and accommodation sureties. Unlike compensated sureties, such as bond companies which receive financial remuneration for acting as guarantors, accommodation sureties are persons who sign guarantees only to assist others and with little or no reward. Because of their uncompensated status, accommodation sureties deserve greater protection under the law in that contracts purporting to bind them are subject to greater scrutiny than contracts involving compensated sureties.
[58] Determining who is and is not an accommodation surety can be difficult, because even spouses and family members who sign guarantees without apparent compensation may nevertheless see a benefit from their guarantee by reaping future benefits flowing from the success of the principal: The Law of Guarantee at p. 385. Madam Justice Fenlon, as she then was, discussed this concept in Coast Mountain Aviation Inc. v. M. Brooks Enterprises Ltd., 2012 BCSC 1440, at para. 69:
… compensated sureties include not only professional surety companies, which receive a fee in return for assuming the risk under the guarantee, but also guarantors who, by virtue of holding an interest in the debtor company or in the asset to which the loan is to be applied, receive a direct benefit from the funds advanced to the debtor company by the creditor.
[59] In Samson, the Ontario Court of Appeal considered the liability of a guarantor under a continuing/all accounts guarantee in circumstances very similar to the case at bar. As in Ms. Zuk’s case, Samson involved the liability of a wife who signed a continuing/all accounts guarantee related to her husband’s business. She sought to be relieved of her obligations as a result material alterations following the guarantee agreement for which she received no notice. In these circumstances, the Court outlined a two-step process for considering a material alteration defence at para. 52:
[52] Analytically, it seems to me that there are two distinct steps in the logical sequence that should be taken to preserve clarity. The first step is to consider whether the challenged alteration to the underlying loan arrangement is a material alteration as a matter of law quite apart from any possible authorizing language in the guarantee. The second step is to consider whether the language of the guarantee permits the material alteration.
[60] The Court ultimately found in the bank’s favour. Under the first step, the Court concluded that an increase of the amount of the debt guaranteed was a material alteration: para. 59. Under the second step (consideration of the language of the Guarantee), the Court concluded that the increase in the debt amount was expressly permitted by the language of the guarantee and was, therefore, enforceable. Despite the material alterations in the underlying loan arrangements, the Court held that the guarantor, who was found to be an accommodation surety, remained liable given the “clear and unambiguous language of the guarantee and the factual context”: para. 64.
[61] I find the analytical framework and reasoning in Samson persuasive and particularly useful in this case.
[62] The Bank takes the position there were no material alterations in the terms of the principal agreement as they relate to Ms. Zuk because the changes had the effect of reducing her liability rather than increasing it. The Bank argues that when the 2008 Credit Agreement and Guarantee were signed, Silverado obtained credit facilities totalling $140,000.00 comprised of:
a) a $20,000.00 Demand Loan;
b) an $80,000.00 term facility; and
c) a business Visa with a maximum of $40,000.00.
[63] The subsequent variations to the borrowing of Silverado in the 2010 Credit Agreement (and amendments thereto) resulted in credit facilities totalling $115,000.00 being made available to Silverado, comprised of:
a) a $30,000.00 Demand Loan;
b) a $45,000.00 Line of Credit; and
c) a $40,000.00 Visa.
[64] The Bank also emphasizes that the contractual obligations of Silverado to the Bank under the Lease Agreement did not change.
[65] Ms. Zuk disagrees with the Bank’s characterizations of the alterations to its lending arrangements with Silverado subsequent to her signing the Guarantee, calling its position “absurd on its face.” She argues that the 2010 and subsequent amendments to Silverado’s loan arrangements were clearly to obtain “fresh cash” for Silverado’s business operations. She also emphasizes that the 2008 Visa Agreement provided Silverado with two business Visa cards with a credit limit on each card of only $10,000.00. The 2010 arrangements increased the limits.
[66] In all of the circumstances, I find the 2010 Credit Agreement and amendments that followed to Silverado’s loan arrangements are properly characterized as material alterations.
[67] The Bank’s representative deposes that the 2010 Credit Agreement and amendments were signed for the purposes of continuing and amending the credit facilities that were established by the 2008 Credit Agreement. One of those 2008 credit facilities was never advanced. While Ms. Zuk’s maximum exposure did not change, Silverado was granted different credit facilities and provided additional funds than those advanced at the time of the Guarantee. The documentation shows that some of those additional funds were used for the purchase of a new company vehicle, as Ms. Zuk alleges, in 2010. The changes had the effect of not only extending the availability of new funds, but effectively extending the time to pay.
[68] However, for reasons I will now explain, the fact that material alterations occurred is ultimately of no assistance to Ms. Zuk because I conclude the material alterations were contemplated in the Guarantee. The Bank was under no obligation to disclose those variations to Ms. Zuk and her consent to them was not required.
[69] The language of the Guarantee is identical to that in Samson. Its language is “very broad and is plainly designed to ensure that the guarantor does contract out of the ordinary protections of the common law as Conlin acknowledged was permissible”: Samson at para. 23.
[70] Ms. Zuk signed a continuing/all accounts guarantee. She guaranteed all of Silverado’s current and future debts and all its liabilities. The agreement states, in part:
FOR VALUABLE CONSIDERATION, receipt whereof is hereby acknowledged, the undersigned and each of them (if more than one) hereby jointly and severally guarantee(s) payment on demand to Royal Bank of Canada … of all debts and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by Silverado Consulting Ltd. to the Bank… the liability of the undersigned hereunder being limited to the sum of $545,000.00 Five Hundred Forty-Five Thousand Dollars together with interest thereon from the date of demand for payment at a rate equal to the Bank’s Prime Interest Rate per annum in effect from time to time plus 1.850 One AND Eighty-Five One Hundredths percent per annum as well after as before default and judgment.
AND THE UNDERSIGNED AND EACH OF THEM (IF MORE THAN ONE) HERBY JOINTLY AND SEVERALLY AGREE(S) WITH THE BANK AS FOLLOWS:
(1)The Bank may grant time, renewals, extensions, indulgences, releases and discharges to…or change any term or condition applicable to the liabilities, including without limitation, the rate of interest or maturity date, if any, or introduce new terms and conditions with regard to the liabilities…
(2)This guarantee shall be a continuing guarantee and shall cover all the liabilities, and it shall apply to and secure any ultimate balance due or remaining unpaid to the Bank.
…
(8)All monies, advances, renewals, credits and credit facilities in fact borrowed or obtained from the Bank shall be deemed to form part of the liabilities, notwithstanding any lack of limitation of status or of power, incapacity or disability of the customer or of the directors, partners or agents of the customer, or that the customer may not be a legal or suable entity, or any irregularity, defect or informality in the borrowing or obtaining of such monies, advances, renewals, credits or credit facilities, or any other reason, similar or not, the whole whether known to the Bank or not. Any sum which may not be recoverable from the undersigned on the footing of a guarantee, whether for the reason set out in the previous sentence, or for any other reason, similar or not, shall be recoverable from the undersigned and each of them as sole or principal debtor in respect of that sum, and shall be paid to the Bank on demand with interest and accessories.
[71] The language of the Guarantee is clear and unambiguous. It expressly contemplated and permitted changes in the debt obligations of Silverado. Ms. Zuk knew and accepted that Silverado’s financing arrangements and indebtedness to the Bank could change, even though the amount of her guarantee was limited. As the Court found in Samson, I conclude the material alterations in the case at bar “were contemplated by the parties and permitted by the clear language of the guarantee and inherent in a continuing/all accounts guarantee…”: Samson at para. 63.
[72] The Court in Samson held that the language of the guarantee must be considered in the factual context. In considering that factual context, the Court wrote:
[65] At issue in this case was the enforceability of a plain-vanilla standard form bank guarantee in the context of a small business loan, of which there are undoubtedly many. The motion judge found, and I agree, that Ms. Cusack was an "accommodation surety," that is, someone who undertakes to be a surety for no consideration, whose obligations are to be strictly construed: see Conlin at para. 12. Despite the finding that Ms. Cusack was an accommodation surety, in my view there was nothing in the language of the guarantee or in the factual context to justify the motion judge's decision not to enforce the RBC guarantee according to its terms but instead to dismiss RBC's action against Ms. Cusack. This is not a case where the context included, for example, an impermissible renewal in the circumstances of a matrimonial breakdown as in Conlin, a lender overreaching as in Bruce, or a lender's employee providing misleading advice, as was alleged but not proven in C.I.B.C. v. Trapp, [1987] B.C.J. No. 280, 12 B.C.L.R. (2d) 35 (C.A.), where the loan amount ballooned from $45,000 at its inception to $1 million. Nor is this a case like Bruce where the alteration in the loan arrangements was both material and was not contemplated by the guarantee.
[73] The factual context in Ms. Zuk’s case involves consideration of her status as either an accommodation or a compensated surety and whether the Bank’s employee provided misleading advice or misrepresented the purpose of her personal statement of affairs.
[74] Whether Ms. Zuk is an accommodation surety is not a simple question. Accommodation sureties are individuals who sign guarantees for little or no benefit for themselves, but instead act for the benefit of others. Spouses are classic examples of accommodation sureties: Conlin and Samson at para. 65.
[75] Ms. Zuk is an accountant. In this case, she was not only the spouse of the principal and director of Silverado, she was also an officer in the company and its bookkeeper. Although she was not involved in the day-to-day operations of Silverado, she was certainly involved in some of its financial aspects.
[76] As their March 2011 separation agreement shows, Ms. Zuk also held shares in Silverado. In their separation agreement, Ms. Zuk agreed to transfer all of her shares in Silverado and resign from her positions with the company. Referring to Silverado as the “family business,” the parties also agreed in writing that Ms. Zuk would receive a lump sum to be paid on a monthly basis for consideration of her shares in Silverado. Mr. Zuk agreed to indemnify her from any and all liabilities and debts of Silverado. I note that some of the changes to Silverado’s financing arrangements occurred before the execution of this separation agreement.
[77] In these circumstances, I conclude Ms. Zuk was more akin to a compensated surety than an accommodation surety at the time of the Guarantee. She participated in the operations of their family business as its bookkeeper. She was an officer in the company who held shares in the company for which she received compensation in 2011.
[78] In any event, even if I were to conclude otherwise, having the status of an accommodation surety would not relieve Ms. Zuk of her obligations under the Guarantee. Where a guarantor is characterized as an accommodation surety, variations in the terms of the principal contract are subject to greater scrutiny. I have already applied that greater scrutiny to the provisions of the Guarantee and concluded the language is clear and unambiguous. Again, the terms of the Guarantee clearly contemplate and permit the changes to the debt obligations of Silverado that occurred.
[79] Ms. Zuk also asserts that a Bank employee misrepresented the true purpose for obtaining a personal statement of affairs from her in August 2010. She says this misrepresentation should be an important contextual factor that should vitiate the Guarantee.
[80] The 2008 Credit Agreement, signed by Ms. Zuk on behalf of Silverado, contained certain reporting requirements:
Reporting Requirements
The borrower will provide to the Bank:
- Annual review engagement financial statements not later than 90 days after each fiscal year end;
- Biannual personal statement of affairs for Kevin Zuk, Carolyn Zuk, Allan Zuk and Janis Zuk not later than 90 days after the Borrower’s fiscal year end;
- Such other financial and operating statements and reports as and when the Bank may reasonably require.
[81] The 2010 Credit Agreement contained similarly worded reporting requirements. It also contained “other information/requirements” which states:
a) Copy of updated personal statement of affairs for each of Kevin Allan Zuk, Carolyn Judith Zuk, Allan Ross Zuk and Janis Gayle Zuk, satisfactory to the Bank.
[82] Ms. Zuk relies upon the above additional requirement in the 2010 Credit Agreement as proof that the Bank misrepresented the true purpose of the request for a personal statement of affairs.
[83] The difficulty with Ms. Zuk’s assertion is that she was contractually obligated under the 2008 Credit Agreement to provide a personal statement of affairs. As a result, the Bank was under no obligation to provide a reason or rationale for its requirement. There was no misrepresentation by the Bank in these circumstances.
[84] In the event a misrepresentation by the lender could be found in this case, for reasons expressed by the Bank at paragraphs 106 and 107 of its written submissions, I agree there is no legal or factual basis to support Ms. Zuk’s position that such a misrepresentation, occurring years after the execution of the Guarantee, would vitiate the Guarantee.
[85] I will now address Ms. Zuk’s general argument where she contends the Bank has a general, ongoing duty of disclosure to the guarantor. Ms. Zuk’s counsel points to Rooke for the basis of this proposition.
[86] The Court of Appeal in Rooke does not makes this finding. Rooke was based on a situation where two sureties had already signed a guarantee and were contemplating an extension. The Court concluded in that case that the lender owed a duty of disclosure to the sureties as it related to unusual and important circumstances with which the sureties could not have been expected to have been aware. The Court held that the Bank should have told the sureties, before they agreed to a debt extension, that the operating mind of the guaranteed business had set up a competing business.
[87] Rooke is distinguishable from the case at bar. The Bank in Rooke was not willing to proceed with an extension of credit for the company without first receiving additional injections of capital from the sureties in support of the guarantee. The Bank required the sureties’ agreement to this new arrangement before further financing would be provided. At this time, a new disclosure obligation arose.
[88] In Ms. Zuk’s case, the Bank did not require a new agreement or a further injection of capital before it altered the financing arrangements with Silverado. There were no unusual circumstances in this case. The amendments to the financing arrangements were already contemplated and agreed to in the Guarantee. No further consent was needed. No disclosure obligation arises.
[89] In the result, I conclude that Ms. Zuk is liable under the Guarantee.
[90] Ms. Zuk does not explicitly argue that determination of the quantum of damages is unsuitable for summary trial. Rather, she argues that it is premature to determine the issue given recent document disclosure and steps taken by the Bank in the Receivership Proceeding. I understand her to seek to adjourn the issue of damages to allow for further discovery procedures to occur so that she may fully present all available evidence and make all available arguments in support of her defences on that issue.
[91] I am mindful of the principle that requires all parties to come to a summary trial fully prepared to argue all issues. By choosing not to argue the merits of an issue, a litigant runs the risk the matter will be deemed suitable for summary determination, that an adjournment (or application for severance as the case may be) will be denied and judgment rendered. Determining quantum of damages in a case such as this seems particularly suitable for summary trial.
[92] However, I am also mindful of the principles that inform the exercise of my discretion to allow an adjournment. My discretion must be exercised in accordance with the interests of justice. In Navarro v. Doig River First Nation, 2015 BCSC 2173, Madam Justice Dillon summarized the legal principles on such an application, emphasizing the paramount consideration of the interests of justice in ensuring there will remain a fair trial on the merits of the action. The court held at paras 18-28:
[18] A judge exercises discretion when an adjournment is sought and has wide powers in relation to the order that is made (Cal-Wood Door v. Olma, [1984] B.C.J. No. 1953 at para. 13 (C.A.) (Cal-Wood Door)). The discretion must, of course, be exercised judicially in accordance with appropriate principles (Dhillon v. Virk, 2014 BCSC 745 at para. 8 (Dhillon)). The exercise of discretion is a delicate and difficult matter that addresses the interests of justice by balancing the interests of the plaintiff and of the defendant (Sidoroff v. Joe (1992), 76 B.C.L.R. (2d) 82 at paras. 8-11 (C.A.) (Sidoroff)). This balancing requires a careful consideration of all of the elements of the case including the nature of the proceedings and the parties (Sidoroff at para. 10). The Court of Appeal will be extremely reluctant to interfere with a decision of a trial judge on an adjournment matter which is integral to exercise of judicial discretion (Sidoroff at para. 11;Toronto-Dominion Bank v. Hylton, 2010 ONCA 752 at para. 36 (Toronto-Dominion Bank)).
[19] There are numerous factors to be considered on an adjournment application. However, the paramount consideration is the interest of justice in ensuring that there will remain a fair trial on the merits of the action (Cal-Wood Door at para. 13; Graham v. Vandersloot, 2012 ONCA 60 at para. 12 (Graham)). Because the overall interests of justice must prevail at the end of the day, courts are generous rather than overly strict in granting adjournments, particularly where granting the request will promote a decision on the merits (Graham at para. 12). The natural frustration of judicial officials and opposing parties over delays in processing civil cases must give way to the interests of justice, which favours a claimant having his day in court and a fair chance to make out his case (Graham at para. 12).
[20] Other factors or considerations include (in no particular order of priority):
* the expeditious and speedy resolution of matters on their merits (Rule 1-3(1); Sidoroff at para. 10);
* the reasonableness of the request (Dhillon at para. 16);
* the grounds or explanation for the adjournment (Dhillon at para. 16; Toronto-Dominion Bank at para. 38);
* the timeliness of the request (Dhillon at para. 16);
* the potential prejudice to each party (Dhillon at paras. 16-17);
* the right to a fair trial (Dhillon at para. 16);
* the proper administration of justice (Dhillon at paras. 16 and 39; Toronto-Dominion Bank at para. 36);
* the history of the matter, including deliberate delay or misuse of the court process (Toronto-Dominion Bank at para. 38); and
* the fact of a self-represented litigant (Toronto-Dominion Bank at para. 39).
[21] Securing a fair trial on the merits of the action is the ultimate goal. This requires consideration of the nature of the claim. If the claim is novel, then the prospect for success is one factor to consider (Sangha v. Azevedo, 2005 BCCA 184 at para. 15 (Sangha)). However, the prospect for substantive success should not be the sole basis for refusal of an adjournment (Toronto-Dominion Bank at para. 41).
[22] The expeditious and speedy resolution of a matter raises the question of whether there has been a previous adjournment and, if so, the reasons for that prior adjournment. If the circumstances have not changed, a subsequent application will likely not be successful (Kendall v. Sirard, 2007 ONCA 468 at para. 46).
[23] Timeliness of the request is a factor. An application made at the opening of trial on the grounds that a party cannot be present will be carefully scrutinized as to the effect upon other parties, whether the party's evidence is crucial, and what other recourse was available (Warner v. Graham (1945), 62 B.C.R. 273 at 277-278 (S.C.)). If the trial is already underway and an adjournment may be indefinite, the court will want to consider whether it is certain that granting an adjournment would resolve the issue that was the cause of the adjournment request (Dhillon at para. 11).
[24] The explanation for the need of an adjournment is an important consideration. It has been said that simple neglect to get properly ready for a hearing, while irksome for the other party, will still usually lead to an adjournment on the theory that the prejudice to the person denied the adjournment will be greater than prejudice to the person who is forced to accept an adjournment (Michel v. Lafrentz, 1998 ABCA 224 at para. 12). It would be unjust to decide, without more, that a party who has been less than diligent will be forced to go to trial unprepared (Trumbley v. Belanger, [1994] B.C.J. No. 2178 at para. 4 (S.C.)). Failure of a party's lawyer to take appropriate and/or timely steps should not irrevocably jeopardize the client under the "often applied principle that the sins of the lawyer should not be visited upon the client" provided that relief can be given on terms that protect the innocent adversary as to costs thrown away and as to the security of the legal position he has gained (Graham at para. 10). However, counsel's simple statement that he is not ready for trial may not be sufficient (W. Thomson & Co. v. British America Assurance Co. (1930), 43 B.C.R. 194 at 196 (C.A.)). The fact of a medical condition that may impair a party's ability to conduct his case as well as he might does not, in itself, mandate an adjournment, but it is a serious consideration (Sangha at para. 15).
[25] Prejudice to the parties if an adjournment is granted or is not granted must be considered. Any prejudice to be suffered by either side must be weighed and balanced. However, it is non-compensable prejudice that is pivotal (Khimji v. Dhanani (2004), 69 O.R. (3d) 790 at para. 19 (C.A.); Graham at paras. 7 and 9). If the problems raised by an explanation of prejudice can be met by conditions of an adjournment, then, upon consideration of all of the circumstances, an adjournment may be granted (Cal-Wood Door at para. 17).
[26] Overall delay in the history of proceedings may be a factor. Prolonged delay due to tactical considerations may be inexcusable and result in injustice to the other side because a fair trial is no longer possible (Irving v. Irving (1982), 140 D.L.R. (3d) 157 at 160-163, [1982] B.C.J. No. 970 at paras. 8-11 (C.A.) (Irving)). However, a delay forced on a party by negligent solicitors, impecuniosity, or illness is distinguished from tactical delay. The issue is whether the delay is excusable in light of the reason for it and other circumstances (Irving at 163 D.L.R., para. 11 B.C.J.).
[27] The fact that a litigant is self-represented is relevant, but does not entitle him to a "pass" (Toronto-Dominion Bank at para. 39). The object is to facilitate as far as reasonable the ability of a self-represented litigant to fairly present his case on the relevant issues. If counsel is appointed and assumes conduct of a case after the matter has been set for trial, he may be required to clear his calendar to facilitate the trial date (V.(K.L.) v. R.(D.G.) (1993), 13 C.P.C. (3d) 226 at para. 10 (B.C.S.C.)).
[28] The court may impose terms and conditions to an adjournment order (Rule 13-1(19)). However, the terms must be just in all of the circumstances (Serban v. Casselman (1995), 2 B.C.L.R. (3d) 316 at para. 9 (C.A.)). A party seeking certain terms and conditions should generally prove that he will be prejudiced in some way by the order.
[93] In this case, I am persuaded to exercise my discretion in favour of allowing Ms. Zuk’s adjournment application on the issue of damages.
[94] A potentially very significant sum of money is at stake. While the Bank’s seems to have, prima facie, a strong position based on the language of the Guarantee, Ms. Zuk does have potentially viable defences that are worthy of consideration. I do not see any evidence that she has sought to adjourn any other trial dates or engaged in any deliberate delay or misuse of the court process. Her counsel has been pursuing disclosure related to her potential defences for some time and only recently, days before the hearing, received a number of relevant documents and learned of steps taken by the Bank in the Receivership Proceeding. Ms. Zuk’s counsel wishes to take reasonable pre-trial steps to pursue the advancement of those defences.
[95] I see no evidence of prejudice to the Bank by allowing this adjournment, which I anticipate will not be lengthy, particularly now that the liability issue has been resolved in the Bank’s favour. Given the amount at stake and the history of these proceedings, I conclude that fairness and the interests of justice require that Ms. Zuk be given further opportunity to conduct discovery on the defences she seeks to advance. The adjournment is necessary to ensure a fair determination of damages on the merits.
[96] I trust counsel will attend to taking the various steps sought under the Rules in a timely fashion and will have the matter of damages set down for summary trial as soon as possible. Of course, I will be seized. If counsel cannot agree on a reasonable timeframe for steps to be taken, a trial management conference may be arranged through Scheduling.
“S.A. Donegan J.”
DONEGAN J.