McLachlin and Bastarache JJ
This appeal raises the question of whether a creditor who, without reasonable notice, files a misleading affidavit in a motion to procure a public receiver should be liable for damages. The Alberta Court of Appeal unanimously held that the creditor was liable for breach of contract. We agree, and would dismiss the appeal.
I. FACTUAL BACKGROUND
In 1980, the Royal Bank of Canada ("the bank") granted the corporate respondent ("Got") a revolving line of credit margined to its accounts receivable. As security, the bank obtained a floating charge debenture payable on demand, a general assignment of book debts and a personal guarantee limited to a principal amount of $1,350,000 plus interest from the respondent Mr. Sanderlin, the president of Got.
In November 1983, the bank reduced the line of credit to $1,150,000. In early 1984, an employee of Got represented that, pursuant to the bank's request to reduce inventory, Got had hired a new employee to be responsible for reducing inventory. In fact, no new employee was hired and nothing appears to have been done to meet the bank's request. Got also made certain representations to the bank in respect of the security. In mid-March 1984, the operating line exceeded Got's limit by $130,000 and Got was asked to bring the loan within margin. Despite representations that the bank could expect payments from Mr. Sanderlin and related companies, such deposits were never made. Over the next few months, the respondents repeatedly promised additional security to the bank, but never delivered.
In April 1984, Mr. Sanderlin was warned not to issue any large cheques until the loan was brought within its limits. The trial judge found ((1994), 150 A.R. 93, at p. 134) that he "forgot" this warning and issued cheques totalling $140,000, that the bank returned NSF. Again Mr. Sanderlin promised to provide further security, and the bank certified part of the expenditure. After further negotiations, the bank agreed to provide excess loan facilities to cover Got's expenses in exchange for further security to be provided by five specific assignments.
On May 25, 1984, Got's solicitor, Mr. Covey, met with the bank's employee, Mr. Hood, and assured him that the security would be completed forthwith. The trial judge found that the bank undertook to provide a comfort letter in which the bank would state that it would carry on business with Got without enforcing security, so long as the business was progressing. Mr. Hood gave Mr. Sanderlin an ultimatum asking that all securities be provided by May 29, failing which the bank would "notify receivables on our own" (p. 104). On May 29, Mr. Sanderlin still had not brought in the additional security and advised that if the bank did not honour payroll cheques, it "would have an electrical business". It was the view of the bank's officers that Mr. Sanderlin did not intend to co-operate and was engaging in "constant stall tactics".
On May 30, 1984, the bank told Mr. Sanderlin that if the security was not in by 3 p.m., it would have to return the payroll cheques. Later that day, Mr. Covey informed the bank that, as he had to attend court that day, the security instrument could not be signed until May 31 or June 1. Mr. Sanderlin promised that Can-Am Electric Ltd., a related company, would deposit funds into Got's account to cover the payroll cheques. No such payment was made. The bank returned the payroll cheques and notified creditors that payments should be made directly to the bank. The trial judge found that up to this point the bank's conduct was not open to criticism.
After 3 p.m. on May 30, 1984, the bank cut off contact with Got and Mr. Sanderlin, and intentionally avoided telling them that it would be calling in the debenture and would be seeking to appoint a receiver. On the morning of May 31, 1984, a notification of accounts receivable and a letter of demand were served to Mr. Covey's office, the head office of Got pursuant to the debenture, and to Got's place of business.
During the afternoon of May 31, Mr. Covey accidentally encountered Mr. Bailey, solicitor for the bank, who informed him that he was on his way to the Law Courts to obtain an order to appoint a receiver. He was unsuccessful in seeing a judge that afternoon, but appeared before Master Funduk on the morning of June 1, 1984. The Master required Mr. Bailey to notify Mr. Covey, and the matter was heard in the afternoon of the same day. While Mr. Covey was in attendance, the trial judge found that he had no notice of the bank's actions nor instructions from Got or Mr. Sanderlin and hence was unable to properly represent them at the hearing. The Master refused an adjournment on the basis that the order was a mere preservation order and that nothing would be done to realize any assets until June 21.
The receiver took control of the company on June 1, 1984. On June 6, 1984, Bowen J. issued a consent order permitting the receiver to borrow money and directing Mr. Sanderlin to produce records relating to the construction projects. The trial judge found that by June 18, 1984, the receiver had taken steps, including terminating contracts and firing employees, that were beyond the scope of the powers granted in the June 1 order of Master Funduk. On August 15, 1984, the court granted the receiver further powers. On September 26, 1984, and again on December 3, 1984, the court approved of the sale of Got's assets.
II. THE LEGAL PROCEEDINGS
The bank sued for its debt. Got and Mr. Sanderlin defended the claim and Got filed a counterclaim alleging breach of contract and conversion, based on the bank's lack of notice in calling its loan and appointing a receiver. It also sued the receiver for negligently mismanaging and liquidating the business, a matter not on appeal. Prior to the trial, Got also brought a motion to set aside the receivership order, but this was later withdrawn, and Got ultimately co-operated with the receiver. Got's abandonment of its proceedings to set aside the receiver was predicated on an agreement that Got be permitted to counterclaim against the bank for damages. The effect of this agreement was disputed in the subsequent proceedings. The bank brought a motion to strike the paragraphs of Got's defence and counterclaim impugning the receivership order, on the ground that to call the validity of the receivership order into question would constitute an impermissible collateral attack on the order, which was res judicata. The motions judge, upheld on appeal, rejected the bank's request. The bank's debt claim and Got's counterclaim for damages proceeded to trial.
The trial judge, McDonald J., granted both the claim and the counterclaim. He found that the bank had failed to give Got the required notice of its intention to put Got into receivership and had failed to allow Got reasonable time for repayment. He also dismissed the bank's argument that it was contractually excused from giving Got reasonable notice.
In addition, McDonald J. found that the bank's wrongful conduct in securing the receivership order was not limited to insufficient notice; he concluded that the bank had misled Master Funduk in obtaining the receivership order by tendering a misleading affidavit. The trial judge found that the affidavit of the bank's officer, Mr. McTavish, submitted in support of the receivership motion, failed to meet the duty of candour and utmost good faith required for ex parte orders. The two most serious errors in the affidavit were the suggestion that the bank had reason to believe that Got would move the inventory and the failure to disclose that the bank had already secured its financial position by notifying the debtor's accounts receivable and perfecting the assignment of book debts. McDonald J. concluded that, absent the false air of urgency created in the affidavit, the receivership order would not have been granted.
The trial judge also rejected the bank's renewed insistence that Got's action was procedurally barred by the collateral attack rule. He similarly dismissed the bank's alternative procedural argument that the court's appointment of a public receiver shielded it from liability, holding that the bank's misleading conduct in securing the public receiver placed it in the same position as if it had simply appointed the receiver privately.
Accordingly, McDonald J. found the bank liable in tort for conversion of Got's assets and awarded compensatory damages, as well as exemplary damages in the sum of $100,000 to send a clear message of the impropriety of the bank's grave and irrevocable conduct and misuse of the judicial system by rushing to foreclose on Got and misleading the judge in obtaining the receiver. He also found that the bank forfeited its right to rely on Mr. Sanderlin's personal guarantee of Got's loan.
The majority of the Court of Appeal ((1997), 196 A.R. 241) upheld the judgment of McDonald J. and affirmed the bank's liability in conversion. Hetherington J.A., dissenting in part, would have held that the bank was not liable in conversion. The majority agreed with her that the bank was liable for breach of contract for failing to give notice as required by the debenture. Hetherington J.A. would have remanded the case for recalculation of damages on a contractual basis and consequent re-examination of mitigation.
1. Is the Bank Liable for Breach of Contract?
The Court of Appeal unanimously agreed that the bank breached its implied contractual obligations to Got by (1) not giving reasonable time to respond to its demand for payment and (2) not giving notice of its intention to apply for an order appointing a receiver and manager.
The bank counters that the receivership order was a preservation order that did not require a demand or reasonable notice and that the granting of the order precludes claims for breach of contract. We would reject these arguments. Even though Master Funduk appears to have intended to give Got 21 days for repayment, paragraph 18(c) of the receivership order authorized the receiver to "take steps for the preservation or realization of the undertaking, property and assets of Got" (emphasis added), and paragraph 20 allowed the receiver to apply to the court to approve a distribution of the net proceeds of sale. Thus, we would accept the view of the courts below that this was an order for both preservation and realization.
According to this Court's decision in Lister (R.E.) Ltd. v. Dunlop Canada Ltd.,  1 S.C.R. 726, the bank was required to give the debtor reasonable notice of its intention to enforce the security and reasonable time to pay following this notice of intention. The debtor must be given "some notice on which he might reasonably expect to be able to act": Massey v. Sladen (1868), L.R. 4 Ex. 13, at p. 19. In determining the length of time amounting to reasonable notice, courts generally employ the following criteria, established in Mister Broadloom Corporation (1968) Ltd. v. Bank of Montreal (1979), 25 O.R. (2d) 198 (H.C.), at p. 208, reversed on other grounds (1983), 44 O.R. (2d) 368, leave to appeal refused,  1 S.C.R. v:
the amount of the loan;
the risk to the creditor of losing his money or the security;
the length of the relationship between the debtor and the creditor;
the character and reputation of the debtor;
the potential ability to raise the money required in a short period;
the circumstances surrounding the demand for payment; and
any other relevant factors.
It is clear from the trial judge's assessment of the chronology of events that the bank's intention was to make the demand for payment at the same time as a motion to appoint a receiver. According to the trial judge, at p. 109, the bank and its solicitors proceeded "with no intention at all of seeing that a genuine demand be given, or that any time (much less, reasonable time) be given to respond, or that any notice be given of the application to the court for the appointment of a receiver".
The length of time required may vary widely depending on the facts of the case. In some cases, giving very little or almost no notice is reasonable in the circumstances. For example, if there is an appreciable risk that the debtor will abscond with negotiable assets, if the debtor's assets are depreciating quickly or if a debtor is unable to meet its obligations regardless of the amount of notice, it may be reasonable to proceed on little notice: Pax Management Ltd. v. Canadian Imperial Bank of Commerce  2 S.C.R. 998; Jeannette B.B.Q. Ltée v. Caisse Populaire de Tracadie Ltée (1991), 117 N.B.R. (2d) 129 (C.A.), leave to appeal refused,  1 S.C.R. viii; Kavcar Investments Ltd. v. Aetna Financial Services Ltd. (1989), 70 O.R. (2d) 225 (C.A.); Royal Bank of Canada v. Nobes (1982), 49 N.S.R. (2d) 634 (C.A.).
In this case, no reason has been offered to explain why the bank gave so little notice. There is no indication that there was a cause for urgency or that Got would be absolutely unable to pay the debt. Thus, there is no reason to question the finding of the trial judge, affirmed on appeal, that the amount of notice provided by the bank was unreasonable. The bank is, therefore, liable to Got for breach of contract.
2. Is the Bank Liable for Conversion?
In BG Checo International Ltd. v. British Columbia Hydro and Power Authority  1 S.C.R. 12, this Court accepted the proposition that where a given wrong supports an action both in contract and in tort, a party may sue in either or both. The only limit to concurrency was based on the principle of the primacy of private ordering and allowed for a restriction on the right to sue in tort where an express or implied contractual obligation limits or contradicts the tort duty. Thus, it is theoretically possible for the bank to be liable both in contract and in tort. However, since damages in this case are the same for contract and tort, as discussed later in these reasons, it is unnecessary to consider the matter of conversion.
3. Damages for Breach of Contract
The trial judge and the majority of the Court of Appeal dealt with damages on the basis of conversion. Hetherington J.A., in the minority of the Court of Appeal, based her decision on contract and would have remitted the matter to the trial judge for reassessment of damages on the basis of breach of contract.
While finding liability for breach of contract, we conclude that the damages awarded on the basis of conversion represent an appropriate assessment of damages for the breach of contract in this case, and we therefore find it unnecessary to refer the matter back for assessment of damages for breach of contract.
(a) Compensatory Damages
Where a claim is made for the same wrongful acts under different heads of liability, compensatory damages will generally be similar, subject to adjustment for the particular wrong targeted by a particular cause of action. This position was clearly stated in BG Checo, supra, where a majority of this Court held, at p. 38, that:
In situations of concurrent liability in tort and contract, however, it would seem anomalous to award a different level of damages for what is essentially the same wrong on the sole basis of the form of action chosen, though, of course, particular circumstances or policy may dictate such a course.
In this case, there are no special features which call for different damages for contract and tort. The conversion action is concerned with damages for the appropriation of goods; the breach of contract action is concerned with damages for the same wrong. Therefore, compensatory damages in this case are the same. The trial judge did not err in assessing damages for conversion. It follows that in considering this matter on the basis of contract, there is no reason to interfere with the trial judge's determination or to send the matter back for reassessment.
(b) Exemplary Damages
The trial judge and the Court of Appeal awarded exemplary damages for the egregious conduct of the bank and we would not disturb this finding. Punitive damages are available for breach of contract, although, as McIntyre J. held in Vorvis v. Insurance Corp. of British Columbia  1 S.C.R. 1085, at p. 1107, the circumstances that would justify punitive damages for breach of contract in the absence of actions also constituting a tort are rare:
.... while it may be very unusual to do so, punitive damages may be awarded in cases of breach of contract. It would seem to me, however, that it will be rare to find a contractual breach which would be appropriate for such an award .... Where the defendant has breached the contract, the remedies open to the plaintiff must arise from that contractual relationship, that "private law", which the parties agreed to accept. The injured plaintiff then is not entitled to be made whole; he is entitled to have that which the contract provided for him or compensation for its loss. This distinction will not completely eliminate the award of punitive damages but it will make it very rare in contract cases.
The trial judge explained that his substantial award of exemplary damages was intended to address the following five concerns:
that the court will not condone a clear violation of the rule of law that requires a debenture-holder to give reasonable notice;
that the court will not condone an abuse of its process for commercial advantage;
that because no crime had been committed, no other form of punishment was available;
that the bank's conduct caused grave and irrevocable consequences to the business of its client;
that courts are entitled to expect honest behaviour from the major chartered banks.
It is argued that these five concerns do not rise to the level required to trigger an award for exemplary damages. We agree that the first concern of the trial judge, deterrence, may not, taken alone, justify exemplary damages. As a rule, deterrence can be achieved through the award of compensatory damages and refusal to grant exemplary damages is not condonation of the violation of the rule of law. We also question the third concern, the absence of other forms of punishment. With regard to the trial judge's fifth concern, we would not endorse the suggestion that the bank could be subjected to a higher standard of scrutiny than the average commercial litigant because of its privileged condition in Canadian society. Nevertheless, this is a case where the conduct of the bank "seriously affronts the administration of justice", as stated by the trial judge. We agree that the bank's conduct did not have to rise to the level of fraud, malicious prosecution, or abuse of process to justify an award of exemplary damages.
Therefore, despite our reservations, we agree that it was within the discretion of the trial judge to award exemplary damages. Viewing the trial judge's concerns cumulatively, and giving due weight to the advantage he had to assess the need for deterrence and condemnation of the abuse of the court's process, as well as the need to maintain proper business practices, we are not prepared to interfere with the award for exemplary damages in this case. We emphasize, however, that an award for exemplary damages in commercial disputes will remain an extraordinary remedy.
We would, therefore, dismiss the appeal with costs.
Lister (R.E.) Ltd. v. Dunlop Canada Ltd.,  1 S.C.R. 726; Mister Broadloom Corporation (1968) Ltd. v. Bank of Montreal (1979), 25 O.R. (2d) 198, rev'd on other grounds (1983), 44 O.R. (2d) 368, leave to appeal refused,  1 S.C.R. v; BG Checo International Ltd. v. British Columbia Hydro and Power Authority,  1 S.C.R. 12; Massey v. Sladen (1868), L.R. 4 Ex. 13; Pax Management Ltd. v. Canadian Imperial Bank of Commerce,  2 S.C.R. 998; Jeannette B.B.Q. Ltée v. Caisse Populaire de Tracadie Ltée (1991), 117 N.B.R. (2d) 129, leave to appeal refused,  1 S.C.R. viii; Kavcar Investments Ltd. v. Aetna Financial Services Ltd. (1989), 70 O.R. (2d) 225; Royal Bank of Canada v. Nobes (1982), 49 N.S.R. (2d) 634; Vorvis v. Insurance Corp. of British Columbia,  1 S.C.R. 1085.
Frank R. Foran, Q.C., and M. G. Massicotte, for the appellant (instructed by Howard, Mackie, Calgary)
F. David Cook and John A. Weir, Q.C., for the respondents (instructed by Weir, Bowen, Edmonton)
all rights reserved