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Note: To induce members to join Eagle Creek Golf Club, a planned world class golf club in Ottawa that would take approximately three years to build, developer R. J. Nichol Homes permitted memberships to be paid by means of standby LCs ranging between CAD 20,000 and 28,000 which could be drawn on if the minimum number of memberships necessary to cover construction costs was reached by a certain date and if the Board certified that the course would be ready for play within six months of the draw down date. When the deadline approached, 38 members obtained an interim injunction prohibiting the developer/beneficiary from drawing on the LC. The injunction was dissolved when various documents relating to the completion of the course were released. Prior to the deadline, the LCs were drawn on and the funds applied to constructions loans advanced by the Royal Bank of Canada, the lender. The LCs were payable to the beneficiary "in trust for the Eagle Creek Golf Club". Although the club operated for two seasons, memberships were abandoned when the course was required to purchase the land on which it was built from the developer's companies which then became insolvent. One hundred sixty nine investors commenced a class action against various parties including the bank and the developer for wrongfully drawing on the LCs. The trial court found that the conditions precedent to a drawing on the LCs had not been met and concluded that the developer owed a fiduciary duty to the investors and awarded damages of CAD 3,210,000 in restitution and 2,754,198.54 in compound interest. It also concluded that the investors were entitled to restitution from the Royal Bank since it had knowingly received these funds. On appeal, the Court of Appeal for Ontario, Simmons, J., affirmed. The trial court concluded that the required number of "sold memberships" had not been met by the deadline even counting the 81 memberships purchased by the developer in that the count was 14 short of the total of 260. It also concluded that it was not reasonable to certify that the course would be open for play since there were unresolved zoning problems at the time even though these issues were cleared up and it was opened on time. The trial court further found that the "beneficiary's comments that he intended to call down on the letters of credit whether the conditions were met or not" tainted the validity of any certification by a board controlled by him..83 2001 LC CASE SUMMARIES The appellate court explained that the doctrine of "knowing receipt" operated "where a stranger to a trust, having received trust property for his or her own benefit, and having knowledge of facts which would put a reasonable person on inquiry, actually fails to inquire as to the possible misapplication of trust property." It observed that "the Royal Bank proceeded with advances based at least in part on the security of the letters of credit at a time when there was no doubt that the conditions for drawn down of the letters of credit had not been met. It subsequently restricted its advances in a way that impeded satisfaction of the threshold membership condition. The trial judge found that the conditions for draw down were never met, that the Royal Bank was therefore never entitled to receive the proceeds it applied, ultimately, to minimize its own losses, and that it failed to make adequate inquiries when it received the funds. He found, in effect, that the Royal Bank had been unjustly enriched. In dealing with the issue of inquiries, the trial judge couched his language in terms of the Royal Bank failing to make any inquiries. It is clear from his Reasons that he was aware the Royal Bank had information from its customer and that his finding was that it failed to make additional inquiries when it had been alerted they were necessary. Having regard to the Royal Bank's knowledge of and participation in the transaction, the trial judge did not err in making this finding."

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