9019235 Canada Inc. v Coast Fraser Enterprises Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

9019235 Canada Inc. v. Coast Fraser

Enterprises Ltd.,

2022 BCSC 1132

Date: 20220705

Docket: S2010196

Registry: Vancouver

Between:

Ernst & Young Inc., in its Capacity as Court Appointed Monitor of 9019235

Canada Inc.

Plaintiff

And

Coast Fraser Enterprises Ltd.

Defendant

Before: The Honourable Justice Fitzpatrick

Reasons for Judgment

Counsel for the Plaintiff:

W.E.J. Skelly

Appearing on behalf of the Defendant:

D. Bian

F. Hui

Place and Date of Hearing:

Place and Date of Judgment:

Vancouver, B.C.

May 12-13, 2022

Vancouver, B.C.

July 5, 2022

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 2

INTRODUCTION

[1]

On March 30, 2020, EncoreFX Inc. (“EncoreFX”) made an assignment in

bankruptcy pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3

[BIA]. Ernst & Young Inc was appointed as EncoreFX’s trustee in bankruptcy (the

“Trustee”).

[2]

In March 2021, EncoreFX’s bankruptcy proceeding was continued as a

restructuring proceeding pursuant to s. 11.6(b) of the Companies’ Creditors

Arrangement Act, R.S.C. 1985, c. C-36: EncoreFX Inc., 2021 BCSC 750 (the

“Continuation Reasons”). Ernst & Young Inc. continues in its role as the Court’s

officer, but is now the court-appointed monitor (the “Monitor”). The Monitor is

empowered to continue to collect in the assets of the Estate.

[3]

EncoreFX’s circumstances and background leading up to the bankruptcy are

outlined in the Continuation Reasons at paras. 6–12. As stated there, EncoreFX was

in the business of providing foreign exchange (FX) risk management and cross-

border payment services to its customers.

[4]

One of EncoreFX’s customers was the defendant, Coast Fraser Enterprises

Ltd. (“Coast”). Following the bankruptcy, the Trustee took certain steps to address

certain contracts then existing between EncoreFX and Coast. Eventually those steps

and Coast’s reaction to them resulted in the Trustee terminating the contracts.

[5]

The Monitor claims that the result of the contract terminations is that Coast

owes $232,700 to EncoreFX. Coast has refused to pay that amount despite

demand. The Monitor commenced this proceeding seeking judgment against Coast

in the amount of $232,700, plus interest and costs.

[6]

At the conclusion of the hearing of this application on May 12, 2022, I granted

an order substituting EncoreFX’s name in the style of cause with “9019235 Canada

Inc.” This relief arose because the Trustee sold the name (“EncoreFX”) to another

party and, in so doing, also agreed to change the name. For the sake of simplicity, I

will refer to the claim as being brought by “EncoreFX”, as the parties have done.

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

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[7] This hearing was convened as a summary trial. Coast raised no objection to

proceeding in that manner. In addition, after hearing the parties, I am satisfied that a

disposition by way of a summary trial is appropriate. In particular, I find that there is

sufficient evidence before me upon which determine the facts and applicable law:

Supreme Court Civil Rules, R. 9-7(15)(a)(i).

[8]

The Monitor’s evidence included the Affidavit #1 of Peter Venetsanos sworn

March 29, 2022. Coast’s evidence is contained in the Affidavit of Diane Bian sworn

May 6, 2022. Ms. Bian represented Coast at the hearing, along with another Coast

representative, Frank Hui. Ms. Bian’s evidence is largely confirmatory of the

contractual relationship between Coast and EncoreFX. Unfortunately, however,

various evidentiary difficulties arose with respect to much of Ms. Bian’s evidence,

including that it contained legal argument. To that extent, I have treated those

statements in Ms. Bian’s affidavit as such and not as evidence.

BACKGROUND FACTS

The Parties

[9]

EncoreFX was in the business of providing FX risk management and cross-

border payment services predominantly to small and medium enterprise customers

who import or export products to and from foreign markets, and base their pricing on

foreign currencies. Among other things, EncoreFX sold FX derivative contracts

(including forward contracts and options) to its customers in order to mitigate their

exposure to fluctuating FX rates (the "EncoreFX Derivatives").

[10] The EncoreFX Derivatives are referred to as "over-the-counter" derivatives

because they are not traded on a market or securities exchange. Rather, the

contracts are negotiated with each counterparty (EncoreFX and its customer) at the

time they are consummated.

[11] The "market value" of all EncoreFX Derivatives products sold to customers

fluctuates every second of every day once entered into due to changes in underlying

FX rates. At any given time, the market value of the derivatives is "out-the-money"

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

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(OTM), "in-the• money" (ITM), or "at-the-money". In simple terms, an OTM position

means that the FX rate and other factors moved against the customer and, if the

contract were to be liquidated, the customer would owe EncoreFX an amount equal

to the dollar value of the OTM position. The opposite is true if the rate moved in

favour of the customer; in that case, if the contract was liquidated, EncoreFX would

owe the customer the dollar value of the ITM position.

[12] Coast is an exporter of lumber and logs to Asian markets. As such, Coast

earns revenue in US Dollars and incurs expenses in Canadian Dollars. The result is

that Coast’s financial performance can be greatly affected by the USD/CAD

exchange rates as the rate fluctuates.

The Parties’ Business Relationships

[13] In March 2017, EncoreFX began doing business with Coast.

[14] New customers of EncoreFX were required to complete and execute a "New

Account Application" form (the "NAA'') in order to book EncoreFX Derivatives. The

NAA includes various information about the applicant/customer and confirms the

authorized signatory on the account, the authorized signatory to provide instructions,

bank information and legal entity identifier information for applicants purchasing

forward contracts or options.

[15] The most significant and relevant provision in the NAA is found at the end of

the form and is described as the “Applicant Representations, Warranties and

Covenants”. It reads in part:

The undersigned confirms receipt, understanding and acceptance of the

EncoreFX Master Terms and Conditions including Appendix A and agrees to

be bound thereby and further agrees that all dealings between the Applicant

and EncoreFX remain subject to the Master Terms and Conditions as

updated from time to time. … All statements and representations made

herein are deemed repeated each time the Applicant purchases a derivatives

product from EncoreFX.

[Emphasis added.]

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[16] The document referred to above in the NAA – i.e. the Master Terms and

Conditions (“MTC”) – is the overarching contract between EncoreFX and its

customers and governs any later specific FX transactions entered into between the

parties. I will address the specific provisions of the MTC below.

[17] As part of its business, EncoreFX offered credit to certain of its customers in

relation to the subsequent booking of EncoreFX Derivatives. Prior to granting credit

to any customer, EncoreFX's credit department would perform a detailed credit

assessment and, if credit was to be extended, EncoreFX would agree to terms that

were in line with the customer's financial strength.

[18] Once the customer credit assessment process was finalized, and if credit was

to be extended, EncoreFX would issue, and a customer would sign, a credit facility

letter (CFL) that outlined the terms under which credit was granted. The CFL

expressly provided that a customer would be required to pay margin deposits and

additional margin deposits to EncoreFX to cover unfavourable market fluctuations

(i.e., OTM positions) over and above a prescribed and predetermined mark-to-

market (MTM) limit (the “MTM Limit”). Essentially, the MTM Limit was the extent of

the credit allowed under the CFL.

[19] On April 26, 2017, Coast (via Ms. Bian) signed an NAA and she also received

a copy of the MTC. Ms. Bian was also the authorized signatory and authorized

representative on Coast’s account.

[20] Mainly, Coast intended to enter into “forward contracts” with EncoreFX so as

to “hedge” its position in respect of future USD/CAD exchange rates. Coast’s goal

was to secure more certainty in its business. Under these “forward contracts”, Coast

agreed to pay EncoreFX a specified US Dollar amount and, in return, EncoreFX

agreed to pay Coast a Canadian Dollar amount at a specific exchange rate, both

events to occur on a specific date in the future.

[21] Years later, on November 21, 2019, EncoreFX also granted Coast a credit

facility under a CFL for the purpose of extending credit when Coast booked any

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

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forward contracts and/or options with EncoreFX. I will summarize the terms of the

CFL below.

[22] In February/March 2020, just a month, if not weeks, before the bankruptcy,

Coast booked five separate forward contracts with EncoreFX. The total value of

these forward contracts was US$5 million. This meant that Coast agreed to provide

US$5 million to EncoreFX and EncoreFX agreed to pay Coast Canadian Dollar

amounts at an exchange rate ranging between 1.335-1.4, or totalling

CA$6.819 million. The future date for these payments (the “Value Date”) was in all

cases about one year later, namely in December 2020 or February/March 2021 (the

“Coast Forward Contracts”).

THE RELEVANT CONTRACTS

[23] As of March 2020 (i.e., the bankruptcy), the entirety of the contractual

relationship between EncoreFX and Coast included: 1) the NAA; 2) the MTC; 3) the

CFL; and 4) the Coast Forward Contracts (collectively, the “Coast Agreements”).

[24] The NAA refers to Coast having accepted that all dealings between EncoreFX

and Coast would be subject to the terms of the MTC. In addition, all of the Coast

Forward Contracts expressly provide that:

The Customer agrees to all of the terms, covenants and conditions contained

in the Master Terms and Conditions Agreement to be complied with or

performed by the Customer.

[25] Accordingly, both parties agree that the issues to be decided at this summary

trial involve a consideration of the express contract terms contained in the MTC and

CFL as they relate to the Coast Forward Contracts. Where EncoreFX and Coast part

company is on the correct interpretation of those provisions.

The MTC

[26] The relevant terms of the MTC, as referred to by both the Monitor and Coast,

are reproduced in Schedule A to these reasons. In summary, the MTC provides:

a)

The Customer (Coast) is bound by the MTC (Article 1.1);

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b) The MTC applies to all “Transactions” between the Customer and

EncoreFX, defined as the specific “Services” contracted for by the

Customer with EncoreFX (i.e., the Coast Forward Contracts)

(Articles 2.1 and 23). As above, the Coast Forward Contracts

specifically confirm the Customer’s agreement to all terms, covenants

and conditions in the MTC;

c)

The “Services” include “foreign exchange Forward Contracts”, which

include the Coast Forward Contracts. EncoreFX may modify or

discontinue the Services at any time and without advance notice. If that

occurs, it does not affect any existing Transaction (Article 3.1);

d)

e)

The Customer acknowledges having received and understood related

documents, including any CFL (to the extent the Customer is granted

credit in respect of any margins) (Article 4.1(h)(iii));

A Customer shall be required to maintain margins with respect to any

Transaction. If a CFL is entered into, EncoreFX may issue a Margin

Call (as defined) to a Customer, in accordance with any CFL

(Articles 5.2(d), 5.3(a)(b) and 23);

f)

Where a Margin Deposit is placed on a floating basis for a Forward

Contract, the Customer agrees to submit to EncoreFX an Additional

Margin Deposit when EncoreFX determines that the MTM potential

loss on the Forward Contract exceeds the prescribed amount

established with EncoreFX in any CFL. EncoreFX shall determine the

MTM value of a Forward Contract at a given point on a daily basis on

each business day based upon the Mid•Market Rate (defined as the

mid-point between the “buy” and “sell” rates for a currency). The

Customer agrees to accept and be bound by such MTM value

determination made by EncoreFX (Articles 6.3 and 23);

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g)

Upon the issuance of any Margin Call, the Customer is required to pay

the Margin Deposit or Additional Margin Deposit to EncoreFX within

two (2) business days (Articles 5.3(b) and (e), 6.3, 6.4 and 11.5);

h)

If the Customer fails to respond to the Margin Call, the Customer is in

default under the Transaction, which shall cause a default under all

pending Transactions. In that event, EncoreFX may at its sole

discretion and without further notice and in addition to any other rights

it may have: i) close the Customer's account and terminate the contract

which relates to the specific Service or Transaction; and, ii) terminate

and close any other pending Transaction/contract for Services with the

Customer (Articles 5.3(b) and (e), 5.6, 6.3);

i)

With respect to any Forward Contract, if a Customer fails to pay any

Margin Deposit, EncoreFX is no longer obligated to complete the

Forward Contract and EncoreFX may sell the covering currency to

terminate the Forward Contract and charge the Customer with the

“damages, losses (including loss of profit), costs and expenses

incurred by EncoreFX” (Articles 5.6 and 6.5);

j)

EncoreFX also has the right to refuse to provide the Services to a

Customer any time for any reason whatsoever (Article 5.7);

k)

l)

EncoreFX may suspend or terminate Services to a Customer at any

time without notice (Article 11.1);

In the event that a Customer has violated the terms of the MTC,

including, but not limited to, by not performing any of its obligations

under any Transaction, EncoreFX may, at its sole discretion, withhold

Services from the Customer and/or terminate any pending

Transactions immediately by providing written notice to the Customer.

In the event that any Transaction is terminated based upon a

Customer's violation of the terms of any Transaction or the MTC,

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

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EncoreFX is relieved of any and all of its obligations under the MTC to

complete any pending Transaction, including its obligations under any

Transaction entered into prior to such termination (Article 11.4); and

m)

The MTC, except as supplemented by an additional agreement

between the parties and the terms and conditions of each Transaction,

constitutes the entire agreement between the parties regarding the

Customer's use of the Services by the Customer (Article 22.10).

The CFL

[27] The relevant terms of the CFL, as referred to by both EncoreFX and Coast,

are summarized as follows:

a)

b)

the Hedging Limit for booking Forward Contracts was $10 million;

the MTM Limit was $500,000 ($400,000 with $100,000 increments).

With respect to the MTM Limit:

i.

Coast was required to pay Margin Deposits to EncoreFX to

cover unfavourable market fluctuations over the MTM Limit of

$500,000;

ii.

the MTM position of all Hedging Contracts would be monitored

and, if the net-aggregate OTM position was greater than

$500,000, Coast's position would be considered to be "in-call"

for $100,000;

iii.

iv.

If Coast’s account was "in-call", Coast was required to make the

required margin payment/deposit within two (2) business days;

and

Margin payments/deposits would be refunded to Coast if the

gross OTM position fell back below $400,000.

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[28] The default provision in the CFL (in the event of a failure to pay any Margin

Deposit) mirror those found in the MTC:

Pursuant to the EncoreFX [MTC], in the event that a deposit or margin call is

not received within 2 business days, EncoreFX shall at its sole discretion and

without further notice, have the right to i) close out the account and terminate

the contract which relates to the specific Service or Transaction; ii) terminate

and close out any other pending Transaction/contract for Services; …. Should

the Margin Deposit, the Additional Margin Deposit and any other deposit or

funds on hand then held by EncoreFX not be sufficient to reimburse and

indemnify EncoreFX for the Losses incurred, [Coast] agrees to forthwith pay

to EncoreFX any additional amount required to cover such shortfall.

[29] Finally, other significant terms in the CFL relevant to Coast include:

These trading facility terms are offered to [Coast] based upon satisfactory

review of [Coast’s] foreign exchange requirements, financial standing,

financial performance, credit history and other current market conditions and

factors.

…

EncoreFX reserves the right to re-evaluate, amend or cancel these trading

facility terms as required from time-to-time.

[30] Accordingly, Coast would have been required to have made any necessary

Margin Deposits in respect of the Coast Forward Contracts, save that the CFL

afforded Coast a $500,000 buffer in respect of any such Margin Call to the extent

that the credit under the CFL continued to be offered by EncoreFX.

ENCOREFX'S INSOLVENCY

[31] Beginning in March 2020, global FX markets began to observe atypical levels

of volatility, mainly driven by the impact that COVID-19 was having on the global

economy. In particular, the US Dollar strengthened in a significant way against some

of the world's most traded currencies, including against the Canadian, Australian and

New Zealand Dollars in which the majority of the EncoreFX Derivatives were

booked.

[32] Due to this market volatility, a number of EncoreFX's customers were OTM on

their transactions and subject to Margin Calls. EncoreFX attempted to work with

many of its OTM customers to address the outstanding Margin Calls, however many

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

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OTM customers' businesses had been negatively impacted by COVID-19

themselves and they were unable to honour the terms of their credit facility

agreements.

[33] Arising from nonpayment of Margin Calls by many of its customers, EncoreFX

was itself in an “OTM” position with its banking counterparties. Accordingly,

EncoreFX was required to pay significant additional margins to those counterparties

to cover the value of OTM contracts.

[34] In the days leading up to March 30, 2020, EncoreFX's management

determined that, even if all OTM amounts owing to it from its Customers could be

collected over time, EncoreFX's short-term liquidity was insufficient to meet its

obligations to its own counterparties. As such, EncoreFX decided to suspend all

trading activity as at Sunday, March 29, 2020 (prior to the opening of trading on

Monday, March 30, 2020).

[35] On Monday, March 30, 2020, EncoreFX filed an assignment into bankruptcy.

The Trustee Addresses the Coast Agreements

[36] On April 2, 2020, the Trustee sent a letter to Coast advising Coast of the

bankruptcy and that EncoreFX had suspended trading (the “Termination Letter”).

Specific to Coast, the Trustee also advised Coast in the Termination Letter that:

a)

b)

the Trustee was terminating the Services under the MTC. However,

the Trustee also advised Coast that, subject to the terms of the MTC,

all Transactions in place (i.e., the Coast Forward Contracts) would be

carried out in accordance with Coast’s instructions to the extent that

EncoreFX was permitted by law to execute them; and

the Trustee was terminating the CFL as of April 2, 2020, citing

EncoreFX’s right to cancel the credit facility from time to time (quoted

above). The Trustee referenced the inability of EncoreFX to provide

the credit terms. Finally, the Trustee stated that the cancellation was

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subject to Margin Calls and other ongoing obligations in connection

with the Coast Forward Contracts.

[37] As a result of the termination of the CFL, Coast’s account was immediately in

an OTM position since the $500,000 credit facility or buffer under the CFL no longer

existed. Accordingly, in the Termination Letter, the Trustee advised Coast that:

a)

under the MTC and under the CFL (now terminated), Coast’s MTM

position was OTM to the extent of CA$226,300. The Trustee advised

that this amount was due and owing as a Margin Call and was to be

paid within two business days; and

b)

failure to pay the Margin Call would, in accordance with the MTC, allow

EncoreFX to close Coast’s account, terminate the Coast Forward

Contracts and set off amounts owed against any losses EncoreFX

incurred.

[38] To allay any concerns that Coast may have had in relation to paying money to

a trustee of a bankrupt company, the Trustee confirmed in its letter that the Margin

Deposit demanded would be held in a trust account.

[39] Mr. Venetsanos states that Coast’s position under the Coast Forward

Contracts, as identified in the Termination Letter, was calculated using the "Mid-

Market Rate", as required by Article 6.3 of the MTC.

[40] Coast did not pay the Trustee in response to the Termination Letter or

respond in any other way to that correspondence.

[41] On May 1, 2020, the Trustee wrote again the Coast, noting that the Margin

Call had not been received. Accordingly, the Trustee notified Coast that it was in

violation of the MTC, and that the Trustee had terminated all of the Transactions

(i.e., the Coast Forward Contracts).The Trustee advised Coast that it had closed out

all of the Coast Forward Contracts as at April 7, 2020, which was the third business

day after the issuance of the Margin Call (the "Close-Out Letter").

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[42] Finally, in the Close-Out Letter, the Trustee advised Coast, that in accordance

with the MTC, Coast was required to pay $232,700 within two business days.

Coast’s MTM position under the Coast Forward Contracts, identified in the Close-

Out Letter, was calculated using the "Mid-Market Rate" as of April 7, 2020, as

referred to in Article 6.3 of the MTC.

[43] Again, Coast did not respond to the Close-Out Letter; nor did it pay the

Trustee $232,700.

[44] On June 26, 2020, the Trustee issued a final written demand to Coast for

payment of $232,700. No payment was received.

Coast’s Evidence

[45] Ms. Bain states that the reason Coast sought to enter into the CFL with

EncoreFX was to avoid continual Margin Calls for payment from EncoreFX and

possible repayments by EncoreFX, given the constant fluctuations in exchange

rates.

[46] In addition, Ms. Bain states that, if the Coast Forward Contracts had been

performed by EncoreFX, Coast would have been in an ITM position of $494,800 as

of the Value Date.

Pleadings Summary

[47] In October 2020, the Trustee commenced this action, seeking recovery of the

Margin Call from Coast ($232,700).

[48] In November 2020, Coast filed its Response to Civil Claim (RTCC) through its

counsel at the time. Essentially, Coast took the position that the margin terms set out

in the CFL formed part of each Transaction/Coast Forward Contracts when they

were booked. Coast further stated that the Trustee had to right to cancel the Coast

Forward Contracts for lack of an MTM Limit arising from the cancellation of the credit

facility under the CFL.

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[49] In its Reply, the Trustee denies that Coast’s interpretation of the Coast

Agreements, including the MTC and CFL, is the proper interpretation.

ISSUES / ANALYSIS

[50] I am satisfied that both the Monitor and Coast had reasonably identified the

issues to be considered.

Interpretation of the Contracts

[51] As I will discuss in more detail below, various issues arose as to the

interpretation of the Coast Agreements, particularly the MTC and the CFL.

[52] The seminal decision relating to interpretation of contracts is found in Sattva

Capital Corp. v. Creston Moly Corp., 2014 SCC 53. Justice Rothstein summarized

those principles as follows:

[47] Regarding the first development, the interpretation of contracts has

evolved towards a practical, common-sense approach not dominated by

technical rules of construction. The overriding concern is to determine “the

intent of the parties and the scope of their understanding” [citations omitted].

To do so, a decision-maker must read the contract as a whole, giving the

words used their ordinary and grammatical meaning, consistent with the

surrounding circumstances known to the parties at the time of formation of

the contract. Consideration of the surrounding circumstances recognizes that

ascertaining contractual intention can be difficult when looking at words on

their own, because words alone do not have an immutable or absolute

meaning:

No contracts are made in a vacuum: there is always a setting

in which they have to be placed. … In a commercial contract it

is certainly right that the court should know the commercial

purpose of the contract and this in turn presupposes

knowledge of the genesis of the transaction, the background,

the context, the market in which the parties are operating.

(Reardon Smith Line, at p. 574, per Lord Wilberforce)

[48] The meaning of words is often derived from a number of contextual

factors, including the purpose of the agreement and the nature of the

relationship created by the agreement [citations omitted]. As stated by Lord

Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich

Building Society, [1998] 1 All E.R. 98 (H.L.):

The meaning which a document (or any other utterance) would

convey to a reasonable man is not the same thing as the

meaning of its words. The meaning of words is a matter of

dictionaries and grammars; the meaning of the document is

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what the parties using those words against the relevant

background would reasonably have been understood to mean.

[p. 115]

…

[64]

I accept that a fundamental principle of contractual interpretation is

that a contract must be construed as a whole (McCamus, at pp. 761-62; and

Hall, at p. 15). …

[Emphasis added.]

[53] Some aspects of Ms. Bain’s evidence are what could be termed “surrounding

circumstances”, as discussed in Sattva at para. 47.

[54] However, Rothstein J. in Sattva was careful to outline the limits in a court’s

consideration of surrounding circumstances. He stated:

[57]

While the surrounding circumstances will be considered in

interpreting the terms of a contract, they must never be allowed to overwhelm

the words of that agreement …. The goal of examining such evidence is to

deepen a decision-maker’s understanding of the mutual and objective

intentions of the parties as expressed in the words of the contract. The

interpretation of a written contractual provision must always be grounded in

the text and read in light of the entire contract …. While the surrounding

circumstances are relied upon in the interpretive process, courts cannot use

them to deviate from the text such that the court effectively creates a new

agreement [citations omitted].

[58]

The nature of the evidence that can be relied upon under the rubric of

“surrounding circumstances” will necessarily vary from case to case. It does,

however, have its limits. It should consist only of objective evidence of the

background facts at the time of the execution of the contract (King, at

paras. 66 and 70), that is, knowledge that was or reasonably ought to have

been within the knowledge of both parties at or before the date of contracting.

Subject to these requirements and the parol evidence rule discussed below,

this includes, in the words of Lord Hoffmann, “absolutely anything which

would have affected the way in which the language of the document would

have been understood by a reasonable man” (Investors Compensation

Scheme, at p. 114). Whether something was or reasonably ought to have

been within the common knowledge of the parties at the time of execution of

the contract is a question of fact.

[Emphasis added.]

[55] Finally, the Court in Sattva at paras. 59–61 discussed the role of parol

evidence in the interpretation exercise. While subjective intentions of the parties are

not admissible, the surrounding circumstances may aid in the court’s interpretation,

so long as such evidence does not seek to change or overrule the plain meaning of

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words. In addition, such evidence must be “facts known or facts that reasonably

ought to have been known to both parties at or before the date of contracting”

(para. 60).

[56] The Monitor also refers to Ledcor Construction Ltd. v. Northbridge Indemnity

Insurance Co., 2016 SCC 37, where the Court was considering the role of

“surrounding circumstances” in relation to standard form contracts. At paras. 27–32,

the Court finds that surrounding circumstances have less relevance in respect of

such contracts, but may still include the purpose of the contract, the nature of the

relationship it creates and the market or industry in which it operates.

[57] Within the context of these interpretation principles, various issues arise

between the parties, which are addressed below.

Did the Trustee Affirm the Coast Forward Contracts?

[58] Coast asserts, without authority, that EncoreFX’s insolvency relieved it of any

further obligation in respect of the Coast Agreements, including the Coast Forward

Contracts. I know of no basis for such a proposition and I reject it.

[59] EncoreFX’s bankruptcy itself did not affect the existence of the contractual

obligations in place between the parties. In particular, the MTC does not refer to

EncoreFX’s bankruptcy as an event of default under the MTC that would relieve

Coast of any further obligations (contra Article 11.4 which refers to Coast’s possible

bankruptcy as allowing EncoreFX to withhold Services and terminate any pending

Transaction).

[60] Similarly, the fact that EncoreFX suspended trading just prior to the

bankruptcy had no effect on the existence or validity of the Coast Agreements.

[61] The powers and duties of a trustee in bankruptcy are set out in the BIA.

Pursuant to s. 18(b) of the BIA, a trustee may carry on the business of the bankrupt

until the date fixed for the first meeting of creditors. Similarly, after the first meeting

and the appointment on inspectors, a trustee may choose to carry on the business of

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the bankrupt, if necessary for the beneficial administration of the estate: BIA,

s. 30(1)(c).

[62] Typically, a trustee will normally only operate a bankrupt’s business with

considerable caution and after gaining a full understanding of the risks and benefits

that come with such a decision. This exercise will usually include an extensive

consideration of which contracts are beneficial to the estate or not, leading to a

decision as to which contracts will be affirmed and which will be disclaimed.

[63] This was the scenario considered in North America Steamships Ltd. (Re),

2007 BCSC 267 in the context of freight forward swap agreements. In that case,

Justice Tysoe (as he then was) was considering a trustee’s application concerning

whether it had to affirm those agreements and, if so, what liability that would attract.

[64] In North America Steamships, Tysoe J. found that a trustee is required to

affirm a contract within a reasonable time, in order to rely on the contract and call for

its completion. He further found that a trustee must elect whether to disclaim or

affirm a contract within a reasonable time. He stated:

[11]

…. In my view, such a requirement is reasonable and makes

commercial sense. If a party to a contract becomes bankrupt, a question

arises as to whether the obligations of that party under the contract will be

performed. The bankrupt itself is no longer in a position to perform the

obligations and one could consider the contract to be frustrated unless

someone else standing in the place of the bankrupt (i.e., the trustee in

bankruptcy) is prepared to perform the obligations. It is not reasonable for the

other party to be bound to perform its obligations under the contract after the

date of bankruptcy without knowing how the obligations of the bankrupt will

be treated if they are not performed. If the other party performs its obligations,

it is entitled to know that it will not simply become an unsecured creditor of

the bankrupt if the obligations of the bankrupt under the contract are not

performed. Thus, if the trustee in bankruptcy wants to benefit from the

contract, it is incumbent on it to affirm the contract and thereby assure the

other party that it will not be treated as an unsecured creditor of the bankrupt

in respect of the obligations it performs after the date of bankruptcy.

...

[17]

A trustee in bankruptcy has two alternatives with respect to contracts

entered into by the bankrupt. The trustee can either affirm or disclaim the

contract. Support for this proposition is found in Saan Stores Ltd. v. United

Steelworkers of America, Local 596 (Retail Wholesale Canada, Canadian

Service Section Division) (1999), 172 D.L.R. (4^th) 134 (N.S.C.A.) at p. 151:

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 18

As a general rule, with respect to contracts that a trustee can

perform, the trustee may, within a reasonable time, elect to

either adopt the contracts or to disclaim them (Re Thomson

Knitting Company (1925), 2 D.L.R. 1007 (Ont. S.C.); Houlden,

L.W. and C.H. Morawetz, Bankruptcy and Insolvency Law of

Canada, 3^rded. (Toronto: Carswell, 1993) paragraph F45.2).

[18]

The trustee cannot choose to do nothing. It must elect between the

two alternatives because the other contracting party is entitled to know

whether it will be a creditor of the bankrupt or a creditor of the bankruptcy

estate (or the trustee personally) with respect to any unfulfilled obligations on

the part of the bankrupt. The other contracting party is entitled to know which

alternative the trustee is choosing irrespective of whether it is entitled to

terminate the contract as a result of the bankruptcy.

[65] Coast contends that the Trustee failed to affirm the MTC and the Coast

Forward Contracts; or alternatively, the Trustee failed to communicate its election to

affirm them, such that it was freed of any further obligations under the Coast

Forward Contracts. Coast further argues that the Trustee took no steps to complete

the Coast Forward Contracts and that the Trustee cannot seek to benefit from the

Coast Agreements without assuming the corresponding burden.

[66] In my view, Coast’s arguments are without merit as contrary to the

uncontroverted facts.

[67] In the Termination Letter, the Trustee expressly confirmed its intention to

abide by the MTC and complete the Coast Forward Contracts, assuming there was

no violation of the terms of the MTC. The Trustee stated:

If you have not violated the terms of the [MTC], all transactions which were

entered into prior to termination will be carried out in accordance with your

instructions to the extent EncoreFX is permitted by law to execute them. …

[68] In the Termination Letter, when the Trustee referred to the termination of the

“Services” as of April 2, 2020, it was clearly only referring to any future Transactions

that Coast might have booked.

[69] In addition, the Trustee assured Coast in the Termination Letter that it would

not be treated as an unsecured creditor with respect to the Coast Forward Contracts

if the Margin Deposit was paid and then later had to be returned to Coast under the

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 19

terms of the MTC (North America Steamships at para. 11). The Trustee advised that

any payment or deposit would be held in a “trust account”.

[70] Finally, Coast argues that EncoreFX could no longer perform its obligations

under the MTC and the Coast Forward Contracts. There is, however, no evidence to

support that contention. The Trustee confirmed in the Termination Letter and

confirms now on this application that it was ready, willing and able to abide by the

terms of the MTC and the Coast Forward Contracts until the Value Date in late 2020

or early 2021.

[71] I find that the Trustee affirmed the MTC and the Coast Forward Contracts

within a reasonable period of time after the bankruptcy, such that they were extant

between the parties in April/May 2020.

Was the Trustee Entitled to Terminate the CFL and Demand the Margin

Call?

[72] The central issue between the parties is whether the Trustee could, in

accordance with the Coast Agreements, cancel the CFL and then demand the

Margin Call. The Trustee says that it could; Coast says its could not.

[73] Coast’s position that the Trustee had no right to cancel or amend the “Margin

Terms” (essentially the credit allowed (MTM Limit) under the CFL) is found in its

RTCC, as follows:

12.

13.

The MTC and the CFL incorporated each other’s terms by reference

and formed part of a single agreement.

Pursuant to the MTC and the CFL, the Margin Terms were

incorporated and formed part of the terms applicable to a transaction

at the time of booking. Once a transaction was booked, it was not

open to EncoreFX to amend or cancel the Margin Terms.

14.

Accordingly, each transaction entered into by [Coast] was a contract

between EncoreFX and [Coast] governed by (i) the specific terms of

the transaction as agreed between EncoreFX and [Coast] and (ii) the

provisions of the MTC and CFL.

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 20

[74] Accordingly, the issue is whether the Trustee had the right to unilaterally

cancel the CFL in respect of the Coast Forward Contracts that were already in place

between the parties.

[75] I have considered the entire contractual landscape between EncoreFX and

Coast, being the NAA, MTC, the CFL and the Coast Forward Agreements.

[76] In my view, this issue is best considered within the architecture of those

various agreements and their relationship to each other.

[77] The MTC is the overarching agreement between the parties. The MTC

anticipates that Transactions will be booked in the future, which Transactions will be

governed by the MTC. Indeed, each of the Coast Forward Contracts specifically

provides that performance is referable to the terms of the MTC. In that event, I agree

with Coast that the terms of the MTC are incorporated and formed part of the

Transactions.

[78] Accordingly, when a customer, such as Coast, booked a Transaction, the

MTC governed the overall relationship in relation to the specific Transaction that had

been booked. This (along with the NAA) would have been the entirety of the

contractual relationship between EncoreFX and Coast from April 2017 and

November 2019 (when the CFL was put in place) with respect to any Transactions

booked over that time.

[79] Under the MTC, two provisions specifically provide that EncoreFX may

discontinue and terminate any “Services”. Article 3.1 permits EncoreFX to modify or

discontinue any "Service" without notice, provided that such modification or

discontinuation has no impact on any existing Transaction between a Customer and

EncoreFX. Article 11.1 allows EncoreFX to suspend or terminate "Services" to a

Customer at any time without notice; however, Article 11.3 provides that, if a

Customer is not in breach of the MTC, EncoreFX is required to carry out any

Transaction entered into prior to the termination.

[80] In that event, it is important to understand how the MTC defines “Services”.

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 21

[81] In Article 3.1, "Services" is defined as various EncoreFX Derivatives, including

Forward Contracts, such as were booked by Coast and were the subject of the

Coast Forward Contracts. Essentially, these are the Transactions, consistent with

the definition of a “Transaction” in Article 23 of the MTC (defined as the specific

Service(s) contracted for by the Customer with EncoreFX).

[82] I agree that the CFL is not entirely divorced from the MTC terms. “CFL” is

referenced in many MTC provisions, such as Articles 4.1(h), 5.3 (a) and (b), 6.3 and

6.4. in addition, the CFL refers to the MTC terms relating to any Margin Call under

the CFL.

[83] Having said that, the CFL is particularly directed toward the terms of the credit

extended by EncoreFX and stands apart from the MTC to a degree. I agree with the

Trustee that the CFL is a self-contained agreement to that extent. I also agree that,

to the extent that credit had been provided by EncoreFX under the CFL, the ability of

EncoreFX to terminate those credit facilities is not subject to the termination

provisions of the MTC in relation to any extant Transactions, such as the Coast

Forward Agreements. In particular, I rely on:

a)

Not every Customer of EncoreFX was issued credit pursuant to a CFL.

CFLs were granted at the discretion of EncoreFX;

b)

"CFLs" are defined in Article 23 of the MTC as "an agreement between

EncoreFX and the Customer outlining the credit terms approved by

EncoreFX and accepted by the Customer including transaction limits,

margin and deposits”. Accordingly, the existence of CFLs was clearly

contemplated as a possibility in the MTC;

c)

d)

The provision of credit under a CFL is not encompassed within the

definition of "Services" in Article 3.1 of the MTC;

It is only the “Services” (i.e., any future Transactions) that EncoreFX

may terminate in the future, and subject to the requirement to carry out

any Transactions entered into prior to that date. There is no provision

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 22

in the MTC that would support a contractual commitment on the part of

EncoreFX to continue to extend credit in respect of any extant

Transaction (such as the Coast Forward Contracts);

e)

Unlike the Coast Forward Contracts, the CFL did not state that Coast

agreed to all of the “terms, covenants and conditions contained in the

[MTC] to be complied with or performed by the Customer” that might

have supported an incorporation of the MTC termination provisions into

the CFL; and

f)

There is also no provision in the CFL to suggest that EncoreFX was

precluded from cancelling any credit facility with respect to extant

Transactions. In fact, the terms of the CFL were specifically to the

opposite effect: it was offered based on “current market conditions”; it

was to be reviewed annually; and it expressly stated that EncoreFX

would “re-evaluate, amend or cancel these trading facility terms as

required from time-to-time”.

[84] I agree with the Trustee that it was an express term of the CFL that EncoreFX

could unilaterally amend or cancel the credit terms at any time.

[85] I also agree that, once the CFL was terminated, Coast’s “buffer” had

disappeared. Coast's ability to avoid paying margins up to the MTM Limit (as set out

in the CFL) was eliminated such that the Trustee was entitled to issue the Margin

Call. The cancellation of the CFL did not eliminate Coast’s obligation to pay margins

to EncoreFX under Articles 5.3(b) and 6.3 of the MTC if Coast was in an OTM

position (which it was as of April 2, 2020).

[86] Ms. Bian states in her Affidavit (para. 27) and in her submissions to the Court

that Coast would not have booked the Coast Forward Contracts unless it had access

to the credit facility under the CFL. In my view, these statements are not within the

purview of proper “surrounding circumstances” as discussed in Sattva. Ms. Bian’s

evidence can only be described as her subjective intentions at the time of the

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 23

booking of the Coast Forward Contracts. Further, Ms. Bian’s evidence is only put

forward to impermissibly detract from the ordinary meaning of the words used in the

Coast Agreements, including the CFL. In that event, I have disregarded Ms. Bian’s

comments to that effect.

[87] In its RTCC, Coast also contends that the Trustee repudiated the Coast

Forward Contracts, the MTC and the CFL and that this repudiation was accepted.

Coast says that this repudiation occurred by the Trustee’s “unjustified Margin [C]all

…, including treating the Margin Terms as cancelled or amended” and by the

Trustee’s later actions in “unilaterally vary[ing]” and terminating the Coast Forward

Contracts. Coast says that it accepted that repudiation and was therefore relieved of

any further obligations under the Coast Forward Contracts.

[88] In Guarantee Co. of North America v. Gordon Capital Corp, [1999] 3 S.C.R.

423 at para. 40, the Court describes that repudiation occurs when a party "by words

or conduct evince[es] an intention not to be bound by the contract”.

[89] There is no basis here upon which to conclude that the Trustee acted so as to

repudiate any of the Coast Agreements. To the contrary, the Trustee affirmed its

intention to abide by the MTC and the Coast Forward Contracts. In addition, the

Trustee acted pursuant to the CFL in terminated the credit facility. As I conclude

above, the Trustee acted within its powers with respect to Coast Agreements,

including the MTC and the CFL, and it did not act in such a way as to repudiate any

of the Coast Agreements.

[90] In addition, I have concluded that the Trustee was able to cancel or terminate

the CFL and thereafter, make the Margin Call. Accordingly, no issues of repudiation

arise, as contended by Coast.

Did the Trustee use the Correct Close-Out Date and Close-Out Rate?

[91] Coast argues that there is no basis for valuing the Margin Call as of April 7,

2020, as set out in the Close-Out Letter. In its RTCC, Coast asserts:

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 24

33. … By valuing the demand on April 7, 2020, the Trustee has arbitrarily

applied an exchange rate that is more favourable to EncoreFX. This is

inconsistent with the intention of the parties and the terms of the [Coast

Forward Contracts].

[92] The terms of the MTC specifically address how and when EncoreFX may

close out Coast’s account if non-payment of a Margin Call occurs.

[93] Articles 5.3(b), 6.3, 6.4 and 6.5 provide that if a Margin Call, Margin Deposit

or Additional Margin Deposit is not paid within two (2) business days, EncoreFX may

terminate and close out the Transactions and set off amounts owed to the Customer

(including gains on contracts closed out) against any Losses incurred and amounts

owing to EncoreFX.

[94] The Termination Letter is dated April 2, 2020. The window for payment by

Coast would therefore have expired two (2) business days later, or by the end of the

day on April 6, 2020. Coast either failed, refused or neglected to pay the Margin Call

within those two (2) business days, as required under the MTC. Accordingly, the

Trustee was entitled to close out the Coast Forward Contracts as of the next

business day and calculate the value of those Transactions as of that date. Indeed,

in the Close-Out Letter, the Trustee calculated the amounts as of the next business

day, April 7, 2020.

[95] I conclude that the Trustee properly used April 7, 2020 as the Close-Out Date

in accordance with Articles 5.3(b), 6.3 and 6.5 of the MTC.

[96] Coast also takes issue with the Close-Out Rate used by the Trustee. In its

RTCC, Coast asserts:

23.

… Further, the quantum of the Margin Call was in breach of the MTC

as, among other things, it calculated [Coast’s] OTM Position using a rate

other than the “Mid-Market Rate” (as required by section 7.9 of the MTC).

[97] In default of payment of a Margin Call, and the close out of any Transactions,

Article 6.5 provides that EncoreFX has the right to:

(i) sell the necessary covering Current to terminate the Forward Contract(s),

(ii) charge the Customer with the damages, losses (including loss of profit),

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 25

costs, and expenses incurred by EncoreFX (the “Losses”), and (iii) apply the

Margin Deposit, the Additional Margin Deposit and any other deposit or funds

on hand then held by EncoreFX to pay the Losses.

[98] Mr. Venetsanos states that Coast’s Margin/OTM position was calculated

using the “Mid-Market Rate” (MMR), as required by section 7.9 of the MTC.

Mr. Venetsanos’ reference to “section 7.9” is likely in error as Article 7 of the MTC

addresses Option Contracts, which has no application here. Article 7.9 is, in any

event, identical to Article 6.3 that refers to the valuation of a Forward Contract in a

default situation as being based on the Mid-Market Rate:

EncoreFX shall determine the [MTM] value of a Forward Contract at a given

point on a daily basis on each business day based upon the Mid-Market

Rate. The Customer agrees to accept and be bound by such [MTM] value

determination as made by EncoreFX.

[99] Ms. Bian says that the Trustee should have used the Bank of Canada closing

rate, which she suggests is more accurate that the one used for the MMR. However,

there is no reference in the MTC to the Bank of Canada rate as being the basis upon

which the parties agreed to calculate the Close-Out amount. Despite Coast’s

argument that the MMR was “miscalculated”, it has put forward no evidence to

support the use of anything other than the rate used by the Trustee.

[100] Further, Article 23 defines “Mid-Market Rate” as a “rate derived from the mid-

point between the "buy" and "sell" rates for a currency”. There is no specific

reference to who is to determine this “mid-point”, other than the general reference in

Article 6.3 of the MTC to a determination being made by EncoreFX. That is what the

Trustee did in this case.

[101] I am satisfied that the Trustee’s calculations of the MMR were properly made

toward determining EncoreFX’s “Losses” under the terms of the MTC. I agree with

the Trustee that this is the amount that EncoreFX would have received had Coast

not breached the MTC by failing to pay the Margin Call, assessed as of the date of

the breach (i.e., April 7, 2020). Attached to Mr. Venetsanos’ affidavit is the Schedule

that was included with the Close-Out Letter. This Schedule identifies each of the

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 26

Coast Forward Contracts and their respective values as of the date of the Close-Out

Date.

[102] Finally, in its RTCC, Coast asserts:

6.

Further, even if the Trustee’s termination of the [Coast Forward

Contracts] is effective, which is denied, EncoreFX’s losses or damages are

limited to the difference in the price paid by Encore FX in the purchase and

sale of the relevant currency and what would have been paid or received had

the [Coast Forward Contracts] been performed, which purchase or sale did

not occur in any event.

[103] As best I can discern, Coast/Ms. Bian is asserting that, if the Trustee had

performed the Coast Forward Contracts, Coast would have been ITM to the extent

of $494,800. She therefore argues that EncoreFX’s losses are limited by that “fact”

such that it had no amount of “Losses” were incurred by EncoreFX.

[104] This argument ignores reality. EncoreFX was contractually able to terminate

the CFL and claim any margin that might have arisen through the withdrawal of the

CFL. In the event of non-payment of the Margin Call, such as occurred here, the

Trustee was contractually able to close-out the Coast Forward Contracts. It did so

properly on the Close-Out Date of April 7, 2020. In addition, the Trustee properly

used the MMR or “Mid-Market Rate” under Article 6.3 of the MTC to value the close-

out position of the Coast Forward Contracts.

[105] It is unfortunate that Coast did not choose to continue with the Coast Forward

Contracts by paying the Margin Call. By all accounts, if Coast had done so, it would

have benefitted greatly by being significantly ITM. However, what could have

happened in the future is hardly relevant to what did happen, all of which gave rise

the Trustee properly exercising EncoreFX’s contractual rights under the MTC. In that

event, I agree with the Trustee that, even if the value of the Coast Forward Contracts

would have been different at some future date, it is irrelevant to the determination of

the issues here.

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 27

CONCLUSION

[106] The Monitor is granted judgment against Coast in the amount of $232,700. In

addition, the Monitor is granted pre-judgment interest pursuant to the Court Order

Interest Act, R.S.B.C. 1996, c. 79 from April 7, 2020 to date of judgment. Finally, the

Monitor is awarded its costs of this action on a party and party basis under

Appendix B.

“Fitzpatrick J.”

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 28

SCHEDULE A

MASTER TERMS AND CONDITIONS

ARTICLE 1 – APPLICANT BOUND

1.1

By completing and signing the document provided by EncoreFX entitled “New

Account Application” form (the “Application”), the Customer shall be bound by these Master

Terms and Conditions. For the purposes of these Master Terms and Conditions, “Customer”

shall mean the entity identified on the first page of the Application in the box entitled

“Applicant Legal Name”.

ARTICLE 2 – APPLICATION

2.1

These Master Terms and Conditions apply to all Transactions entered into between

the Customer and EncoreFX. Such Transactions and all related contracts or agreements

between the Customer and EncoreFX will at all times be subject to the provisions of these

Master Terms and Conditions, except to the extend modified expressly and clearly by the

specific provisions of a Transaction.

ARTICLE 3 – ENCOREFX SERVICES

3.1

The services offered by EncoreFX to the Customer (the “Services”) may include: …

iii) foreign exchange Forward Contracts … Any or all of the Services offered may be

modified or discontinued by EncoreFX at any time and without advance notice, and

EncoreFX shall not be liable to the Customer for any loss resulting from such modification or

discontinuance. Such modification or discontinuance by EncoreFX of Services shall not

affect any existing Transaction between the Customer and EncoreFX.

ARTICLE 4 – REPRESENTATIONS AND WARRANTIES

4.1

The Customer hereby represents and warrants to EncoreFX that: ….

(h) it has received and understands the following documentation: …

(iii) Credit Facility Letter (to the extent the Customer will use Margin)

ARTICLE 5 – TRADE PROCESS

5.2

The following procedures shall apply with respect to the confirmation and completion

of Transactions between the Customer and EncoreFX: …

(d)

Upon authorizing and accepting the Transaction the Customer shall forthwith

make any required contractual payment to EncoreFX.

5.3

The following procedures shall apply with respect to payments made by the

Customer to EncoreFX:

(a)

The Customer may be required to pay a deposit in order to effect the

Transaction, as set out in the Credit Facility Letter. The deposit may be a

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 29

fixed amount, a floating Margin Deposit or a combination of the two types of

deposit, as specified by EncoreFX.

(b)

At the discretion of EncoreFX, certain Customers shall be required to

maintain margins with respect to certain accounts or Transactions, as set out

in the Credit Facility Letter. From time to time, EncoreFX may issue a Margin

Call to such a Customer to ensure that the Customer is maintaining the

appropriate deposit margin in its account. Upon the issuance of such a

Margin Call, the Customer shall forthwith deposit the funds required to

maintain the appropriate margin with EncoreFX. In the event that the

Customer fails to either pay a deposit or respond to the Margin Call by

depositing such required funds within two (2) Business Days, the Customer

shall be in default under the Transaction, which shall cause a default under

all pending Transactions and EncoreFX shall, at its sole discretion and

without further notice and in addition to any other rights it may have herein,

have the right to: i) close out the Customer’s account and terminate the

contract which relates to the specific Service or Transaction; ii) terminate and

close out any other pending Transaction/contract for Services with Customer;

…

(e)

Under any circumstance in which monies are owed to EncoreFX by the

Customer pursuant to this Agreement or any Transaction, EncoreFX will

provide notice to the Customer of such outstanding amounts. Upon receiving

such notice, the Customer shall have two (2) Business Days (unless

otherwise agreed to in writing by EncoreFX) to provide such amounts to

EncoreFX. Failure to provide the required amount to EncoreFX shall be a

default under any and all contracts for Services and Transactions pending or

in place with EncoreFX.

5.5

The terms and conditions contained herein are hereby incorporated into each

Transaction entered into between the Parties.

5.6

EncoreFX shall be entitled to cancel any Transaction where the Customer has not

carried out its obligations. The Customer shall reimburse EncoreFX for any losses, costs

and expenses incurred as a result of such cancellation.

5.7

EncoreFX reserves the right to refuse to provide the Services to the Customer or

enter into any Transaction with the Customer at any time for any reason whatsoever.

ARTICLE 6 – FORWARD CONTRACTS

6.3

Forward Contracts may require a Margin Deposit in an amount and on terms

specified by EncoreFX which shall be stated in the Credit Facility letter. The Margin Deposit

shall be the amount specified by EncoreFX when the Forward Contract is entered into. The

Margin Deposit shall be either in guaranteed funds or by a bank letter of guarantee/credit

(on terms and conditions satisfactory to EncoreFX including without limitation, the issuing

bank and the maturity date) and must be paid within two (2) Business Days. In the event that

the Margin Deposit is not received within two (2) Business Days EncoreFX shall at its sole

discretion and without further notice, have the right to i) close out the Customer’s account

and terminate the contract which relates to the specific Service or Transaction; ii) terminate

and close out any other pending Transaction/contract for Services with Customer; ... Where

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 30

a Margin Deposit is placed on a floating basis for the Forward Contract the Customer agrees

to submit to EncoreFX additional deposit funds/letter of guarantee (the “Additional Margin

Deposit”) when EncoreFX determines that the mark-to-market potential loss on the Forward

Contract exceeds the prescribed amount established with EncoreFX in the Credit Facility

Letter. EncoreFX shall determine the mark-to-market value of a Forward Contract at a given

point on a daily basis on each business day based upon the Mid-Market Rate. The

Customer agrees to accept and be bound by such mark-to-market value determination as

made by EncoreFX.

6.4

EncoreFX shall have the right In its sole discretion, to notify a Customer at any time

that an Additional Margin Deposit is required as determined by EncoreFX in accordance with

Section 6.3. The Customer agrees that upon such notification from EncoreFX, the Customer

will have two (2) Business Days from notification to provide to EncoreFX the Additional

Margin Deposit. The amount of the Additional Margin Deposit shall be that amount

determined by EncoreFX which is sufficient to ensure that the Margin Deposit together with

the Additional Margin Deposit held by EncoreFX for the particular Forward Contract on a

mark-to-market value is at least the minimum prescribed amount established by EncoreFX

for the Forward Contract as established in the Credit Facility Letter.

6.5

Should the Customer not: (i) complete the Forward Contract by the required

Settlement Date(s), or (ii) pay to EncoreFX any Margin Deposit including any required

Additional Margin Deposit, then in that event, EncoreFX shall no longer be obligated to

complete the Forward Contract and at EncoreFX’s sole discretion, any other pending

Transaction including any other Forward Contract(s) with the Customer. In addition,

EncoreFX shall have the right to: (i) sell the necessary covering Currency to terminate the

Forward Contract(s), (ii) charge the Customer with the damages, losses (including loss of

profit), costs and expenses incurred by EncoreFX (the “Losses”), and (iii) apply the Margin

Deposit, the Additional Margin Deposit and any other deposit or funds on hand then held by

EncoreFX to pay the Losses. Should the Margin Deposit, the Additional Margin Deposit and

any other depositor funds on hand then held by EncoreFX not be sufficient to reimburse and

indemnify EncoreFX for the Losses incurred, the Customer agrees to forthwith pay to

EncoreFX any additional amount required to cover such shortfall.

ARTICLE 11 – TERMINATION

11.1 EncoreFX may suspend or terminate Services to the Customer at any time without

notice.

11.3 Provided the Customer has not violated the terms of this Agreement, all Transactions

which were entered into prior to termination shall be carried out in accordance with the

instructions of the Customer relating to such Transactions. The Agreement shall continue

until such time as all obligations of the Customer and of EncoreFX pursuant to such

transaction have been performed.

11.4 Notwithstanding Section 11.3 hereof, in the event that the Customer has violated the

terms of this Agreement in any way including, but not limited to, not performing any of its

obligations under any Transaction …, EncoreFX may, at its sole discretion, withhold the

Services offered by EncoreFX from the Customer and/or terminate any pending

Transactions immediately by providing written notice to the Customer of the termination and

of its violation of the terms of this Agreement. In the event that any Transaction is terminated

based upon a Customer’s violation of any term or condition of the Transaction or this

9019235 Canada Inc. v. Coast Fraser Enterprises Ltd.

Page 31

Agreement by the Customer, EncoreFX will be relieved of any and all its obligations under

this Agreement to complete any pending Transaction, including its obligations under any

Transaction entered into prior to such termination.

11.5 Subject to Section 11.4, within two (2) Business Days of termination, the Customer

and EncoreFX shall settle all amounts due and owing under pending Transactions (including

in EncoreFX’s discretion …Forward Contracts …) and this Agreement.

ARTICLE 19 – LIMITATION OF LIABILITY/INDEMNITY

19.1 EncoreFX will not be liable to the Customer for any losses or damages suffered

under this Agreement except to the extent that such losses or damages are directly

attributable to the gross negligence or wilful misconduct of EncoreFX, its officers or its

employees.

ARTICLE 22 – MISCELLANEOUS

22.10 This Agreement, except as may be supplemented by an additional agreement

entered into between the Parties and the terms and conditions of each Transaction,

constitutes the entire agreement between the Parties with respect to the use of the Services

by the Customer

ARTICLE 23 – DEFINITIONS

“Credit Facility Letter” means an agreement between EncoreFX and the Customer

outlining the credit terms approved by EncoreFX and accepted by the Customer including

transaction limits, margin and deposits.

“Forward Contract” means an OTC Transaction that is not a Spot Transaction, whereby

EncoreFX agrees to deliver a specific Currency to the Customer, or as directed by the

Customer, at some point of time in the future.

“Losses” has the meaning ascribed thereto in Section 6.5 hereof.

“Margin Call” means a demand by EncoreFX on the Customer to deposit monies with

EncoreFX for the purpose of ensuring that the Customer’s margin account is brought up to

the minimum margin requirements for the Transaction.

“Margin Deposit” means a good faith deposit placed by a Customer with EncoreFX as

collateral to hold a position for a Forward Contract …

“Mid-Market Rate” means a rate derived from the mid-point between the “buy” and “sell”

rates for a currency.

“Services” has the meaning ascribed thereto in Section 3.1 hereof.

“Transaction” means the specific Service(s) contracted for by the Customer with EncoreFX.