Noble v. Business Development Bank of Canada

Date: 20131108 Docket: 12/93 Citation: Noble v. Business Development Bank of Canada, 2013 NLCA 63 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: TONY NOBLE APPELLANT AND: BUSINESS DEVELOPMENT BANK OF CANADA RESPONDENT Coram: Green C.J.N.L., Rowe and White JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (G) 201001G6627 Appeal Heard: June 4, 2013 Judgment Rendered: November 8, 2013 Reasons for Judgment by White, J.A. Concurred in by Green C.J.N.L. and Rowe J.A. Counsel for the Appellant: John R. Sinnott Q.C. Counsel for the Respondent: Douglas Skinner Page: 2 White J.A.: [1] This matter involves appeals of two separate but related orders. The first order granted an application for summary judgment brought by Business Development Bank of Canada (BDC) against Noble for the payment of $175,000 owing pursuant to two guarantee agreements entered into to secure loans to T.W.N. Limited (TWN). The second order dismissed Noble’s application to have the decision on the summary judgment reconsidered by the applications judge on the basis that he misapprehended the nature and effect of certain amendments made to the loan agreements. [2] In his reasons for decision on the summary judgment application the applications judge held that Noble did not raise facts which, if proven, would provide a limitation defence. The applications judge failed, however, to determine whether the facts alleged in Noble’s affidavit, if proven, could have established any of the other defences therein advanced. [3] While the applications judge did not err in finding that Noble had not raised an arguable limitation defence, the reasons for judgment relating to the first application are otherwise insufficient in that they do not allow for meaningful appellate review. The order for summary judgment must therefore be set aside without prejudice to BDC to bring its application before another judge of the Trial Division. On such an application it will not be open to Noble to argue the limitation defence raised on the original application. [4] The order denying the application to reconsider the first decision is consequently set aside. FACTS [5] The facts in this case are largely undisputed. The Guarantees [6] The appellant, Noble, was at all material times a director and shareholder of TWN. By letter dated May 22, 2001, BDC offered to lend TWN $1,100,000 for the construction and purchase of a vessel, the F.V. Noble Mariner II (later renamed the F.V. White Diamond – hereinafter referred to as “the vessel”). The offer stipulated that Noble was to personally guarantee the loan. He executed a guarantee of this loan on July Page: 3 5, 2001. The clauses of that agreement which are relevant on this appeal provide: 2. Guarantee The Guarantor unconditionally guarantees performance by the Borrower of all promises under the Loan Security and payment by the Borrower of the Principal Sum, protective disbursements, interest and other amounts the Borrower has promised to pay under the Loan Security (the foregoing amounts collectively are called the “Outstanding Balance”). The Guarantor also promises to pay to the Bank all legal fees and disbursements, on a solicitor and client basis, incurred by the Bank in reference to any suit upon this guarantee. The liability of the Guarantor under this guarantee does not exceed the Limited Amount plus legal expenses plus interest on the Limited Amount at the rate provided under the Loan Security calculated and compounded monthly from the date the Bank demands payment under this guarantee. 3. Liability as Principal Debtor As between the Bank and the Guarantor, the Guarantor is liable as principal debtor for all of the Borrower’s covenants contained in the Loan Security notwithstanding any act or omission of the Borrower or of the Bank which might otherwise operate as partial or absolute discharge of the Guarantor if the Guarantor were only a surety. 4. Liability Not Diminished by Acts of the Bank or the Borrower Except for payment of all sums due under the Loan Security, payment of the amount due under this guarantee or written discharge, no act or omission of the Bank or of the Borrower, before or after default, discharges or diminishes the liability of the Guarantor under this guarantee and without restricting the foregoing, the Guarantor convenants with the Bank as follows: (a) the Bank may grant time and other indulgences to the Borrower, to a Guarantor and to any other person liable for all or any portion of the Principal Sum; … Page: 4 … 7. Payment and Remedying Defaults The Guarantor shall pay the amount guaranteed or rectify any default immediately upon receiving a demand from the Bank and shall do so whether or not the Bank has exhausted its recourses against the Borrower, other parties, the Loan Security or anything mortgaged under the Loan Security. A demand is effectually made when a letter is posted to the address of the Guarantor last known to the Bank. [7] The “Limited Amount” referred to in clause 2 is $50,000. [8] By letter dated June 28, 2002, BDC offered to lend TWN a further $453,000 for the construction and purchase of the vessel. This letter of offer similarly provided that Noble was to personally guarantee the second loan. On August 20, 2002, Noble executed a second guarantee agreement. The terms of that guarantee were identical to those excerpted above except that the “Limited Amount” in the second guarantee is $125,000. The Loan Agreements [9] Pursuant to clause 2 of those agreements Noble guaranteed, inter alia, “performance by [TWN] of all promises under the loans”. This included re- payment under the terms of the loan. [10] Pursuant to the first letter of offer, the first loan was to be repaid by: (1) regular monthly payments of interest; and (2) two annual principal payments of $70,000 starting on October 23, 2002 followed by 10 annual principal payments of $96,000 starting on October 23, 2004. [11] The principal repayment terms of the first loan were amended on October 15, 2004. The amendment provided that the principal was to be repaid by one annual installment of $70,000 on October 23, 2005 followed by 10 consecutive annual installments of $96,000 beginning on October 23, 2006. [12] The principal repayment terms were again amended on October 13, 2005. The amendment provided that the principal was to be repaid by one annual installment of $70,000 on December 3, 2005 followed by 10 consecutive annual installments of $96,000 beginning on October 23, 2006. Page: 5 [13] A similar amendment was made on January 10, 2006 resulting in a principal repayment schedule of 10 annual installments of $96,000 starting on October 23, 2006, followed by a final payment of $57,500 on October 23, 2016. [14] A final amendment to the first loan was made on January 3, 2008. That amendment altered the principal repayment terms so that the balance would now be repaid in 10 annual installments of $101,750, starting on October 23, 2008. The interest rate on the first loan was also varied from 8.5% to 8.75%. [15] None of the amendments to the first loan altered the interest repayment schedule. [16] Pursuant to the second letter of offer the second loan was to be repaid by regular interest payments with a single principal payment of $453,000 on August 23, 2003. The second letter of offer also provided in underlying conditions 4 and 5 that default under either loan would constitute default on the other loan. This loan repayment schedule was not amended by subsequent agreement. Repayment / Defaults [17] While the parties agree that there was a default on the loans, they disagree on the date of default. This was relevant because of the limitation period defence advanced by Noble. [18] Clause 14 of the Standard Credit Terms, deemed to form part of the first letter of offer, provided that: 14. Defaults – Any of the following events constitutes a default under the loan: … - Failure to make any payment to the Bank when due or to meet your other obligations under the security, this agreement or any other loan or agreement with the Bank; … Page: 6 ... In the event of a default the Bank may, at its option, accelerate the loan, demand payment and enforce the security. [19] This provision is also found in the second letter of offer at clause 15 of the Standard Credit Terms. [20] In its factum, relying on the affidavit of Anne Marie Dwyer, BDC outlined the repayment history of both loans. It notes that various interest payments were made on the first loan between October 23, 2001 and September 7, 2010. Payments against the principal on the first loan were made on October 23, 2002 ($70,000) and January 5, 2006 ($12,500). BDC’s position is that by failing to make a payment against principal in the amount of $101,750 on October 23, 2008, TWN was in default under the first loan. [21] Despite a failure by TWN to follow the payment schedule as set out in the second letter of offer, BDC did not consider TWN to be in default of the second loan. Because of underlying condition 5 of the second letter of offer, however, default on the first loan constituted default on the second loan. [22] Noble, on the other hand, argues that default on the loans occurred much earlier. In oral argument Noble’s counsel indicated that, in total, 49 defaults had occurred prior to December 30, 2004 as Noble failed to meet the repayment schedules set out in both loans. [23] On November 24, 2010, BDC sent out demand letters to Mr. Noble giving him 10 days to settle the indebtedness, pursuant to clause 7 of the guarantee. Mr. Noble having failed to satisfy the claim, BDC filed a statement of claim on December 30, 2010 and on December 14, 2011 it filed an application for summary judgment against Noble. SUMMARY JUDGMENT APPLICATION [24] BDC’s application for summary judgment, supported by the affidavit of Anne Marie Dwyer, alleged that Noble was liable under both guarantees and requested damages in the following amounts: $50,000 plus interest from November 24, 2010 at a rate of BDC’s floating base rate plus 0.25% per annum; and $125,000 plus interest from November 24, 2010 at a rate of the floating base rate plus 2.00% per annum. It also sought costs on a solicitor- and-client basis, relying on clause 2 in both guarantees. [25] Noble filed an affidavit in response. In it he raised a number of possible defences. First, Noble alleged that default on both loans occurred Page: 7 prior to December 30, 2004 and that default on the loans amounted to a breach of Noble’s obligations under the guarantee. BDC’s right of action on the guarantees, Noble argued, materialized more than six years before it filed its claim and is out of time pursuant to subsection 6(1) of the Limitations Act, SNL 1995, c. L-16.1. [26] Other defenses raised by Noble in his affidavit included: (1) estoppel and laches arising from the fact that BDC had failed to preserve the security, thereby prejudicing Noble; (2) estoppel and laches arising from the fact that BDC failed to take any action to obtain the funds owing under the assignment to it of 25% of the vessel’s catch; (3) unfair refusal on the part of BDC to negotiate an alternate payment arrangement; (4) breach of BDC’s statutory duty to act fairly towards lenders resulting in the wrongful refusal of BDC to allow TWN to fish the vessel after it had been arrested. These defences were argued on the application with both parties providing submissions. [27] In a memorandum subsequently filed by Noble’s counsel, he indicated that BDC had failed to set out in its affidavit its belief that Noble had no defence to the claim. BDC subsequently filed an affidavit of Dave Smith, the senior manager of special accounts for BDC, indicating, “I am advised by BDC’s solicitors, and verily believe, that the Defendant does not have a defence to the action commenced by BDC”. [28] The applications judge delivered an oral decision following submissions from counsel on February 24, 2012. In assessing the limitation period defence raised by Noble, the applications judge held that whether the guarantees were demand guarantees or performance guarantees, the facts alleged did not establish an arguable defence. He noted: Either it is a demand guarantee where the time didn’t begin to run until November 2010 when the demand was made or it’s a performance guarantee which in my view would leave the guarantee tied to the issue of performance as between the debtor and the lender and that changed clearly by the [amendments] … So in this particular instance whether it was a performance guarantee or whether it was a demand guarantee the time would either begin running from the date of the demand, that’s 2010, November 2010 or the date of the last, the date of default, under the last amendment which as I recall was 2008… [29] The applications judge granted judgment in favor of BDC without dealing with any of the other defenses raised by Noble. Page: 8 RECONSIDERATION APPLICATION [30] Immediately upon hearing the applications judge’s oral decision, Noble’s counsel asked him to reconsider his decision on the basis that he had misapprehended evidence presented relating to the loan amendments. The amendments, he argued, applied only to the principal payments payable under the first loan and did not alter the payment schedule applicable to the interest payments payable under the first loan or the interest or principal payments payable under the second loan. The result was, he argued, that the Bank had not waived the defaults other than the failure to pay the principal payments under the first loan. The limitation period for enforcing the guarantees was therefore triggered by the un-waived defaults occurring prior to December 30, 2004. [31] The applications judge refused the oral request to reconsider on the basis that he was functus officio. Shortly thereafter, Noble filed a written application for reconsideration of the applications judge’s decision. [32] The applications judge dismissed the written application for reconsideration on the basis that no exceptional circumstances existed justifying reconsideration in this case. He further noted that the issue which Noble sought to have reconsidered was in reality a question of law and that such questions may only be reviewed on appeal. ISSUES: (1) What is the appropriate standard of review? (2) Did the applications judge misapply the test on this summary judgment application? (3) Did the applications judge err in holding that Noble did not establish an arguable limitation defence? (4) Did the applications judge err in failing to consider the other defences raised by Noble? (5) Did the applications judge err in failing to reconsider his oral decision? Page: 9 STANDARD OF REVIEW [33] The standard of review applicable in this case is that set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235: questions of law are reviewable on the standard of correctness; questions of fact are not to be disturbed unless the trial judge made a palpable and overriding error; and questions of mixed fact and law are subject to the standard of palpable and overriding error unless the trial judge made an extricable error of law, in which case the standard of correctness applies. ANALYSIS Summary Judgment Applications [34] Summary judgment may be granted pursuant to rule 17.01(1) of the Rules of the Supreme Court, 1986, which provides: Where the defendant has filed a defence or appeared on a hearing under an originating document, the plaintiff may, on the ground that the defendant has no defence to a claim in the originating document or a part thereof or has no defence to such a claim or part except to the amount of any damages claimed, apply to the Court to enter judgment against the defendant. [35] At the hearing of the appeal, there appeared to be some confusion regarding the burden placed on respondents on summary judgment applications, with counsel for BDC suggesting that it was incumbent upon Noble to put his “best foot forward”. This language, however, is generally associated with the burden that applies on summary trials. Summary trial applications may be made pursuant to Rule 17A.01, which provides: (1) A plaintiff or defendant may, after defence has been filed and at any time prior to the proceeding being placed on a trial list, apply to the Court with supporting affidavit material or other evidence for summary trial seeking judgment on or dismissal of all or part of the claim in the statement of claim, as the case may be. [36] As explained in Daley Brothers Ltd. v. Taito Seiko Co., 2001 NFCA 29, 201 Nfld. & P.E.I.R. 139 at para. 11 and Curtis v. Smith’s Home Centre Ltd., 2010 NLCA 7, 295 Nfld. & P.E.I.R. 279 at para. 8, the Court may give judgment under rule 17A in two circumstances: (i) where there is no “genuine issue for trial”; or (ii) where, even if there is a genuine issue, the court is able “to find the facts necessary” to decide the questions of fact or law and it would not be “unjust” to decide the issue on the application. Page: 10 Because a judge hearing an application for summary trial may decide a genuine issue in a summary way, a responding party has an evidentiary burden placed upon them to respond to the applicant’s submission. In this sense, it has been said that the parties must put their “best foot forward”. [37] This must be contrasted with applications for summary judgment. In a summary judgment application, once the plaintiff has filed an affidavit verifying his claim and stating his belief that the defendant has no defence, it is incumbent upon the defendant to file an affidavit disclosing facts which, if proven, would constitute a defence (see LeDrew v. Brake (1999), 176 Nfld. & P.E.I.R. 288 (Nfld. C.A.) at para. 6). If the defendant meets this burden, summary judgment should not be granted. As noted by Justice Cameron in LeDrew at paragraph 6, “It is not intended that an application for summary judgment require the applications judge to assess credibility, weigh evidence or make findings of fact”. [38] The standard which must be met by the defendant in a summary judgment application has been described in a number of ways. The defendant must “provide a bona fide defence”; “raise an issue against the claimant which ought to be tried”; “[show] that he has a fair case for a defence, or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence”; “establish a triable issue or issues which should be determined at trial”; or establish an “arguable case” (see Crane Canada Inc. v. Titan Holdings Ltd. et al., (1989), 77 Nfld. & P.E.I.R. 244 (Nfld. T.D.), per Hickman C.J. at para. 26 and RoyNat Inc. v. Lester (1993), 105 Nfld. & P.E.I.R. 151 (Nfld. T.D.), per Barry J. (as he was then) at para. 25). In RoyNat, Justice Barry stated: … summary judgment should not be allowed if there is conflicting evidence or a question of law which, following a hard look, the judge concludes is not being put forward merely to set up a sham defence and which, if found factually established by the trial judge, would form the basis for an arguable case on a matter of substance. [39] As noted by Cameron J.A. in LeDrew at paragraph 9, the difference between the formulations of the standard is “more a matter of semantics than of substance” and that “[i]n determining if a defence is a sham, the applications judge is, as indicated, not expected to weigh the evidence but just satisfy himself or herself that there is sufficient substance to the defence to warrant proceeding to trial”. Page: 11 [40] In this case, the applications judge, in his oral ruling, noted: [T]he framework of the rule governing summary judgment … [is] a two-stage process where the Plaintiff has to set out [a] factual basis for the allegations and also that there is no reasonable defence or there is no defence and then the burden shifts to the Defendant to make out an arguable case … I am not here to consider arguments or to assess evidence but only to determine whether the issue can be resolved summarily or whether it ought to go to trial and if it can be resolved summarily then I am entitled to make a decision now. [41] A few clarifications should be made with respect to this statement. While the judge hearing an application for summary judgment may “consider arguments” in the sense that the judge may consider the submissions of counsel, he or she must not weigh the evidence and make findings of fact. If the judge finds that there is a “triable issue” or an “arguable case” based upon the facts alleged in the respondent’s affidavit, he or she cannot resolve the matter summarily and the application must be denied. If the respondent fails to raise a “triable issue” or an “arguable case” the matter can be resolved summarily and judgment may be granted. [42] In this case, Noble did not appear to take issue with the applications judge’s statement of the law relating to summary judgments but rather his application of it. This Court must therefore determine whether the applications judge erred in his application of the test for summary judgment. Plaintiff’s Claim [43] The applications judge accepted that BDC had met its burden on the application for summary judgment. There is no appeal from this finding. The real issue is whether Noble’s affidavit disclosed facts which, if proven, would constitute a defence. Limitation Period Defence [44] The applications judge held that Noble’s affidavit did not set out facts which, if proved, established an arguable limitation defence. He did not decide whether the guarantees were “demand guarantees” or “performance guarantees”, but held that in either case, the limitation defence would fail on the facts alleged. While I agree with the applications judge that this defence, following a “hard look” must fail, I would rest my decision on somewhat different grounds. Page: 12 [45] Central to the determination of this issue is whether the making of a demand upon Noble, as is contemplated by guarantee clause 7, was a condition precedent to bringing an action on the guarantees. If it was, BDC was not out of time, having filed its statement of claim approximately a month after sending out the demand letters. Noble, however, argues that it was not for two reasons: (1) this was a performance guarantee; and (2) Noble is, pursuant to clause 3 of the guarantees, a principal debtor. (a) Performance Guarantee [46] Noble argued that these agreements are performance guarantees noting that they guarantee “performance by the Borrower of all promises under the Loan Security and payment by the Borrower of the Principal Sum, protective disbursements, interest and other amounts the Borrower has promised to pay under the Loan Security”. He argues that any breach of the loan agreement (for example a failure to make an interest or principal payment) resulted in a breach of the guarantee agreement which started the limitation clock. In other words, the demand contemplated in clause 7 of the guarantee was not a condition precedent to BDC’s ability to bring an action against Noble. In support of this argument, Noble cites Meridian Developments Ltd. v. Nu-West Group Ltd. (1984), 31 Alta. L.R. (2d) 1 (C.A.) at para. 31; and Moschi v. Lep Air Services Ltd., [1973] A.C. 331 (H.L.). [47] In Moschi, the guarantor guaranteed the payment of £6,000 weekly for six weeks with a final payment of £4,000, totaling £40,000, by the debtor corporation to the creditor. The debtor defaulted. The creditor brought an action upon the guarantee which was opposed by the guarantor on two grounds: (1) that the creditor’s acceptance of the debtor’s repudiation of the contract discharged the guarantor’s obligation; and (2) that the repudiation amounted to a material variation of the contract which extinguished the guarantor’s liability. Both grounds of appeal were rejected by the House of Lords. Notably, there was no issue relating to the commencement of the limitation period. A number of the Lords did, however, touch upon when a limitation period begins to run where a guarantor has personally guaranteed the performance of the debtor’s obligation and the debtor has breached its obligation. For instance, the appellant cites this passage from Lord Diplock’s judgment at page 348: It is because the obligation of the guarantor is to see to it that the debtor performed his own obligations to the creditor that the guarantor is not entitled to Page: 13 notice from the creditor of the debtor’s failure to perform an obligation which is the subject of the guarantee, and that the creditor’s cause of action against the guarantor arises at the moment of the debtor’s default and the limitation period then starts to run. [48] Similarly, Lord Simon, referring to Rowlatt, The Law of Principal and Surety, 3d ed. (1936), p. 144, stated at pages 356-357: The learned author was discussing the rule that on default of the principal promissor causing damage to the promissee the surety is, apart from special stipulation, immediately liable to the full extent of his obligation, without being entitled to require either notice of the default, or previous recourse against the principal. [49] This latter passage from the judgment of Lord Simon, cited by counsel for Noble in his factum, indicates that parties may by “special stipulation” depart from the ordinary rules that may apply to guarantees. As with all contracts, it is the words that the parties have chosen which govern. This is confirmed by the judgment of Lord Reid in Moshi, at page 344, where he states, “Parties are free to make any agreement they like and we must I think determine just what this agreement means”. Thus, the statements of Lord Diplock and Lord Simon, excerpted above, must be read in light of the fact that the agreement in Moshi did not stipulate that the guarantor was entitled to notice by way of demand. [50] Here, on the other hand, the parties provided, “The Guarantor shall pay the amount guaranteed or rectify any default immediately upon receiving a demand from the Bank … A demand is effectually made when a letter is posted to the address of the Guarantor last known to the Bank”. Noble’s obligation to pay was, therefore, not triggered until a demand was made by BDC and interest on the amount owing did not begin to accrue until that time. The facts in this case are, therefore, more like those in Capital City Savings and Credit Union Ltd. v. MacDonald (1989), 103 A.R. 93 (Q.B.), relied upon by BDC. [51] In Capital City Savings, a bank lent money to a corporation taking a mortgage and personal guarantee from a principal of the corporation as security. The corporation defaulted on the loan and an order of sale was obtained against the property. Seven years later, the bank commenced an action against the guarantor principal and brought a motion for summary judgment. The guarantor opposed the motion on the basis that the limitation period had expired. The guarantee in that case similarly provided that the Page: 14 amount owing was payable by the guarantor “upon demand being made upon him”. [52] Master Funduk held that the limitation period did not begin to run until the demand was made, stating at paragraph 98 that: I now believe that the effect of [the demand clause] is to introduce an additional fact requiring [the guarantor’s] liability to accrue. The liability which arose when the guarantee was entered into and the [money] advanced does not accrue unless and until (a) there is default by [the corporation] and, (b) a demand for payment is made on [the guarantor]. There is no cause of action until the liability accrues. [53] Commenting on Meridian, the other case advanced by Noble, Master Funduk stated: [106] Meridian Developments [Meridian Developments v. Nu-West Group (1984), 52 A.R. 248 (C.A.)] involved a guarantee similar to the one in issue in this action. The guarantee there provided in part: “1. The guarantor unconditionally guarantees to the vendor the due payment by the purchaser of the principal and interest and all other moneys under the Agreement for Sale (hereinafter called ‘the Purchase Moneys’) at the times and in the manner set forth in the agreement for sale and the due performance and observance of all the covenants of the agreement for sale according to the true intent and meaning thereof. ..... 9. That if default shall occur under the agreement for sale the guarantor shall forthwith upon demand being made upon the guarantor by the vendor, pay to the vendor all purchase money, costs and expenses due by virtue of this guarantee or any of the said security.” [107] The guarantee had been given as security in support of a purchaser’s obligations under an agreement for sale. [108] When the purchaser defaulted the vendor made a demand on the guarantor, then sued the guarantor and got default judgment. [109] The sole issue before the court was whether the guarantor was entitled to the protection of s. 40(2) and (3) of the Law of Property Act. [110] There was no issue whether a demand on the guarantor was a necessary fact for a cause of action. There could not be such an issue because a demand had Page: 15 been made prior to the commencement of the action, judgment had been obtained and the guarantor was not disputing the judgment. [111] At p. 255 the Court states: In my opinion the obligation assumed by Nu-West in its contract of guarantee was to see to it that the Numbered Company made the instalment payments as each one came due. When one payment was not made, Nu-West became liable under its own contract with Meridian for that default. The obligation enforced against Nu-West is its own obligation based upon its own promise. … [112] I would not now interpret that as meaning that a cause of action arose without more against the guarantor the moment there was default by the purchaser. I would not now interpret that as meaning that a demand on the guarantor was unnecessary. [54] I agree with that interpretation. Where the contract stipulates that the guarantor is entitled to notice by way of demand, such notice is necessary to trigger the obligation under the guarantee. Further support for this proposition is found in Bank of Nova Scotia v. Williamson, 2009 ONCA 754, 97 O.R. (3d) 561. There the Court of Appeal for Ontario noted that, “where a demand is a condition of the guarantee obligation, the time for commencing an action does not begin to run until a demand is made” (para. 14). (b) Principal Debtor Clause [55] Noble, however, also advanced the argument that, despite clause 7, the demand was not a condition of the guarantee obligation because the “principal debtor” clause, guarantee clause 3 reproduced above, eliminated the need for a demand prior to the commencement of an action against Noble. For this proposition Noble relies upon Esso Petroleum Co. Ltd. v. Alstonbridge Properties Ltd., [1975] 3 All E.R. 358 (Ch. D.); M.S. Fashions Ltd. and Others v. Bank of Credit and Commerce International S.A. (in liq) (No. 2), [1993] 3 All E.R. 769 (C.A.); and Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415. [56] In considering this argument it is important to distinguish between two types of debt. A present debt which is payable ‘on demand’ (such as a promissory note) is, the authorities hold, actionable against the debtor without a demand being made. In contrast, a debt which is to accrue in the future, such as one repayable by installments, generally requires that a Page: 16 demand be made before a creditor may bring an action against the debtor to recover the whole of the debt if the contract so stipulates. (See Canadian Imperial Bank of Commerce v. Pittstone Developments Ltd. (1985), 69 B.C.L.R. 292 (SC).) [57] This was also the position of the Court in Esso Petroleum Co. Ltd. There, Walton J. noted at page 367: I fully accept, of course, that where there is a pre-existing debt which is payable “on demand”, such a demand … is not a pre-requisite to the bringing of an action to recover that debt … That same case shows, of course, that where the character in which payment is required is that of surety, a demand is, in general, necessary; but I assume for present purposes (without finding it necessary so to decide) that the provisions of cl 5 of the mortgage, equating the liability of the sureties to that of principal debtor, are effective to obviate the necessity for a demand merely on this ground. [58] Walton J. went on to distinguish cases where the debt is payable “on demand” from the case before him where the debt was payable by installments. He stated: … the demand in the present case is a demand which of its own intrinsic nature changes the nature of the liability; it turns a liability to pay by instalments into a liability to pay the whole at once. Under these circumstances, in my judgment, even as against a principal debtor, a demand antecedent to the issue of proceedings is a necessary prerequisite of the whole of the cause of action. I would put it this way: that where the pre-existing obligation is to pay the debt by instalments, the demand that it be paid in one lump sum is an act which radically changes the nature of the debtor’s obligation, and so is an essential ingredient of any cause of action to recover the lump sum … [59] TWN’s obligation in this case was to repay the debt by installments. If it defaulted BDC would then, and only then, be able to demand payment of the full amount of the debt pursuant to clause 14 of the Standard Credit Terms in the first letter of offer and clause 15 in the Standard Credit Terms in the second letter of offer. TWN, the principal debtor, was therefore entitled to notice by way of demand. While Iacobucci J., in Conlin, states that “[t]he principal debtor clause converts the guarantor into a full-fledged principal”, this is of no assistance to Noble where the principal debtor (TWN) is itself entitled to notice by way of demand. [60] In M.S. Fashions Ltd., the English Court of Appeal similarly had to consider whether the liability of a guarantor was contingent upon a demand Page: 17 being made. There, however, the liabilities owing by the debtors involved were at all times presently enforceable by the creditor “on demand”. The Court there held that a principal debtor clause was, in such a case, sufficient to obviate the need for the creditor to demand payment from the surety, despite a requirement in the guarantee stipulating that a demand was necessary. That case is distinguishable because of the nature of the underlying debt. The actual debtors in that case were not entitled to a demand prior to the creditor bringing an action. The sureties, put in the place of the principal debtor, were therefore not entitled to a demand. (c) Summary [61] None of the authorities cited by the appellant supports the contention that a demand was not a necessary prerequisite to the bringing of an action in this case. Following a “hard look” at the facts alleged by Noble, it is clear that this defence cannot succeed. [62] As noted above, the demand in this case was made on November 24, 2010. This is the date upon which the limitation period began to run. The statement of claim was filed on December 30, 2010, well within the six-year limitation period which the parties agreed was applicable pursuant to section 6 of the Limitations Act. Thus, even if the Court accepts that the facts alleged by Noble in his affidavit are correct, the defence cannot be made out. [63] Having found that the guarantee in this case was not actionable prior to a demand being made and that the limitation period defence must therefore fail, I do not need to address the issue of when TWN defaulted on the loan. The Other Defences [64] Noble included as a ground of appeal the fact that the applications judge did not deal with the other defences he had raised in his affidavit. Looking at the transcript of the oral decision, it is clear that the applications judge did in fact fail to do so. While the applications judge must have implicitly rejected these defences, he did not advert to them, or consider them in any way. The reasons are silent on this point. BDC acknowledged on this appeal that there is nothing in the judgment dealing with the defences. The question arising from these facts is whether this Court can intervene where an applications judge’s reasons fail to deal with one of the issues squarely raised on the application. Page: 18 [65] Appellate intervention may be appropriate in cases where the reasons for decision are insufficient or inadequate in that they do not perform the functions that reasons serve. The rationale for giving reasons is: “(1) [t]o justify and explain the result; (2) [t]o tell the losing party why he or she lost; (3) [t]o provide for informed consideration of the grounds of appeal; and (4) [t]o satisfy the public that justice has been done” (F.(H.) v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 at para. 98, per Rothstein J.). [66] In R. v. R.E.M., 2008 SCC 51, [2008] 3 S.C.R. 3, Chief Justice McLachlin emphasized that appellate courts should take a functional approach to determining the sufficiency of reasons, stating: [25] The functional approach advocated in Sheppard suggests that what is required are reasons sufficient to perform the functions reasons serve — to inform the parties of the basis of the verdict, to provide public accountability and to permit meaningful appeal. The functional approach does not require more than will accomplish these objectives. Rather, reasons will be inadequate only where their objectives are not attained; otherwise, an appeal does not lie on the ground of insufficiency of reasons. This principle from Sheppard was reiterated thus in R. v. Braich, [2002] 1 S.C.R. 903, 2002 SCC 27, at para. 31: The general principle affirmed in Sheppard is that “the effort to establish the absence or inadequacy of reasons as a freestanding ground of appeal should be rejected. A more contextual approach is required. The appellant must show not only that there is a deficiency in the reasons, but that this deficiency has occasioned prejudice to the exercise of his or her legal right to an appeal in a criminal case” (para. 33). The test, in other words, is whether the reasons adequately perform the function for which they are required, namely to allow the appeal court to review the correctness of the trial decision. [Emphasis in original.] [67] The Chief Justice then went on to state that appellate courts should consider the context of the whole proceedings in assessing the adequacy of reasons, stating: [29] In Hill v. Hamilton-Wentworth (Regional Municipality) Police Services Board, [2007] 3 S.C.R. 129, 2007 SCC 41, the appellant contended that the trial judge's reasons were insufficient. This ground of the appeal was rejected. McLachlin C.J., writing for the majority, I held at para. 101: In determining the adequacy of reasons, the reasons should be considered in the context of the record before the court. Where the record discloses all that is required to be known to permit appellate review, less detailed reasons may be acceptable. This means that less detailed reasons may be Page: 19 required in cases with an extensive evidentiary record, such as the current appeal. On the other hand, reasons are particularly important when “a trial judge is called upon to address troublesome principles of unsettled law, or to resolve confused and contradictory evidence on a key issue”, as was the case in the decision below: Sheppard, at para. 55. In assessing the adequacy of reasons, it must be remembered that “[t]he appellate court is not given the power to intervene simply because it thinks the trial court did a poor job of expressing itself”: Sheppard, at para. 26. [68] In this case the reasons for judgment do not satisfy the functions that reasons serve, even when considered in the context of the record before the court. Indeed, this Court is left in doubt as to whether the applications judge turned his mind to the defences at all. Thus it is not only that this Court cannot discern how the applications judge decided this issue, but whether he did in fact decide it. [69] While this Court has the jurisdiction to decide an issue properly put before the court below (see rule 57.23(1)(b) which allows the Court of Appeal to make “any order which might have been made by the court appealed from”), this Court should not decide such issues where they were not properly engaged by the applications judge. The only fair remedy available is to set aside the summary judgment order without prejudice to BDC to bring its application before a different judge. Reconsideration Decision [70] In light of the decision on the summary judgment appeal, this Court need not consider whether the applications judge erred in failing to reconsider his decision. COSTS [71] As Noble was successful in setting aside the summary judgment order on this appeal, he is entitled to costs. His request for solicitor-and-client costs is unsupportable on any principled basis. I would, however, award him party-and-party costs on the appeal as assessed under column 4. [72] The issue of costs on the summary judgment application itself is, however, more complicated. It is clear that the solicitor-and-client costs awards made in favor of BDC by the applications judge on the summary judgment application and the reconsideration application must be set aside. But what order should issue in its stead? While the successful party is normally granted costs, in this case, there was no successful party as far as Page: 20 the summary judgment application was concerned. It is unclear who would have prevailed had the applications judge considered all of the defences advanced by Noble. In such cases, it seems to me appropriate that costs of the first summary judgment application be in the cause. I would so order. _________________________ C. W. White J.A. I Concur: _________________________ J. D. Green C.J.N.L. I Concur: _________________________ M. H. Rowe J.A.