



CITATION: Royal Bank of
          Canada v. Rastogi, 2011 ONCA 47



DATE:  20110120



DOCKET: C52474



COURT OF APPEAL FOR ONTARIO



Doherty, Watt and Epstein JJ.A.



BETWEEN



Royal Bank of Canada



Plaintiff (Appellant)



and



Ankur Rastogi
and Toronto Dominion Bank



Defendants (Respondent)



AND BETWEEN



Ankur Rastogi



Plaintiff by
          Counterclaim (Respondent)



and



Royal Bank of Canada, RBC Direct Investing Inc.
,
          and RBC Dominion

Securities
          Inc.



Defendants by
          Counterclaim (Appellants)



Martin Greenglass, for the appellants



Christopher J. Cosgriffe, for the respondent



Heard: November 19, 2010



On appeal from the order of Justice
          Edward P. Belobaba of the Superior Court of Justice dated July 16, 2010, with
          reasons reported at (2010), 83 C.C.E.L. (3d) 98.



Doherty J.A.:



I

[1]

The appellant, the Royal Bank of Canada (RBC), claims that it is
    entitled to unilaterally and without court sanction effectively freeze accounts
    belonging to the respondent, Ankur Rastogi (Rastogi), pending the results of
    its action against Rastogi.  Three of those accounts are RBC accounts, two are
    accounts with the other appellant, RBC Direct Investing Inc. (RBC Direct), an
    affiliate of RBC, and one account, an account that Rastogi holds jointly with
    his wife, is with the Toronto Dominion Bank (TD).  Belobaba J. (the motion
    judge) agreed that RBC was entitled to freeze its own accounts but ordered that
    the accounts at RBC Direct and TD should be released immediately to Rastogi. 
    RBC and RBC Direct appeal from that order.  Rastogi has not appealed from the
    order made with respect to the RBC accounts and the status of these accounts is
    not in issue on this appeal.

[2]

Counsel for the appellants submits that although Rastogi purported to
    bring the motion under Rule 44, the motion was in reality a motion for summary
    judgment.  Counsel argues that the motion judge effectively gave judgment on
    some of the claims advanced by RBC and by Rastogi in his counterclaim and that
    he erred in doing so in the face of several triable issues.

[3]

I agree with counsel for RBC that Rule 44 had no application.  This was
    in reality a motion for summary judgment on Rastogis entitlement to the funds
    in his accounts.  However, I agree with the motion judge that RBC had no basis
    in law to prevent Rastogi from accessing his funds in RBC Direct and TD.  This was
    an appropriate case for summary judgment in the terms of the order made by the
    motion judge.  I would vary the parts of the order referable to the accounts at
    RBC Direct and TD to a judgment in the same terms, and would otherwise dismiss
    the appeal.

II

[4]

In its claim, RBC alleges that between December
    2007 and September 2008 Rastogi misused his position as an employee of RBC to
    establish an arbitrage scheme trading Canadian and US dollars in his RBC
    accounts.  RBC alleges that as a result of this illicit scheme, Rastogi made
    about $700,000 in net profit and RBC suffered the equivalent loss.

[5]

According to RBCs allegations, Rastogi took
    advantage of a loophole in the RBC online banking system and his access to an
    employee preferred exchange rate to complete hundreds of currency exchange
    transactions on his own behalf at the opening of the market each day.  He was
    able to make the trades at prices that ensured him a profit and an equivalent
    loss to RBC.  RBC alleges that in operating the scheme to his personal
    advantage and the detriment of RBC, Rastogi breached the terms of his contract
    of employment with RBC and his duty of loyalty to RBC.

[6]

Rastogis trading was funded with borrowing on
    his RBC line of credit.  The proceeds from the scheme were paid into his RBC
    accounts.  Some of the proceeds were transferred from those accounts to Rastogis
    accounts at RBC Direct.  Some of the proceeds were also transferred to Rastogis
    joint account at the TD.

[7]

In its lawsuit commenced in the fall of 2008,
    RBC seeks:


·

Damages for unjust enrichment and breach of
      Rastogis employment contract in the amount of $700,000;

·

An order tracing the proceeds of the arbitrage
      scheme including an order tracing those proceeds into the hands of third
      parties;

·

A declaration that the proceeds are held in
      trust for RBC;

·

An interim and permanent injunction restraining
      Rastogi from dissipating the proceeds of the scheme.


[8]

RBC took no steps to obtain any interim relief. 
    Instead, it froze Rastogis three accounts with RBC.  It also, presumably by
    virtue of its relationship with RBC Direct, froze both of Rastogis accounts with
    RBC Direct.  RBC then commenced this action and, by naming the TD as a
    defendant, effectively froze Rastogis account at TD.  Pursuant to s. 437(2) of
    the
Bank Act
, S.C. 1991, c. 46, TD declined to pay the funds in the
    account to Rastogi, pending either a court order or RBCs consent.
[1]
TD is holding the
    funds pending court order.  It takes no position in respect of the competing
    claims of RBC and Rastogi.

[9]

In his defence, Rastogi claims that he never
    worked for RBC although he acknowledges being employed by its affiliate RBC
    Dominion Securities Inc. (RBC Dominion).  Rastogi admits that he engaged in currency
    trading on his own behalf.  He alleges, however, that he used publicly
    available information and traded at the rates set by RBC.  Rastogi maintains
    that his trading was well known to the RBC representatives at the branch where
    he kept his accounts.  He contends that he did nothing that breached his
    contract of employment or made improper use of information available to him as
    an employee.  Rastogi goes on to assert that RBC did not suffer any loss as a
    result of his currency trading.

[10]

Rastogi also counterclaims against RBC, RBC
    Direct and RBC Dominion.  He seeks the return of all funds in his accounts at
    those institutions, damages for improperly freezing those accounts and damages
    for wrongful dismissal.  Rastogi asserts that the funds in the accounts at RBC
    Direct and TD do not come exclusively from the profits earned in his currency
    exchange trading and that, by freezing those accounts without any authority to
    do so, RBC has made it impossible for him to pay his outstanding debts, such as
    his mortgage and his daily living expenses.

[11]

Rastogi also cross-claims against TD.  He seeks
    an order requiring TD to release the funds in the account jointly held by him
    and his wife.  As indicated above, TD takes no position on this claim.

III

The Motion Judges Ruling

[12]

RBC claimed that Rastogi owed it some $700,000.  There was about
    $100,000 in Rastogis three RBC bank accounts.  The credit in those accounts
    represented a debt owed by RBC to Rastogi.  The motion judge held, at paras.
    8-12, that RBC could claim a set off of the credits in Rastogis account
    against any debt owed by Rastogi to RBC.  The set off claim justified RBCs
    refusal to release the funds in Rastogis RBC accounts unless ordered to do so
    following a trial of the merits of the respective claims.

[13]

The motion judge determined that RBC Direct had no claim against Rastogi
    and therefore no debt that it could purport to set off against the credit in
    Rastogis accounts at RBC Direct.  The motion judge also rejected the argument
    that because of the corporate affiliation between RBC and RBC Direct, RBC was
    entitled to treat Rastogis accounts in RBC Direct as if they were accounts in
    RBC.  The motion judge said at para. 13:

More importantly, Direct Investing (DI) makes no
    claim against Rastogi.  It has no legal basis, in set off or otherwise, for
    freezing his accounts and holding on to his funds, absent a court-granted
    injunction, which in all likelihood would not be granted on these facts.  In
    any event, no such injunction has been sought by DI.

[14]

The motion judge found no basis to withhold Rastogis funds held by TD
    (paras. 16-21).  He held that RBCs mere assertion that it was entitled to a
    tracing order could not provide the basis for withholding Rastogis funds.  The
    motion judge also rejected RBCs contention that s. 437(2) of the
Bank Act
gave RBC a right to freeze Rastogis accounts at TD.  The motion judge interpreted
    s. 437(2) as merely giving TD the option of interpleading the funds into court
    or holding the funds pending court order once TD was sued.  TD had chosen the
    latter course.  The motion judge concluded at para. 21:

RBCs claim for a tracing order is not enough,
    absent an injunction or some other court order or at least some proof of legal
    entitlement, to justify any further retention by the TD Bank of depositor Rastogis
    funds.  In my view, these funds should be released immediately.

IV

The Nature of the Motion

[15]

Rastogis motion was brought under Rule 44. 
    That rule applies to a motion for an interim order made under s. 104(1) of
    the
Courts of Justice Act
, R.S.O. 1990, c. C.43.  That section provides:

In an action in which the
recovery
    of possession of personal property is claimed
and it is alleged that the
    property,

(a)       was unlawfully taken from the possession of the plaintiff;
    or

(b)       is unlawfully
    detained by the defendant,

the court, on motion, may make
    an interim order for recovery of possession of the property
. [Emphasis added.]

[16]

Section 104 and Rule 44 speak of recovery of
    possession of personal property.  That phrase is not defined in the Act or in
    Rule 44.

[17]

A credit in a customers bank account is treated
    as a debt owed by the banker to the account holder.  The relationship between
    the bank and the account holder is one of debtor and creditor:
BMP Global
    Distributions Inc. v. Bank of Nova Scotia
, [2009] 1 S.C.R. 504, at para.
    63.  Although RBC Direct is not a bank, I see no reason to treat credits in the
    RBC Direct accounts any differently.  Those credits represented a debt owed by
    RBC Direct to Rastogi.

[18]

The language of s. 104 of the
Courts of
    Justice Act
and, even more so, the language of Rule 44, suggest that personal
    property means property that is tangible and capable of physical description. 
    The security requirements addressed in rule 44.03 suggest the same interpretation.
[2]
On this interpretation
    a debt would not constitute personal property for the purpose of Rule 44.

[19]

It is unnecessary for me to come to any firm
    conclusion as to whether a debt is included within the phrase personal
    property in s. 104 and Rule 44.  Even if the section and the rule could have
    application to a debt, Rastogi was not seeking an interim order for possession
    of property, and was not offering to post any security.  Rastogi wanted the release
    of his funds plain and simple.  The order made by the motion judge reflects the
    nature of the relief sought.  There is nothing interim about the relief ordered
    by the motion judge.
[3]
The relief granted was not available under Rule 44.

V

Should the Motion be Treated as a Motion for Summary Judgment
    Under Rule 20?

[20]

Rule 37.13(2)(a) states:

A judge who hears a motion may,

(a)
in a proper case, order that the motion be converted into a
    motion for judgment;

[21]

The motion judge was not asked to, and did not
    exercise the power under rule 37.13(2)(a).  This court can, however, make the
    same order: s. 134(1)(a) of the
Courts of Justice Act
.

[22]

An order in the terms contemplated by rule
    37.13(2)(a) is discretionary and is clearly not one that will be easily or routinely
    granted.  In
CMLQ Investors Company v. CIBC Trust Corporation
(1996), 3
    C.P.C. (4th) 62 (Ont. C.A.), this court affirmed a motion judges exercise of
    the rule 37.13(2)(a) discretion to grant judgment on a motion for a trial of an
    issue.  The motion judge granted a declaratory judgment and directed a trial on
    the question of damages.  In upholding that decision, this court said at para.
    8:

[W]here all of the necessary
    evidence is before the judge on the motion, and where the parties have had full
    opportunity of arguing their positions, as was the case here, there is nothing
    to be gained by either party by adding further proceedings to those already
    taken.

[23]

Counsel for the appellants does not suggest that
    the record before the motion judge did not contain all of the evidence
    necessary to determine whether Rastogi was entitled to summary judgment on the
    issue of his entitlement to the release of the funds held by RBC Direct and TD. 
    The record was extensive.  Detailed facta were also filed.

[4]


[24]

Counsel for the appellants also does not suggest
    that RBC did not have a full opportunity to put forward its case on the issue
    of Rastogis entitlement to the funds in the accounts.  As I read counsels
    factum, he invites the court to treat this as if it were a motion for summary
    judgment.  Counsel forcefully argues that on the motion record, Rastogi failed
    to establish that there were no genuine issues requiring a trial in respect of
    his entitlement to those funds.  While counsel for RBC has no difficulty
    treating this as a motion for summary judgment, counsel for Rastogi contends
    that it would be unfair to do so as that would put the onus on Rastogi to show
    that there is no triable issue with respect to his entitlement to the funds.

[25]

I agree with counsel for the appellants that
    Rastogis claim to an entitlement to the funds in his RBC Direct and TD accounts
    can be properly and fairly resolved on this motion.  There is no need for further
    proceedings to make a proper determination on that issue.  Nor, given my
    assessment of the merits, is there any prejudice to Rastogi.

VI

Should Summary Judgment be
    Granted on Rastogis Claim to the Funds held by RBC Direct and TD?

[26]

Rastogis claim to the funds in RBC Direct and TD is straightforward. 
    The credit in those accounts represents debts owed to him by RBC Direct and
    TD.  He has demanded payment.  Neither RBC Direct nor TD advanced any claim
    against Rastogi, much less a claim that would give rise to any right of set
    off.  Counsel for Rastogi submits that RBC does not, merely by commencing a
    lawsuit in which it claims a right to the funds, acquire any right to
    unilaterally prevent Rastogi from obtaining those funds.  Counsel contends that,
    absent a court order, RBC was not entitled to preemptively interfere with
    Rastogis rights in respect of his accounts at RBC Direct and TD.

[27]

RBCs claim that the funds should not be released to Rastogi rests on
    the assertion that the material filed on the motion demonstrates that RBC has
    an arguable claim to a restitution order with respect to the funds.  RBC
    asserts that its remedy goes beyond damages and that the funds in those
    accounts in fact belong to RBC.  The restitutionary claim is based on either a
    constructive trust flowing from Rastogis breach of his duties to RBC, or on
    RBCs mistaken payment of the funds into Rastogis accounts at RBC.  RBC
    maintains that its arguable restitutionary claim, combined with the
    uncontroverted evidence that some of the proceeds of the currency trading are
    in the accounts in issue, is enough to give RBC a valid interest in those funds
    and create what counsel called a interpleader situation as between RBC and
    Rastogi.

[28]

RBCs position confuses its undenied right to pursue its restitutionary
    claims and any right it has to unilaterally deprive Rastogi of his property
    while RBC pursues its restitutionary claim.  The fact that RBC has an arguable
    case would certainly preclude Rastogi from obtaining summary judgment on RBCs
    restitutionary claim.  The mere fact that RBC has an arguable restitutionary
    claim, however, does not give it any right to interfere with Rastogis property
    pending a determination of the merits of that claim.

[29]

RBCs restitutionary claim comes down to the assertion that the funds in
    Rastogis accounts at RBC Direct and TD belong to RBC and not to Rastogi.  If
    RBC had concerns about the disputed property disappearing before trial, it
    could have sought an interlocutory injunction.  Had RBC chosen to do so,
    however, it would have been required to show more than an arguable case before
    it could obtain an order freezing those accounts.  Under the well-known
    tripartite test in
RJR MacDonald Inc. v. Canada (Attorney General)
,
    [1994] 1 S.C.R. 311, RBC would have been required to show:

·

An arguable case (serious issue to be tried);

·

Irreparable harm if injunctive relief was not granted;

·

The balance of convenience favoured injunctive relief.

[30]

RBC cannot escape the tripartite test for injunctive relief because the
    nature of the property in issue has permitted RBC to unilaterally achieve a
de
    facto
injunction without a court order.  Surely RBC would not argue that it
    was entitled to go into Rastogis garage and unilaterally seize his vehicles
    and hold them until trial if it had an arguable case that the vehicles were
    purchased with the proceeds of the currency trading.  I do not see how RBCs
    legal position is improved because the assets in issue are debts owed to
    Rastogi by another bank and an affiliate of RBC.

[31]

For whatever reason, RBC has not sought an interlocutory injunction in
    the two years since it started this action.  RBC is not entitled to what would
    effectively be an interlocutory injunction merely by showing that its
    allegations, including those related to his restitutionary claims raise
    arguable issues.  On the motion record, Rastogis entitlement to the funds
    vis-à-vis RBC Direct and TD is undeniable.  He is their creditor.  RBCs
    entitlement to the funds is contingent upon RBC establishing the merits of its
    claim.

[32]

Any entitlement RBC has to freeze Rastogis accounts pending trial is
    not improved merely because RBC Direct is a subsidiary of RBC.  RBC accepts
    that the credit in Rastogis RBC Direct accounts constituted a debt owed by RBC
    Direct.  While the relationship between RBC Direct and RBC permitted the latter
    to freeze Rastogis accounts by what counsel for RBC referred to as an
    internal demand, the subsidiary status does not make the debts of RBC Direct
    debts of RBC.  The two are separate corporate entities.  RBC cannot claim any
    right to set off of a debt owed by RBC Direct to Rastogi against a debt owed by
    Rastogi to RBC.

[33]

I also agree with the motion judges interpretation of s. 437(2) of the
Bank
    Act
.  That section gives TD the right to hold the funds in Rastogis
    account that it would otherwise be obligated to pay on demand to Rastogi.  That
    right is triggered by RBCs claim in which it names TD as a defendant.  Section
    437(2) does not give RBC any rights in respect of the funds in Rastogis TD
    account or inhibit the courts power to make orders directing payment of funds
    out of those accounts.

VII

Conclusion

[34]

For the reasons set out above, RBC has offered
    no legal basis upon which either RBC Direct or TD can withhold the funds held
    by them to the credit of Rastogi.  There are no issues requiring a trial in
    respect of Rastogis entitlement to those funds.  Rastogi is entitled to summary
    judgment on his counterclaim to the extent that the claim seeks judgment
    directing the return to him of all funds held in Rastogis accounts at RBC
    Direct.  He is similarly entitled to judgment on the crossclaim to the extent
    that he seeks judgment directing that TD release all funds in Rastogis joint
    account to him.

[35]

All other claims raised in RBCs statement of
    claim and Rastogis defence and counterclaim remain outstanding.  Specifically,
    and contrary to counsel for the appellants contention, this judgment does not
    decide RBCs restitutionary claims.  Those claims may proceed.  If they
    ultimately succeed, RBC may have practical difficulties obtaining an effective
    remedy in respect of the funds that are presently held in the RBC Direct and TD
    accounts.  Those difficulties are, however, no different that the difficulties
    faced by any plaintiff in RBCs position who advances a restitutionary claim
    and does not seek, or does not receive, the necessary interlocutory relief.

[36]

The order of the motion judge dated August 20,
    2010 should be varied to grant judgment in the terms of paragraphs 2 and 3 of
    that order.  The appeal is otherwise dismissed.  Rastogi should have his costs
    of the appeal in the amount of $9,700, inclusive of disbursements and
    applicable taxes.

RELEASED:  DD  JAN 20 2011

Doherty J.A.

I agree David Watt
    J.A.

I agree Gloria Epstein
    J.A.





[1]
There is an indication in the material that TD actually froze the account
    before notice of the action was given; however, after the notice of the claim
    was given, TD relied on s. 437(2).



[2]
Rule 43.01, the interpleader rule, which is often engaged in disputes over bank
    accounts, defines property as meaning personal property and includes a debt. 
    Arguably the phrase includes a debt would be unnecessary if a debt was
    otherwise regarded as personal property for the purpose of the rule.



[3]
My interpretation about the nature of the relief sought and the order granted
    on the motion also disposes of counsel for Rastogis argument that as Belobaba J.s
    order was interlocutory this court has no jurisdiction to hear the appeal.



[4]
The motion was commenced by Rastogi before RBC filed its defence to the
    counterclaim.  A summary judgment motion by the plaintiff cannot be served
    until after a defence is delivered: rule 20.01(1).  However, the defence was
    delivered well before the hearing of the motion and I do not understand RBC to
    claim that it is prejudiced by treating the motion as a summary judgment motion
    even though it was served with the motion before the defence to the
    counterclaim was delivered.

