



COURT OF APPEAL FOR ONTARIO

CITATION: Cash Store
    Financial Services Inc. (Re) 2014 ONCA 834

DATE: 20141125

DOCKET: C59377 & C59379

Hoy A.C.J.O., Cronk and Blair JJ.A.

In the Matter
    of the
Companies Creditors Arrangement Act
,

R.S.C.
    1985, c. C-36, as amended

And in
    the Matter of a Plan of Compromise or Arrangement of The

Cash
    Store Financial Services Inc., The Cash Store Inc., TCS Cash Store

Inc.,
    Instaloans Inc., 7252331 Canada Inc., 5515433 Manitoba Inc., 1693926 Alberta
    Ltd. doing business as The Title Store

Robert W. Staley, Jonathan Bell and Ilan Ishai, for 0678786
    B.C. Ltd.

Brett Harrison, for Trimor Annuity Focus LP No.5

Andrew Hatnay and Adrian Scotchmer, for Timothy Yeoman

Alan Merskey and Andrew McCoomb, for DIP Lenders and
Ad
    Hoc
Committee of Noteholders

Alan Mark and Brendan O'Neill, for DIP lenders and
Ad
    Hoc
Committee of Noteholders

Jeremy Dacks, for the Chief Restructuring Officer

Heather Meredith, for FTI Consulting Canada Inc., in its
    capacity as Monitor

Heard: November 18, 2014

On appeal from the order of Justice Geoffrey B. Morawetz
    of the Superior Court of Justice, dated August 5, 2014.

ENDORSEMENT


[1]

The appellants, 0678786 B.C. Ltd. and Trimor Annuity Focus Limited
    Partnership #5, advanced funds to Cash Store Inc. and 1693926 Alberta Ltd.
    (collectively Cash Store)  a payday lending company now operating under the
    protection of the
Companies Creditors Arrangement Act
, R.S.C. 1985, c.
    C-36 (CCAA).

[2]

The appellants brought motions before the Commercial List motion judge
    seeking a determination that they were the sole legal and beneficial owners of
    both the proceeds on hand from loan payments made by, and  accounts receivable
    from, Cash Stores customers at the time that Cash Store sought protection
    under the CCAA. Loan payments by Cash Stores customers were commingled with
    Cash Stores funds and it was not possible to identify the source of the funds
    on hand at the time of the initial order under the CCAA.  Relying principally
    on the framework of agreements entitled Broker Agreements that they had
    entered into with Cash Store, the appellants argued that they had loaned funds
    to Cash Stores customers, and Cash Store merely operated as a broker to
    facilitate placement and collection.

[3]

The motion judge disagreed. He found that the relationship between the
    appellants and Cash Store was a debtor-creditor relationship. Effectively, the
    appellants had loaned money to Cash Store, which in turn made its own loans to
    its customers. Accordingly, the appellants were required to stand in line with
    Cash Stores other creditors. By orders dated August 5, 2014, the motion judge
    dismissed the appellants motions.

[4]

On this appeal, the appellants argue that the motion judge improperly varied
    the terms of the Broker Agreements. They cite
Technicore Underground Inc.
    v. Toronto (City)
, 2012 ONCA 597, 354 D.L.R. (4th) 516 for the proposition
    that before a court can vary a contract based on conduct, there must be a pattern
    of conduct by the parties to the contract demonstrating that they did not
    intend to be bound by its terms. The appellants argue that the motion judge
    erred in law because he did not apply this test or that, if he did, he made
    palpable and overriding factual errors in doing so. The appellants say the test
    could not be met in the face of what they characterize as evidence from themselves
    and a former officer of Cash Store that the parties intended to be bound by the
    terms of the Broker Agreements, as well as the description of the parties
    relationship in various public disclosures made by Cash Store.

[5]

We are not persuaded that there is any basis for this court to intervene
    with the motion judges order dismissing the appellants motions.

[6]

Technicore
 a case where one party to the contract unsuccessfully
    argued that the other party varied the notice provisions in the contract by its
    conduct and therefore could not rely on its provisions  was not argued before
    the motion judge.

[7]

We agree with the respondents, the DIP Lenders and the
Ad Hoc
Committee of Noteholders, that, fundamentally, the appellants seek to have this
    court re-visit the factual determinations of the motion judge.

[8]

The task undertaken by the motion judge was to determine  in the context
    of an insolvency, where third party creditors asserted that the accounts
    receivable were the property of Cash Store  the true legal characterization of
    the relationship between the appellants and Cash Store. As the appellant Trimor
    Annuity Focus Limited Partnership #5 noted in its reply and responding factum
    before the motion judge:

In determining the issue of ownership, it is important to
    carefully consider the facts. [Para. 5]

The DIP Lenders correctly note that the Cash Stores legal
    relationship with the [appellants] is not exhaustively defined by the Broker
    Agreements. The conduct of the parties is also relevant. [Para. 15]

[9]

In our view, there was no error in the approach of the motion judge. He
    considered the terms of the Broker Agreements and the manner in which the
    parties actually operated. At para. 37 of his reasons, he concluded that the
    Broker Agreements did not accord with reality. The actual practices followed
    by the parties were not consistent with the Broker Agreements. In reality, the
    appellants and Cash Store were in a debtor-creditor relationship, and not the principal-broker
    relationship contemplated by the Broker Agreements. There were several bases
    for his conclusion: the ongoing payments at the rate of 17.5% of the
    outstanding funding that Cash Store made to the appellants reflected a payment
    of interest, and the payment of interest was inconsistent with the broker
    position argued by the appellants; loan repayments were co-mingled with Cash
    Store funds in its operating account; and Cash Store provided capital
    protection to the  appellants, insulating them from any credit risk as a
    result of loan defaults by Cash Stores customers. The motion judges
    conclusion is amply supported by the record and is entitled to deference.

[10]

This
    appeal is accordingly dismissed. There shall be no order as to costs.

Alexandra Hoy A.C.J.O.

E.A. Cronk J.A.

R.A. Blair J.A.


