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Factual background
Tacora Resources Inc. is an Ontario-based mining company operating the Scully Mine in Newfoundland under a mining lease known as the Wabush Lease. Under this lease, Tacora must pay quarterly royalties—worth about $5.5 million for the fourth quarter of 2025—to 1128349 B.C. Ltd. (112), a British Columbia company wholly owned by Scully Royalty Inc. Scully is incorporated in the Cayman Islands and is a reporting issuer in several Canadian provinces. The dispute arose because rival factions within Scully, and by extension 112, each claimed to control the companies and to have authority to direct how and where Tacora’s royalty payments should be made.
In late 2025, a shareholder activist group MILFAM LLC nominated its own slate of directors for Scully’s board ahead of the company’s annual general meeting. Scully’s incumbent board challenged the nomination’s timeliness, prompting MILFAM to seek declaratory relief from the Grand Court of the Cayman Islands. The Cayman Court held in MILFAM’s favour, confirming the validity of the nomination notice. Although Scully filed a notice of appeal, no stay of that judgment was obtained. Scully then purported to postpone the AGM via press release, but MILFAM maintained that the company’s articles of association did not permit such a postponement and proceeded with the AGM in Hong Kong on December 27, 2025.
Competing corporate factions and control of 112
According to the appellants, MILFAM’s slate—Jerrod Freund, Mark Holliday, Alan Howe, Nimesh Patel and Skyler Wichers—was elected at the AGM, becoming the new “MILFAM Directors.” On their account, this new board removed Samuel Morrow and Michael Smith as officers of Scully and of its subsidiaries, including 112, and installed Mr. Wichers as President and Secretary of both Scully and 112. Mr. Morrow and Mr. Smith, however, refused to accept the legitimacy of this AGM and continued to act as though they controlled Scully and 112.
MILFAM commenced a further proceeding in the Cayman Court on January 5, 2026, seeking declarations that the MILFAM Directors were properly elected and that the former directors, including Mr. Morrow and Mr. Smith, no longer sat on Scully’s board. That governance litigation remained ongoing at the time of the Ontario appeal, with a trial on the merits scheduled for late May 2026. The unresolved Cayman governance dispute created acute uncertainty as to who had lawful authority to speak for Scully and 112 in respect of Tacora’s royalty payments.
Royalty payment instructions and threats under the Wabush Lease
Under the Wabush Lease, Tacora’s royalty payment to 112 for the fourth quarter of 2025 fell due on January 25, 2026. On December 13, 2025, shortly after MILFAM launched its first Cayman proceeding, Mr. Morrow emailed Tacora’s Executive Vice President and CFO providing “updated bank information” for 112 for all future royalty payments. Although he later offered a general explanation, he refused to disclose the name or location of the financial institution associated with the new account to the MILFAM-aligned appellants, heightening suspicion around the change.
On January 22, 2026, Mr. Morrow again wrote to Tacora, acknowledging the Cayman litigation but insisting it did not alter Tacora’s obligations to 112. He expressly warned that the quarterly royalty had to be paid “in full and on time” in accordance with his instructions and threatened that any failure would result in an “immediate Notice of Default” under the Wabush Lease. Under the lease, a valid default notice could trigger a process by which 112 might seek to terminate the mining lease and seize control of the mining operations.
Tacora did not pay the royalty into the account specified by Mr. Morrow. On January 27, 2026, 112’s lawyers, Stewart McKelvey, acting on instructions from Mr. Morrow’s faction, served Tacora with a Notice of Default under the Wabush Lease. If lawfully authorized, that notice initiated a process that could ultimately allow 112 to terminate the lease and enter onto the mine.
MILFAM’s response and the proposal for escrow or interpleader
On February 4, 2026, Bennett Jones, counsel to the MILFAM Directors claiming to be the newly elected board of Scully, wrote to Tacora’s counsel. They asserted that Mr. Morrow and the former board were no longer authorized to act on behalf of Scully or 112 and that Mr. Morrow had no right to receive or direct the royalty. The letter requested that Tacora not remit any funds in response to the Notice of Default or follow any payment instructions coming from the former board or its counsel. It squarely identified the situation as involving “competing demands for payment.”
Recognizing that Tacora faced conflicting demands and a risk of multiple or inconsistent liability, Bennett Jones proposed that the royalties be paid into escrow pending the outcome of the Cayman proceedings or, failing agreement, that Tacora bring an interpleader application under Rule 43 of the Ontario Rules of Civil Procedure so the disputed funds could be preserved while the corporate control dispute was resolved. The MILFAM side also expressly suggested that Tacora’s costs of such an application should be payable out of the royalty funds—an important point later taken up by the Court of Appeal.
The Morrow faction, acting through Stewart McKelvey, rejected both options. On February 5, 2026, they advised that 112 would not consent to any escrow conditions and would “vigorously object” to any interpleader application. This hardened stance compelled Tacora to act unilaterally to protect itself.
Tacora’s interpleader application in Ontario
On February 11, 2026, Tacora issued an interpleader application in the Ontario Superior Court of Justice under Rule 43. By February 27, 2026, it had already placed the disputed royalty funds into the trust account of its own counsel, Osler, Hoskin & Harcourt LLP, as an interim measure, to show its willingness and ability to pay while asking the court to determine where the funds should ultimately go. Tacora sought an order allowing it to pay the royalties into the Ontario court and a declaration that, upon doing so, its liability in respect of the funds would be extinguished.
Meanwhile, on February 19, 2026, Mr. Wichers, claiming to act as President and Secretary of 112, wrote to Stewart McKelvey. He formally notified them of the alleged AGM results, stated that Mr. Morrow and Mr. Smith no longer held any position with 112, and directed the firm to cease acting on 112’s behalf without his written instructions. Despite this, Stewart McKelvey appeared on the interpleader application purporting to represent 112, opposing Tacora’s request for interpleader relief.
The interpleader application was heard urgently on March 13, 2026. Tacora argued it was a neutral stakeholder caught between adverse claims from rival corporate factions and that Rule 43 was designed precisely for such circumstances, allowing it to pay the funds into court and exit the fray without the risk of double payment or default. The MILFAM-aligned appellants supported this approach, while the Morrow-aligned 112 opposed it and insisted Tacora must simply pay 112 directly “in accordance with the Wabush Lease.”
The application judge’s decision
The application judge dismissed Tacora’s interpleader application on two main legal grounds. First, he held that the royalty was not subject to “adverse claims” as required by Rule 43 because there was only one contractual creditor—112. On his view, the existence of rival factions within a single corporate creditor did not qualify as adverse claims within the meaning of the rule. He declined to follow decisions such as Savage v. First Canadian Financial Corp. and 2823373 Ontario Inc. v. Dar, which had recognized that disputes over authority within a corporate entity could give rise to adverse claims in similar contexts, and instead relied on Delahunty v. Dynacare Health Group Inc.
Second, he concluded that the Ontario Superior Court lacked jurisdiction to make the interpleader order. He reasoned that issues surrounding who had authority to receive the funds on behalf of 112 had to be litigated in other courts, notably the Cayman Court, and that by granting interpleader relief the Ontario court would effectively be holding funds in escrow for those foreign proceedings, something he considered impermissible.
Despite dismissing the application, the judge then crafted his own remedy: he ordered that Tacora could satisfy its royalty obligation by paying the funds into the trust account of Stewart McKelvey (or another firm designated by it) for 112, subject to a 90-day sunset clause. This order had not been requested by any party and was made without prior notice that such a remedy was under consideration. The judge justified this as giving Tacora time to pursue interpleader relief “in another forum,” while attempting to avoid a default under the lease. He also ordered that Tacora receive its full indemnity costs of the application, payable out of the royalty funds.
Issues on appeal to the Ontario Court of Appeal
The MILFAM-aligned appellants, supported by Tacora, appealed to the Ontario Court of Appeal. They argued that the application judge had made three critical errors: misapprehending the “adverse claims” requirement under Rule 43, wrongly finding that Ontario courts lacked jurisdiction over the interpleader application, and improperly issuing an unsolicited interim order directing payment into a specific law firm’s trust account after dismissing the application.
The appellants sought an order setting aside the application judgment and substituting the interpleader order that Tacora had originally requested. Tacora agreed. 112, represented by Stewart McKelvey, maintained that the application judge was right to refuse interpleader relief but conceded that he should not have granted the interim order. 112 therefore asked the Court of Appeal to order Tacora to pay the royalty directly to 112 “in accordance with the Wabush Lease.”
The Court of Appeal’s analysis on adverse claims and Rule 43
Justice Gomery, writing for a unanimous panel, held that the application judge had misapplied the legal test for “adverse claims” under Rule 43. The court reiterated that the purpose of interpleader is to prevent a multiplicity of suits and double vexation and to protect an innocent stakeholder who wishes to pay but does not know to whom payment should be made. Under Rule 43.02(1), interpleader is available where two or more persons have made adverse claims in respect of the property (including a debt), the applicant has no beneficial interest in the property, and the applicant is willing to pay it into court or dispose of it as directed.
Drawing on authorities such as Canadian Imperial Bank of Commerce v. Costodian Inc. and The Toronto-Dominion Bank v. The Estate of Cheryl Anne Walker, the Court of Appeal emphasized that the applicant need not prove that formal competing claims have already been filed or that those claims are likely to succeed. It is enough to show a real foundation for the expectation of competing, non-frivolous claims. In other words, interpleader is preventative: it can be used before a stakeholder is actually sued or subjected to multiple judgments.
The court held that Tacora perfectly fit this model. On one side, Mr. Morrow, purporting to speak for 112, had demanded that Tacora pay the royalty to a newly designated account he controlled and threatened a default notice under the Wabush Lease if it did not. On the other side, the MILFAM Directors, also claiming to speak for 112, had expressly instructed Tacora not to follow Mr. Morrow’s directions and had asked that the royalty be paid into escrow or into court. Tacora therefore faced a real risk of liability whether it paid one side, the other, or no one.
The Court of Appeal relied on Savage and Dar to confirm that adverse claims can arise where rival factions dispute who has authority to speak for a corporate creditor, even if the underlying property—the debt—belongs to a single legal entity. In those cases, conflicting shareholder or director instructions were sufficient to create adverse claims against funds held by a neutral stakeholder. Delahunty was distinguished: in that case, the third-party doctors did not claim to be parties to the contract or to speak for the payee, so there was no genuine competition over entitlement to the debt itself. By contrast, here both factions claimed to speak for 112 directly.
On this analysis, the court concluded that Tacora was “the prototypical innocent third party debtor” entitled to interpleader relief. Tacora had demonstrated that the royalty payment was subject to adverse claims; it had no beneficial interest in the funds beyond its costs; and it was ready and willing to pay into court, already having placed the funds into its counsel’s trust account as a temporary measure.
Jurisdiction of the Ontario courts and the role of foreign proceedings
On jurisdiction, the Court of Appeal found no impediment to the Ontario Superior Court hearing and granting the interpleader application. Tacora is an Ontario company with its head office in Ontario, and the royalty payment, as a debt, was situated in Ontario. None of the parties had challenged jurisdiction or argued that another forum would be more appropriate under the principles from Club Resorts Ltd. v. Van Breda. By contesting the interpleader on the merits, both 112 and the appellants had attorned to the Ontario court’s jurisdiction.
The court held that Rule 43 does not require that the ultimate dispute over entitlement to the property be decided in Ontario. To the contrary, Rule 43 expressly contemplates interpleader relief even where no proceeding has yet been commenced in respect of the property. The standard interpleader order under Rule 43.04(1) simply allows the stakeholder to pay into court and obtain a declaration extinguishing its liability; it does not, by itself, determine which claimant ultimately prevails. While the rule gives courts discretion under Rule 43.04(2) to make ancillary orders that may resolve aspects of the underlying dispute, such broader relief is not mandatory and was not what Tacora sought.
Thus, the existence of ongoing Cayman proceedings about Scully’s corporate governance and the future authority over 112 did not deprive the Ontario court of jurisdiction to grant interpleader relief. Nor did granting such relief improperly “hold funds in escrow” for the Cayman Court in any problematic sense. Instead, the Ontario court’s role was limited to protecting the innocent debtor and preserving the disputed funds until the Cayman Court or some other appropriate tribunal resolved the corporate control questions.
Improper interim order and procedural fairness
The Court of Appeal also concluded that the application judge erred in issuing the interim order directing Tacora to pay the royalties into the trust account of Stewart McKelvey after dismissing the interpleader application. Once he dismissed the application, his order was final and disposed of the litigation; in that posture, there was no basis for “interim” relief. Moreover, he devised a remedy that no party had requested and did so on his own initiative, without giving the parties a fair chance to be heard on the proposal.
This approach conflicted with established principles that courts should not grant unrequested remedies that fundamentally reshape the parties’ rights without notice and submissions. The Court of Appeal noted that the rationale for the interim order was also internally inconsistent: if the judge truly believed Tacora did not meet the Rule 43 requirements and that interpleader relief must be sought in another forum, then requiring Tacora to pay the funds over to one side’s counsel would leave it with no property to place before any court on a subsequent interpleader application.
Outcome and dispositive orders
The Ontario Court of Appeal allowed the appeal, set aside the application judge’s order, and granted the interpleader relief Tacora had originally sought. It ordered that the royalty payment due in January 2026, as well as all future royalty payments under the Wabush Lease, be paid into court pending the final determination by the Grand Court of the Cayman Islands of MILFAM’s corporate governance application (or further order of the Ontario Superior Court). It further declared that once Tacora pays the royalties into court, its liability with respect to those payments—including under the Wabush Lease—is extinguished. This ensured that Tacora would not face default or double-payment risk while the Cayman Court resolves who lawfully controls Scully and 112.
On costs, the Court of Appeal confirmed that Tacora, as an innocent stakeholder forced to incur expenses because of the dispute between others, was entitled to be made whole on a full-indemnity basis. It upheld and quantified Tacora’s full-indemnity costs on the application at $173,917.95 and awarded full-indemnity costs on the appeal in the amount of $57,089.60, with both sums to be deducted from the first royalty payment paid into court. The appellants, who successfully obtained the interpleader order they supported, were awarded reasonable partial-indemnity costs of $40,000, inclusive of disbursements and HST, payable by 112. Taken together, the successful parties—Tacora and the MILFAM-aligned appellants—secured a total of $271,007.55 in ordered costs (comprising $231,007.55 in full-indemnity costs in favour of Tacora from the royalty funds and $40,000 in partial-indemnity costs payable by 112 to the appellants), while Tacora also obtained the critical substantive protection of extinguishment of its liability upon payment of all royalties into court.
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Appellant
Respondent
Court
Court of Appeal for OntarioCase Number
COA-26-CV-0298Practice Area
Civil litigationAmount
$ 271,007Winner
RespondentTrial Start Date