Zurich Indemnity Company of Canada v. Yorkminster Realty Ltd., et al.

Zurich Indemnity Company of Canada v. Yorkminster Realty Ltd., et al. Collection Decisions of the Court of Appeal Date 1999-11-05 Docket numbers C30115 Judges Carthy, James Joseph; Feldman, Kathryn N.; Sharpe, Robert J. Subject Civil Decision Content DATE:19991105 DOCKET:C30115 COURT OF APPEAL FOR ONTARIO RE: ZURICH INDEMNITY COMPANY OF CANADA (Appellant) and YORKMINSTER REALTY LTD., YORKMINSTER GROUP LTD. BERRIER HILL INVESTMENT LTD., AND JOHN ARMOUR (Respondent) BEFORE: CARTHY, FELDMAN AND SHARPE JJ.A. COUNSEL: Jeffrey A. L. Kriwez For the appellant Morris Cooper and Dawn Way For the respondent, John Armour HEARD: November 2, 1999 On appeal from the judgment of Maloney J. dated June 4, 1998. ENDORSEMENT [1] The respondent Armour personally guaranteed the liabilities of the Yorkminster Group of companies to the appellant Zurich Indemnity Company of Canada. In October 1991, when Yorkminster was in serious financial difficulty, Zurich infused a further $5 million capital through Knight Financial Group Limited, a distinct corporate entity charged with a task of attempting to salvage Yorkminster in a workout scheme. A loan agreement between Knight and Yorkminster was entered. It provided for the $5 million loan and for Knight’s complete control over the affairs of Yorkminster. In particular, paragraph 3.06 of the loan agreement gave Knight extensive rights, powers and authorities to be exercised with respect to the borrowers “and all entities which they or John M. Armour or Ken Good own or control, directly or indirectly.” [2] After discussion of the specific wording between Knight’s representative and Armour and his counsel, paragraph 3.07 was included in the Loan Agreement. It provided as follows: Notwithstanding the provisions of paragraph 3.06 above, it shall not be interpreted or applied so as to allow the Lender to attach the personal assets (in the conventional sense) of John M. Armour or Ken Good. For these purposes personal investments such as partnership units would be considered personal assets and assets relating to the ownership of members of the Yorkminster Group would not be personal assets. Should a dispute arise respecting the classification of a particular asset this dispute shall be settled by one person designated by the owner of the asset in question and one person designated by the Lender. If these two cannot agree they shall appoint a third person whose decision shall be binding. [3] In the months that followed, Armour worked with Knight in a joint effort to rescue Yorkminster. During this period neither Zurich nor Knight made any effort to enforce Zurich’s guarantee against Armour’s personal assets. [4] In August 1992 Zurich issued a statement of claim against some of the Yorkminster companies and Armour personally on his guarantee. About the same time, Knight also commenced an action under the Loan Agreement for the $5 million that had been advanced. While there was some discussion between the parties to the Zurich action about judgment being obtained on consent, in the end, Armour executed consents on behalf of the corporate defendants, but he did not do so on his own behalf and Zurich entered default judgment against him. [5] When Zurich took steps to enforce its default judgment by way of judgment debtor examination, Armour took the position that Zurich had surrendered its rights to execute against his personal assets by virtue of the agreement reflected by paragraph 3.07 of the 1991 Knight Loan Agreement. Borins J. directed a trial of an issue to determine whether there was any such limitation on Zurich’s rights and the trial proceeded before Maloney J. in June 1998. [6] Although the words of paragraph 3.07 relate specifically to the powers granted to Knight under paragraph 3.06, the trial judge found that paragraph 3.07 was the reflection of a broader understanding between the parties to the effect that Armour’s personal assets be immunized from execution by both Knight and Zurich. In our view, there was evidence before the trial judge capable of supporting this finding. Armour testified that he made available to Knight and to Zurich assets that would have been otherwise inaccessible in exchange for their commitment not to execute against his personal assets. His evidence was supported by that of Passi. While witnesses for Zurich strongly disputed these claims, the trial judge rejected their evidence and preferred that of Armour and Passi. In the circumstances, we cannot say there was any palpable or overriding error in the findings of the trial judge. [7] Nor do we consider that there is any merit to the argument that the trial judge improperly “pierced the corporate veil” of Knight. Doherty admitted that Knight was the agent of Zurich and it is clear from the evidence that Knight was acting throughout on Zurich’s behalf. In light of that evidence, it was open to the trial judge to conclude that the agreement of Knight bound Zurich. Moreover, the trial judge also had evidence of the discussions between Passi and Zurich’s counsel, Ingram, with respect to the broader understanding. [8] Finally, we reject the submission that this proceeding represents a collateral attack upon Zurich’s default judgment against Armour. That judgment stands and nothing in these proceedings calls it into question. It is open to a party to agree to surrender or forego rights otherwise secured by way of a judgment. The trial judge’s finding that there was such an agreement here does not impugn Zurich’s judgment. Nor is Zurich’s judgment against Armour rendered an empty shell. Armour admitted that certain of the Yorkminster assets remained held in his name personally and pursuant to the agreement with Knight, those assets remained available to Knight and to Zurich. [9] For these reasons we would dismiss the appeal with costs. “J.J. Carthy J.A.” “K. Feldman J.A.” “Robert J. Sharpe J.A.”