Date: 20091103
Dockets: T‑1070‑08
T‑1071‑08
Citation: 2009 FC 1121
Ottawa, Ontario,
November 3, 2009
PRESENT:
The Honourable Mr. Justice Martineau
Docket: T‑1070‑08
BETWEEN:
CAISSE POPULAIRE DESJARDINS
DES CHUTES MONTMORENCY
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
Docket: T‑1071‑08
AND
BETWEEN:
CAISSE POPULAIRE DESJARDINS
DU BAS‑RICHELIEU
Applicant
and
ATTORNEY
GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT AND
JUDGMENT
[1]
The
applicants are disputing the legality of two decisions issued by the Canada
Small Business Financing Program Directorate (the Program Directorate) dated
June 17 and 22, 2008, respectively, confirming the decisions of
Program officers to refuse to make a payment to the applicants because their
claim was premature or ineligible under the Canada Small Business Financing
Act, S.C. 1998, c. 36 (the Act).
[2]
For
the following reasons, the applications for judicial review must fail.
[3]
The
Court must first identify the appropriate standard of review. The applicants
submit that the appropriate standard is correctness while the respondent argues
that it is the reasonableness standard that applies in this case.
[4]
This
case deals with the requirement imposed on the applicants by the Program Directorate
to realize on the blanket insurance policy that they hold with Desjardins
Assurances Générales (the insurer) under which they are beneficiaries.
[5]
The
Program Directorate is responsible for the administration of the Act and the
Regulations thereunder, the Canada Small Business Financing Regulations,
SOR/99‑141 (the Regulations).
[6]
The
applicants’ rights and obligations with regard to reimbursement by the Crown
for a loss sustained as a result of a registered loan under the Act are defined
by the Act itself, including the Regulations thereunder. Specifically, the
Minister may only pay a lender if the requirements of the Act and the
Regulations have been satisfied.
[7]
Subsections 5(1)
and 6(2) of the Act state:
|
5. (1) Subject to subsection
(2), the Minister is liable to pay a lender any eligible loss, calculated in
accordance with the regulations, sustained by it as a result of a loan in
respect of which the requirements set out in this Act and the regulations
have been satisfied.
6. . . .
(2)
The liability of the Minister to make any payment to a lender in respect of
losses sustained by it as a result of loans made by it and registered by the
Minister during each consecutive five‑year period, starting with the
period beginning on April 1, 1999, is limited to the total of
(a)
90%, or any prescribed lesser percentage, of that part of the aggregate
principal amount of the loans made by it during that period that does not
exceed $250,000,
(b)
50%, or any prescribed lesser percentage, of that part of the aggregate
principal amount of the loans made by it during that period that exceeds
$250,000 but does not exceed $500,000,
(c)
10%, or any prescribed lesser percentage, of that part of the aggregate
principal amount of the loans made by it before April 1, 2009 that
exceeds $500,000, and
(d)
12%, or any prescribed lesser percentage, of that part of the aggregate
principal amount of the loans made by it after March 31, 2009 that
exceeds $500,000.
|
5. (1) Sous réserve du
paragraphe (2), le ministre est tenu d’indemniser les prêteurs de toute
perte admissible — calculée conformément aux règlements — résultant d’un prêt
conforme aux règles énoncées à la présente loi et à ses règlements.
6. […]
(2)
Il n’est tenu d’indemniser le prêteur des pertes occasionnées à celui‑ci
par l’octroi de prêts enregistrés par le ministre, pour chacune des périodes
quinquennales consécutives, la première débutant le 1er avril 1999,
qu’à concurrence d’un montant qui n’excède pas le total de ce qui suit:
a) 90 % — ou tout pourcentage
réglementaire inférieur — de la tranche de principal allant jusqu’à
250 000 $;
b) 50 % — ou tout
pourcentage réglementaire inférieur — de la tranche de principal allant de
250 000 $ à 500 000 $;
c)10 % — ou tout
pourcentage réglementaire inférieur — de la tranche de principal des prêts
consentis avant le 1er avril 2009 qui excède 500 000 $;
d) 12 % — ou tout
pourcentage réglementaire inférieur — de la tranche de principal des prêts
consentis après le 31 mars 2009 qui excède 500 000 $.
|
[8]
That
being said, sections 37 and 38 of the Regulations provide for certain
terms and conditions that the lender must satisfy before submitting a claim to
the Minister:
|
38. (1) A lender must take all
of the measures described in subsection 37(3) that are applicable before
submitting a claim to the Minister for loss sustained as a result of a
loan.
. . .
37. . . .
(3)
If the outstanding amount of the loan is not repaid within the period
specified, the lender must take any of the following measures that will
minimize the loss sustained by it in respect of the loan or that will
maximize the amount recovered:
. . .
(c)
realize on any insurance policy under which the lender is the
beneficiary;
. . .
(my
emphasis)
|
38. (1) Le prêteur doit prendre
les mesures applicables prévues au paragraphe 37(3) avant de
présenter au ministre une réclamation pour la perte occasionnée par un
prêt.
[…]
37. […]
(3)
Si le solde impayé du prêt n’est pas remboursé dans le délai précisé, le
prêteur doit prendre celles des mesures suivantes qui réduiront au
minimum la perte résultant du prêt ou permettront de recouvrer le montant
maximal:
[…]
c) la réalisation des
polices d’assurance dont le prêteur est le bénéficiaire;
[…]
(non
souligné dans l’original)
|
[9]
It
is within this particular legislative and regulatory framework that the
applicants had the onus of justifying their claims, which they were unable to
do. Essentially, the officers, then the Program Directorate, based their
refusal to allow the applicants’ claims for payment on subsection 38(1)
and paragraph 37(3)(c) of the Regulations. The Program
Directorate’s refusal to pay the applicants raises a question of mixed fact and
law.
[10]
In
this case, neither the Act nor the Regulations contain a privative clause,
which favours less deference. With respect to the administrative scheme and the
expertise of the decision makers, the goal of the Program is to improve access
to loans for small businesses by reducing the potential financial risk for
participating lenders.
[11]
That
said, the Guidelines for the Program establish an appeal process to the Program
Directorate (a process that the applicants availed themselves of), which
reflects the considerable flexibility of the Program.
[12]
In
my view, the reasonableness standard of review applies. Given that the Court is
in as good a position as the Program officers or Directorate to interpret the
Act and the Regulations, at this level, there is no deference owed to the
administrative decision maker.
[13]
In
this case, was it reasonable to find that the applicants did not take all the
steps required under the Regulations before submitting their claim for payment?
[14]
In
docket T‑1070‑08, the lender claimed a loss of $254,748.07
from the Program as a result of lending $250,000 to the borrower, while in
docket T‑1071‑08, the lender claimed a loss of $48,459.55 as a
result of loaning $83,700 to the borrower. In both cases, the loans were
registered in accordance with the Act and the Regulations.
[15]
In
this case, it is common ground that in docket T‑1070‑08, the
borrower and its representative were engaged in cheque kiting and that in
docket T‑1071‑08, the trailer given as security to the lender
was no longer in the borrower’s possession as the result of a theft and that
the borrower never transferred the registration of the trailer.
[16]
The
applicants admit that this type of risk is normally covered by the blanket
insurance policy (chapter D – Falsification – Contrefaçon) under which
they are the beneficiaries but submit, first, that paragraph 37(3)(c)
of the Regulations is not directed to this type of insurance. Moreover, again
the insured must, inter alia, prove to the satisfaction of their
insurer that “all available remedies of any kind have been exhausted and
any amounts recovered have been deducted from the amount”, which is not the
case here, according to the applicants.
[17]
It
appears to me that these grounds are without merit for the following reasons.
[18]
First,
the applicants concede that paragraph 37(3)(c) of the Regulations
includes any policy taken out by the borrower covering the property that the
lender has taken as security: in the event that an insurable loss occurs before
a claim for payment is submitted and compensation would be payable, the lender
must realize on the policy before applying to the Program. This is also the
case where the lender is a beneficiary under a life or disability insurance
policy.
[19]
The
applicants contend, however, that the blanket insurance is what is known in the
banking world as a “banker’s blanket”. The purpose of this type of insurance is
not to pay lenders in cases of registration with the Program. Otherwise, why
pay premiums of $5,000 (docket T‑1070‑08) and $1,674
(docket T‑1071‑08) to the Government if it can exculpate
itself after the fact by relying on this type of insurance?
[20]
In
my view, the applicants’ position is unreasonable and, moreover, is untenable
in law.
[21]
Under
the Act, the Minister is liable to pay a lender any eligible loss sustained by
it as a result of a loan in respect of which the requirements set out in the
Act and the Regulations have been satisfied (subsection 5(1)). Ultimately,
it is therefore the Canadian taxpayer who pays the bill. Sections 37 and
38 of the Regulations set out certain terms and conditions that must be complied
with before an application for a claim is submitted. This stems primarily from
Parliament’s concern to ensure recovery of the costs associated with the
Program while attaining its objective of supporting small businesses.
[22]
The
goal of the requirements under sections 37 and 38 of the Regulations is,
in fact, to force the lender to minimize the loss sustained by it and to
maximize the amount recovered before looking to the Program for payment.
[23]
It
is true that neither the Act nor the Regulations require that the lender have
insurance. On the other hand, under paragraph 37(3)(c) of the
Regulations, the lender clearly must realize on any insurance policy under
which it is the beneficiary. This provision is worded very generally and does
not contain any exceptions. It is not specified that the insurance in question
must be insurance on the property covered by the loan or on the borrower’s
life. The wording of the Regulations is clear. It states “realize on any
insurance policy under which the lender is the beneficiary” and “la réalisation
des polices d’assurance dont le prêteur est le bénéficiaire” (emphasis
added) (paragraph 37(3)(c) of the Regulations).
[24]
The
blanket insurance that the applicants took out with Desjardins Assurances
Générales clearly falls within the ambit of the Regulations.
[25]
Second,
the applicants argue that they have no obligation to realize on their guarantee
under the blanket insurance policy since it quite simply does not apply because
of the insurer’s limited warranty.
[26]
In
this case, the applicants assert that the blanket insurance policy requires the
insured to exhaust all “available remedies”. This requirement includes
“remedies against the debtor or the guarantors, the realization of collateral,
actions for damages against third parties liable in whole or in part for the
loss, including any professional who acted, for instance, under mandate from
the insured, and including, without restricting the generality of the
foregoing, lawyers, accountants and appraisers.”
[27]
The
applicants did attempt to make an argument to the Program Directorate about the
limited warranty clause. However, the Directorate decided that [translation] “. . . the insurance
policy is a private contract between the lender and the insurer and that the
Crown is therefore not a party to the insurance policy and that, consequently,
it is not bound by the conditions in the said policy”.
[28]
The
applicants are now criticizing the Program Directorate for not ruling on the
applicability of the limited warranty clause, other than to respond that the
Crown is not a party to the insurance contract and therefore is not bound by
the private insurance contract: [translation]
“If the lender and the insurer have a dispute about the correct interpretation
of the insurance contract, they must resolve the dispute between themselves”.
[29]
The
Directorate’s position does not appear unreasonable to me in the circumstances.
[30]
Based
on the evidence in the record, the applicants did notify their insurer that
there had been certain fraudulent practices. At the time that the impugned
decisions were issued, the insurer had not and, as of today’s date, still has
not, according to the evidence in the record, formally notified the applicants
of its refusal to pay them under the limited warranty clause in the blanket insurance
policy.
[31]
In
any event, the applicants argue that there is currently no dispute between the
lenders and their insurer. Jacques Pelletier, the insurer’s special
advisor, states in his affidavit, which is subsequent to the impugned
decisions, that the guarantee offered by the insurance policy only comes into
play when all available remedies against the “guarantors” have been exhausted,
which, according to his interpretation of the insurance contract, includes
remedies against the Minister. He likens the Program to a “guaranty” offered by
the federal government to protect financial institutions who lend to small
businesses in accordance with the terms and conditions of the Act and the
Regulations.
[32]
I
am far from persuaded that the interpretation proposed by the applicants and
the insurer’s special advisor is accurate and reasonable.
[33]
Even
if it is true that the Minister is liable to pay the lender if the conditions
in the Act and the Regulations have been met, he is not indebted to the
borrower. The Government of Canada has only promised to pay the lender where
the lender’s debt is lost; this is a type of insurance protection for the
lending institution (Caisse populaire Desjardins de Saint‑Eustache/Deux‑Montagnes
v. 9030‑0120 Québec inc., [2002] J.Q. No. 219 (QL)). Accordingly, the
Minister cannot be equated here with a “guarantor” in the civil sense of the
term as the applicants and their own insurer would like to do under the blanket
insurance contract.
[34]
Ultimately,
if there is a conflict between the Regulations and the blanket insurance
contract, the regulatory requirements must take precedence over any
inconsistent provision in the private contract between the lender and the
insurer. As the respondent submits, under the interpretation proposed by the
applicants and their insurer, lenders who wish to claim the benefits of the
Program would be permitted to avoid their prior obligations under the Act and
the Regulations.
[35]
In
this case, there is a clear regulatory requirement to realize on any insurance policy
before submitting a claim to the Program. Thus, it is completely contrary to
the Act and its objectives to allow the applicants or their insurer to rely on
the interpretation of the blanket insurance contract to avoid this prior
obligation.
[36]
The
conclusion by the Program Directorate and their officers that the applicants
must realize on the insurance policy under which they are the beneficiaries
before submitting their claim for payment is reasonable. Their refusal to
accept the applicants’ claims on the ground that they are
premature appears to me to be reasonable in
all respects based on the law and the facts in the record.
[37]
This
application for judicial review must therefore be dismissed with costs.
JUDGMENT
THE COURT DECLARES, ORDERS AND ADJUDGES that the
applicants’ applications for judicial review in dockets T‑1070‑08
and T‑1071‑08 are dismissed with costs.
“Luc
Martineau”
Certified true translation
Mary Jo Egan, LLB
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