Executive summary: Key legal and evidentiary issues

• RBC sued the Simmers for outstanding amounts on a $100,000 revolving credit line and a $10,000 visa credit card after demanding full payment in October 2020 due to multiple alleged defaults.

• Defendants claimed an oral agreement with their branch manager permitted "interest only" payments and later a complete payment moratorium as informal pandemic relief, but lacked any documentary evidence to support these assertions.

• The Simmers' counterclaim alleging RBC's prior misconduct in 2018 regarding a $370,000 business mortgage payout was struck as statute-barred under the two-year limitation period in the Alberta Limitations Act.

• Section 6(2) of the Limitations Act, which permits late-filed counterclaims related to the same transaction, did not assist the Simmers because the 2018 mortgage payout and the 2020 calling of the credit line were found to be separate transactional events.

• Account records demonstrated chronic overdraft and non-payment well before the COVID-19 pandemic, undermining the Simmers' defence even on their own version of the alleged arrangement.

• Costs were reduced from RBC's claimed $116,143 to $85,000 on proportionality grounds, while contractual interest of $64,432.79 accruing prior to judgment and $7,629.65 accruing post-judgment at prime plus 5% was awarded in full.

Background of the banking relationship and credit facilities

Todd Simmer, Rayanne Simmer, and their company Simmer Project Solutions Inc. were longtime customers of the Royal Bank of Canada, using its services for their business ventures which included landscaping and farming. Between 2012 and 2018, the parties entered into a number of loan agreements through which RBC provided Simmer Project Solutions with a $100,000 revolving credit line, in the form of a demand loan, and a $10,000 visa credit card. RBC held a general floating charge against the corporate defendants' assets, backed by personal guarantees from Mr. and Mrs. Simmer.

RBC's demand for repayment and the alleged defaults

On October 7, 2020, RBC demanded full payment of all outstanding indebtedness, asserting that Simmer Project Solutions was multiply in default of its obligations. The events of default alleged included a failure to abide by financial covenants, failure to pay outstanding amounts, and generally failing to pay the debts as they became due. RBC asserted that the Simmers owed $135,000 as of March 25, 2021, as well as further interest and costs in accordance with the loan agreements and guarantees.

The Simmers' defence and the oral agreement claims

The Simmers contested the action, asserting an oral agreement between themselves and their branch manager to pay "interest only" on the account, and subsequently no amounts at all as informal pandemic relief, also offered orally by the branch manager. They claimed they were willing and able to pay what they owed, though they did not appear to have made any payments for going on over five years. The branch manager categorically denied making any such offer of non-payment, deposing that this would run afoul of the policies of RBC and be invalid under the standard terms of its credit agreements. Notably, the loan agreements contained standard terms requiring any changes or alterations to obligations under them being recorded in writing.

The counterclaim and the 2018 mortgage payout dispute

The Simmers also defended the claim in part by counter suing, alleging that actions by their previous account manager, occurring in early 2018, in the form of improperly demanding repayment of their $370,000 business mortgage, precipitated unfair and wrongful financial hardship. RBC in turn moved to strike the counterclaim as limitations barred.

The Applications Judge's initial decision

The Applications Judge at first instance found that there was conflicting evidence as to whether there was an agreement to accept interest-only payments and whether there was an indulgence or waiver given in March 2020 in respect of payments. She found that she could not have sufficient confidence that there was no genuine issue for trial and dismissed RBC's summary judgment application. However, the counterclaim was struck under Rule 3.68(2) of the Alberta Rules of Court, as the claim had been brought plainly and obviously out of time. The Applications Judge concluded that in January 2018 or shortly thereafter when the loan was paid out, the defendants knew or, in the circumstances, ought to have known that RBC had engaged in what they say was wrongful conduct in breach of its duties and that they had suffered harm. The counterclaim, filed February 21, 2021, was found to be outside the two-year limitation period and therefore statute barred.

The appeal on limitations and discoverability

Both parties appealed. The Simmers repeated their discoverability argument and also submitted that section 6(2) of the Limitations Act, RSA 2000, c L-12, shields their claim from complaints of lateness, as its subject matter is intimately inter-related with the conduct described in RBC's originating claim. The review conducted by the Court under Rule 6.14 was de novo in nature, with the standard of review being correctness. Justice Devlin rejected the discoverability argument, holding that the concept of discoverability refers to knowledge that damage has been done, not knowledge that that damage will have secondary consequential impacts down the road. The Court further found that section 6(2) did not apply because there was no link between the 2018 mortgage payout and the 2020 calling of the line of credit. These were separate transactional events between corporate counterparties, and an entirely new set of documents, events, and even individuals would be required to litigate the counterclaim. Other than the identity of the parties, there would exist little or no commonality in evidence or issues.

Summary judgment on the debt claim

On RBC's appeal, Justice Devlin found that summary judgment was warranted. The account records showed that the Simmers' principal deposit account was in overdraft chronically through the relevant period, and "in the red" from January through June of 2019. It was then brought just above the line for a brief instant, returning immediately to overdraft and remained increasingly overdrawn until November 18, 2019, when it was again, momentarily, brought ever so slightly into the black. No further deposit was ever made and the overdraft continued to grow. Even taking the Simmers' claim about a 90-day payment scheme at face value, they were well and repeatedly in default of even this minimal obligation before Covid ever struck. The Court characterized the Simmers' claim of a pandemic-related forbearance — allegedly offered "on or around" March 13, 2020, when the bank manager told Mr. Simmer to "hold on" to their next payment and to "take care of [his] family" — as inherently improbable, noting its timing at the very beginning of the pandemic when the scope of its impact was yet to unfold, and the absence of any documentation recording such an exceptional indulgence. Applying the principles from Hryniak v Mauldin regarding proportionate and just adjudication, the Court concluded it had confidence that it could find the necessary facts to reach a determination on summary judgment.

The costs and interest decision

When the parties were unable to agree on costs, they re-appeared before Justice Devlin for a separate adjudication. RBC sought full solicitor-client indemnification based on the commonplace contractual entitlement to solicitor-client costs contained in each of the applicable credit agreements, claiming $116,143 in actual legal expenses. RBC also sought $64,432.79 in interest accruing prior to judgment and $7,629.65 accruing post-judgment, at the contractual default rate of prime plus 5%. The Court noted that total indebtedness under the credit lines ranged between $100,000 and $200,000, and that the legal costs claimed equalled 89% of the principal amount as of the appeal date, which invited an assessment of proportionality. The Court found that both sides carried some responsibility for the excessive litigation costs — the Simmers for mounting a meritless full-court press and putting a meritless and time-barred counterclaim on the table for obvious tactical reasons, and RBC for sub-optimal recordkeeping and corporate memory that created an inordinate need to consult with the client. After a detailed review of the legal accounts, the Court found that the time expended was perhaps 15% too high and exercised its discretion to reduce the costs award to $85,000. The Court clarified that the interest amounts were not prejudgment interest in the legal sense, as statutory prejudgment interest is not awarded where there is an agreement between the parties respecting interest. RBC was found entitled to the contractual rate of interest, and the interest amounts sought were found to be accurately calculated and formed part of the judgment. No further costs were awarded for the costs application itself.

Ruling and outcome

Summary judgment was granted in favour of the Royal Bank of Canada, and the Simmers' appeal of the striking of their counterclaim was dismissed. The Court confirmed the Simmers were liable for the outstanding indebtedness under the credit facilities, together with $85,000 in solicitor-client costs (reduced from the claimed $116,143) and the full contractual interest amounts of $64,432.79 accruing prior to judgment and $7,629.65 accruing post-judgment. The exact total principal amount presently owed was left for the parties to speak to and resolve reasonably between themselves.