Business Development Bank of Canada v Cummins, 2023 ABKB 173

Court of King’s Bench of Alberta Citation: Business Development Bank of Canada v Cummins, 2023 ABKB 173 Date: 20230323 Docket: 1903 06084 Registry: Edmonton Between: Business Development Bank of Canada Plaintiff (Respondent on Appeal) - and - Patrick Elliot Cummins also known as Patrick Cummins Defendant (Appellant) - and - Logco Wireline Services Ltd., Bryce Paul Breunig also known as Bryce Breunig, Dustin Robert Menger also known as Dustin Menger, Tammy Lynn MacLean also known as Tammy MacLean, 1848501 ALBERTA LTD.

Defendants (Did Not Participate) _______________________________________________________ Memorandum of Decision of the Honourable Justice D.A. Yungwirth _______________________________________________________ Introduction [ 1 ] This is an Appeal by Patrick Elliott Cummins (Cummins) from a Decision of the Applications Judge granting

summary judgment to Business Development Bank of Canada (BDC) on two personal guarantees he provided as security for a loan advanced to Logco Wireline Services Ltd. (Logco).

[ 2 ] No new evidence has been filed for this appeal. [ 3 ] The issue in this appeal is whether the Applications Judge erred in granting

summary judgment against Cummins. [ 4 ] The Appellant argues that the decision to grant

summary judgment could not be made on the record before the Applications Judge. [ 5 ] The Appellant argues that the issues of 1) whether BDC owed Cummins a duty to exercise its discretion in good faith; and 2) whether BDC violated that duty, are triable issues which make inappropriate, the granting of

summary judgment. [ 6 ] The Appellant argues that the 2021 Supreme Court of Canada case of Wastech Services Ltd. v Greater Vancouver Sewerage and Drainage District , 2021 SCC 7 ( Wastech ), has changed the law with respect to the exercise of contractual discretion and that when applying the test for

summary judgment from Weir-Jones Technical Services Inc v Purolator Courier Ltd, 2019 ABCA 49 ( Weir- Jones ), there are uncertainties on the facts, record and the law that make

summary judgment inappropriate. Background Facts [ 7 ] BDC provided two business loans to Logco in the amounts of $235,000 and $15,000 respectively. As security for those loans, BDC took a General Security Agreement against Logco’s assets (appraised value of approximately two million dollars), and personal guarantees from four Directors of Logco. BDC also arranged for a consultant (paid using the $15,000 loan), to define business strategies for Logco and provide services over a 3-month span to ensure the project was moving forward in a timely and efficient manner.

This excluded any ongoing financial monitoring or financial management. [ 8 ] The Defendant Cummins, a lawyer, was one of the Directors of Logco who gave personal guarantees for the loans. Approximately one year after the loans were advanced, one of the other Directors appropriated Logco’s assets for another corporation. Following default on its loans, BDC elected to pursue payment of the loans through the guarantees provided, including Cummins’ guarantees.

I note that BDC was advised by one of the Directors, Dustin Menger, of the appropriation of the Logco assets, but this did not occur until some time after BDC had made demand on the guarantees. [ 9 ] The guarantees between Cummins and BDC were unconditional and gave BDC unfettered discretion to choose to demand payment on the guarantees. Clause 4(

g) of the Cummins guarantees provides that “BDC is not bound to seek recourse against the Borrower before requiring payment from the Guarantor and BDC may enforce its various remedies under this guarantee and the Loan Security or any part of it at any time, in any manner, and in any order that BDC may choose.” [ 10 ] The facts before the Applications Judge were not in dispute.

Analysis [ 11 ] This Court is not being asked to determine the issues raised by the Appellant related to 1) whether BDC owed Cummins a duty to exercise its discretion in good faith; and 2) whether BDC violated that duty. [ 12 ] The only issue for this Court to determine, is whether the Applications Judge erred in granting

summary judgment after these issues were raised. [ 13 ] However, the issues raised by the Appellant before the Applications Judge need to be considered to determine if Cummins has a meritorious defence to the claim of BDC. Decision of Applications Judge [ 14 ] The Applications Judge was aware of the test for

summary judgment. [ 15 ] She also reviewed Wastech and summarized the law regarding the duty to exercise discretion in good faith as set out in Wastech . [ 16 ] The Applications Judge went on to find that the onus is on Cummins to show that the duty to exercise discretion in good faith was breached. [ 17 ] She stated that “it is pure speculation in the face of the unfettered discretion set out in the guarantee that there was a breach of duty to exercise that discretion in good faith”. [ 18 ] The Applications Judge considered the state of the record, the plain wording of the guarantees, the context in which the guarantees were given, the limited scope of the financial management agreement and the unfettered discretion that BDC had, to choose which security to act on.

She also concluded that there was no evidence of any bad faith on the part of BDC or any evidence that BDC did not exercise good faith in the exercise of its discretion. [ 19 ] The Applications Judge concluded that BDC had established its entitlement to

summary judgment and had shown that there is no merit to the defence raised by Cummins. Submissions on Appeal

[ 20 ] Before this Court, Cummins argued that the principles in Wastech should be applied not just to the guarantees, but to the “contractual matrix” in which those guarantees were provided.

Cummins argues that when this is done, Cummins had a reasonable expectation that BDC would realize its security as against the assets of Logco before proceeding against the Directors on their respective personal guarantees. [ 21 ] In Wastech , the Supreme Court noted that the duty to exercise contractual discretion is breached only where the discretion is exercised unreasonably, which means in a manner unconnected to the purposes underlying the discretion.

The Court further explained that this occurs when the exercise of discretion is “arbitrary or capricious”. ( Wastech , para 4 ) [ 22 ] The Supreme Court reiterated this analytical approach at paragraph 70: The touchstone for measuring whether a party has exercised a discretionary power in good faith is the purpose for which the discretion was created. Where discretion is exercised in a manner consonant with the purpose, that exercise may be characterized as reasonable according to the bargain the parties had chosen to put in place.

Perforce, the exercise of power consonant with purpose may be thought of as undertaken fairly and in good faith on the parties’ own terms. As such, barring issues such as unconscionability not raised in this appeal, that exercise is best understood, as a general matter, to be insulated from judicial review as a matter of fairness. [ 23 ] Courts are not to intervene unless the exercised discretion was beyond the purpose for which discretion was contractually granted. The Court stated at para 71: Importantly, it is not what a court sees as fair according to its view of what is the proper exercise of the discretion.

Instead, drawing on the purpose set by the parties, the measure of fairness is what is reasonable according to the parties’ own bargain. Where the exercise of the discretionary power falls outside of the range of choices connected to its underlying purpose — outside the purpose for which the agreement the parties themselves crafted provides discretion — it is thus contrary to the requirements of good faith.

Courts can then intervene, for example, where the exercise of the power is arbitrary or capricious in light of its purpose as set by the parties. [ 24 ] To establish whether the exercise of discretion was connected to the purpose for which the contract granted the discretion, the Supreme Court observed at paragraph 72, that: Sometimes, the text of the discretionary clause itself will make the parties’ contractual purpose clear.

In other circumstances, purpose can only be understood by reading the clause in the context of the contract as a whole. [ 25 ] At para 88 of Wastech , the Supreme Court offered the following concise

summary: In sum, then, the duty to exercise discretion in good faith will be breached where the exercise of discretion is unreasonable, in the sense that it is unconnected to the purposes for which the discretion was granted. This will notably be the case where the exercise of discretion is capricious or arbitrary in light of those purposes because that exercise has fallen outside the range of behaviour contemplated by the parties. [ 26 ] When considering the legal principles and the facts before the Applications Judge in this case, there was no evidence that:

a) the exercise of discretion by BDC occurred in a manner unconnected to the purposes underlying the discretion;

b) BDC behaved in an unreasonable or arbitrary manner. [ 27 ] Accordingly, I agree with the Applications Judge that “it is pure speculation in the face of the unfettered discretion set out in the guarantee that there was a breach of duty to exercise that discretion in good faith”. [ 28 ] For the Applications Judge to determine that there was an issue as to whether BDC violated its duty to exercise discretion in good faith, Cummins needed to provide evidence to support his allegation that the discretionary action was not part of the agreed bargain and was unreasonable given the purposes of the contract.

In this regard, the wording of the guarantees allows those guarantees to stand on their own. The parties’ own bargain did not require BDC to consider the “contractual matrix” and realize on their other security before looking to the personal guarantees. [ 29 ] Evidence of the expectations of Cummins within this “contractual matrix”, in the face of clear contractual language to the contrary, without more, provides an insufficient foundation on which to base a triable issue. [ 30 ] The purpose of the “contractual matrix” was to establish a secured loan for Logco.

BDC negotiated for its interests in securing the loan against Logco’s assets and by obtaining personal guarantees from the Directors. The purpose of the guarantees was both to secure the loans and give BDC the discretion to enforce against whatever security it chose.

The choice to collect from the guarantors before pursuing other security appears to be within the reasonable expectations of the contracting parties and towards the purpose of the contract. [ 31 ] The triable issues put forward by Cummins before the Applications Judge relate to an advantage that he seeks for which he did not bargain; namely, protection from the personal guarantees being realized before the other security was considered. [ 32 ] BDC does not owe a fiduciary duty to protect Cummins’ interests.

As indicated above, there is no evidence on which to base Cummins’ position that BDC’s choice to collect from the guarantors before realizing on other security was not within the reasonable expectations of the contracting parties. Did the Applications Judge err in granting

summary judgment against Cummins? [ 33 ] To grant

summary judgment, the Court must be satisfied that, having regard to the state of the record and the issues, it is possible to fairly resolve the dispute on a

summary basis. The Court must be satisfied that are no uncertainties in the facts, the record or

the law that reveal a genuine issue requiring a trial. The moving party has the burden of establishing on a balance of probabilities that there is no merit to a claim or defence available. The responding party can then challenge the moving party’s case by identifying a positive defence, showing that a fair and just

summary disposition is not realistic, or demonstrating that there is a genuine issue requiring a trial. [ 34 ] Cummins argues that the issue of BDC’s duty to exercise discretion in good faith is a triable issue that precludes the granting of

summary judgment. [ 35 ] Cummins’ approach asks the Court to disregard the clear and plain meaning of the guarantees with no evidence to support this position. Even when considering the “contractual matrix” in this case, Wastech does not go that far. Conclusion [ 36 ] The Applications Judge’s decision correctly set out the law on the duty to exercise discretion in good faith and correctly considered whether there was any evidence to support the Appellant’s position that there were triable issues in the application of the law to the facts of this case. The decision applied the correct test for

summary judgment. There is no genuine issue for trial and procedural fairness has not been undermined by the

summary judgment. The Applications Judge did not err in granting

summary judgment against Cummins. Heard on the 23 rd day of February , 2023 Dated at the City of Edmonton, Alberta this 23 rd day of March, 2023. D.A. Yungwirth J.C.K.B.A. Appearances: Murray Lloyd Engelking for the Appellant, Patrick Cummins Megan Harris for the Respondent, Business Development Bank of Canada