Executive Summary: Key Legal and Evidentiary Issues

• Whether the Court of King’s Bench properly refused to set aside Alternatifbank A.S.’s consent discontinuance of the 2013 fraudulent conveyance action, leaving no live proceeding to which Yapi ve Kredi Bankasi could be joined as plaintiff.
• The extent of a court’s inherent jurisdiction to review and set aside a discontinuance—filed as of right and by consent—on grounds of abuse of process or “special circumstances,” particularly where a limitation period may have expired.
• Standing and procedural rights of a non-party creditor (YK Bank) to challenge a consent discontinuance and seek joinder or substitution as plaintiff in a fraudulent conveyance action commenced by other creditor banks.
• The representative nature of fraudulent conveyance proceedings, including whether a plaintiff bank prosecuting such a claim is dominus litis up to judgment and may settle or discontinue despite alleged prejudice to other creditors.
• Proper characterization and application of the standard of review for discretionary decisions (errors of law vs. palpable and overriding errors of fact or mixed fact and law), and the role of “so clearly wrong as to amount to an injustice” within the Housen framework.
• Interaction between fraudulent conveyance/fraudulent preference remedies, limitation periods, and the practical consequences for later-arriving creditors seeking to preserve or extend access to allegedly fraudulently conveyed assets.

Facts of the case

Sekerbank T.A.S., a Turkish bank, had extended credit to several Turkish companies. Those corporate loans were personally guaranteed, at least in part, by Huseyin Arslan. When the Turkish debtor companies defaulted, Sekerbank sued in Turkey on the corporate debts and Arslan’s guarantees. Arslan held a large block of shares in Alliance Grain Traders Inc. (AGTI), a Saskatchewan-based pulse trading company. Murad Al-Katib was AGTI’s chief executive officer and a director. Arslan transferred several million dollars’ worth of his AGTI shares to Al-Katib in his capacity as trustee of a family trust established for the benefit of the Arslan and Al-Katib families. Sekerbank alleged this transfer was a fraudulent conveyance intended to defeat, hinder or prejudice creditors, including itself, and commenced a fraudulent conveyance action in Saskatchewan in 2013 against Arslan and Al-Katib.

Pending resolution of that action, Sekerbank obtained a preservation order under s. 5 of The Enforcement of Money Judgments Act, preventing disposition of 850,000 AGTI shares held in trust. Though the order was granted on consent, Arslan and Al-Katib repeatedly applied over the years to set it aside, but those attempts failed. In 2017, Alternatifbank A.S. (AB Bank), another Turkish bank that had also obtained judgments in Turkey against Arslan as guarantor of separate corporate debts, was added as a co-plaintiff to the same 2013 fraudulent conveyance action. Later, Yapi ve Kredi Bankasi Anonim Sirketi (YK Bank), yet another Turkish creditor, secured its own Turkish judgment against Arslan in 2017. After exhausting Turkish appeals, YK Bank sought and obtained registration of its foreign judgment in Saskatchewan under The Enforcement of Foreign Judgments Act, and the registration order was upheld by the Saskatchewan Court of Appeal, with leave to the Supreme Court of Canada refused.

Settlement dynamics and creditor tensions

In mid-2022, YK Bank learned that Sekerbank was negotiating a settlement of its claims against Arslan and Al-Katib in both Turkey and Saskatchewan. YK Bank’s counsel wrote to counsel for Sekerbank, AB Bank, and for Arslan and Al-Katib, warning that any settlement payments in favour of the “other creditors” would, in its view, constitute improper transactions: they would be made when Arslan was allegedly insolvent or on the eve of insolvency, with the intent and effect of defeating or prejudicing YK Bank and other creditors, and would amount to a fraudulent preference or non-bona fide payment. YK Bank indicated it would pursue all available remedies against anyone who participated in or facilitated such transactions. Despite those warnings, YK Bank did not actually commence a fraudulent preference or related action in Saskatchewan in respect of that settlement over the ensuing years.

While YK Bank was advancing its separate foreign judgment registration proceedings, Sekerbank ultimately settled its disputes with Arslan and Al-Katib. Under that arrangement, it agreed to dismiss its Turkish and Saskatchewan actions in exchange for the security previously posted in the 2013 action. On December 11, 2023, the case management judge in the 2013 Saskatchewan proceedings granted a consent order that Sekerbank’s action “be discontinued” (as opposed to “dismissed” as had been requested), and terminated the preservation order. That ended Sekerbank’s role in the 2013 action but left AB Bank as the remaining plaintiff.

The 2013 action and the shift to AB Bank’s claim

With Sekerbank out, Arslan and Al-Katib turned to address AB Bank’s continuing fraudulent conveyance claim. They brought an application to strike or dismiss AB Bank’s 2013 action on limitation grounds, or alternatively on the basis that the foreign judgment underpinning AB Bank’s Saskatchewan claim could not be registered. Against this backdrop, YK Bank decided to try to step into the litigation over the AGTI shares.

On February 13, 2024, YK Bank filed a joinder application seeking to be added as a plaintiff in the 2013 action. The notice of application stated that YK Bank consented to being added as a plaintiff, and in one paragraph also suggested that it should be added “or substituted” as plaintiff should AB Bank wish to discontinue. The hearing was set for April 25, 2024. In a March 15, 2024 case management conference, it emerged that AB Bank itself had settled with Arslan and Al-Katib and wished to discontinue its claim. A proposed consent order “dismissing and discontinuing” AB Bank’s 2013 action and discontinuing Al-Katib’s counterclaim was prepared. Because YK Bank objected to any discontinuance before its joinder motion could be heard, the judge initially reserved on dismissing the 2013 action.

On March 18, 2024, despite that reserve, counsel for AB Bank and for Arslan and Al-Katib filed a consent discontinuance in the Court of King’s Bench, supported by AB Bank’s formal notice of discontinuance and the discontinuance of the counterclaim. On March 20, 2024, new counsel for AB Bank confirmed to the court that AB Bank no longer wished to participate in the action and consented to discontinuance. As a result, AB Bank’s fraudulent conveyance action was brought to an end by consent.

YK Bank’s attempt to set aside the discontinuance

YK Bank responded quickly. On March 19, 2024 (the day after the consent materials were filed), it applied to strike or set aside the notice of discontinuance. It argued that allowing the discontinuance to stand would deprive the Court of King’s Bench of jurisdiction to hear its pending joinder application and would extinguish its ability to prosecute the 2013 action, not only for itself but for the benefit of all Arslan’s creditors. YK Bank’s theory was that the 2013 fraudulent conveyance proceeding was, in substance, a representative action brought for all creditors under the Statute of Elizabeth and The Fraudulent Preferences Act. In that context, it said, AB Bank could not unilaterally collapse the litigation for its own purposes and thereby undermine the rights of other creditors who might seek to be added or substituted as representative plaintiff.

In the King’s Bench “Discontinuance Decision” (2024 SKKB 115), the case management judge framed two questions: first, should the consent discontinuance be set aside; and second, if so, should YK Bank be added as a plaintiff (by joinder or substitution). The judge adopted the established Saskatchewan and common-law framework under Rule 4-49 of The King’s Bench Rules and the leading case McCredie v Kilbach Estate. Under that framework, a plaintiff may discontinue as of right at certain stages or with consent, but courts retain inherent jurisdiction to set aside a discontinuance in “special circumstances” or where it amounts to an abuse of process—particularly, for example, where a limitation period has expired and setting aside the discontinuance would revive a claim.

The judge accepted that courts can, in proper cases, set aside a discontinuance even when it was filed as of right, but he emphasized that this is rare and that special circumstances or abuse of process must be clearly established. On the facts, he rejected YK Bank’s abuse of process argument. He found no evidence that AB Bank had acted improperly or collusively in choosing to end its litigation, and identified that AB Bank, as plaintiff, was dominus litis and could decide to discontinue before judgment. The fact that YK Bank had a pending joinder motion did not, in his view, transform AB Bank’s decision into an abuse of process.

The judge also rejected the claim that the representative nature of fraudulent conveyance actions compelled a different result. Relying on historic authorities such as Driffill v Ough and Canadian Bank of Commerce v Tinning, he held that prior to judgment the named creditor plaintiff remains master of the proceedings; other creditors may bring their own actions but cannot prevent the original plaintiff from settling or discontinuing. If the pleadings in the 2013 action failed to describe it expressly as being “on behalf of all creditors,” that defect was a procedural matter that could have been corrected by amendment while the claim was alive; it did not, however, strip AB Bank of its ability to discontinue.

On that basis, the King’s Bench judge dismissed YK Bank’s application to set aside the consent discontinuance. As he noted, this left “no action to which YK Bank can be joined,” and therefore YK Bank’s underlying joinder request necessarily failed.

Appeal to the Saskatchewan Court of Appeal

YK Bank appealed to the Court of Appeal, arguing that the judge had misapplied the law on (1) the effect of granting its strike application on AB Bank’s litigation rights, and (2) the representative character of the fraudulent conveyance claim and the rights of creditors to seek substitution as representative plaintiff. YK Bank maintained that the King’s Bench judge treated its application as impermissibly “forcing AB Bank to litigate,” failed to appreciate that YK Bank was actually seeking substitution to take over the action, and under-valued the court’s supervisory responsibilities in representative proceedings.

The Saskatchewan Court of Appeal, per Schwann J.A. (with Kalmakoff and Drennan JJ.A. concurring), began by carefully restating the standard of review applicable to discretionary decisions. Drawing on Housen v Nikolaisen and more recent Saskatchewan authorities such as Kot v Kot, MacInnis v Bayer, Stromberg v Olafson, and Abrametz v Law Society of Saskatchewan, the Court held that discretionary decisions are reviewable for correctness on questions of law (including misidentifying or misapplying the governing legal criteria), and for palpable and overriding error on questions of fact or mixed fact and law. The oft-used phrases “so clearly wrong as to amount to an injustice” and “failure to act judicially” were treated as shorthand that must be read within the Housen framework rather than as a free-standing third ground of appellate intervention.

Against that legal backdrop, the Court of Appeal concluded that the Discontinuance Decision attracted deference and that YK Bank had not demonstrated any legal error or palpable and overriding factual error. The Court rejected the suggestion that the judge’s reliance on Glasjam v Freedman was misplaced. It held that the King’s Bench judge had properly understood Glasjam as authority for the general proposition that a non-party has, at best, “bare standing” to attack a consent discontinuance and that courts are rightly cautious about any order that would force parties to continue litigation they have agreed to end. The Saskatchewan court emphasized that Glasjam, an Ontario master’s decision, was at best persuasive and not binding, and that in any event the King’s Bench judge had not treated it as determinative.

On the alleged misunderstanding of YK Bank’s substitution request, the Court observed that the joinder application documents primarily sought to have YK Bank “added” as plaintiff and referred only in passing to possible “substitution” if AB Bank discontinued. Without a transcript of the chambers hearing, the Court accepted that the trial judge could reasonably have seen the relief as essentially a joinder request. In any event, the critical analytical sequence remained unchanged: unless and until the consent discontinuance was set aside, there was no live action into which YK Bank could be joined or substituted.

Representative nature of the fraudulent conveyance claim

The Court of Appeal addressed in some detail YK Bank’s argument that fraudulent conveyance actions are inherently representative and must be managed for the benefit of the creditor class as a whole. After reviewing authorities on the Statute of Elizabeth, The Fraudulent Preferences Act and commentary in Fraudulent Conveyances and law reform reports, the Court accepted the general principle that a non-judgment creditor attacking a fraudulent conveyance must, in classical Chancery terms, sue on behalf of itself and all other creditors. However, it emphasized that this requirement is procedural: it goes to how the claim is pleaded and to ensuring that any eventual relief enures to all interested creditors, not to depriving the named plaintiff of control over the proceedings before judgment.

The Court noted that Sekerbank’s original statement of claim in 2013 had not been expressly framed as a representative action; it proceeded instead under The Fraudulent Preferences Act seeking, among other things, a declaration that Arslan’s transfer of the AGTI shares to the trust was void. Even if that were technically a defect, the Court held, it was an irregularity of form that could have been cured by amendment. It did not convert the proceeding into one where either AB Bank or Sekerbank were precluded from settling or discontinuing before judgment; nor did it create substantive rights in favour of late-arriving creditors who had not sought timely joinder or commenced their own actions.

The Court also declined to accept YK Bank’s reliance on Rule 2-11 of The King’s Bench Rules (representation orders) as a basis for heightened judicial oversight of the settlement and discontinuance. It questioned whether the specific preconditions of Rule 2-11 were even met, and pointed out that importing a mandatory court-approval regime for any settlement or discontinuance in a fraudulent conveyance case would be inconsistent with the express terms of Rule 4-49(8)(a), which allows discontinuance as of right with the consent of the parties to the action.

Abuse of process, limitation issues and delay

On the abuse of process branch, the Court of Appeal upheld the King’s Bench finding that there was no evidence AB Bank had acted improperly in deciding to abandon the 2013 action. The fact that AB Bank moved to discontinue only after YK Bank filed its joinder motion did not, without more, establish collusion or a plan to “usurp the court’s jurisdiction.” The discontinuance was a consensual step between existing parties that the rules permitted. Moreover, the Court emphasized that it was AB Bank, not Arslan or Al-Katib, who formally discontinued. Accusations by YK Bank aimed at the defendants’ motives could not support a finding of abuse by the plaintiff bank.

The Court also highlighted YK Bank’s own delay and litigation choices. YK Bank had known about Sekerbank’s settlement plans since 2022 but did not bring its own fraudulent conveyance or fraudulent preference action, nor did it seek joinder promptly; instead, it waited until early 2024, over a decade after the original 2013 action began and long after other creditor banks, such as Fibabanka and Sardes, had had their own late claims rejected on limitation grounds. The Court endorsed the King’s Bench judge’s reasoning that resurrecting the 2013 action to accommodate YK Bank would undercut the finality of prior limitation rulings and allow one creditor to sidestep limitation periods that had already barred others.

The Court accepted that, if YK Bank were now to commence a fresh fraudulent conveyance action regarding the AGTI shares, that new action would likely face a limitation defence. However, existing authorities like Singh v Street and Hunt v Mutual Life make clear that the loss of a limitation defence counts as prejudice to the defendants when courts consider whether to set aside a discontinuance. That factor generally weighs against disturbing a completed discontinuance unless truly exceptional circumstances are shown—circumstances the Court concluded were not established here.

Outcome and overall result

Bringing these strands together, the Saskatchewan Court of Appeal held that the King’s Bench judge had correctly identified and applied the governing test for setting aside a discontinuance and had committed no reviewable error in finding neither special circumstances nor abuse of process. The judge had also properly recognized that the fraudulent conveyance character of the claim and its quasi-representative dimension did not displace the fundamental principle that the named creditor plaintiff is dominus litis and may settle or discontinue before judgment, even if that frustrates the strategic interests of other creditors who did not act in time.

Accordingly, the Court dismissed YK Bank’s appeal. The consent discontinuance filed by AB Bank stood, and there remained no 2013 action in which YK Bank could be joined or substituted. The successful parties on appeal were the respondents, Huseyin Arslan and Murad Al-Katib, who were awarded one set of costs “taxed in the usual way.” The decision does not specify a dollar figure for those costs or any other monetary award, and the total amount ordered in their favour therefore cannot be determined from the judgment.