Royal Bank of Canada v McLaughlin, 2016 ABQB 80

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v McLaughlin, 2016 ABQB 80 Date: 20160208 Docket: 1501 04587 Registry: Calgary Between: Royal Bank of Canada Plaintiff - and - William McLaughlin also known as William Neil McLaughlin, Jocelyne McLaughlin and 1697928 Alberta Ltd. Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice K.D. Yamauchi _______________________________________________________ I. Introduction [ 1 ] In this application, the Defendants Jocelyne McLaughlin (“Ms.

McLaughlin”) and 1697928 Alberta Ltd. (the “Corporation”), seek an order terminating an attachment order that the Plaintiff Royal Bank of Canada (“RBC”) obtained (“Attachment Order”). The Attachment Order relates to a 2013 Newmar Dutch Star Motorhome freightliner chassis, model 4347, serial number 4UZFCHCY8DCFD4959 (the “VIN”), registered to the Corporation (the “RV”). RBC objects to the termination of the attachment order. II. Background [ 2 ] The parties provided extensive background on this matter.

This Court does not see the need to provide the detail that the parties provided to it, but some background is necessary. [ 3 ] The Defendant William McLaughlin (“Mr. McLaughlin”) was the former finance manager of a car dealership in Grande Prairie, Alberta. Ms. McLaughlin worked as a freelance finger nail technician. Ms. McLaughlin incorporated the Corporation for the purpose of her finger nail technician business (Ms. McLaughlin and the Corporation are collectively referred to as the “Applicants”). [ 4 ] Mr. McLaughlin and Ms. McLaughlin were married in 1998.

They separated in 2010 and in the Spring of 2012, they agreed to divide the matrimonial property. Their agreement was not reduced to writing, but they agreed that Mr. McLaughlin would transfer his interest in the matrimonial home to Ms. McLaughlin and purchase a recreational vehicle for Ms. McLaughlin. In exchange, Ms.

McLaughlin promised not to make a claim for spousal support, and forbear from making a claim against Mr. McLaughlin’s pension benefits, retirement saving plans, or other assets. [ 5 ] Since 2000, Mr. McLaughlin was a customer of the Grand Prairie branch of the RBC (the “Branch”). Mr. McLaughlin previously maintained a number of accounts and credit facilities with RBC. [ 6 ] On April 20, 2012, Mr. McLaughlin attended at the Branch for the purpose of completing a recreational vehicle loan application. As part of the loan application process, Mr.

McLaughlin executed a RBC client agreement which provided, among other things, that the proceeds of the loan, if approved, would not be used by or on behalf of a third party. RBC’s account manager responsible for handling the application also informed Mr. McLaughlin that RBC would not be able to approve the application until, among other things, Mr. McLaughlin provided a bill of sale for the recreational vehicle he was intending to purchase with the loan proceeds. [ 7 ] On July 5, 2012, Mr. McLaughlin returned to the Branch to complete the recreational vehicle loan application.

He provided RBC with, among other documents, a purported purchase agreement dated June 12, 2012, from Midtown RV Ltd. in Penticton, British Columbia (the “Purported Purchase Agreement”). The Purported Purchase Agreement identified the make, year, model and serial number of the recreational vehicle that Mr. McLaughlin intended to purchase (the “Purported RV”). [ 8 ] On July 5, 2012, in reliance on the Purported Purchase Agreement, RBC approved the application and entered into a recreational vehicle loan agreement (the “Loan Agreement”) with Mr. McLaughlin. In the Loan Agreement, RBC agreed to loan to Mr.

McLaughlin $275,000 for his purchase the Purported RV on the terms set out in the Loan Agreement. RBC and Mr. McLaughlin also entered into a security agreement (the “Security Agreement”), which provided that the monies that RBC advanced through the Loan Agreement would be secured against the Purported RV. RBC then provided Mr. McLaughlin with a $280,000 draft payable to Midtown RV Ltd., of which $275,000 represented the monies it advanced pursuant to the Loan Agreement (the “Loan Monies”). [ 9 ] On September 8, 2012, Mr.

McLaughlin used the Loan Monies to purchase a different recreational vehicle from Midtown RV Ltd., in the name of the Corporation. In other words, he did not purchase the Purported RV. The recreational vehicle that he purchased was the recreational vehicle that is the subject-matter of the within proceedings, viz , the RV. This was a breach of the Loan Agreement and the Security Agreement. On that same date, Mr.

McLaughlin registered the RV in the name of the Corporation with the Alberta motor vehicle registry. [ 10 ] Between July and November 2012, RBC tried to register notice of its security interest pursuant to the Security Agreement at the Alberta and British Columbia personal property registries. It was unable to do so, as it did not have information on the RV because of the way in in which Mr. McLaughlin purchased it. Between July 2012 and December 2014, Mr. McLaughlin paid the monthly principal and interest payments pursuant to the Loan Agreement. [ 11 ] In or about January 2014, Mr.

McLaughlin defaulted on the Loan Agreement. As at October 3, 2014, the amount of principal and interest due and owing to RBC under the Loan Agreement was $241,365. Interest continues to accrue on that amount. [ 12 ] In November 2014, RBC registered notice of its security interest in the RV with the Alberta and British Columbia personal property registries. III. Arguments A. RBC [ 13 ] RBC argues that Mr. McLaughlin perpetrated a fraud against it when he presented the Purported Purchase Agreement that described the Purported RV. He then obtained the Loan Monies to purchase the RV.

By registering the RV in the Corporation’s name, Mr. McLaughlin, and through him, the Corporation’s principal, Ms. McLaughlin, fraudulently conveyed the RV to the Corporation, or gave the Corporation, or its principal, Ms. McLaughlin, a fraudulent preference. Further, RBC argues that the Corporation and its principal, Ms. McLaughlin, hold the RV in trust for it. [ 14 ] RBC argues that the Applicants knew or should have known that the purchase was suspicious and should have questioned Mr. McLaughlin as to the source of the monies for his purchase of the RV. Accordingly, RBC argues that Ms.

McLaughlin knew or ought to have known, or was willfully blind to the source of the monies that Mr. McLaughlin used to purchase the RV. In the alternative, it argues that Ms. McLaughlin had constructive knowledge that Mr. McLaughlin purchased the RV using borrowed monies and that RBC secured the Loan Monies against the RV. [ 15 ] RBC goes on to argue that while the RV was registered and licenced in the name of the Corporation, at all material times the RV was used by Mr. McLaughlin and Ms. McLaughlin for their own personal use and enjoyment.

There was no lawful or legitimate business of the Corporation that was ever conducted in, by or through the use of the RV. B. Applicants [ 16 ] The Applicants argue that Ms. McLaughlin did not turn her mind to how Mr. McLaughlin planned on paying for the RV. She assumed that Mr. McLaughlin had enough money to pay for the RV in full. She did not know that Mr. McLaughlin had taken out a loan from RBC to pay for the RV until the RBC commenced this lawsuit. [ 17 ] Although Ms.

McLaughlin worked for RBC in Vancouver and Calgary from 1985 through 2001, she was not “overly familiar” with personal loans and security for personal loans. As well, she argues, she is not as financially sophisticated as is Mr. McLaughlin and often relied on him to direct her on financial and business decisions. The nature of their relationship was that she did not ask questions concerning Mr. McLaughlin’s business and both parties kept their financial lives separate throughout their relationship.

[18] Ms. McLaughlin had no knowledge of any alleged default of Mr. McLaughlin under the Loan Agreement. She carried on asthough she were the sole owner of the RV. [19] In 2012, RBC failed properly to register the VIN of the RV. It was not until November 17, 2014, that RBC claims that itregistered notice of its security interest in the RV pursuant to the Personal Property Security Act, RSA 2000, c P-7. RBC provided nonotice of the registration to Ms. McLaughlin or the Corporation. [20] When RBC received the incorrect VIN from Mr.

McLaughlin, it did not try to obtain it from Midtown RV Ltd. and request thecorrect VIN. Instead, it kept trying to get the VIN from Mr. McLaughlin. IV. Analysis and Discussion A. Legislation [21] RBC obtained the Attachment Order pursuant to

section 17 of the Civil Enforcement Act, RSA 2000, c C-15 [CEA], part ofwhich provides as follows: 17(1) A claimant may apply to the Court for an attachment order where (

a) the claimant has commenced or is about to commence proceedings in Alberta to establish the claimant’s claim, or (

b) the claimant has commenced proceedings before a foreign tribunal to establish a claim if (

i) a judgment or award of the foreign tribunal could be enforced in Alberta by action or by proceedings under an enactment dealingwith the reciprocal enforcement of judgments or awards, and (ii) the defendant appears to have exigible property in Alberta.

(2) On hearing an application for an attachment order, the Court may, subject to subsection (4), grant the order if the Court issatisfied that (

a) there is a reasonable likelihood that the claimant’s claim against the defendant will be established, and (

b) there are reasonable grounds for believing that the defendant is dealing with the defendant’s exigible property, or is likely to dealwith that property, (

i) otherwise than for the purpose of meeting the defendant’s reasonable and ordinary business or living expenses, and (ii) in a manner that would be likely to seriously hinder the claimant in the enforcement of a judgment against the defendant. [22] The Applicants seek to terminate the Attachment Order under CEA s 17(8), which provides as follows:

(8) Any interested person may apply to the Court to vary or terminate an attachment order. [23] As well, the Applicants rely on rule 9.15 of the Alberta Rules of Court, Alta Reg 124/2010 [Rules] , which provides asfollows: 9.15(1) On application, the Court may set aside, vary or discharge a judgment or an order, whether final or interlocutory, that was made (

a) without notice to one or more affected persons, or (

b) following a trial or hearing at which an affected person did not appear because of an accident or mistake or because ofinsufficient notice of the trial or hearing. [...]

(4) The Court may set aside, vary or discharge an interlocutory order (

a) because information arose or was discovered after the order was made, (

b) with the agreement of every party, or (

c) on other grounds that the Court considers just. [24] Rules r 9.15(4) gives the court broad discretion in determining whether to set aside interlocutory orders: Foley-Cornish vNabors Drilling Ltd, 2013 ABQB 186 at para 14. [25] In ID Foods Corp v G Heileman Brewing Co (1996), (AB KB), 194 AR 108 at paras 31-32(Master),Master Laycock discussed the parameters of CEA s 17(8) when he said the following: Section 17(8) must be read in the context of part three of the Civil Enforcement Act.

By a plain reading of section 17(8), the court'sauthority is to vary (change or alter) or terminate (bring to an end) an attachment order. In considering an application, the court is entitledto view any new evidence the interested person brings to court to establish reasons why the original attachment order should be varied or

terminated. Typically, an interested person bringing an application would assert some right or interest in the property affected by theattachment order. If the interested person could prove that it was the absolute owner of the property at the date of the granting of theattachment order, the order would be varied to release the property to the interested party. The effect of such a variation order maybe to"set aside" the attachment of property, but the court did not review the original grounds for the granting of the attachment order.

The court has authority under section 17(8) to vary the attachment order and to return property to its lawful owner. [26] In Calmusky v Hodgins, 2007 ABQB 417, 420 AR 85, Kenny J said that, “It appears it was the intention of the Legislature toleave broad discretion with the Court” when the court is considering an application under CEA s 17(8). But that discretion is notunbridled. It must be done within the framework of Rules r 9.15.

In Catalyst Canada Services LP v Catalyst Changers Inc, 2013 ABQB73, 560 AR 22, 76 Alta LR (5th) 221 at paras 31-32, this Court said the following: An application to vary or vacate an ex parte injunction order requires a de novo hearing of the merits of the injunction application.Paperny J, as she then was, said in Capitanescu v. Universal Weld Overlays Inc., (AB KB), 1996 CarswellAlta 936(Alta. Q.B.) at para 11, (1996), 141 D.L.R. (4th) 751 (Alta. Q.B.): A judge who hears a motion to rescind or vary an ex parte injunction should hear the matter de novo as to both the law and the factsinvolved.

In Pulse Microsystems Ltd. v. SafeSoft Systems Inc. (1996), (MB CA), 67 C.P.R. (3d) 202 (Man. C.A.) at206, the Court relied on the rationale of Sidney Smith J.A. in Gulf Island Navigation Ltd. v. Seafarers’ International Union of NorthAmerica (Canadian District) (1959), (BC CA), 18 D.L.R. (2d) 625 (B.C. C.A.) at pp. 630-31: Once a judge has for examination another judge’s ex parte order, I think there should be no restriction on the scope of the hearing; itshould be one de novo.

Ex parte orders are sui generis; the general rule of adjudication is audi alteram partem and that rule is onlyrelaxed in ex parte proceedings because of their inconclusiveness. In such proceedings a judge usually relies on counsel to a large extent,both as to the facts and the law; and to hold that when the inconclusive order is looked at again more carefully, the party at first absent isrestricted so that he cannot raise all the points that he could have raised if heard in the first instance, is clearly an injustice.

It would meanthat if the original Judge is not available for re-hearing, the party not at first heard is seriously prejudiced. In the absence of intractableauthority the other way, we should hold that he is entitled to be heard, not to be half heard, which is all that he would be if any part of thesubject of the ex parte order were closed to him when he at last got before a Judge. This is as it should be. In this case, Jeffrey J heard only the submissions of the Respondent and did not have the opportunity to hearChangers’ submissions.

It is fair and just that this Court make its ruling only after hearing both sides of the story. See also Lyons v.Creason, 2008 CarswellAlta 1219 (Alta. Q.B.) at para 3, 2008 ABQB 550 (Alta. Q.B.) [Lyons]. The onus is on the Respondent to prove that the criteria for granting the injunction are met: Lyons at para 3. This Court will consider thetest for an injunction order based on all of the evidence that the parties present, not just the evidence available at the original hearing:CCS Corp. v. Secure Energy Services Inc., 2009 CarswellAlta 935 (Alta. Q.B.) at para 14, 2009 ABQB 275, 13 Alta.

L.R. (5th) 70 (Alta.Q.B.).

The Injunction Order does not create a status quo that would shift the onus to Changers. [27] Similarly, the Attachment Order in this case does not create a status quo that would shift the onus to the Applicants. [28] Thus, even though Master Laycock said that “the court did not review the original grounds for the granting of the AttachmentOrder,” if an interested party seeks to vary or terminate an ex parte Attachment Order, the court hearing that application “should hear thematter de novo as to both the law and the facts involved.” This Court decided to approach the issues before it within that framework. [29] It should be noted, however, that it is not for this Court to determine the issue of entitlement to the RV, at these early stages ofthis proceeding.

In fact, it can only determine whether it should terminate the Attachment Order. In so doing, this Court must considerthe criteria set forth in CEA s 17(2), to which it now turns its attention. B. Reasonable Likelihood [30] The reason that this Court has decided to approach this matter in that way is because pre-trial relief is an extraordinaryremedy, meaning that RBC is seeking to “cage” the RV before it has even proven its claim. See Rea v Patmore, [1999] AJ No 1168 atparas 4, 22-23. But RBC is not required to prove its entitlement on a balance of probabilities.

It need only show “that there is areasonable likelihood that [its] claim against the [Applicants] will be established”: CEA s 17(2)(a). In fact, it need not go so far as toshow that is has a strong prima facie case: Osman Auction Inc v Bullard (EOB GB Management), 1998 ABQB 964 at para 39. [31] There is no doubt that Mr. McLaughlin was not forthright with RBC when he entered into the Purported Purchase Agreementto purchase the Purported RV. The Applicants’ argument is that they had no knowledge of Mr.

McLaughlin’s plan. [32] The Applicants make many arguments concerning the RBC’s perfection of its security interest pursuant to the SecurityAgreement and the misleading aspect of an incorrect VIN. As well, they argue that Ms. McLaughlin, through the oral separationagreement into which she entered with Mr. McLaughlin, resulted in her giving value for the RV. These might be valid arguments, butthis Court cannot, through an application without viva voce evidence, make decisions on the validity of these arguments. [33] What is of key importance is the knowledge that she had of Mr.

McLaughlin’s plan in providing RBC with misleadinginformation. Or whether she was wilfully blind to his plan. Or whether she was in “knowing receipt” of the RV. In either case, she mightbe saddled with the same fraudulent intent that resulted in RBC providing him with funds to purchase the RV. Why is this important?RBC has argued that Mr. McLaughlin fraudulently conveyed the RV to the Corporation and relies on the Fraudulent Conveyances Act,1571 (13 Eliz. 1), c 5 [FCA]. As well, it argues that she “knowingly” received the RV, which would saddle on her the same knowledge asthat which Mr. McLaughlin possessed.

This Court will examine each of these arguments, although, to a certain extent, the factors thatthis Court considers will be relevant to each.

1. Fraudulent Conveyance [34] The FCA is an old and, by today’s standards, awkwardly-worded piece of legislation. It remains, however, the law in Alberta.Rather than transposing the wording of the sections that are germane to the case at bar, it is more useful to provide the

summary of itsprovisions that Clackson J provided in Proulx v Proulx, 2002 ABQB 151 at para 14, 25 RFL (5th) 370 [Proulx] where he said thefollowing: It seems to me that the basic principles defining the remedy in 13 Elizabeth c.5 are now well settled. 1. There must be a conveyance of either real or personal property; 2. The transaction must have been for no or nominal consideration; 3. It must have been the intent of the settlor to defraud, hinder or delay his creditors; 4.

The intent of the settlor may be inferred from his circumstances and the circumstances of the settlement or may be the result of directevidence; 5. The fact that there was no consideration or voluntary consideration will in most cases justify the inference of the necessary intentabsent evidence rebutting that inference; 6. Inference of intent will be strong if the settlor was insolvent at the time of settlement or the settlement effectively denuded him ofassets sufficient to cover existing obligations; 7.

The party challenging the conveyance must be a creditor or someone with a legal or equitable right to claim against the settlor; 8. The conveyance must have had the intended effect. [35] If a trial court finds that Ms. McLaughlin did not give value for the RV, or gave only nominal value, then whether she had anyintent to defraud RBC is irrelevant. All that is relevant is Mr. McLaughlin’s intent, which starts from the presumption that a personintends the natural consequences of their actions in the light of the circumstances of the particular case before the court.

The court willthen analyze the so-called “badges of fraud” to see if the presumption is supported. See e.g. Freeman v Pope (1870), LR 5 Ch App 538;Coopers & Lybrand v Giesbrecht (1993), (SK KB), 117 Sask R 1 at para 42, 24 CBR (3d) 858 (QB – In Bankr). Themore “badges of fraud” that the plaintiff proves, the stronger the evidentiary presumption. See e.g. Koop v Smith, (SCC), 1915 CarswellBC 151, 51 SCR 554 [Koop, cited to CarswellBC]. In this case, although this Court cannot rule on it, it appearsthat Mr. McLaughlin had the necessary intent. The fact that Mr.

McLaughlin made payments pursuant to the Loan Agreement for abouttwo and a half years does not show that he did not have the necessary intent. Clackson J said the following: ... [T]he fact that Mr. Proulx continued to meet his obligations for 4 ½ years after devising and implementing his scheme does notsanitize that scheme. His intent was to delay, hinder and defeat. Proulx at para 18. [36] Ms. McLaughlin argues, “There was no evidence that Mr. McLaughlin was insolvent or on the eve of insolvency up until atleast January 2014. Mr.

McLaughlin was able to make the payments on the RV for fourteen (14) months.” The issue of Mr.McLaughlin’s financial condition is relevant under the Fraudulent Preferences Act, RSA 2000, c F-24 [FPA], s 1, which provides asfollows: 1. Subject to sections 6 to 9, every gift, conveyance, assignment, transfer, delivery over or payment of goods, chattels or effects or ofbills, bonds, notes or securities or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property,real or personal, made (

a) by a person at a time when the person is in insolvent circumstances or is unable to pay the person's debts in full or knows that theperson is on the eve of insolvency, and (

b) with intent to defeat, hinder, delay or prejudice the person's creditors or any one or more of them, is void as against any creditor or creditors injured, delayed or prejudiced. [Emphasis added]. [37] A person’s financial condition is not relevant under the FCA. In Royal Bank of Canada v North American Life AssuranceCompany (SCC), [1996] 1 SCR 325 at 367, Gonthier J for the court said the following: ... [FCA] would allow creditors to challenge fraudulent conveyances without having to prove that, at the time of the conveyance, thedebtor was insolvent.

See also 1007374 Alberta Ltd v Ruggieri, 2013 ABQB 420 at para 35; Nicholson v Milne (1989), (AB KB), 74 CBR(NS) 263 (Alta QB); and Moody v Ashton, 2004 SKQB 488 at para 147, 6 CBR (5th) 219, where Baynton J said the following: ... Even if a transferor has no existing creditors, conveyances effected with the fraudulent intent to protect the assets of the transferorfrom the possible or probable claims of future creditors, constitutes a fraudulent conveyance under the Statute of Elizabeth. [38] Thus, Mr. McLaughlin’s financial condition has no relevance when a court is considering whether he and Ms.

McLaughlinhave committed a fraudulent conveyance as against RBC.

[39] In the case of transfers for value, RBC must be able to show that Mr. McLaughlin and Ms. McLaughlin had the fraudulentintent to have Mr. McLaughlin convey the RV to the Corporation: Krumm v McKay, 2003 ABQB 437 , [2003] AJ No 724(QB). Again, to establish fraudulent intent, the courts look to the “badges of fraud.” The close relationship between the transferor and thetransferee is one of the “most persuasive” factors: ibid. This includes transactions between individuals and corporations that they controlor, in this case, the Corporation that Ms.

McLaughlin controlled. [40] This is qualified somewhat by the fact that even if there were good consideration, the conveyance itself must be bona fide totake the transaction out of the reach of the FCA.

The actual wording is as follows: Provided that this act or anything therein contained shall not extend to any estate or interest in ... goods or chattels ... conveyed ... upongood consideration and bona fide, lawfully conveyed ... to any person ... not having at the time of such conveyance ... any manner ofnotice or knowledge of such covin, fraud or collusion as is aforesaid. [41] In this case, the transaction is between spouses. In Koop at para 13, the Supreme Court of Canada held that transactionsbetween family members raises the suspicion of the court.

In such cases, the onus of establishing the validity of the transaction is cast onthose who seek to uphold it. [42] As well, in the case at bar, the trial court must establish the value that Ms. McLaughlin, in fact, gave value for the RV. Why?To protect the transaction, the FCA says that the transferee, Ms. McLaughlin, must have provided “good consideration” for the RV. Aswell, FPA s 6(

b) protects transactions where: [A] bona fide conveyance, assignment transfer or delivery ... is made in consideration of a present actual bona fide payment in money ...if the money paid or the goods or other property sold or delivered bear a fair and reasonable relative value to the consideration therefor. [43] In the case at bar, Ms. McLaughlin argues that she gave good consideration inasmuch as she gave up certain rights that shemight have had against Mr. McLaughlin’s property in exchange for the matrimonial home and the RV. The difficulty with this argumentappears to be that she had no knowledge of Mr.

McLaughlin’s financial situation at the time of the alleged oral separation agreement.This issue will arise under the next topic in these reasons, as well. Suffice it to say, at this stage, that RBC has established a reasonablelikelihood that its claim against the Applicants will be established. 2. “Knowing Receipt” [44] If RBC has the ability to trace the Loan Monies through to the RV, then arguably it will be able to establish that theCorporation holds the RV in trust for RBC.

In such a case, RBC will be able to establish an enrichment on the part of the Applicants, itscorresponding deprivation, and the absence of any juristic reason for the enrichment: Becker v Pettkus, (SCC), [1980] 2SCR 834, 117 DLR (3d) 257 [Becker]. Furthermore, even if RBC is unable to establish the third arm of the Becker test, “the wrongfulnature” of

an act may be sufficient to constitute breach of a trust-like duty”: Soulos v Korkontzilas, (SCC), [1997] 2SCR 217 [Soulos] at para 19. McLachlin J, as she then was, for the majority, went on in Soulos to adopt the words of Cardozo J inBeatty v Guggenheim Exploration Co, 122 NE 378 at 380 (US 1919), where he said the following: A constructive trust is the formula through which the conscience of equity finds expression.

When property has been acquired in suchcircumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into atrustee. [45] As well, the trial court may permit RBC to recover the RV as a result of Mr. McLaughlin’s fraud on it, if it can show that theApplicants were in “knowing receipt” of the result of the fraud, namely, the RV.

The concept of “knowing receipt” was summarized byCorbett J in Holmes v Amlez International Inc, 2009 CarswellOnt 6595 at paras 9-10, [2009] OJ No 4513 (Sup Ct Jus), where he saidthe following: The "receipt" requirement is met when a stranger to trust property receives trust property for his or her own benefit. This principleapplies whether the money is ostensibly received to discharge a debt owed to the recipient, or for some other purpose. The "knowledge" requirement includes both actual and constructive knowledge.

Constructive knowledge arises where the recipient failsto make proper inquiry in circumstances where an honest and reasonable person would realize that the funds transferred were from asuspicious or improper source. Thus the recipient of trust property may be liable as a constructive trustee if she fails to make reasonableinquiry as to the source or character of the funds, even though she acted in good faith. As held by Sopinka J., [i]n order to establish that the respondent was in "knowing" receipt, the appellant must establish one of the following: ... (

i) actualknowledge; (ii) willfully shutting one's eyes to the obvious; (ii) willfully and recklessly failing to make such inquiries as an honest andreasonable man would make; (iv) knowledge of circumstances which would put an honest and reasonable man on inquiry. [46] Sopinka J’s quotation is taken from the case Gold v Rosenberg (1997), (SCC), 152 DLR (4th) 385 at 406(SCC). Corbett J also cites extensively from the case Citadel General Assurance Co v Lloyds Bank Canada (1997) (SCC), 152 DLR (4th) 411 (SCC), for the propositions he puts forth. [47] The “receipt” aspect is satisfied inasmuch as Ms.

McLaughlin received the RV for her own benefit. As for the “knowledge”aspect, this Court has no evidence that she had actual knowledge of Mr. McLaughlin’s fraudulent scheme. In fact, she denies that she hadany such knowledge. What is at play are the last 2 factors that Sopinka J outlines. Ms. McLaughlin stated throughout the transcript of herquestioning that she had no knowledge of Mr. McLaughlin’s financial wherewithal. It is clear, however, that the parties did not own arecreational vehicle before Mr. McLaughlin purchased the RV, and they had to finance the purchase of their other residences. BecauseMs.

McLaughlin was giving up her matrimonial property rights to Mr. McLaughlin’s property, she was either wilful or reckless, orbecause of her knowledge of the circumstances, she would be put on inquiry.

[ 48 ] Finally, whether Ms. McLaughlin had knowledge of Mr. McLaughlin’s scheme, or was in knowing receipt of the RV, is relevant to the issue of the Security Agreement. The PPSA does not create security interests, or invalidate them. It creates a system of notice, and establishes priority. The Security Agreement, and the interests thereby created remain intact as between the parties (and those who have actual or constructive notice of them). 3. Conclusion of Reasonable Likelihood [ 49 ] It is critical that a trial court hears evidence concerning these matters.

This Court cannot, and will not, summarily determine them. The evidence that the parties have provided to this point is too sparse for this Court to make such a determination. [ 50 ] From what the parties have presented and argued before this Court, it finds that there is a reasonable likelihood that RBC’s claim against the Applicants will be established. C. Dealing with Exigible Property [ 51 ] RBC argues that the evidence establishes that there are reasonable grounds that the Applicants’ past dealing with the RV was not for the purpose meeting the Applicants’ reasonable and ordinary business or living expenses.

As set out in Ms. McLaughlin’s evidence on questioning, at all times she used the RV for her own personal enjoyment as a vacation vehicle and did not use the RV in any way for the purpose of meeting her reasonable and ordinary business or living expenses. [ 52 ] While Ms. McLaughlin stated in her questioning evidence that Mr. McLaughlin incorporated and registered the Corporation as the owner of the RV so that Ms. McLaughlin could run her nail business out of the RV, she freely admitted that she never earned any income in or through the use of the RV. [ 53 ] Although Ms.

McLaughlin argues that she did, from time to time, operate her business out of the RV, this Court is satisfied that she did not use the RV in any way for the purpose of meeting her reasonable and ordinary business or living expenses. [ 54 ] RBC argues that it will suffer a significant shortfall and that if the RV is returned to Ms. McLaughlin, there will be significant additional risk of depreciation and damage to the RV. Continued use and depreciation and potential damage to and loss of the RV, will further diminish its value.

This will prejudice and seriously hinder RBC’s ability to execute upon the RV on any judgment it might obtain. [ 55 ] As well, this Court finds that because the RV is movable property, there remains a risk that the RV could be transferred to a third party or moved ex juris before or after trial, pending execution. The RV is currently “caged” and within the jurisdiction of the courts. V. Conclusion [ 56 ] This Court concludes that RBC has met its onus to show that the Attachment Order should be maintained pending the trial of this matter.

Accordingly, this Court dismisses the Applicants’ application to terminate the Attachment Order. [ 57 ] RBC shall have its party-party costs of this application. However, the Applicants need not pay those costs at this time. They will be dealt with following the conclusion of the trial of this issue and will be paid, or set-off, as the case may be, depending on the findings of the trial judge. Heard on the 22 nd day of January, 2016. Dated at the City of Calgary, Alberta this 8 th day of February, 2016. K.D. Yamauchi J.C.Q.B.A. Appearances: Michael Parrish / Arif Chowdhury

Fasken Martineau DuMoulin LLP for the Plaintiff Lenci Kadavil Snyder & Associates LLP for the Defendants