Executive Summary – Key Legal & Evidentiary Issues

• Whether the Bank had a valid and enforceable security interest in the GICs under the PPSA as "proceeds" of the pledged funds.

• Dispute over compliance with the Guarantee and Pledge, including whether the Bank exceeded the $13.625M limit.

• Assessment of whether the Bank’s actions constituted a breach of contract or unauthorized seizure of funds.

• Consideration of Forseed’s status as a compensation vs. accommodation surety, impacting potential discharge.

• Whether any Bank actions were consented to, trivial, or beneficial, affecting Forseed’s claim for relief.

• Application of estoppel by convention, barring Forseed from reversing its prior position taken during receivership.

Facts of the Case

This case arises from the collapse of a real estate development project in downtown Vancouver, resulting in a financial dispute between investor Forseed Haro Holdings Ltd. ("Forseed") and the Bank of Montreal ("the Bank").

In 2018, 1104227 B.C. Ltd. ("110") purchased land for development using financing from the Bank, which required a significant security package. Although Forseed was not originally a guarantor, it had indirectly invested $13.625 million into the project via a loan to 110. This money was part of $15 million placed in a bank account and invested in GICs—referred to as the Original Pledged Funds.

By 2019, at Forseed’s request, the Bank agreed to transfer "its portion" of the pledged funds into Forseed’s own bank account, so it could be reflected in its financials and earn interest. A First Amendment Agreement to the loan was signed, under which Forseed became a limited recourse guarantor for $13.625 million. A Guarantee and a Cash Collateral Agreement (the “Pledge”) were executed by Forseed.

The Pledge specifically identified Forseed’s account and granted the Bank a security interest in the funds “held at any time and from time to time” in that account. The money was then invested in GICs by the Bank, under Forseed's instructions, with reinvestments occurring over several years.

In 2023, the borrower (HTLP) defaulted on the loan. The Bank then seized Forseed’s GICs and applied those funds toward the outstanding loan balance, prompting Forseed to sue for wrongful seizure of approximately $13.68 million.

Arguments and Court’s Analysis

Key Legal Issues

1. Did the Bank have a security interest in the GICs?

   • Forseed argued the Bank had no rights over the GICs because they were not explicitly covered in the original Pledge.

   • The Bank countered that the GICs were "proceeds" under the Personal Property Security Act (PPSA), traceable to the originally pledged funds and thus still secured.

2. Did the Bank breach the terms of the Guarantee or Pledge?

   • Forseed claimed the Bank exceeded its rights by seizing both the GICs and a small excess amount ($55,993.15).

   • The Bank maintained all actions were contractually permitted and that any excess was covered under cost recovery clauses.

3. Was Forseed entitled to a discharge from its obligations?

   • Forseed sought to be released from liability, arguing any breach voided its guarantee.

   • The court reviewed whether the Bank’s actions were unauthorized, non-trivial, or prejudicial.

4. Was Forseed estopped from asserting its claims?

   • The Bank invoked estoppel by convention, pointing out that Forseed had accepted and relied upon the Bank’s application of the pledged funds during earlier receivership proceedings.

The Court’s Ruling

Madam Justice Fitzpatrick found in favor of the Bank on all key points:

• Security Interest Upheld: The court ruled that the Bank’s interest extended to the GICs as proceeds of the original collateral under the PPSA. The reinvestment of funds was done at Forseed’s direction, and the Bank never relinquished control.

• No Breach of Guarantee or Pledge: The seizure of funds was within the bounds of the agreements. The Guarantee capped liability at $13.625 million plus costs, and any minor overage was not found to be a breach.

• No Right to Discharge: Forseed was classified as a compensated surety (not merely an accommodation party), and even assuming any technical breach occurred, it was deemed trivial and not prejudicial.

• Estoppel Applied: The court found that Forseed, during the receivership, accepted and benefited from the Bank's application of the funds toward the debt. It could not now reverse that position to seek recovery.

Ultimately, Forseed’s claim was dismissed, and the Bank was awarded costs.