Bank Did Not Circumvent Secured Interest by Granting Overdraft Protection

In Kari Holdings Inc. v. HSBC Bank Canada, C.I.F. Furniture Limited ("CIF") opened two commercial chequing accounts at HSBC Bank Canada ("Bank"). The accounts had no automatic overdraft protection. Subsequently, CIF was declared bankrupt and placed in receivership. Kari Holdings Inc. ("Kari") was a secured creditor of CIF. Pursuant to an inter-creditor agreement, Kari's security interest was subordinate only to the security granted by CIF to another bank and to a senior subordinated debenture in favour of CIF's controlling shareholder. Kari alleged that on twenty-seven occasions, the Bank exercised its discretion to grant overdraft protection to CIF and repaid itself with collateral that was subject to Kari's prior security interest. Kari sought an order that the Bank pay Kari $467,455 for the alleged overdrafts.