National Bank Financial Ltd. v Potter, 2013 NSSC 350

Supreme Court of Nova Scotia Citation: National Bank Financial Ltd. v Potter , 2013 NSSC 350 Date: 2013-10-30 Docket : Hfx 174294 (Debt Action) Hfx 206439 (Main Action) Hfx 208293 (Barthe Action) Hfx 246337 (National Bank/Weir Action) Hfx 216059 (Wadden/BMO Action) Registry : Halifax Between: National Bank Financial Ltd. Plaintiff/ Defendant by Counterclaim in Hfx. No. 174294 -and- Daniel Frederick Potter, Gramm & Company Incorporated, Starr’s Point Capital Incorporated, 2532230 Nova Scotia Limited, 3020828 Nova Scotia Limited, Ronald D.

Richter, Solutioninc Limited, John Francis Sullivan, Linda Fay Sullivan, Calvin W. Wadden, Craig Anthony Dunham. Douglas George Rudolph, Gerard B. McInnis, Janine M. McInnis, Lowell R. Weir, Blackwood Holdings Incorporated, and Staffing Strategists International Inc. Defendants/ Plaintiffs by Counterclaim in Hfx.

No. 174294 -and- Daniel Potter, Starr’s Point Capital Incorporated, Fiona Imrie, Gramm & Company Incorporated, 2532230 Nova Scotia Limited, 3020828 Nova Scotia Limited, Ronald Richter, Donald Snow, Meg Research.com Limited, 3027748 Nova Scotia Limited, Calvin Wadden, Raymond Courtney, Bernard Schelew, Blois Colpitts, Stewart McKelvey Stirling Scales, Bruce Clarke, 2317540 Nova Scotia Limited, Knowledge House Inc., The Estate of the Late Michael Barthe, represented by his Executrix Barbara Barthe, Lutz Ristow, Derek Banks and Plastics Maritime Ltd. Third Parties in Hfx.

No. 174294 Judge: The Honourable Justice Gregory M. Warner Heard: By Written Submissions between October 15 and 22, 2013 Counsel: James Hodgson and David G. Coles, Q.C. , counsel for National Bank Financial Ltd. W. Dale Dunlop , counsel for Craig Dunham, Lowell Weir and Blackwood Holdings. Calvin Wadden , for himself.

By the Court: [ 1 ] The parties cannot agree on how the Court’s decision of August 7, 2013, ( 2013 NSSC 248 ) is to be incorporated into orders with respect to prejudgment interest; in particular, (1) whether prejudgment interest is payable on the punitive damage awards and (2) whether prejudgment interest is payable on the “gross” or “net” damage claims.

Question #1: Whether prejudgment interest is payable on the punitive damage awards? [2] NBFL submits that prejudgment interest is only payable on awards for compensatory damages and not awards forpunitive damages. It cites as support for this proposition the recent decision of the Saskatchewan Court of Appeal in Coppola v CapitalPontiac Buick Cadillac GMC Ltd, 2013 SKCA 80, at paragraph 43.

The principle is that exemplary or punitive damages are imposed asa penalty rather than as compensation for a loss and prejudgment interest is unnecessary because it would not serve to compensate asuccessful plaintiff for the loss of use of money. NBFL submits that ss. 5(1) and 5(3) of Saskatchewan’s The Pre-judgment Interest Act,under which Coppola was decided, are similar to the ss. 41(

i) and 41(

k) of the Judicature Act, Nova Scotia’s equivalent legislation. [3] That submission is misleading. Section 5(2) of The Pre-judgment Interest Act of Saskatchewan expressly prohibits theaward of interest on exemplary or punitive damages (s. 5(2)(c)). [4] Furthermore, Coppola involved an award of “moral damages” arising from a wrongful dismissal. Moral damages oraggravated damages are terms used since Honda v Keays, 2008 SCC 39, to deal with non-compensatory damage awards in wrongfuldismissal cases. [5] The Saskatchewan Court of Appeal’s analysis of prejudgment interest was in the context of the facts in that case.

Itanalysed the prejudgment interest issue primarily from the view of whether to reduce prejudgment interest because of the Plaintiff’sdelay in bringing the matter to trial (pursuant to s. 5(3) of the Saskatchewan legislation) and whether moral or aggravated damages fellwithin the prohibition in s. 5(2)(

c) of the Saskatchewan legislation. [6] With respect to the first issue, the Court reduced the overall award of prejudgment interest by 50% on account of thePlaintiff’s delay in prosecuting his case. [7] With respect to the second issue, as to whether the provision of the Saskatchewan legislation that expressly prohibited anaward of prejudgment interest on exemplary or punitive damages applied to an award of moral or aggravated damages in a wrongfuldismissal action, the Saskatchewan Court noted that the equivalent legislation in Ontario, s. 128(3) of the Courts of Justice Act mirrorsthe Saskatchewan legislation.

Paragraphs 43 and 44 of that decision state: [43] The argument for barring interest on exemplary or punitive damages is that such damages are imposed as a penalty rather than ascompensation for a loss. In other words, the recipient of an award of exemplary or punitive damages has not forgone the use of thatmoney in the time between the claim arising and the award of damages at trial.

For this reason, an award of pre-judgment interest onexemplary or punitive damages are unnecessary as it would not serve to compensate a successful plaintiff for any loss of the use ofmoney. . . . [44] While there may be some ostensible merit to an argument that, because moral damages are assessed and awarded at the time oftrial, they presumably already reflect the effluxion of time between the date of the wrong and the date of assessment, the jurisprudencedoes not bear this out.

Pre-Keays, when awards of this nature took the name “Wallace damages”, such damages were awarded throughenhancement of the notice period and the courts did not later lop off the enhancement when calculating an award of pre-judgmentinterest, although it would have been easy to do so. Pre-Wallace, awards of aggravated damages also attracted pre-judgment interest (see:Norberg v. Wynrib, (SCC), [1992] 2 S.C.R. 318).

While Keays expressly rationalised Wallace damages, aggravateddamages and moral damages under the single head of “moral damages”, the Supreme Court of Canada said nothing about the effect, ifany, this might have on the applicability of pre-judgment interest to such awards; but it did not need to since there was no reason thepractice of awarding pre-judgment interest on awards of such damages would not continue.

I would, therefore, not interfere with theaward of pre-judgment interest in respect of the moral damages awarded in this case. [8] The equivalent Nova Scotia legislation is found in s. 41 of the Judicature Act. It contains no words that prohibit,expressly or inferentially, prejudgment interest for exemplary or punitive damages. [9] The relevant sections read: Rules of law 41 In every proceeding commenced in the Court, law and equity shall be administered therein according to the following provisions: . . . (

i) in any proceeding for the recovery of any debt or damages, the Court shall include in the sum for which judgment is to be giveninterest thereon at such rate as it thinks fit for the period between the date when the cause of action arose and the date of judgment aftertrial or after any subsequent appeal; . . . (

k) the Court in its discretion may decline to award interest under clause (

i) or may reduce the rate of interest or the period for which it isawarded if (

i) interest is payable as of right by virtue of an agreement or otherwise by law, (ii) the claimant has not during the whole of the pre-judgment period been deprived of the use of money now being awarded, or (iii) the claimant has been responsible for undue delay in the litigation. R.S., c. 240, s. 41. [10] NBFL cites GBR v Hollett (NS CA), [1996], NSJ No. 345, part of which decision dealt with thediscretion to decline to award interest pursuant s. 41(k)(iii) and Bush v Air Canada [1992], 109 NSR 2d (91) (NSCA).

[11] Hollett is an interesting decision. The trial judge awarded general damages of $75,000 ($50,000 for pain and suffering and$25,000 for aggravated damages) plus prejudgment interest on the $75,000 with a discount for the plaintiff’s delay in prosecuting thecase. He denied punitive damages against the Defendant Nova Scotia School for Girls, whose employee had inflicted significant abuseon the plaintiff residents because: (

a) the defendant employee had already be convicted and imprisoned; that is, punished in the criminalsystem; and, (

b) the School’s negligence in respect of the wrongdoing of the employee did not rise to the level warranting punitivedamages. [12] The Nova Scotia Court of Appeal unanimously reversed the award of aggravated damages. Justices Pugsley and Chipmanhowever (with Justice Flinn dissenting) held that the conduct of the school merited punitive damages and awarded punitive damages of$35,000.

The judgments of the two Justices who awarded punitive damages were silent on the issue of prejudgment interest. [13] Justice Flinn dealt with prejudgment interest in respect of the general damage award ($50,000 for pain and suffering), and,in particular, the trial judge’s reduction of the interest awarded by reason of the plaintiff’s delay in prosecuting the case (pursuant s. 41(k)(ii) and (iii) of the Judicature Act). At paragraph 182, Justice Flinn quoted S. M.

Waddams in the Law of Damages (3rd edition) tothe effect that interest is intended to compensate for the loss of use of money awarded. [14] Similarly, the issue before the Nova Scotia Court of Appeal in Bush v Air Canada was the plaintiff’s delay in litigating herclaim, and prejudgment interest on a non-pecuniary damage award. NBFL cites part of paragraph 55 of that decision. The sentencequoted by NBFL did not relate to punitive damages. Punitive damages were not in issue.

More relevant to this Court’s analysis is JusticeChipman’s statement at paragraph 43: The appellant refers to decisions of the Manitoba Court of Appeal in Melnychuk v. Moore and Associated Beer Distributors Ltd. (MB CA), [1989], 6 WWR 367, the British Columbia Court of Appeal in Graham v. Grant (as yet unreported (BC CA), 1990 BCJ No. 1269) and an earlier decision of that court in Leischner v. West Kootenay Power & Light Company, (1986)CanLII 889 (BCCA), (1986), (BC CA), 24 D.L.R. (4th) 641.

In Melnychuk, supra, Twaddle, J.A. said at p. 379: What we are concerned with in this case is an award of general damages for pain and suffering and loss of amenities. These non-pecuniary damages are assessed with reference to the value of money at the date of trial. There is thus included in the amount awardedto the plaintiff a factor for monetary inflation between the date of the accident and the date the judgment is delivered.

The plaintiff isstill entitled to a profit on the money she would have received at an earlier date, but the allowance for interest at the full rate wouldduplicate the inflation factor already included in the judgment. [15] NBFL also refers the court to Total E-com Home Delivery v Smith, 2008 NSSC 37, and Hiltz and Seamone v Nova Scotia1999 NSCA 22 , [1999], NSJ No. 47 (NSCA). [16] In Total E-com, Justice Moir awarded punitive damages of $20,000 in connection with a conversion of property by thedefendant.

In the last paragraph of his decision, the Court invited written submissions on costs and prejudgment interest and added inbrackets: “I am inclined to the view that prejudgment interest may not be payable on the punitive damages and would request the briefsdeal with that issue if interest on punitive damages is claimed.” In a supplementary decision, 2008 NSSC 97, the only reference toprejudgment interest is paragraph 6, which read: “Mr.

MacNeil agrees with the suggestion at para. 59 of the main decision thatprejudgment interest should not be charged on the punitive damages.” Justice Moir conducted no analysis. [17] In Hiltz and Seamone, the trial court refused to award aggravated damages to the corporate plaintiff, but awarded generaldamages of $250,000 and punitive damages of $100,000, together with prejudgment interest at the prime rate. Both sides appealed thedamages decision.

The trial court was upheld, except in respect of prejudgment interest. [18] The Court of Appeal determined that, in awarding general damages, the trial court took inflation into account for the periodbetween the accrual of the cause of action and the date of her decision. She had awarded general damages calculated as of the date of herdecision. [19] Having done so, the court held that she was in error in awarding prejudgment interest on the general damage award at theprime rate.

The court therefore substituted an interest rate of 2.5% to take into consideration the element of inflation included in theaverage prime rate from the date of the cause of the action to the date of the decision. [20] In their brief, Dunham, Weir and Blackwood submit that, contrary to the Ontario legislation which specifically prohibitsinterest on exemplary or punitive damage awards, Nova Scotia’s Judicature Act begins from the premise, in s. 41(i), that parties are to begiven interest on the recovery of any debt or damages, and a court may, in its discretion, decline to award interest or reduce it in the threecircumstances described in 41(k). [21] They submit that the policy reason to allow prejudgment interest on the punitive damage awards in this case is that theconduct for which the damages were assessed took place either when the cause of action arose or when NBFL engaged in improperconduct during the litigation, which they submit included the concealing of the existence of the settlement agreement with the NovaScotia Securities Commission.

Analysis [22] This Court has discretion, pursuant to s. 41 of the Judicature Act to award prejudgment interest on any form of damages. Nova Scotia’s legislation does not contain language that expressly precludes interest on exemplary or punitive damages that is containedin the Ontario and Saskatchewan legislation and, since 2002, in the Alberta legislation. Pursuant to

section 41(

i) of the Judicature Actinterest is presumed unless refused or reduced in the circumstances described in

section 41(k). [23] S. M. Waddams, in the Law of Damages, Looseleaf Edition (Toronto: Canada Law Book, 2012) writes at s. 7.980:

Some provinces expressly exclude interest on exemplary damages. The argument is that, since exemplary damages are not compensatory, the plaintiff cannot claim to have been kept out of money that should have been paid. On the other hand it might be said that had the trial taken place the day after the wrong, exemplary damages might still have been thought appropriate, and in that case would have been payable immediately. The defendant, it might be added, should not benefit by the delay of litigation.

In some provinces, Nova Scotia and British Columbia for example, it appears that interest on exemplary damages is required, but where the award is made by a judge the amount of exemplary damages can be reduced so as to impose what is thought to be the appropriate punishment upon the defendant after the addition of interest. In jurisdictions where the matter is in the court’s discretion, it is suggested that interest should not be awarded.

It cannot be said that the defendant should have paid promptly – the damages become payable only upon the decision of the court, which acts in respect of exemplary damages like a criminal court. The damages are not payable by way of recompense but as a punishment, and the punishment cannot occur until the decision of the court that imposes it. The amount assessed as exemplary damages is the amount then thought to be proper to be paid at that time. Another point concerns inflation.

Exemplary damages, being assessed at the time of the hearing, will reflect the punishment thought appropriate in terms of money at that time. Had the hearing been held at the date of the wrong a smaller nominal sum would presumably have been thought appropriate, reflecting the higher value of money at that time.

It would be wrong, therefore, for the defendant to have to pay exemplary damages measured in inflated dollars, together with interest at rates that themselves reflect inflation between the date of the wrong and the date of the judgment. [ 24 ] In substance, the punitive damages in this case arose from the very long period during which NBFL aggressively contested its liability, when it knew of the conduct of Clarke that informed it, and had already secretly admitted to the Nova Scotia Securities Commission, of its liability. [ 25 ] The conduct meriting punishment and deterrence may have commenced as early as 2003, but it continued to trial in 2012.

The punitive damage awards could not have been paid, nor did they become payable, until the decision of the Court. [ 26 ] The amount assessed as punitive damages was the amount thought by the Court to be proper to be paid at the time of the decision. [ 27 ] I endorse Waddams’ precept that it would be wrong for the defendant to have to pay punitive damages, measured in dollars as of the date of the decision, together with interest at rates that themselves reflect inflation between the time or times of the wrongdoing and the date of the judgment. [ 28 ] The claim for prejudgment interest on the punitive damage awards is dismissed.

Question #2: Whether prejudgment interest is payable on the “gross” or “net” damage award? [ 29 ] Dunham, Weir and Blackwood were awarded damages for the lost value of their KHI shares. [ 30 ] In Dunham’s claim, the lost value was determined to be 120,000 shares at $6.75 less the net proceeds to Dunham from actual sales by NBFL of Dunham’s KHI shares (paragraph 862). The Court held that Dunham owed NBFL margin debt. The Court disallowed the portion of the margin debt that related to interest charged on the margin debt in the amount of $34,418 (paragraph 863).

This was on the basis that NBFL should not gain or benefit in any way from Clarke’s breach of his fiduciary duty, and NBFL’s negligence and breach of contract. [ 31 ] The Court did direct that the principal portion of the margin debt owed by Dunham to NBFL be deducted from the lost value of his KHI shares. At paragraph 869, the Court wrote: [869] At the same time, the Court fails to see the rationale for deducting from the value of the KHI shares that should have been sold by Clarke the principal amount of margin debt that was withdrawn by Dunham for personal purpose.

For that reason, the Court deducts from the $810,000.00 loss in the market value of his KHI shares not the just the net amount recovered from the sale of 13,000 KHI shares, but the principal portion of the margin debt, which I believe is $318,603.96. [ 32 ] Respecting the Weir and Blackwood claims, the Court awarded them the lost value of their KHI shares at $5.00 per share or $180,625 (paragraph 905).

At paragraphs 907 and 908, the Court wrote: [907] Consistent with my analysis respecting Dunham’s claim for damages, the principal portion of the margin debt owed by Weir and Blackwood to NBFL is deductible from the award for loss in the value of the KHI shares. [908] The interest portion (all interest charged and/or paid at any time) is not deductible from the claim for the loss in value of the KHI shares on the same principle that Clarke / NBFL should not profit, or should be disgorged of any profit from Clarke’s intentional wrongdoing. [ 33 ] Dunham, Weir and Blackwood submit that consistent with “the logic” of my decision to disgorge NBFL from entitlement to interest on the margin debt (paragraphs 867 and 908), Dunham, Weir and Blackwood should be awarded prejudgment interest on the amount equal to the lost value of their KHI shares, and NBFL should be denied prejudgment interest from the date of these losses on the offsetting margin debt. [ 34 ] NBFL cites paragraphs 862, 907, and 869 of the trial decision, and submits: . . . it is apparent that the amounts owed by Mr.

Dunham, and Blackwood Holdings Incorporated and Mr. Weir to NBFL were to be subtracted from the amounts determined owing by NBFL prior to pre-judgment interest being applied to the net amount of the award. It is respectfully submitted that this is the appropriate result from hearing the claims of NBFL as against Messrs. Dunham and Weir and Blackwood Holdings Incorporated and their claims against NBFL together, and arriving at the net payable in favour of particular parties.

Your Lordship’s decision makes it clear that NBFL was to receive the principal amount of outstanding margin debts and to receive creditfor the actual share value recovery. To permit Mr. Dunham, Mr.

Weir and Blackwood Holdings Incorporated to achieve prejudgmentinterest on their gross awards and then subtract the set off amounts would be to overcompensate them as the effect would be to awardinterest at a rate higher than determined. [35] NBFL responds to Dunham, Weir and Blackwood’s reference to Blackburn v Victory Credit Union, (NSSC), 161 NSR (2d) 164, by correctly pointing out that Justice Hall’s decision did not award interest on the gross amount awarded in awrongful dismissal case.

Analysis [36] This Court’s decision clearly awards damages to Dunham, Weir and Blackwood equal to the lost value of their KHI shares(net of the proceeds of the shares sold by NBFL) less the principal portion of their margin debts. The decision does not expressly statethe period for which NBFL was to be disgorged of interest on the margin debt. [37] The Court’s intent in the trial decision was to disgorge NBFL of any gain or benefit, specifically any interest, in respect ofthe margin debts.

It would be inconsistent with that determination to indirectly award NBFL interest on the margin debts from the dateNBFL became liable to Dunham, Weir and Blackwood for the lost value of their KHI shares to the date of judgment. NBFL is deniedprejudgment interest on the margin debts to the date of judgment. Dunham, Weir, and Blackwood are entitled to prejudgment interest onthe lost value of their KHI shares (net of the proceeds of the shares sold by NBFL) to the date of judgment. Warner, J.