Royal Bank of Canada v. Panagapko, 2013 NSSC 311

SUPREME COURT OF NOVA SCOTIA Citation: Royal Bank of Canada v. Panagapko, 2013 NSSC 311 Date: 20131003 Docket: Hfx No. 338595 Registry: Halifax Between: Royal Bank of Canada, a chartered bank Plaintiff v. Peter Panagapko Defendant Decision Judge: The Honourable Justice Gerald R. P. Moir Heard: September 19, 2013 Counsel: Jeffrey P. Flinn, for the plaintiff John D. O'Neill, for the defendant Peter L. Coulthard and Alex Grant, for Smart Scale Technologies, intervenor Moir J. : [ 1 ] Introduction .

This case raises, for the first time, the question of how broad the scope of examination is on a discovery in aid of execution under the present Rules. [ 2 ] The Royal Bank holds a judgment against Mr. Panagapko. At discovery in aid of execution, Mr. Panagapko refused to

answer questions about a company in which he has no direct ownership, but of which he is an officer and director. A family trust he administers owns 51% of the shares. [ 3 ] The bank seeks an order requiring Mr. Panagapko to answer the questions. Mr. Panagapko and the company, Smart Scale Technologies Inc., resist on the basis that the questions cannot lead to information about exigible assets. The company's property belongs to it, not Mr. Panagapko. [ 4 ] Positions .

The bank's position is that a judgment creditor is entitled to ask questions about the judgment debtor's financial affairs, including what means he could choose to employ for raising money to apply to the judgment debt. [ 5 ] The practicality in the bank's position is not that there is some way the judgment can be enforced against Smart Scale, the shares in it, or its assets. There is no suggestion that Smart Scale's assets, the 51% of shares, the company itself, or the trust are open to attack under the statute of 13 Eliz.

I, the Assignments and Preferences Act , or any other law. [ 6 ] The practicality of the bank's position is that it can better assess the level at which to settle the judgment if it knows what Mr. Panagapko could do to raise money for the family trust from Smart Scale and to cause the trust to disburse some or all of the money to him. [ 7 ] The practicality of Smart Scale's position is in the fact that its future depends on keeping aspects of its intellectual property and business secret. Mr. Panagapko is not the only person with a stake in the future of the business.

There are the shareholders of the other 49%, and there are the other beneficiaries of the family trust. There are probably also present or future creditors or employees. And, there is the company in and of itself. [ 8 ] Facts. Some years ago, Mr. Panagapko incorporated Truckweight Inc. to develop and market wireless truck weigh scales. It was financed in 2008 by the Royal Bank and the

Canada Business Development Bank. The Royal Bank called its loans, liquidated property over which it held security, and reduced Mr. Panagapko's guarantee to judgment for about $900,000. [ 9 ] The Development Bank held the first charge on Truckweight's intellectual property. This, it sold at public auction. Mr. Panagapko and others incorporated Smart Scale Technologies Inc. to purchase the intellectual property and continue the business of developing and marketing the high-tech truck scales. It was the successful bidder.

It bought the rights and resurrected the business in 2010. [ 10 ] Fifty-one percent of Smart Scale is owned by a family trust that had been set up by Mr. Panagapko. The other 49% is owned by individuals who appear to be unrelated to Mr. Panagapko or the trust. [ 11 ] The family trust was established in 2004, years before the bank financing. The beneficiaries are Mr. Panagapko, his wife, their children, their other relatives, and related corporations. Mr. Panagapko is the trustee and he has a discretion to invest trust money or to distribute income or capital to any beneficiary.

Thus, dividends, management fees, or other revenues paid by Smart Scale to the trust are in Mr. Panagapko's control to the limits of his trust. And, were Smart Scale to be liquidated when it had equity, Mr. Panagapko would have control of 51% of the distribution. [ 12 ] The controversial questions are: a. Provide details of any transfer of assets from TruckWeight Inc. ("TruckWeight) to Smart Scale Technologies Inc. ("Smart Scale"), including any intellectual property, and licenses to intellectual property. b. Confirm whether Smart Scale is the same business that TruckWeight was.

c. Confirm what intellectual property assets are owned by Smart Scale that were not acquired from TruckWeight, or through the receivership of TruckWeight. d. Confirm what intellectual property value is given by Smart Scale on its balance sheets. e. Provide copies of Smart Scale's balance sheets. f. Provide a description of intellectual property assets of Smart Scale including goodwill, patents, licenses to patents or any other intellectual property. [ 13 ] Disposition. The scope of an ordinary discovery is marked out in Rule 18.13, and 18.13(1) and (2) are carried into discovery in aid of execution by Rule 79.26. These scope provisions read:

(1) A witness at a discovery must answer every question that asks for relevant evidence or information that is likely to lead to relevant evidence.

(2) A witness at a discovery must produce, or provide access to, a document, electronic information, or other thing in the witness' control that is relevant or provides information that is likely to lead to relevant evidence. The question is what constitutes relevancy when the question is asked, or production is demanded, at a discovery in aid of execution. [ 14 ] The definition of relevancy in Rule 14.01 applies to Rules 18.13(1) and (2) and, through the incorporation in 79.26(1), it applies to questions asked, and production demanded, on discovery in aid of execution.

However, in an ordinary discovery the relevancy of evidence sought to be adduced is measured according to whether it has any value for proving a material fact. The material facts are known from the pleadings and the nature of the case. [ 15 ] As counsel put it, there are no pleadings that guide us on a discovery in aid of execution. What are the material facts that will make the subject of a question relevant or irrelevant? [ 16 ] The bank relies on Ontario case law for its position that the parameters of relevancy on discovery in aid of execution are broad. The cases are: Lauzier v.

Ranger , [1994] O.J. 2754 (C.J.) ; J. G. Young & Son Ltd. v. Gelleny , [2002] O.J. 4203 (Master) , and; EnerWorks Inc. v. Glenbarra Energy Solutions Inc. , 2012 ONSC 748 (Master) . [ 17 ] J. G. Young & Son is close to the present facts. The judgment creditor sought bank records of a company whose sole director and officer was the judgment debtor. The company was wholly owned by a family trust in which the judgment debtor was a trustee and a beneficiary. Master Dash held that "what is being sought is not the divestiture of Redvest's assets, but rather any interest of Michael Reddy therein": para. 26.

Consequently, "production of Redvest's bank records for a reasonable period of time may be permitted": also, para. 26. [ 18 ] The bank submits that these decisions establish a broad scope for questions asked on discovery in aid of execution. It says: RBC submits that during an examination in aid of execution where there are no longer any relevant pleadings the scope of questioning permitted is to inform the judgment creditor of what property or means the debtor has to satisfy the judgment debt in whole or in part.

Questions are not confined to assets which are exigible. This submission goes so far as to suggest that the judgment creditor gets to question what means would be placed at the disposal of the judgment debtor if a company were to be liquidated and the proportionate distribution were paid to the judgment debtor. [ 19 ] The current Ontario rule on the scope of discovery in aid of execution is broadly worded. Ontario Rule 60.18(2) reads: A creditor may examine the debtor in relation to, (

a) the reason for nonpayment or nonperformance of the order; (

b) the debtor's income and property; (

c) the debts owed to and by the debtor; (

d) the disposal the debtor has made of any property either before or after the making of the order; (

e) the debtor's present, past and future means to satisfy the order; (

f) whether the debtor intends to obey the order or has any reason for not doing so; and (

g) any other matter pertinent to the enforcement of the order. I emphasize "the debtor's present, past and future means to satisfy the order", "whether the debtor … has any reason for not [obeying the order]", and "any other matter pertinent to the enforcement of the order." [ 20 ] Discovery was a remedy available from the courts of equity to assist litigation, including litigation in courts of law. It seems likely that discovery in aid of execution had a similar origin.

In any event, the procedures were incorporated into the rules of court when the Judicature Acts fused law and equity and provided unified rule-making authority. The Rules made under our Judicature Act (1884) included an explicit scope provision for discovery in aid of execution. [ 21 ] The scope provision from the original Judicature Act rules traces down to Order 40, Rule 44 of the Supreme Court Rules (1950).

It allowed questioning of the judgment debtor or others about "whether any and what debts are owing to the debtor" and "whether the debtor has any and what other property or means of satisfying the judgment". [ 22 ] The Nova Scotia Civil Procedure Rules (1972) also provided explicitly for the scope of questioning on discovery in aid of execution.

The judgment creditor or others could be questioned about "any information he possesses, regarding any property in which the judgment debtor has an interest or which he disposed of since contracting the debt or incurring the liability": Rule 53.15 (1972). [ 23 ] In the original Rule, "means" was added to "property": "other property or means". So, the inquiry could go beyond exigible assets. The 1972 Rules restricted the inquiry to property the judgment debtor held and property the debtor had disposed of. This seems to limit the inquiry to exigible assets held or disposed of.

[ 24 ] Rule 79.02(

c) defines the scope of the Rules on discovery in aid of execution: "This Rule provides for … discovery of the judgment debtor or others in aid of recovery under an execution order or periodic execution order." Thus, the material fact by which a question on discovery in aid of execution will be measured is that which aids recovery under an execution order. [ 25 ] The judgment creditor's question inquires into relevant evidence if the subject is something that assists recovery under the execution order, such as by telling what assets, or what sources of income, the judgment debtor does or does not have.

It asks for information that could lead to relevant evidence if it searches for something that could assist in recovery under the execution order, such as assets the judgment creditor disposed of. It demands production that is directly relevant, or that is permitted by the investigative power, if the subject aids recovery, or could assist in recovery, under the execution order. [ 26 ] The scope provision limits discovery in aid of execution to recovery, and potential recovery, under the execution order.

This fits with what we find in Rules 79.23 and 79.24. [ 27 ] The discovery subpoena is to aid execution: Rules 79.23(1) and 79.24. [ 28 ] When the judgment debtor is to be examined, Rule 79.23(2)(

b) requires the judgment creditor to represent: that the discovery is necessary for determining whether there are assets available for execution, to locate assets for execution, or to identify a debt or other liquidable obligation for attachment and execution. When someone other than the judgment debtor is to be examined, Rule 79.24 requires a representation that "the person likely has information that will aid enforcement of an execution order". [ 29 ] There are two things to note about these representations for what they can tell us about

interpretation of the scope Rule. [ 30 ] Firstly, in Nova Scotia there is no right to discovery in aid of execution. In addition to the procedural requirements, the judgment creditor must make representations to the court. The judgment creditor, not the debtor or the court, decides whether the representation is correct. In that sense, the bar is subjective and not as high as it could have been.

However, if the judgment creditor cannot honestly make the representation, there can be no discovery. [ 31 ] Secondly, the representations are about recovery on an execution order, nothing else. [ 32 ] So, in Nova Scotia discovery in aid of execution is not so broad as under the present Ontario rules. It is not near as broad as a trustee's powers of examination under s. 163(1) of the Bankruptcy and Insolvency Act "respecting the bankrupt or the bankrupt ’ s dealings or property". It is limited to the process of recovery by execution. [ 33 ]

Summary and Conclusion . In Nova Scotia, anything that aids the process of recovery under an execution order is relevant on discovery in aid of execution. This includes evidence about what will provide recovery and what will not, information that will likely lead to evidence useful for execution, and production that does either. But, the Rules do not permit an inquiry into the assets of a company that cannot be a source for recovery. [ 34 ] (These reasons say nothing about the process of discovery in aid of execution. In my opinion, Rule 79.26 allows much flexibility.

For example, a judge could require Smart Scale to report whenever it makes a payment to the trust, or to report annually in any event, and a judge could require Mr. Panagapko to report annually on income and assets or to report whenever the trust makes a distribution.)

[ 35 ] In conclusion, the bank's motion is dismissed. Counsel may make submissions on costs if they cannot work that out. J.