#6698 - Royal Bank Of Canada V. W Got Associates - Commercial Remedies BCL

Royal Bank of Canada v. W Got & Associates

Facts

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.

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. 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.

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. 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.

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.

Findings of fact by the Trial Judge: 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 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.

Holding

Exemplary damages for breach of contract

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, 1989 CanLII 93 (SCC), [1989] 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.

Application to facts

The trial judge explained that his substantial award of exemplary damages was intended to address the following five concerns:

1. that the court will not condone a clear violation of the rule of law that requires a debenture-holder to give reasonable notice;

2. that the court will not condone an abuse of its process for commercial advantage;

3. that because no crime had been committed, no other form of punishment was available;

4. that the bank’s conduct caused grave and irrevocable consequences to the business of its client;

5. that courts are entitled to expect honest behaviour from the major chartered banks.

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...