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Equity - Clean Hands

. Shanthakumar Estate v RBC

In Shanthakumar Estate v RBC (Div Court, 2023) the Divisional Court adds an unusual 'equitable' factor ('clean hands') to the typical 'balance of convenience' of the RJR-MacDonald 'stay pending appeal' test:
Additional Observation: “Clean Hands” Doctrine

[32] Although the RBC respondents’ arguments respecting the appellant’s litigation misconduct do not tip the balance of harm/convenience in favour of refusing a stay of the Subject Orders, they are relevant to the “clean hands” doctrine. In addition, the fact, timing and circumstances of the appellant’s transfer of the Property out of the estate and into Mr. Mylabathula hands are also relevant to the question of whether the appellant has “come to equity with clean hands”.

[33] I am mindful that the “clean hands” doctrine is not a strict rule that functions to automatically disentitle a party from relief, but, rather, is applied in the court’s discretion considering the specific circumstances of each case (see: Hrvoic v Hrvoic, 2023 ONCA 508, at para. 18).

[34] In the specific circumstances of the case-at-bar, I find that the appellant’s litigation conduct and its transfer of the Property render its hands “unclean”.
. Hrvoic v. Hrvoic

In Hrvoic v. Hrvoic (Ont CA, 2023) the Court of Appeal usefully considered the equitable 'clean hands' doctrine:
[14] The “clean hands doctrine” comes from the 18th century maxim that “he who comes to equity must come with clean hands”: see e.g., Pro Swing Inc. v. Elta Golf Inc., 2006 SCC 52, [2006] 2 S.C.R. 612, at para. 22; Bolianatz Estate v. Simon, 2006 SKCA 16, 264 D.L.R. (4th) 58, at para. 116; Dering v. Earl of Winchelsea (1787), 1 Cox 318, 2 E.R. 1184, at pp. 319-320.

[15] Doug submits that Melissa’s improper withdrawals should therefore have disentitled her to the equitable remedy granted by the trial judge. We disagree that the “clean hands” doctrine applies in the circumstances of this case.

[16] First, the trial judge did not grant equitable relief. As we earlier concluded, the trial judge made no error in finding that there was an agreement between Doug and Melissa to increase Melissa’s common shareholdings to 50%. This was not the granting of equitable relief but the finding by the trial judge of the existence of an agreement between the parties and the granting of the relief that flowed from that agreement.

[17] Moreover, because Melissa’s withdrawals from the company and from Doug’s line of credit are unrelated to the proper division of the shares, Melissa’s conduct would not fall within the application of the “clean hands” doctrine: see e.g., BMO Nesbitt Burns Inc. v. Wellington West Capital Inc. (2005), 2005 CanLII 30303 (ON CA), 77 O.R. (3d) 161 (C.A.), at para. 27; Toronto (City) v. Polai, 1969 CanLII 339 (ON CA), [1970] 1 O.R. 483 (C.A.), at pp. 493-494, aff’d 1972 CanLII 22 (SCC), [1973] S.C.R. 38.

[18] In any event, the “clean hands” doctrine does not automatically disentitle a party with “unclean hands” from obtaining any relief. Equitable principles are not based on the application of strict rules but are applied at the judge’s discretion and are “crafted in accordance with the specific circumstances of each case”: Pro Swing Inc., at para. 22. As this court observed in Sorrento Developments Ltd. v. Caledon (Town), 2005 CanLII 2549 (Ont. C.A.), at para. 5: “It is a matter of discretion for the trial judge whether to refuse to grant equitable relief on the basis that a litigant has not come to court with clean hands”. Here, the trial judge carefully considered the circumstances surrounding both withdrawals.


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