Bank of Montreal v. Caldwell First Nation, 2013 ONSC 7317

CITATION: Bank of Montreal v. Caldwell First Nation, 2013 ONSC 7317 COURT FILE NO.: 1274/10 DATE: 20131220 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) Bank of Montreal ) ) ) A.G.J. Van Klink, for the Plaintiff ) Plaintiff ) ) - and - ) ) ) Caldwell First Nation ) ) ) D. R. Nash and E. Rankin Nash, for the Defendant ) Defendant ) ) ) HEARD: September 18, 2013 LEITCH J. [ 1 ] The plaintiff seeks an order granting

summary judgment against the defendant in relation to a loan it advanced and an order dismissing the counterclaim. [ 2 ] The plaintiff’s evidence is that the sum of $1,661,414.27, plus interest at a per diem rate of $147.71 for each day after April 22, 2013 is due and owing by the defendant. Background Facts [ 3 ] The plaintiff made a loan to the defendant that remains unpaid. The plaintiff issued its statement of claim on May 13, 2010.

It now asserts that there is no genuine issue requiring a trial with respect to its claim for repayment of the full amount of the loan. [ 4 ] The defendant defended against the plaintiff’s claim and counterclaimed for an accounting and repayment of all interest paid on account of the loan. [ 5 ] In its original statement of defence, the defendant asserted what was referred to at the hearing of this motion as the “loan invalidity defence”, which counsel agreed was not in issue on this motion for

summary judgment because such an issue is within the jurisdiction of the Federal Court of Canada. [ 6 ] The only issue submitted on this

summary judgment motion, therefore, was what was referred to as the “negligence defence”, which is set out in para. 24 of the amended amended statement of defence and counterclaim. The first amended statement of defence and counterclaim was further amended to include this new para. 24, as well as other amendments described below, after this motion for

summary judgment was brought by the plaintiff. [ 7 ] Paragraph 24 of the amended amended statement of defence and counterclaim states the following: 24. The Defendant pleads and relies upon the Negligence Act , R.S.O. 1990, c. N.1 as amended to assert that the Plaintiff was negligent by: (

a) failing to verify the legitimacy of the purported Chief and Council;

(

b) failing to verify that the Band wanted to locate a reserve in the Chatham-Kent area; (

c) enabling the purported Chief and Council to purchase land in the Chatham-Kent area without Band approval. (

d) allowing the purported Chief and Council to purchase land in the Chatham-Kent without obtaining proper real-estate appraisals; (

e) allowing the purported Chief and Council to overpay for the land; and (

f) causing or contributing to the deficiency on the sale of the land. [ 8 ] The recent amendments to paras. 14, 15 and 18 of the amended amended statement of defence and counterclaim assert a fiduciary duty owed by the plaintiff to the defendant and/or negligent misrepresentation by the plaintiff.

Specifically, in para. 14, the defendant asserts that the plaintiff knew or ought to have known that the persons purporting to act as Chief and Council at the time the loans were made were not elected as Chief and Council or that their term of office had expired, and as such, they had no authority to act on behalf of the defendant.

In para. 15, the defendant asserts that even after the 1998 court proceedings questioning the authority of the purported Chief and Council, the plaintiff continued to deal with those persons and to advance money to them without regard to their lack of authority to act on behalf of the defendant. [ 9 ] The defendant denies that it owes the plaintiff any money.

It alleges the plaintiff’s negligence contributed to its loss and asserts that it is entitled to a dismissal of the plaintiff’s action and judgment on its counterclaim for interest and fees paid to the plaintiff. [ 10 ] The defendant is a First Nation recognized under the Indian Act , R.S.C. 1985, c. I-5 as amended. As described in the defendant’s motion materials, their traditional home was always Point Pelee. However, in the late 1800’s, the Crown moved the defendant from Point Pelee to the Blenheim area.

There was no settlement of the defendant’s rights to the Point Pelee lands. [ 11 ] The land claim settlement was negotiated many years later. A proposed land claim settlement was signed October 30, 1998 by the defendant’s then Chief, Larry Johnson, and by the Negotiator for the Government of Canada (“the Agreement in Principle”). This Agreement in Principle contemplated a settlement of $23.4 million to be paid in five installments.

The terms of the Agreement in Principle included what was set out in para. 6 as follows: The settlement agreement and trust agreement will be ratified by the Caldwells when a majority of the Caldwell members over the age of 18 years vote on the agreements, and the majority of those who vote, vote in favour of the agreements. The same level of ratification will be required at any subsequent vote.

The settlement agreement will also provide how the settlement agreement will be ratified by Canada. [ 12 ] The Agreement in Principle also provided further in para. 12 as follows: This agreement in principle contains proposed elements of a settlement agreement, and is subject to review and approval by the negotiators’ principals. Significant redrafting will be required to complete the settlement agreement. This agreement in principle is not legally binding on either party. The Evidence Presented on the Motion on Behalf of the Plaintiff [ 13 ] Mr.

Keith McGregor, an account manager with the special loans management unit of the plaintiff, swore an affidavit in support of the

summary judgment motion. [ 14 ] As he described, the plaintiff made an operating loan of $200,000 to the defendant in February 1996. This loan was authorized by a resolution of the council of the defendant dated February 28, 1996, in which the Council agreed with the loan and authorized the plaintiff to enter property.

Although the plaintiff authorized increases in the amount of the operating loan in the following years, those loan increases were not implemented, and until November 1998 the limit on the plaintiff’s operating loan remained at $200,000. [ 15 ] The plaintiff received a copy of the Agreement in Principle. Mr. McGregor deposed that the plaintiff was then asked by Larry Johnson to increase the defendant’s operating loan to allow the defendant to begin purchasing land in the area before, as Mr.

McGregor put it in para. 14 of his affidavit, “word of the A.I.P. began to spread in the local community in the hope that better prices could be obtained for the lands to be bought.

It was expected that as soon as word of the A.I.P. got out in the local community, land prices would increase”. [ 16 ] On November 11, 1998, the plaintiff was provided with a resolution of the Council of the defendant signed by Larry Johnson and a councillor of the defendant, which recited the fact that, “important discussions had taken place between council and the plaintiff and an independent consultant regarding the defendant’s abilities to increase specific financial activity”, and that Council had approved an operating line of credit for $2,000,000. [ 17 ] On November 24, 1998, Larry Johnson and two other councillors signed a lending agreement with the plaintiff respecting a loan of $1,500,000. [ 18 ] On December 21, 1998, the defendant entered into a second lending agreement with the plaintiff with a loan limit of $5,000,000.

This lending agreement was signed on behalf of the defendant by Larry Johnson and a councillor. [ 19 ] The plaintiff was provided with a resolution signed by Larry Johnson on January 20, 1999, reciting again that an important discussion had taken place between Council, the bank, and an independent consultant regarding the defendant’s abilities to increase specific financial activity, and that it had been resolved that Council approve an operating line of credit for $5,000,000. [ 20 ] On March 15, 1999, the plaintiff and the defendant entered into a further lending agreement respecting a loan limit of $5,250,000, which was signed on behalf of the defendant by Larry Johnson and three councillors.

[ 21 ] The plaintiff was provided with a resolution dated March 25, 1999, which contained the same recital as the two other prior resolutions and stated that the defendant’s Council had approved an operating line of credit for $5,250,000. [ 22 ] As Mr.

McGregor set out in para. 19 of his affidavit, the plaintiff appreciated that the Agreement in Principle required ratification by the defendant’s band members: When the bank agreed to increase the amount of the operating loan to $5.25 million in March, 1999, the bank expected the A.I.P. to be ratified by the Caldwell band members by May 30, 1999 and the land claim settlement contemplated by the A.I.P. to be implemented shortly thereafter.

It was anticipated that once the A.I.P. was ratified and the land claim settlement implemented, the operating loan would be repaid from the proceeds of the land claim settlement. [ 23 ] The plaintiff anticipated that the Agreement in Principle would be ratified. However, despite that anticipation, two proceedings were commenced in the Federal Court of Canada in 1999 that challenged the holding of the ratification vote on the Agreement in Principle.

As a result of these two applications, Dawson J. of the Federal Court of Canada granted an injunction which restrained the holding of a ratification vote on the Agreement in Principle until after June 30, 2000. The applications filed in the Federal Court of Canada were eventually settled. [ 24 ] It was not until August 2003 that the ratification vote for the Agreement in Principle took place. The Agreement in Principle was rejected and, as Mr.

McGregor set out in para. 28 of his affidavit, “once the ratification vote was defeated and the land claim settlement rejected, it was uncertain when the land claim would be settled and the operating loan repaid. The bank accordingly, was no longer prepared to continue with the operating loan. The bank required the operating loan to be converted to a non-revolving demand loan.” (the “demand loan”). [ 25 ] On October 26, 2004, the plaintiff provided the defendant with a term sheet for the establishment of the demand loan, the proceeds of which would be used to repay the operating loan.

Larry Johnson, on behalf of the defendant, acknowledged and accepted the term sheet on December 2, 2004. The plaintiff was provided with a resolution of Council signed by Larry Johnson and three councillors dated April 5, 2005.

This resolution recited that a number of properties were owned by trustees on behalf of the defendant; that the defendant wished to authorize its trustees to grant security to the plaintiff for its loan against these properties; and, it authorized Larry Johnson to sign the mortgage documentation required. [ 26 ] The demand loan was advanced and the operating loan was repaid on May 9, 2005. [ 27 ] On March 17, 2007, the defendant elected a new Chief and Council. [ 28 ] According to Mr. McGregor’s affidavit, in June 2007, interest payments on the demand loan began to fall into arrears.

Meetings were held between the plaintiff and the defendant to discuss the situation. [ 29 ] In September 2007, the defendant’s account with the plaintiff was transferred to the plaintiff’s special accounts management unit, by which time the defendant had ceased making the monthly payments on the demand loan. [ 30 ] As Mr. McGregor outlined in his affidavit, a number of meetings took place between representatives of the defendant and the plaintiff over a number of years.

In particular, he described a meeting in the fall of 2008 between representatives of the plaintiff and the defendant at which the plaintiff indicated it was not prepared to sell the defendant’s property to pay down the demand loan.

It was eventually agreed that the plaintiff would issue power of sale notices, the plaintiff would assign its security to 1781961 Ontario Limited (“1781961”) — a company created and controlled by the defendant — and 1781961 would sell the properties to purchasers “located” by the defendant. [ 31 ] The plaintiff’s security was assigned by an agreement dated January 30, 2009 between the plaintiff, the defendant, and 1781961 (the “Assignment Agreement”). The Assignment Agreement was signed by the then Chief, Ms. Louise Hillier, on behalf of the defendant.

This Assignment Agreement contained a recital referencing the defendant’s debt to the plaintiff in the amount of $5,173,000. It also contained a provision pursuant to which the defendant represented to the plaintiff that this recital was true and correct. [ 32 ] All of the properties over which the plaintiff held mortgage security were eventually sold and the net sale proceeds were utilized to pay down the demand loan.

Ultimately, by October 2009, approximately $1.5 million, including interest, remained outstanding on the demand loan. [ 33 ] The repayment proposal presented by the defendant in November 2009 was unacceptable to the plaintiff. Thereafter, as Mr. McGregor outlined in para. 57 of his affidavit, when no further repayment proposal was forthcoming, this action was commenced on May 13, 2010. [ 34 ] Mr. McGregor in his affidavit referenced a press release, dated March 25, 2011, from Aboriginal Affairs and Northern Development Canada confirming that the defendant has ratified a settlement with the Government of Canada.

Notwithstanding the settlement, the outstanding balance on the plaintiff’s demand loan remains unpaid. The Defendant’s Evidence on the Motion [ 35 ] The defendant filed an affidavit of Melody Watson, a member of the defendant who is employed as the defendant’s finance manager. She also served as an elected councillor of the defendant from 2007 to 2011. [ 36 ] Ms.

Watson deposed in her affidavit that in 1998, the defendant’s then Chief and Council decided to establish a Reserve for the defendant in the Chatham-Kent area, intending to pay for the land from the proceeds of the land claim settlement with the federal government. She further deposed in paras. 6 and 7of her affidavit: 6. Although the proposed location of the Reserve had been rejected by the federal government, and the land claim settlement had not

been approved by the Band, the Chief and council decided to go ahead with the purchase of the land for the Reserve in the Chatham- Kent area. As a result, the Chief and counsel approached the Bank of Montreal for a loan or loans to facilitate the purchase of land for a Reserve. 7. Although the bank knew that the proposed land claim settlement had to be approved by the Band and that approval had not yet been obtained, the bank agreed to lend the Chief and council the money they required to purchase land for a Reserve.

Late in 1998 and early in 1999, the bank extended credit of approximately $5,000,000 to the Chief and council which they used to buy 450 acres of land in the Chatham-Kent area for a Reserve. As Ms. Watson further outlined, the purchased land was never used for a Reserve, and the land was ultimately sold to repay the loan to the plaintiff. [ 37 ] Ms. Watson made a number of assertions in her affidavit relating to the conduct of the plaintiff relying on documentation obtained as a result of the December 7, 2012 discovery of Mr.

Adrian Van Den Voogaart, the plaintiff’s account manager in the late summer of 2007 who was primarily responsible for the administration and management of the defendant’s account. For example, Ms. Watson asserted in para. 11 of her affidavit that: 11. At the time the bank loaned the money to the Chief and council, it knew that the Band could not afford to purchase the land for the proposed reserve. As a result, the bank loaned the Band and council 100% of the cost of the land without obtaining appraisals [referencing a

Schedule of Security dated, March 8, 1999 prepared by Mr. Van Den Voogaart on behalf of the plaintiff]. [ 38 ] Ms. Watson also deposed that the plaintiff knew that the Chief and Council could not repay the loan unless the Agreement in Principle was approved by the defendant (referencing an internal communication of the plaintiff dated, December 17, 1998), and in spite of that, the plaintiff made no inquiries of the defendant’s members to ascertain whether there was support for the proposed settlement. [ 39 ] Ms. Watson in para. 12 of her affidavit set out her belief: 11.

That the bank chose to loan the Chief and council the money to purchase the land because it wanted the Band’s business and management of the land claim settlement funds. The bank went so far as to discuss the establishment of a trust account to manage these funds. Again, Ms. Watson referenced the plaintiff’s internal communication dated November 9, 1998 from Mr. Van Den Voogaart to Ms. Anne Rheault, the senior manager of the plaintiff’s aboriginal banking unit. [ 40 ] Ms. Watson went further and in paras. 17 and 18 of her affidavit deposed that: 17. Ms.

Rheault was consulted by the London branch of the Bank about the loan that the Bank advanced to the Chief and Council. As the Senior Manager of the Aboriginal Unit, she knew or ought to have known that the land claim settlement had not been accepted by the Band, that the loan and the proposed reserve had not been approved by the Band or the federal government. 18. If Ms. Rheault or the staff of the local branch of the Bank had made any enquiries in December 1998 they would have learned of opposition to the proposed land claim settlement and the proposed reserve by members of the Band. [ 41 ] Ms.

Watson expressed her belief that by January 1999 opposition to the proposed reserve had been voiced publicly by the defendant’s members. She referenced a confidential and restricted internal document of the plaintiff dated January 13, 1999, in which member opposition to the land claim settlement and future Reserve is noted. [ 42 ] Ms. Watson also referenced another confidential and restricted internal communication of the plaintiff dated June 24, 1999, which noted a discussion that Ms. Rheault had with Mr. Forbes, “second in command for Indian Affairs”. In para. 21 of her affidavit, Ms.

Watson deposed that: By meeting with the people the Band was trying to negotiate a settlement with, and by disclosing the Band’s financial affairs to the federal government, the bank interfered in negotiations for a land claim settlement. [ 43 ] In relation to the Assignment Agreement and the recital relied on by the plaintiff, Ms.

Watson deposed in para. 35 of her affidavit that although the defendant acknowledged the monies were owing to the plaintiff, the defendant was not aware of the plaintiff’s involvement in the unauthorized activities of the previous Chief and Council at the time that the Assignment Agreement was signed. [ 44 ] Ms. Watson outlined in paras. 36 to 41 the following respecting the plaintiff’s conduct.

Specifically, she deposed that: The plaintiff was complicit in the efforts of the Chief and Council to establish a reserve without approval of the Band or the federal government. - the plaintiff kept confidential the plans of the Chief and Council to establish a reserve until after the land had been purchased with its money; - the plaintiff made no effort to verify the legitimacy of the Chief and Council or their right to borrow money for an unauthorized reserve; - the plaintiff allowed the defendant to purchase land for a reserve without appraisals and caused a shortfall it is now suing for; - the plaintiff continued to advance money to the Chief and Council for unauthorized purposes, in spite of the fact that there were serious questions as to the authority of the Chief and council to represent the defendant; - the plaintiff interfered with the negotiations between the Chief and council and the federal government without authorization from the

defendant and in an effort to further its own interest; - the plaintiff refused to take the lands it had improperly allowed the Chief and council to purchase in satisfaction of the unauthorizeddebt it seeks to recover from the defendant. Responding Affidavit of Mr. McGregor [45] In a further affidavit sworn by Mr.

McGregor on June 12, 2013, he deposed that when the Assignment Agreement was signed,the defendant knew that the previous Council had borrowed money from the plaintiff, knew the amount that had been borrowed, knewthat the previous Council had purchased lands with the proceeds of the loan, and knew that the lands purchased with the loan proceedswere intended for use as a Reserve that had not yet been approved by the defendant. [46] Mr.

McGregor further deposed that the acknowledgment of debt contained in the Assignment Agreement was the subject ofnegotiation between the lawyers for the plaintiff and the defendant prior to the agreement being signed. [47] Mr. McGregor deposed in para. 9 of his second affidavit that: The bank relied upon the acknowledgment of debt in the Assignment Agreement. Because of the acknowledgment of debt, the bankunderstood that Caldwell was not disputing its liability for the outstanding debt and, as a result, permitted Caldwell to sell the lands overwhich the bank held security at prices satisfactory to Caldwell.

The Test on a Motion for

Summary Judgment [48] This motion is pursuant to Rule 20, which provides that a court shall grant

summary judgment if the court is satisfied that there isno genuine issue requiring a trial with respect to a claim. [49] The rules are now clear that in determining whether there is a genuine issue requiring a trial, the motions judge shall weigh theevidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence. [50] In Combined Air Mechanical services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1, the Court of Appeal indicated that amotions judge must have a full appreciation of the evidence and issue before concluding that there is no genuine issue requiring a trial.

Position of the Plaintiff [51] In making submissions on behalf of the plaintiff, counsel for the plaintiff addressed the negligence defence set out in the newpara. 24 of the amended amended statement of defence and counterclaim.

As he indicated, in his view the defendant was asserting thatthe plaintiff was negligent when it made its loan in 1998/ 1999 and then again in 2007 when the security was realized. [52] Counsel for the plaintiff addressed the negligence defence by submitting that the relationship between the plaintiff and thedefendant was that of debtor and creditor and that the plaintiff did not owe a duty of care to the defendant. For this proposition, he reliedon the Court of Appeal decision in The Toronto Dominion Bank v.

Forsythe (2000), (ON CA), 47 O.R. (3d) 321,where the court stated at para. 14: There is ample authority for the proposition that the relationship that exists between a bank and its customer is that of debtor andcreditor: see Foley v. Hill (1848), 2 H.L.C. 28, 9 E.R. 1002; Bertolo v. Bank of Montreal (1986), (ON CA), 57 O.R.(2d) 577 (C.A.). Special facts would have to be pleaded before that relationship could be transformed into a fiduciary one as in LloydsBank Ltd. v. Bundy, [1975] 1 Q.B. 326 (C.A.).

The relationship between a bank and the guarantor of its customer’s loan is determined bythe terms of the guarantee. … [53] This principle was restated more recently by the Court of Appeal in Pierce v. Canada Trustco Mortgage Co. (2005) (ON CA), 197 O.A.C. 369, at para. 27 as follows: Generally speaking, the relationship between a financial institution lender and its customer borrower is a purely commercial relationshipof creditor and debtor. Absent any special relationship or exceptional circumstances such as would give rise to a fiduciary duty (which isnot pleaded by Mrs.

Pierce), the courts have consistently held that the lender owes no duty to the borrower in connection with the makingof the loan. In particular, the bank owes no duty to its customer to advise the customer not to undertake the loan: see Bertolo v. Bank ofMontreal (1986), (ON CA), 57 O.R. (2d) 577 (C.A.) and Bank of Montreal v. Duguid (2000), (ONCA), 47 O.R. (3d) 737 (C.A.). [54] Counsel for the plaintiff took five positions on the

summary judgment motion in relation to the newly amended statement ofdefence and counterclaim and the contents of the defendant’s factum.

First, he took the position that negligent misrepresentation was notpled; second, that negligence is a cause of action and not a defence; third, that there is no evidentiary basis for a negligence claim; fourth,that such a claim is statute barred; and finally, that the defendant is estopped from denying liability to the plaintiff. [55] With respect to the first issue, counsel for the plaintiff observed that the issue of negligent misrepresentation was raised for thefirst time in the defendant’s factum that was filed one week prior to the hearing of the motion.

He highlighted the well establishedelements of negligent misrepresentation as described by the Supreme Court of Canada in Queen v. Cognos Inc., (SCC),[1993] 1 S.C.R. 87. The elements of this tort as summarized in Cognos were set out in Lysko v. Braley (2006), (ONCA), 79 O.R. (3d) 721 (C.A.), at para. 29 as follows: [29] The part of the pleading concerning negligent pre-contractual misrepresentations raises several different issues. An action in tortlies for alleged negligent misrepresentations made in the course of a hiring interview by the representative of the employer to theprospective employee: Queen v.

Cognos Inc., (SCC), [1993] 1 S.C.R. 87, [1993] S.C.J. No. 3, at pp. 109 and 112S.C.R. The elements of the tort are summarized at p. 110 S.C.R. of Cognos as follows:

(1) there must be a duty of care based on a “special relationship” between the representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said misrepresentation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted.

Plaintiff’s counsel also noted the provisions of Rule 25.06(8), which require that a pleading of misrepresentation contain full particulars. [56] The plaintiff’s position is that the facts to establish a special relationship between the plaintiff and the defendant have not beenpled and do not exist in any event. [57] While plaintiff’s counsel acknowledged that a number of factors were set out in the defendant’s factum, neither thesecircumstances nor the alleged duty of care were pled.

Counsel for the plaintiff also noted that there was no pleading of the advice orrepresentation by the plaintiff and no assertion that it was, nor any explanation as to how it was, negligent, as well as no pleading ofreliance. [58] The plaintiff’s position is that the failure to plead is fatal to the defendant’s position, noting the commentary of Ducharme J. inCaglar v.

Moore et al., [2005] O.T.C. 935 (S.C.), at para. 14, citing a relevant Court of Appeal decision as follows: At the outset of this motion, the Court raised the issue that the defendant had not pleaded either the foreign law, i.e. the Manitobastatutes, or any limitation period. As Finlayson J.A. noted in Kalkinis (Litigation Guardian of) v.

Allstate Insurance Co. of Canada(1998), (ON CA), 41 O.R. (3d) 528 (C.A.) at p. 533, “it has long been established that the parties to a legal suit areentitled to have a resolution of their differences on the basis of the issues joined in the pleadings.” If anything, the importance of properpleadings is heightened on a motion for

summary judgment and the matter should only be resolved as defined in the pleadings. [59] With respect to his second position, counsel for the plaintiff asserted that the claim of negligence is a cause of action, which ifproven, gives rise to a claim for damages, and that this claim has to be advanced by a counterclaim and not as a defence.

He noted thatthe current drafting of the counterclaim seeks an accounting of monies paid to the plaintiff, which flows from the lack of authority orloan invalidity defence. [60] He went further and submitted that any claim for damages arising from the plaintiff’s negligence can only give rise to anequitable set-off. His position was that if a damage claim existed, it could not be set-off against the debt; he was relying on a statementof the Court of Appeal in Marketing Products Inc. (c.o.b. Great Lakes Audio and Video) v. 1254719 Ontario Ltd. (c.o.b.

Tech ElectronicServices) (2000), (ON CA), 142 O.A.C. 61, at para. 1 as follows: … The principal issue raised by the appeal is whether the motions judge correctly applied this court’s decision in Iraco Ltd. v.

StaimanSteel Ltd. (1987), (ON CA), 62 O.R. (2d) 129, holding that the law of equitable set-off does not apply to bills ofexchange, including cheques. [61] The plaintiff’s position is that para. 24 in the amended amended statement of defence and counterclaim is a plea of contributorynegligence, which has no application to a loan. [62] The plaintiff’s third position is that there is no evidentiary basis for a negligence claim even if properly pled. Counsel for theplaintiff noted that Mr. McGregor swore his affidavit in support of the

summary judgment motion when only the loan invalidity defencewas being advanced by the defendant. At that time, what was discussed at various meetings between the plaintiff and representatives ofthe defendant was not in issue. Counsel for the plaintiff submitted that there is no evidence of any special relationship, no evidence thatthe defendant sought advice from the plaintiff, no evidence as to what the advice was, and no evidence that such advice was relied on.

Counsel for the plaintiff emphasized that the defendant is obliged to put its best foot forward in response to this motion. [63] The plaintiff’s position is that even if negligent misrepresentation was properly pled, these causes of action are not supported byevidence. [64] Counsel for the plaintiff questioned what duty of care the plaintiff could owe to the defendant, noting that if it was a duty of careto not give that advice, then in essence, the defendant was relying on negligent misrepresentation.

If the duty was to not act negligently,then to find such a duty, the court would be required to overturn more than 100 years of jurisprudence. He emphasized that thisdebtor/creditor relationship did not transform into one where the plaintiff had to look out for its customer, the defendant, in paramounceto its own interest. [65] The plaintiff’s fourth position was that any negligence claim is statute barred. The events in issue took place in 1998 and 1999and therefore, according to the plaintiff, the cause of action arose when the loan was made.

His position was that, in any event, thedefendant knew by July 4, 2007 that a deficiency would be claimed. Under the best case scenario for the defendant, if a six yearlimitation period was applicable then because the defendant knew about the deficiency and its damages by July 4, 2007, the amendmentmade on July 18, 2013 was 14 days too late. [66] In Hamilton (City) v.

Metcalfe & Mansfield Capital Corp., 2012 ONCA 156, 290 O.A.C. 42, the Court of Appeal considered anaction by the plaintiff for the tort of misrepresentation and at para. 22, the court agreed with the decision of the motions judge and foundthat: The limitation period began to run when the City [the plaintiff] discovered that it allegedly had been misled… on August 23, 2007. TheCity [the plaintiff] commenced this action on September 25, 2009 – more than one month too late.

[ 67 ] Finally, the last position of the plaintiff is that the defendant is estopped from denying liability based on negligence or negligent misrepresentation because of the provisions of the Assignment Agreement. [ 68 ] In Ryan v. Moore , 2005 SCC 38 , [2005] 2 S.C.R. 53 , at para. 51 , the Supreme Court of Canada stated: The state of law of estoppel was articulated by Lord Denning in Amalgamated Investment & Property Co. (In Liquidation) v.

Texas Commerce International Bank Ltd. , [1982] 1 Q.B. 84 (C.A.) , at p. 122, as follows: … When the parties to a transaction proceed on the basis of an underlying assumption – either of fact or of law – whether due to misrepresentation or mistake makes no difference – on which they have conducted the dealings between them – neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so.

If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands. [ 69 ] The plaintiff’s position is that all three elements of estoppel exist here: the defendant represented to the plaintiff that it owed the money to the plaintiff; the defendant knew that such representation was being relied on; and, the plaintiff relied on the representation to give up its security and bargaining power to allow the land to be sold, which was what the defendant wanted. [ 70 ] The plaintiff’s position is that once the Assignment Agreement containing the acknowledgment was signed, issues of past conduct of the plaintiff cannot be “dredged up”.

In addition, the fact that there was no agreement with respect to repayment does not diminish the acknowledgment that the debt was owing, particularly when considering that the defendant offered to repay the loan at the rate of $150 per month and that it was only after payment arrangements could not be agreed upon that this action was commenced.

While the new Council might not have known that land was acquired with proceeds from a loan, that lack of information flow is not the fault or the responsibility of the plaintiff; and furthermore, the defendant was aware that the lands purchased with the loan proceeds could not be used for a Reserve, and according to internal correspondence, it was the defendant who provided that information to the bank before the Assignment Agreement was signed. [ 71 ] The plaintiff’s position is that with respect to alleged negligence in relation to the sale of the land, such an alleged state of affairs was known when the Assignment Agreement was signed; the plaintiff had no legal obligation to sell the lands; and there is no evidence that the plaintiff adversely affected the market for the properties by refusing to take them over. [ 72 ] The plaintiff’s position is that any delay in the sale of the properties did not impair the recovery from those properties, and further, counsel for the plaintiff noted that according to a July 24, 2011 memo, the disrepair of the houses on the properties caused the decline in value.

The timing of the sale was entirely within the control of the defendant and nothing prevented the defendant from doing in 2007 what it did in 2009. [ 73 ] The plaintiff had no obligation to discharge its security before being paid, nor did it have any obligation to grant indulgences. [ 74 ] The bottom line for the plaintiff is that any type of negligence argument does not raise an issue requiring a trial. The request for an accounting in the counterclaim flows from the loan invalidity defence that was not pursued on this

summary judgment motion, and therefore the counterclaim ought to be dismissed on the

summary judgment motion. The Defence Position [ 75 ] The defence position is that the defendant will successfully resist the plaintiff’s claim based on the plaintiff’s negligence, and that the duty of care owed by the plaintiff is incorporated into the negligence pleading set out in para. 24 of the amended amended statement of defence and counterclaim. [ 76 ] The defendant acknowledged that it must show that the plaintiff owed it a duty of care in order to remove it from a traditional bank/creditor relationship.

The defendant further acknowledged that it had a commercial relationship with the plaintiff since February 28, 1996, and that a Standard Commercial Account Agreement was signed on November 28, 1996 and again on September 30, 1998, by which time the defendant’s loan was $350,000 or $1,200 per member. [ 77 ] However, the defendant’s position is that in November 1998 the plaintiff assumed a different role with the defendant and became an advisor.

Counsel for the defendant submitted that the plaintiff saw a business opportunity when the funds proffered in the Agreement in Principle were on the table, and that the plaintiff, in essence, acted quickly and focused only on the acquisition of this business. He noted that the plaintiff received a copy of the Agreement in Principle within days of it being executed and knew that it contemplated $23.4 million being paid into a Trust Account to be established by the defendant. [ 78 ] Mr.

McGregor was cross-examined on his affidavit sworn in support of this motion on August 9, 2013, and according to counsel for the defendant, this cross-examination yielded a significant number of documents that the defendant relied on in response to this motion. In particular, a computer print-out in which it is noted that prior to ratification of the land claim for $23.4 million, the facility would be restricted to $850,000.

It is clear from this document that the plaintiff was aware that the defendant was without a Reserve; that the Agreement in Principle had not been ratified by community members; that opposition to ratification was anticipated; that Chief Larry Johnson and Council wanted to purchase neighbouring lands while the settlement was confidential and that such purchases would be done anonymously; that the defendant would “prove to be a very high profile client … very shortly”; that the requested increase to the operating facility was to accommodate the land purchases; that a meeting was scheduled with Ms.

Anne Rheault and Chief Larry Johnson “to provide guidance for land claim trust fund investments in order to perpetuate the principle and purchase required lands which would ultimately be granted reserve status”. [ 79 ] The defendant also referenced documentation from Ms. Rheault to Mr. Van Den Voogaart setting out the agenda for the November 10, 1998 meeting with Chief Johnson and certain members of Council as evidence that the plaintiff took on more than a standard role in a lending transaction.

Counsel for the defendant submitted that the agenda prepared for the November 10, 1998 meeting indicated that the plaintiff was motivated by a desire to manage the $23.4 million in relation to its dealings with the defendant.

[80] As counsel for the defendant noted, in less than two months the indebtedness extended to the defendant represented an increasein liability from $1,200 per member to $20,000 per member. [81] Counsel for the defendant noted that the Council resolution provided to the plaintiff in relation to the approval of an operatingline of credit for $5 million dated January 20, 1999 recited important discussions between Council, the plaintiff, and “an independentconsultant regarding our abilities to increase specific financial activity”, as further evidence that the plaintiff was playing an advisoryrole. [82] The defendant acknowledged that the pleadings are not specific, but that the information to ground specific assertions onlybecame known as a result of this action and the cross-examination of Mr.

McGregor. [83] Counsel for the defendant asserted that the plaintiff’s role changed in November 1998 and such change was dramatic, with theplaintiff inserting itself into the situation as an advisor. He raised the question of why the members of the defendant would not have toratify and approve an increase in an operating line of credit from $1.5 million to $5 million when they had to approve the Agreement inPrinciple. Furthermore, he characterized the increase in lending from $350,000 as of September 30, 1998 to $5 million by December 21,1998 as “staggering”.

As he pointed out, it was the 250 members of the defendant who were the actual clients of the plaintiff and notonly the Chief and Council members, and yet, as the plaintiff knew, they were not aware of the purchase of land with the operating lineof credit. [84] With respect to the limitation and estoppel issues, the position of the defendant is that it is only after the plaintiff took action thatthe defendant obtained the documents that have led it to where it is today and prompted it to put allegations of negligence “on the table”.

The defendant asserted that the plaintiff ought not to be allowed to ignore what happened in 1998/1999, which raises a triable issue and,accordingly, the defendant is entitled to its day in court. Disposition [85] As counsel for the defendant emphasized, the relevant period in issue is 1998 to 1999 when Mr. McGregor, the deponent of theaffidavit in support of the

summary judgment motion, was not involved with the defendant. [86] Counsel for the plaintiff submits that it is unfair to draw conclusions on an incomplete record that is incomplete because of thepleadings. He also pointed out that Mr. Van Den Voogaart was cross-examined in December 2012 before the

summary judgmentmotion was served, and that many of the plaintiff’s documents were produced then and, accordingly, it is inaccurate to assert that thedefendant did not become aware of the issues it now raises until after its cross-examination of Mr. McGregor. [87] However, it is important to note that a distinction must be drawn between this

summary judgment motion and a Rule 21 motionwhere a plaintiff seeks to strike out a statement of claim against it on the ground that it does not disclose a defence. On the latter type ofmotion, no evidence is admissible and a court focuses only on the pleadings. On a

summary judgment motion, the court assesses theevidence presented. Indeed, Rule 20.02(2) mandates that a responding party on a

summary judgment motion set out in affidavit materialor other evidence, specific facts showing that there is a genuine issue requiring a trial. Ms. Watson’s affidavit endeavoured to do that. Ithink it is fair to say that her affidavit makes the position of the defendant clearer than the amended amended statement of defence andcounterclaim.

Indeed, counsel for the defendant acknowledged that there is a certain amount of “catching up” by the defence, noting thatthere have been two amendments to the statement of defence and that this is an “evolving” lawsuit and “evolving” defence withdocumentation being revealed as discoveries proceed. [88] The defendant’s position is that the plaintiff’s internal documentation consistent with the recitals to the resolutions of Councilreferencing guidance provided to the defendant grounds the allegation that the plaintiff had a fiduciary duty to the defendant. [89] As counsel for the plaintiff argued, and as counsel for the defendant acknowledged, it is normally a debtor-creditor relationshipthat exists between a bank and its customers.

As a result, in the usual circumstance of a commercial relationship, each party is entitled toconsider only their own interests. [90] The clear exception to this rule, however, is the existence of a “special relationship” or “exceptional circumstances” as referred toin Pierce. A statement of defence may plead facts to establish a fiduciary relationship. The plaintiff has raised a limitations issue withrespect to the most recent amendments and any future potential amendments that counsel for the defendant alluded to in this “evolving”litigation.

However, the defendant is seeking an equitable set-off for damages for breach of a fiduciary duty and not advancing acounterclaim. The limitation period does not apply to a defence of equitable set-off. This proposition is clear from the decision of theCourt of Appeal in Pierce where the court found that the motions judge erred in refusing leave to amend a statement of defence after thelimitation period had expired. The court dealt with this issue at length at paras. 38-40 and 43-46 as follows: 38 In the law of Canada today, there are two categories of set-off -- legal and equitable.

Legal set-off, flowing from 18th centuryEnglish statutes, is anchored in two requirements -- both obligations must be debts and both debts must be mutual cross obligations: seeHolt v. Telford, (SCC), [1987] 2 S.C.R. 193 at 204 per Wilson J. 39 Equitable set-off, on the other hand, is quite different. Its origins are not in statute law. The claims between the parties do not needto be debts. Equitable set-off can apply where mutuality is lost or never existed: see Holt v. Telford at pp. 205-12 and Canada TrustcoMortgage Co. v.

Sugarman (1999), (ON CA), 179 D.L.R. (4th) 548 at paras. 17-18 per Charron J.A. 40 The requirements for proving equitable set-off in Canada are enunciated in Holt v. Telford at p. 212 and are drawn explicitly fromEnglish authorities: 1. The party relying on a set-off must show some equitable ground for being protected against his adversary’s demands: Rawson v.Samuel, [1841] Cr. & Ph. 161, 41 E.R. 451 (L.C.). 2. The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed: ... [Br. Anzani (Flexistowe) Ltd.

v. Int. Marine Mgmt (U.K.) Ltd, [1980] Q.B. 137, [1979] 3 W.L.R. 451, [1979] 2 All E.R. 1063]. 3. A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff toenforce payment without taking into consideration the cross-claim: ... [Fed. Commerce and Navigation Co. v. Molena Alpha Inc., [1978]Q.B. 927, [1978] 3 W.L.R. 309, [1978] 3 All E.R. 1066]. 4. The plaintiff’s claim and the cross-claim need not arise out of the same contract: Bankes v. Jarvis, [1903] 1 K.B. 549 (Div. Ct.); Br.Anzani. 5.

Unliquidated claims are on the same footing as liquidated claims: [Nfld. v. Nfld. Ry. Co., [1888] 13 App. C. 199 (P.C.)]. 43 In oral argument, both counsel conceded that there is no Canadian case directly on point on this issue. However, there is clearauthority in the United Kingdom that equitable set-off is a substantive defence to which a statutory limitation period is inapplicable. Theleading case is Henriksens Rederi A/S v. PHZ Rolimpex, [1973] 3 All E.R. 589 (C.A.), which involved a claim for recovery of freightcharges.

The defendant alleged that the goods came damaged and sought to raise the resulting damages by way of an equitable set-offdefence. Under the applicable Hague Rules, the claim for damages was statute barred. However, Denning L.J. held that equitable set-offis a true substantive defence that is not subject to a limitation period. He said, at pp. 593 and 595-96: In point of principle, when applying the law of limitation, a distinction must be drawn between a matter which is in the nature of adefence and one which is in the nature of a cross-claim.

When a defendant is sued, he can raise any matter which is properly in the natureof a defence, without fear of being met by a period of limitation. No defence, properly so-called, is subject to a time-bar. … 44 Lord Denning’s view was approved by the English Court of Appeal in Westdeutsche Landesbank Girozentrale v. Islington LondonBorough Council, [1994] 4 All E.R. 890 at 945 and applied in Filross Securities Ltd. v. Midgeley, (1999) 31 H.L.R. 465 (C.A.). Thisposition has also been adopted in Australia in Australian Mutual Provident Society v.

Specialist Funding Consultants Pty Ltd. (1991), 24N.S.W.L.R. 326 (S.C.) and Sidney Raper Pty Ltd. v. Commonwealth Trading Bank of Australia (1975), 2 N.S.W.L.R. 277 (C.A.). 45 In my view, the English and Australian authorities are particularly persuasive in light of Wilson J.'s judgment in Holt v. Telford. … 46 For these reasons, I conclude that the proposed defence of equitable set-off is not subject to the two-year limitation period in s.38(3) of the Trustee Act. [91] Therefore, the defendant may resist this

summary judgment motion based on the pleadings as amended after the motion wasbrought and based on the evidence of Ms. Watson in her responding affidavit. [92] With respect to the estoppel issue, I note that at the heart of any estoppel doctrine is that it is an equitable doctrine. The SupremeCourt of Canada in Ryan, when describing the assumption that underlies the law of estoppel, stated that neither party “will be allowed togo back on that assumption when it would be unfair or unjust to allow him to do so”.

If the defendant can successfully advance a defenseof equitable set-off, which as demonstrated it can, in my view, it would not be unfair or unjust for the defendant to “go back” on theassumptions relied on by the plaintiff. [93] The issue on this motion is whether there is a genuine issue of fact with respect to the relationship between the plaintiff and thedefendant.

If the plaintiff was in a position of acting as an advisor, and not merely acting as a lender, a duty may arise, and given thestatement in the recitals to the resolutions of Council, it may be that such advice was relied on. [94] Was the relationship between the plaintiff and the defendant unique in that they both understood that the plaintiff was in aposition where it was not being governed by its own self interest? The defendant took the plaintiff into its confidence. The plaintiff haddiscussions with the federal government regarding the land settlement.

It is alleged that the plaintiff was complicit in the activities of thedefendant. The plaintiff made an unusual loan in unusual circumstances suggestive of a relationship or exceptional circumstances muchdifferent from the usual circumstances of a typical debtor-creditor relationship between a bank and its customer. There is evidence thatthe plaintiff acted in an advisory role to the defendant. Whether this in fact amounted to a fiduciary relationship need not be decided atthis stage; but it at least gives rise to both a valid defence and a genuine issue requiring trial. [95] Returning to the test on a

summary judgment motion outlined in Combined Air and paraphrasing the words of the Court ofAppeal at para. 55, I have reached the conclusion that this is a case where meeting the full appreciation test requires an opportunity tohear and observe witnesses, to have the evidence presented by way of trial narrative, and to experience the fact-finding process firsthand. Therefore, despite the excellent materials prepared by the plaintiff’s counsel and his very thorough submissions, I am not satisfiedthat these issues can be appropriately resolved on a motion for

summary judgment. As noted by the Court of Appeal in Bertolo v. Bank ofMontreal (1986), (ON CA), 57 O.R. (2d) 577, a case relied upon by, among many other cases, Pierce, whendetermining whether a fiduciary relationship exists between a bank and its customer instead of the normal debtor-creditor relationship,“there is no substitute for a ‘meticulous examination of the facts’.” [96] For these reasons, the motion for

summary judgment is dismissed. I have not received submissions on costs, however I think it isimportant to express a preliminary observation that considering the state of the pleadings when this motion was brought, it was notunreasonable for the plaintiff to pursue this motion. If necessary, counsel may file brief written submissions on costs within 45 days. “Justice L. C. Leitch” Justice L. C. Leitch

Released: December 20, 2013 CITATION : Bank of Montreal v. Caldwell First Nation, 2013 ONSC 7317 COURT FILE NO.: 1274/10 DATE: 2013/12/20 Ontario Superior court of justice B E T W E E N: Bank of Montreal Plaintiff – and – Caldwell First Nation Defendant Reasons for Judgment Leitch J.

Date: December 20, 2013