Appointment of a Receiver and Supervisory Role of the Court
The appointment of a receiver is a discretionary order made by the Court pursuant to the provisions of s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, Rule 41.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and Rule 20 of the Family Law Rules.
A Receivership Order operates as an exception to the general principle that the Court will not generally grant execution before judgment.
Any assignment of financial benefit which operates through a Receivership Order must not offend any statutory prohibition which makes payments immune against execution, or any rights granted to a person by way of a statute. For example, the Court has affirmed that an interest in a matrimonial home may not be assigned to a trustee in bankruptcy without obtaining the consent of the bankrupt's spouse.
The appointment of a Receiver will often have unfavourable economic consequences on a business because it can easily negatively impact upon the confidence of employees, suppliers and clients and customers of the business and in particular on the belief of its stakeholders about the future viability of the business itself. It is very often not in the best long term interests of either party to a proceeding.
The Court has the same and similar power and right and discretion to discharge a Receiver as the right and discretion to appoint a Receiver, where it is just and convenient to do so.
An equitable receivership does not transfer ownership of an asset, it merely allows a third person Receiver as officer of the Court to collect and control and manage the asset in issue as he would if he were running his own business. In addition, the interlocutory Receivership Order is always a temporary one which is made with a view to a later sale or disposition or liquidation of an asset.
The Court’s role is to supervise the Receiver to ensure fairness in the approach and administration of his duties. The process of supervision by the Court ensures that the choices actually made by the Receiver are within the range of choices that are open to a reasonable Receiver acting in good faith. The weight of authority favours the view that the Court may take all the circumstances into consideration and if it finds that it is, upon the whole, desirable that a trustee should be removed it may in the exercise of its discretion remove him.
THE RECEIVER’S ROLE OR FUNCTION
The one and only purpose of an Order for the appointment of an equitable Receiver is for the purposes of preserving and to avoid the dissipation of a beneficiary's assets.
It is not the purpose of the Receiver to attempt to assist the ability of one particular party to a proceeding with an interest in the assets of the Receivership to be able to better prove a certain claim it asserts by facilitating the marshalling of evidence in favour of that one party against another party to the proceeding.
The Respondent respectfully submits that the Applicant’s own Factum confirms her belief in the Receiver’s intention to promote the Applicant’s own interest, as the Applicant says at paragraph 12 of her Factum that, “A receiver was put in to run the Lodge to protect Natasha’s interest and to record the actual income.”
THE EQUITABLE RECEIVER AS FIDUCIARY
Relationships which equate with a fiduciary obligation have been imposed where they possess the following three general characteristics:
(1) The fiduciary has scope for the exercise of some discretion or power.
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
The Receiver is a fiduciary as to all interests of concerned parties and it must act as an appointee of the Court in good faith; with candour; disclosing all relevant material facts affecting the parties; while avoiding any real or objectively perceived conflicts of interest.
The Respondent respectfully submits that the Court appointed Receiver in this case is a fiduciary. A very clear distinction must be drawn between the duties and obligations of a receiver-manager, appointed by virtue of the contractual clauses of a mortgage deed and the duties and obligations of a receiver-manager who is appointed by the Court and whose sole authority is derived from that Court appointment and from the directions given him by the Court. In the latter case he is an officer of the Court; is very definitely in a fiduciary capacity to all parties involved in the contest.
TO WHOM IS THE FIDUCIARY DUTY OWED
The Receiver owes a fiduciary duty to all persons who have a proprietary or beneficial interest in the subject assets of the Receivership. The Receiver owes a fiduciary duty to the parties in this action because they each have a legal interest in the Lodge. The Respondent has a proprietary interest in the assets of the Lodge as being the titled owner of the property and the Applicant has an interest in a portion of the Lodge by way of Net Family Property Equalization as the result of her marriage to the Respondent. The Receiver holds or manages the assets of the Lodge in trust for these parties. The assets of the Lodge are imposed with a deemed trust upon the Receiver in favour of the Applicant and the Respondent.
THE MEANING OF FIDUCIARY DUTY
A fiduciary duty is an obligation to represent a beneficiary with undivided loyalty to every person he represents, to preserve confidences, to act honestly in connection with the interests of the Receiver or trustees’ beneficiaries and to make full disclosure of all relevant and material information.
Where a Receiver engages in blatant intentional acts contrary to the interests of any beneficiary of his services, the Court will readily step in to replace him.
A fiduciary has a duty to make full disclosure to every person to whom he owes that duty. The Receiver as an officer of the Court must discharge his duties with complete and frank impartiality and must exercise it obligations with prudence, diligence, due care and skill. He must not only do this, he must also ensure that he is seen or appears to have acted with this requisite impartiality. The Receiver must be scrupulous in avoiding any potential conflict of interest toward all parties because the standard required from the status [as an officer of the court] conferred onto a Court-appointed Receiver is one of meticulous correctness.
A court-appointed Receiver has more expanded duties and is held to a higher standard than a private Receiver. The Court appointed Receiver has a greater duty to represent impartially the interests of all creditors, has the greater obligation to act even-handedly, and because he represents the Court also needs to avoid any appearance of or perceived conflict between its interest and its duty of impartiality.
The Court will remove a trustee where there is both the potential for and the appearance of conflict in the factual circumstances of the particular case.
The Court has identified the following factors as being relevant to deciding whether it should exercise its discretion to remove a receiver for conflict of interest. The Court must balance the interests of the receivership as a whole with the factors favouring removal:
(a) the gravity of the conflict or potential conflict;
(b) the receiver's qualifications, and the experience and familiarity already gained by the receiver;
(c) the prejudice to the business in removing the receiver, in particular, the knowledge which would be lost and the time and costs which would be incurred in substituting a new receiver and bringing that person up to speed;
(d) the receiver's conduct, in particular, whether the receiver: (i) has disclosed the conflict or potential conflict from the outset; (ii) has established measures to reduce the dangers of conflicts or potential conflicts; and (iii) has in any way acted improperly;
(e) delay by the applicant in alleging conflict and bringing the motion for removal;
(f) tactical reasons for bringing the motion for removal; and
(g) the wishes of various stakeholders.
LEAVE TO PROCEED AGAINST RECEIVER
Where a moving party can show on a prima facie basis and based on reasonable cause that there is some evidence of blatantly intentional wrongdoing on the part of the Receiver, leave should be granted and the Receiver will be required to show why it should not compensate an injured party because of its wrongdoing.