Hunter Duckworth Holdings Ltd v Kamino GP Ltd, 2014 ABQB 753

Court of Queen ’ s Bench of Alberta Citation: Hunter Duckworth Holdings Ltd v Kamino GP Ltd, 2014 ABQB 753 Date: 20141208 Docket: 1301 13255 Registry: Calgary Between: Hunter Duckworth Holdings Ltd Plaintiff - and - Kamino GP Ltd and Vincent Chok Defendants _______________________________________________________ Memorandum of Decision of J.B. Hanebury, Master in Chambers _______________________________________________________ [ 1 ] This is an application for

summary judgment on a guarantee. The facts are not in dispute. The issue is the applicability of the requirements of the Limitations Act , R.S.A. 2000, c. L-12, to a demand guarantee where no demand was made and the lender sued the guarantor more than three years after default by the principal debtor. [ 2 ] Hunter Duckworth Holdings Ltd. loaned $720,000.00 to Intreo Corporation to enable its principal, Mr. Chok, to purchase a building in southwest Calgary. While the loan agreement was in the name of Intreo, the personal guarantee of the loan signed by Mr. Chok referred to another company also owned by Mr.

Chok, Kamino GP Ltd., as the debtor. Mr. Duckworth, the principal of Hunter Duckworth, was advised that it was actually Kamino that would be using the funds and would be responsible for the loan payments. No

issue was raised as to the difference between the name on the note and the debtor named in the guarantee. [3] Kamino made payments until April, 2010. Mr. Duckworth then discovered that the funds were never actually deposited tothe account of Kamino nor was the building ever purchased. He subsequently learned that Kamino is insolvent and has been struck fromthe corporate registry. [4] The loan came due on March 15, 2011. The Statement of Claim naming Kamino and the guarantor was filed on November7, 2013. Kamino filed no defence. Mr. Chok defended the claim.

The only defence raised to this application is the Limitations Act. Mr.Chok argues that, at the latest, the claim had to be filed by March 5, 2013, which was two years from the due date of the loan. It was not.Hunter Duckworth responds that the guarantee was a demand guarantee and the limitation runs from demand being made on theguarantee. [5] There was no evidence before me of demand being made on the guarantee. Even if the filing of this claim does not constitutea demand, the claim can be discontinued and re-filed. Such an argument is merely a “temporary roadblock”: Canada Permanent TrustCompany v.

King Art Developments, (1984) 1984 ABCA 101 , 52 A.R. 139 (C.A.), p. 148. Counsel for Mr. Chok wisely chosenot to waste time and money erecting such a barricade. [6] As a result, argument focused on the primary issue between the parties: when does the limitation clock start to run on ademand guarantee? Is it only when demand is made, or is it when the plaintiff knows that the principal debtor is not paying, will not pay,or cannot pay? Analysis [7] As all of the necessary facts are before the Court and are undisputed, this application is one that lends itself to determinationby way of

summary judgment: Windsor v. Canadian Pacific Railway Ltd., 2014 ABCA 108, para. 13; Tottrup v. Clearwater(Municipal District No. 99), 2006 ABCA 380, at para. 11. It involves the application of the law of limitations to the facts of this case. [8] The Limitations Act, s. 3(1) (

a) provides that a claimant must seek a remedial order within two years from the date he or shefirst knew or, in the circumstances, ought to have known that the injury occurred, it was attributable to the conduct of the defendant, and,assuming liability on the part of the defendant, it warranted bringing a proceeding. [9] The parties provided a number of cases considering s. 3 of the Act. In determining when the clock starts to run, the court is toconsider the claimant’s knowledge and conduct against an objective standard, taking into account his or her circumstances: Laasch v.Turenne, 2012 ABCA 32, para. 22.

See as well: Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19, para. 60; AthabascaChipewyan First Nation v. Alberta (Minister of Energy), 2011 ABCA 29, para. 33; Quadrangle Holdings Ltd. v. Coady, 2012 ABQB22, para. 42. [10] Perfect knowledge is not necessary for the clock to start: De Shazo v. Nations Energy Company Ltd., 2005 ABCA 241, para.31. Once the issue is raised, the onus is on the claimant to demonstrate that it brought its action in time: Bakker v. Stainton, 2002 ABQB731 (Master). [11] In my view, there is no need in this case to consider the objective standard.

This is not a situation where the Court mustdetermine when there was, or should have been, knowledge of the injury. It is a situation where the Court must determine when theinjury occurred. [12] In the case of a demand loan, the injury does not occur until demand has been made and the borrower fails to pay: Sawchuk v.Bourne, 2004 ABQB 344, para. 23, aff’d 2005 ABCA 382.

In affirming the Queen’s Bench decision, the Court of Appeal acknowledgedthat there was earlier authority for the proposition that the limitation period for a demand loan starts when the loan is advanced.However, that authority was based on situations where the legislation only required knowledge of the debt. Now recent Supreme Courtof Canada case law has made it clear that knowledge that the debt will not be repaid is required. In the case of a demand loan, thatknowledge arises after demand is made. In other words, there is no injury until there has been no payment after the demand. See as well:David M.

Gottlieb, Professional Corporation v. Tymkow, 2012 ABQB 262, para.11. [13] The case law has taken the same approach in relation to guarantees that are payable upon demand. The limitation starts afterdemand has been made, not upon a breach of the underlying promissory note: Canadian Imperial Bank of Commerce v. Zarina B.Sayani, 1994 CarswellBCSC 22, para. 3; Canadian Imperial Bank of Commerce v.

Pittstone Developments Ltd. et al., 1985CarswellBCSC, para. 13. [14] There is an Alberta case on point that was decided under the limitations legislation previously in effect: Capital City Savingsand Credit Union Limited v. MacDonald,

(1989) CarswellAlta 456 (Master). It noted that generally, a surety’s liability is co-extensivewith the liability of the principal debtor and therefore the two liabilities accrue together. As a result, the limitations run in tandem unlessthe guarantee states that the guarantor’s liability to pay does not arise until a demand is made: para. 84.

When the guarantee includes arequirement for a demand, then the guarantor’s liability only accrues once the demand is made. [15] This case law leads to the conclusion that in the case of a guarantee that requires a prior demand, the injury for which aremedial order is sought is the amount demanded and unpaid. Knowledge of that injury arises when the demand fails to result inpayment. [16] Some case law has held that a guarantee can, by its terms, make the guarantor a principal debtor. In such a situation, therequirement in the guarantee for a demand may not need to be fulfilled to start the limitation running.

As the guarantor is also a principaldebtor, his or her liability accrues pursuant to the terms of the principal debt. The terms of the guarantee must be carefully read to ascertain if the wording is sufficient to effect this result: G. Andrews and R. Millett, Law of Guarantees (5th ed.), Carswell: Toronto, 7-006; Manulife Bank of Canada v. Conlin, (SCC), [1996] 3 S.C.R. 415, para’s. 19 – 21; Royal Bank of Canada v.Samson Management & Solutions Ltd., 2013 ONCA 313, para. 41, leave to appeal to the SCC refused, 2013 CarswellOnt 15573, Nov.

14, 2013. [ 17 ] With that overview of the law, I turn to the terms of the guarantee at issue. [ 18 ] In this case the guarantee provides in clause 3 that payment shall be made “after demand therefor is made in writing...” and the details of how to effect the demand are described. [ 19 ] One sentence of clause 4 of the guarantee states that “[a]ny part of the Guaranteed Obligations not recoverable from the Guarantor as guarantor shall be recoverable from the Guarantor as principal debtor and as if it were the sole debtor in respect thereof...” [ 20 ] This sentence is insufficient to avoid the need for a demand.

It is similar to that in Samson Management , where the Court found that “the clause provide[s] for the conversion of the guarantor into a principal debtor only for enforcement purposes if the borrower default[s] and the guarantee for some other reason [becomes] unenforceable against the guarantor as a guarantee”: para. 41. [ 21 ] Mr. Chok is liable as a guarantor only after demand is made upon him. Any liability he may have as a principal debtor is for the amount not recoverable from him as a guarantor. Pursuant to the guarantee there is an obligation on the lender to serve a demand upon Mr.

Chok to start the limitation clock running. Conclusion [ 22 ] The claimant’s injury arose only upon the failure of Mr. Chok to pay after demand was made upon him. Demand was made, at the earliest, with the filing of the statement of claim. It follows that the provisions of the Limitations Act do not bar the claim. There is no issue that merits a trial of this action. [ 23 ] The plaintiff is entitled to judgment and its costs throughout. Heard on the 04 th day of December, 2014. Dated at the City of Calgary, Alberta this 8 th day of December, 2014. J.B. Hanebury M.C.C.Q.B.A. Appearances: James G.

Hanley MacDonald Hanley LLP for the Plaintiff Nolan W. Shouldice Scott Venturo LLP for the Defendants