A. & E. Captial Funding Inc. v. Maplex General Insurance

A. & E. Captial Funding Inc. v. Maplex General Insurance Collection Decisions of the Court of Appeal Date 1999-06-21 Docket numbers C30490 Judges Carthy, James Joseph; Doherty, David H.; Austin, Allan McNiece Subject Civil Decision Content DATE: 19990621 DOCKET: C30490 COURT OF APPEAL FOR ONTARIO CARTHY, DOHERTY and AUSTIN JJ.A. BETWEEN: ) ) John C. Murray A. & E. CAPITAL FUNDING INC., ) for the appellant KINGSWAY FINANCIAL SERVICES ) INC., and YORK FIRE & CASUALTY ) INSURANCE COMPANY ) ) (Applicants/ ) Appellants) ) ) - and - ) Harry Underwood ) for the respondent MAPLEX GENERAL INSURANCE ) COMPANY in liquidation ) ) (Respondent/ ) Respondent ) in Appeal) ) Heard: June 9, 1999 ) On appeal from the order of Farley J. dated July 31, 1998. BY THE COURT: [1] A. & E. Capital Funding Inc. (A. & E.) claims that York Fire & Casualty Insurance Company (York) is entitled to set-off certain debts owed by York to Maplex General Insurance Company (Maplex) against a debt owed by Maplex to York. [2] Maplex was ordered wound-up on March 21, 1995. Under s.73 of the Winding-up Act, R.S.C. 1985, c. W-11, the law of set-off “as administered by the courts, whether of law or of equity, applies to all claims on the estate of a company …”. [3] York and Maplex were both owned by A. & E. prior to the winding-up order. A. & E. has now sold York to Kingsway Financial Services. The purchase price depends in part on the outcome of these proceedings. [4] York and Maplex shared operating expenses between January 1994 and March 1995. There was no formal agreement with respect to the shared expenses, no doubt because both companies were owned by the same entity. Ultimately, in 1997, after lengthy negotiations, the parties agreed that York owed Maplex $220,000.00 for its share of the operating expenses during the relevant time (the shared operating expense debt). [5] York and Maplex had also entered into a reinsurance agreement for the year 1994. Well after the winding-up order, it was agreed that under the terms of the reinsurance agreement, York owed Maplex $257,678.00 (the reinsurance debt). [6] In January 1995, the Commissioner of Insurance ordered York to renew certain Maplex policies. The premiums on those policies were paid to Maplex. Maplex had not remitted some of those premiums to York at the time of the winding-up. It was ultimately determined that Maplex owed York $380,534.00 in unremitted premiums (the unremitted premium debt). It is agreed that Maplex used some of the funds from the premium payments to pay operating expenses between January and March 1995. Some part of those payments included York’s share of the joint operating expenses. [7] It is A. & E.’s position that York’s debts to Maplex (the shared operating expense debt and the reinsurance debt) totalling about $480,000.00 should be set-off against the unremitted premium debt owed by Maplex to York (about $380,000.00) leaving a debt owed by York to Maplex of about $100,000.00. This amount would be available to the creditors of Maplex. If set-off is not available, York owes Maplex about $480,000.00 and that amount will be available to the creditors. Maplex will still owe York $380,000.00, but given the financial condition of Maplex, York as an unsecured creditor will not recover any part of that debt. [8] A. & E. claims that the doctrine of legal set-off applies to the three debts. The doctrine can only apply to debts that are ascertainable. The parties accept that the circumstances in which an amount is “ascertainable” are accurately stated in Citibank Canada v. Confederation Life Insurance Co. (1996), 42 C.B.R. (3d) 288 at 300 (Ont. Ct. (Gen. Div.)), aff’d, (1998), 37 O.R. (3d) 226. … When the amount to which the plaintiff is entitled can be ascertained by calculation, or fixed by any scale of charges or other positive data, it is said to be “liquidated” or made clear …. But when the amount to be recovered depends upon the circumstances of the case and is fixed by opinion or by assessment or by what might be judged reasonable, the claim is generally unliquidated. [9] It is also agreed that the determination as to whether the debts were ascertainable, must be made as of the date of the winding-up order (March 21, 1995). [10] In our opinion, the amounts of the debts owed by York to Maplex were not ascertainable as of March 1995. The shared operating expenses debt was not ascertainable by calculation, or fixed by any scale or other positive data. Rather, it fell to be determined after negotiation by an assessment of York’s reasonable proportion of the joint expenses. There was simply no way of knowing as of March 1995 what York’s obligation for the joint operating expenses would be. That debt could not be set- off against the debt owed by Maplex to York (the unremitted premium debt). [11] The reinsurance debt was not ascertainable since all relevant claims had not been made and settled until well after the date of the winding-up. [12] A. & E. also argued that York had a contractual right to set- off debts between itself and Maplex under Article 21 of its contract of reinsurance with Maplex. We agree with Farley J. that the reinsurance agreement cannot be read in that way. The agreement regulated York’s contractual obligation to reinsure certain risks insured by Maplex and Maple’s obligation to pay certain premiums to York in return for that reinsurance. Essentially, York was to pay claims on behalf of Maplex and Maplex was to pay premiums to York. In our view, paragraph 3 of Article 21, the part of the agreement relied on by A. & E., does not refer to all debts between York and Markel, but rather to “debits and credits” that may arise under the terms of the agreement. These debits and credits arose as a result of the procedure set out in the agreement for the netting of premiums due to York for providing the reinsurance against losses payable by York as the reinsurer. A. & E.’s reliance on paragraph 4 of Article 21 of the reinsurance contract is misplaced. The reference in paragraph 4 to “any other contract” expands the reach of that paragraph beyond the reinsurance contract. There is no such terminology used in paragraph 3 of Article 21, the provision relied on by A. & E. The reinsurance contract does not give York the right to set-off either the shared operating expenses debt or the reinsurance debt against Maplex’s debt to York (the unremitted premium debt). [13] A. & E.’s third and final argument is based on the doctrine of equitable set-off. A. & E. submits that because Maplex used funds from premiums belonging to York to pay operating expenses from January to March 1995, York should be allowed to set-off a portion of its operating expense debt attributable to that period (59 days) against the unremitted premium debt owed to York by Maplex. In effect, A. & E. argues that Maplex used York’s money to pay operating expenses during that 59-day period and should not be allowed to include the operating expenses for that period as part of York’s operating expenses debt to Maplex. [14] There is no evidence quantifying the operating expenses between January and March 1995 and no evidence of what share of those expenses was attributable to York. When the parties agreed that York’s share of the operating expenses was $222,000.00, they did not attribute any part of the debt to any particular time period. As the parties were sharing operating expenses between January and March 1995, it seems clear that some part of the $222,000.00 debt is attributable to that time period. A. & E. suggests that the operating expenses for that time period can reasonably be estimated at 13.6% of the total shared operating expenses debt. The time period in issue (59 days) equals 13.6% of the total time during which York and Maplex shared operating expenses. [15] Maplex contends that equitable set-off is only permitted where the claims arise out of the same transaction or are so closely connected to each other that it would be manifestly unjust to allow one party to enforce payment of the claim without taking the other claim into account. We accept this description of equitable set-off. In our view, the claims are very closely connected. It would also be unfair to allow Maplex to claim the full operating debt when it paid a portion of the those expenses with money belonging to York. York should be allowed to set-off the amount of the shared operating expense debt attributable to the relevant period ($29,920.00) against the unremitted premium debt owed to it by Maplex. [16] The order of Farley J. should be varied to give effect to the limited set-off described above. [17] A. & E. has enjoyed some success on this appeal, however, most of the argument related to the issues on which A. & E. was unsuccessful. In the circumstances, we make no order as to costs on the appeal and would not disturb the costs order made by Farley J. on the application. Released: June 21, 1999