Bank Syndicate Defends Action

Morgan Bank of Canada, The Toronto-Dominion Bank, Deutshce Bank (Canada), Christiana Bank, Fuji Bank Canada and La Caisse Centrale Desjardins du Québec defended an action brought against them in the amount of $6,605,552 by The Gulf International Bank.

Leave to appeal to the Supreme Court was refused on October 24, 2002. The Court of Appeal was called: (1) to determine the appropriate criteria to be used in order to decide whether a bank is exercising effective control over the operations of its debtor such that it is liable to other creditors for losses suffered when financing is terminated and assets are liquidated; (2) to determine whether a bank has a duty to divulge to other creditors increased monitoring of the credit facilities and changes to them; and (3) to decide whether a bank, which decides to stop financing its debtor, has an obligation to do so in a manner that does not prejudice other creditors, given the general obligation to act in good faith.

The Court of Appeal held that the other creditors were sophisticated enough to do their own verification of the debtor’s credit worthiness and were not, therefore at an informational disadvantage within the meaning of Bank of Montreal v. Bail. The court also held that the appointment of PricewaterhouseCoopers to monitor the affairs of the debtor did not put the bank syndicate in control of the debtor’s affairs, nor did the fact that the credit facilities specified that the major shareholder, Lavalin, could not, without the permission of the bank syndicate, dismiss the officers of the debtor. Under the circumstances the bank syndicate owned no duty to the other creditors when exercising its right to withdraw financing.

Christine Carron and Marianne Ignacz of Ogilvy Renault acted for the bank syndicate. Michel Decary and Louise Touchette of Stikeman Elliott LLP acted for The Gulf International Bank.