COURT OF APPEAL FOR ONTARIO
WEILER, ABELLA and GOUDGE JJ.A.
B E T W E E N:
WASSERMAN, ARSENAULT LIMITED and THE SUPERINTENDENT OF BANKRUPTCY
Applicants (Respondents)
- and -
MARSHALL BRYAN SONE; MARSHALL SONE RECEIVER & TRUSTEE LTD.; ANNE LYNN SONE; RUMANEK & COOPER LTD.; CANADIAN IMPERIAL BANK OF COMMERCE; THE ATTORNEY GENERAL OF CANADA; ROSENBERG, SONE; GEARY AND COMPANY LIMITED, TRUSTEE OF THE ESTATE OF ALLAN S. ROSENBERG, A BANKRUPT; OSLER, HOSKIN & HARCOURT; WARREN SHELLY SONE, MARSHALL BRYAN SONE and PAMELA NANCY SCHWARTZBERG AS EXECUTORS AND TRUSTEES OF THE ESTATE OF ABRAHAM SONE; WARREN SHELLY SONE, MARSHALL BRYAN SONE and PAMELA NANCY SCHWARTZBERG AS EXECUTORS AND TRUSTEES OF THE ESTATE OF DOROTHY SONE and CITADEL GENERAL INSURANCE COMPANY
Respondents (Appellants)
George Glezos and Juliane Park for the appellant Rumanek & Cooper Ltd.
Graham F. Alloway and Calvin J. Ho for the appellant Canadian Imperial Bank of Commerce
Daniel R. Dowdall, Alex A. Ilchenko and James Tumbridge for the respondent the Guardian, Wasserman Arsenault Ltd.
William J. Burden and John N. Birch for the respondent the Superintendent of Bankruptcy
Heard: February 7 and 8, 2002
On appeal from the order of Justice James M. Farley of the Superior Court of Justice dated December 15, 2000, reported at (2000) C.B.R. (4th) 153.
WEILER J.A.:
INTRODUCTION
- [1] These appeals raise the issue of whether a trustee in bankruptcy may claim fees in excess of the tariff allowed for the summary administration of the estate of a bankrupt, and raise issues of priority amongst those claiming a fee for the administration of a bankrupt's estate.
BACKGROUND
[2] Farley J. determined five questions of law on a Rule 21 motion and these same questions form the basis of this appeal. While there are many factual issues between the parties, for purposes of the motion, an agreed statement of facts, as well as a compendium of materials, were provided for the assistance of the court. In order to provide context for the issues I will be discussing, it will be helpful to give a brief outline of some of the facts.
[3] In 1992 and 1993, the Office of the Superintendent of Bankruptcy ("Superintendent") found that Marshall Sone and Marshall Sone Receiver and Trustee Ltd. ("Sone") had made unauthorized withdrawals from the trust accounts of some of the bankruptcy estates under its administration resulting in shortfalls in those accounts. The Superintendent believed that Sone had converted those funds to his own use, and required that Sone cease further draws from the consolidated trust account ("CTA") with respect to the estates under summary administration. (The CTA is a trust account in which the funds from the summary administration of estates are pooled in one account. In ordinary administration estates, the trustee is required to open a separate bank account for each estate.) The Superintendent and Sone agreed that Sone would surrender his trustee's licence in November 1994 and, in the interim, would seek another trustee to work with him to supervise and complete the administration of the bankruptcy estates. The professional fees generated from work on the estates were to be applied to offset the shortfalls in the trust accounts. It was recognized, however, that the ongoing operations of Sone required funding to ensure the practice would not shut down and the estates would be administered. Consequently, the Superintendent permitted Sone to withdraw money from the CTA to cover overhead expenses.
[4] In May 1994, Rumanek and Cooper ("Rumanek") agreed to act as joint trustee of the estates being administered by Sone ("the Sone estates") in exchange for a portion of Sone's fees, and this agreement was approved by the Superintendent. When Sone did not complete administration of the estates within the time envisaged, Rumanek began paying the office and overhead expenses of Sone's staff who were engaged in administering the estates. Rumanek was appointed sole trustee by court order of Houlden J. in December 1995. At the time, Houlden J. allowed Rumanek to make a withdrawal on account of disbursements and expenses for administering the Sone estates in the amount of $120,000 from the ordinary trust accounts and the CTA. There is an issue as to whether this interim withdrawal by Rumanek and the permitted withdrawals of Sone are to be deducted from any fees due as trustee.
[5] While acting as sole trustee, Rumanek encountered numerous difficulties that caused it to spend a great deal of time on the Sone estates. The trustee's fees for the summary administration of estates are governed by a tariff which has a ceiling. This is not the case with ordinary estates. The fees of ordinary estates are subject to approval by the inspectors appointed at the first meeting of creditors and taxation by the court. In 1996, Rumanek obtained an order from the Master allowing it to convert 545 summary administration estates to ordinary estates. The effect of converting the estates was to potentially allow Rumanek to charge a higher fee. Once the administration of an estate is complete, the trustee submits for review by the Official Receiver a draft Statement of Receipts and Disbursements that includes the fee to be charged. The Official Receiver then issues a "letter of comment" upon the draft Statement. Unless the Official Receiver indicates that taxation is necessary, once any other issues in the letter of comment are completed, the trustee proceeds to discharge. Upon discharge, the trustee is allowed to draw from its CTA an amount equal to the balance of the fees provided in the approved Statement of Receipts and Disbursements. Rumanek was of the opinion it was not receiving timely letters of comment from the Official Receiver. Rumanek sought and obtained an order from the Master that the requirement of "comment" by the Official Receiver on the trustee's accounts with respect to 20 estates be waived.
[6] The orders converting the 545 estates from summary to ordinary administration, and the order waiving the requirement of the Official Receiver's approval of its fees on the 20 estates, were set aside on appeal in May 1999.
[7] Rumanek was losing money badly on the administration of the estates. Consequently, it asked to be discharged for cause as trustee pursuant to s. 41(2) of the Bankruptcy and Insolvency Act (BIA), and this discharge was granted in May 1997. The Superintendent took control of the estates and, after a period of interim guardianship, Howard Wasserman was appointed guardian of the estates in February 1998. The firm Wasserman, Arsenault ("Wasserman") was appointed guardian in August 1998. Wasserman made an agreement with the Superintendent of Bankruptcy that the Superintendent would pay it a specified amount. The Superintendent is subrogated to Wasserman's claim for its fees on the estates under its administration.
[8] In July 1998, fourteen months after obtaining a discharge as trustee, Rumanek brought a motion seeking a declaration that it is entitled to payment of extraordinary expenses and increased fees totalling in excess of $1 million in administering the Sone estates. Rumanek also asserts that it is entitled to a first charge against the funds and any other assets in the Sone estates. In addition, Rumanek sued the Superintendent in Bankruptcy alleging damages for fraud and, in the alternative, claimed declaratory relief, namely fees and expenses, for work allegedly performed at the request of the Superintendent. Rumanek then sought court approval to bring the action nunc pro tunc. In May 1999, Blair J. dismissed Rumanek's motion insofar as the allegations of fraud were concerned against the Superintendent without prejudice to the motion being revived on proper affidavit evidence by Mr. Rumanek. Subsequently, Blair J. imposed a time limit of November 15, 1999 to bring the motion for leave to sue the Superintendent for fraud. Rumanek did not pursue the matter. Blair J. allowed the claim for fees and expenses against the Superintendent to proceed and it is still outstanding.
[9] In addition to Rumanek's claim for fees against the estates, the Guardian's administration was further complicated by certain third party claims to the CTA which ultimately came to an end as a result of a claims barring process. This is a process whereby the Guardian advertises for any claims to the CTA and, if no such claims are made by a certain date, the court issues an order barring any subsequent claims against the CTA or the Guardian. No new claims emerged. As a result, the only claims to the CTA are those of the Guardian, Rumanek and Sone as well as Sone's banker, CIBC. A brief explanation respecting the claim of CIBC is necessary at this point.
[10] At the same time as Houlden J. dealt with Rumanek's motion to withdraw funds from the CTA, he had before him a motion by Sone's banker, CIBC, to withdraw $71,000 from the CTA. CIBC's position is that it was not informed of the conservatory measures instigated by the Superintendent and continued to finance Sone's operating expenses to the extent of over $71,000. In December 1995, CIBC brought an application before Houlden J. to draw $71,000 in compensation for the expenses it had incurred in allowing the continued administration of the Sone estates. This application was heard at the same time as Rumanek's. Houlden J. ordered that CIBC be entitled to draw $71,000 as reimbursement for the expenses it had incurred, but later ordered that the money be returned, holding that CIBC could renew its application for payment upon proving the expenses. CIBC reapplied and this application was heard in September 1999 by Blair J.
[11] CIBC took the position before Blair J. that the effect of the orders of Houlden J. was to determine its entitlement to the $71,000 on the merits, subject to the production of vouchers to satisfy an accounting. Counsel for the Superintendent, the Guardian, and Rumanek took the position that all CIBC could do was renew its application on the merits at which time all issues "including the issues of priority regarding other claimants" would be open for determination, and that Blair J. could not interpret the order of another judge. In his endorsement, Blair J. stated: "Highly experienced judge that he [Houlden J.] was in this area (and many others) I am satisfied that if he had meant to expose CIBC to the priority contests he would have said so. He did not." In his order Blair J. allowed CIBC to apply for payment of the $71,000 on production of vouchers, but stated that "[t]he issue of priority, however, is not open for determination." The Superintendent appealed the order of Blair J. This court was not persuaded that Blair J. was in error, and dismissed that appeal on June 6, 2000. On the appeal before us, there is an issue as to the interpretation of the order of Blair J.
[12] To resolve some of the outstanding legal issues expeditiously, Rumanek and CIBC brought a Rule 21 motion before Farley J. based on an agreed statement of facts. He dealt with five questions, each of which is the subject of appeal. I will deal with these questions in the course of addressing the issues raised by the appellants.
THE FIVE QUESTIONS OF LAW AND THE ANSWERS OF FARLEY J.
- [13] The five questions of law and the answers of Farley J. with respect to each of them are as follows:
Q.1. Does the Court have jurisdiction upon the taxation of a summary administration bankruptcy to allow an amount for fees which exceeds the tariff of fees for summary administration estates stipulated under the Bankruptcy and Insolvency Act ("BIA") and Bankruptcy and Insolvency Rules (the "Rules"). If so, what are the principles which must be applied in allowing such excess?
A.1. The court does not have jurisdiction to allow fees in summary administration bankruptcy estates which exceed the tariff.
Q.2. Is there any jurisdiction for the Bankruptcy Court, the Superintendent of Bankruptcy (the "Superintendent") or a Trustee to withdraw or authorize the withdrawal of amounts from the estate funds held with respect to a summary administration estate for the payment of any amount other than a trustee's proper taxed fees and disbursements related to administration of the estate in question. Specifically, must the withdrawals made by Rumanek & Cooper Ltd. ("R&C") from the consolidated trust account ("CTA") maintained with respect to the summary administration bankruptcy estates formerly administered by Sone with the approval of the Superintendent and/or the Court after the commencement of R&C's involvement in this matter be credited against amounts which may be found on taxation to be due to R&C or Sone for outstanding fees and disbursements related to the administration of such estates? If such withdrawals are allowed what are the principles which govern such withdrawals and how are they to be accounted for? Should the amount of $71,000 ordered by the Court to be paid to CIBC, if proven, be treated in any manner different from other withdrawals from the CTA?
A.2. The Court and the Superintendent do not have the jurisdiction to authorize the payment of funds from summary administration bankruptcy estates to cover items other than tariff fees and disbursements; there can be no extra compensation for overhead or other costs of a trustee. Specifically, the withdrawals by R&C from the CTA with the approval of the Superintendent or the court must be credited against the amounts which may be found on taxation to be due to R&C.
Q.3. Can any party claim payment out of the CTA for fees and disbursements payable to a Trustee other than those fees and disbursements directly related to administrating the Summary Administration Estates? Specifically, can any party claim payment out of the CTA for fees and disbursements arising out of matters such as the administration of the ordinary administration bankruptcy estates, or for the cost of dealing with ordinary or extraordinary administrative requests by the Superintendent or others? If such payments are allowed, what are the principles which govern the making of these payments and how are the payments to be allocated among the bankruptcy estates?
A.3. A trustee in bankruptcy cannot claim payment out of the CTA for fees and disbursements other than those related to such summary administration estates.
Q.4. Do the fees and disbursements of the Guardian with respect to its administration of the Summary Administration Estates which are under its administration have priority over the claims of other fee claimants against the CTA by reason of s. 136(1)(b)(i) of the BIA or on some other basis? If so, to what extent do the Guardian's fees and disbursements have priority? If not, what are the principles which should guide the Registrar in determining priority of payment among the competing fee claimants?
A.4. The claims of the Guardian have priority over the fee claims of R&C in the open bankruptcy estates pursuant to the BIA; this is not a retroactive application of the Act since fees and disbursements are only determined at the time that an estate is closed.
Q.5. If the amount in the CTA is insufficient to pay both the proper fees and disbursements payable out of the CTA fund and also the proper dividends that ought to be paid to creditors in the Summary Administration Estates which are not fully administered, how should the shortfall be allocated as between the fee claimants and the creditors?
A.5. Sone and then R&C must bear the burden of any shortfall in the CTA caused by excessive draws for fees and disbursements. With respect to the CIBC issue, it takes through Sone. The $71,000 payable to the CIBC cannot reduce the amount to which creditors in the estates are entitled to receive. It was never before Blair J. and the Court of Appeal that they were dealing with a shortfall situation.
- [14] For the reasons that follow, I would uphold the decision of Farley J. and dismiss these appeals, with one clarification. In question five, Farley J. was asked to decide how any shortfall should be divided between fee claimants and creditors. I agree that the fee claimants must bear the loss. I also agree that the Guardian has priority over the fee claimants, including the C.I.B.C. Farley J. was not asked to decide how any shortfall should be further divided. To the extent that his reasons appear to do so, they should be considered obiter.
SUBMISSIONS AND ANALYSIS
The Rumanek Appeal
Issue #1: Did Farley J. err in holding that the Superior Court of Justice in Bankruptcy does not have the inherent jurisdiction to allow an amount for fees of a trustee in bankruptcy such as Rumanek which exceeds the tariff of fees for summary administration estates contemplated by s. 156 of the BIA and Rule 128 of the BIA General Rules?
- [15] Section 156 of the BIA and Rule 128 are as follows:
Fees and disbursements of trustee – The trustee shall receive such fees and disbursements as may be prescribed.
(1) The fees of the trustee for services performed in a summary administration are calculated on the total receipts remaining after deducting necessary disbursements relating directly to the realization of the property of the bankrupt, and the payments to secured creditors, according to the following percentages:
(a) 100 per cent on the first $975 or less of receipts;
(b) 35 per cent on the portion of the receipts exceeding $975 but not exceeding $2,000; and
(c) 50 per cent on the portion of the receipts exceeding $2,000.
(2) A trustee in a summary administration may claim, in addition to the amount set out in subsection (1),
(a) the costs of counselling referred to in subsection 131(2);
(b) the fee for filing an assignment referred to in paragraph 132(a);
(c) the fee payable to the registrar under paragraph 1(a) of Part II of the schedule;
(d) the amount of applicable federal and provincial taxes for goods and services; and
(e) a lump sum of $100 in respect of administrative disbursements.
(3) A trustee in a summary administration may withdraw from the bank account used in administering the estate of the bankrupt, as an advance on the amount set out in subsection (1),
(a) $250, at the time of the mailing of the notice of bankruptcy;
(b) an additional $250, thirty days after the date of the bankruptcy; and
(c) an additional $250, four months after the date of the bankruptcy.
(4) Subsections (1) to (3) apply to bankruptcies in respect of which proceedings are commenced on or after September 30, 1997 and the accounts are taxed on or after April 30, 1998.
[16] Rumanek submits that Farley J. erred in holding that the Superior Court of Justice in Bankruptcy does not have the inherent jurisdiction to allow an amount for fees of a trustee in a bankruptcy in excess of this tariff schedule.
[17] Section 183(1) of the BIA gives the Superior Court "such jurisdiction at law and in equity as will enable them to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings" authorized by the Act. Rumanek submits that, as a court of equity, the Bankruptcy Court possesses inherent jurisdiction to grant the equitable relief to create a charge in favor of Rumanek for fees and expenses incurred in the administration of the trust assets that are in excess of the tariff. In support of its submission, Rumanek relies in particular on Ontario (Registrar of Mortgage Brokers) v. Matrix Financial Corp. (1993), 1993 9420 (ON CA), 106 D.L.R. (4th) 132 (Ont. C.A.). In that case, a receiver and substitute trustee appointed by the Registrar of Mortgage Brokers was granted a charge on the trust assets that had benefited from the work of the receiver, notwithstanding the questionable statutory authority for the receiver's appointment. Had the charge not been granted, the receiver could have been left without any means of reimbursement for its work. The instant case is thus distinguishable on several points, including the important fact that, unlike the receiver in Matrix, Rumanek's reimbursement is governed by the statutory scheme for a trustee in bankruptcy as set out pursuant to the BIA and the BIA General Rules.
[18] In Re Aue; Re Beckles; Re Blandsford; Re Borst (1984), 50 C.B.R. (NS) 186 (Ont. S.C.), in an appeal from the registrar's order disallowing a trustee's claim for fees in excess of the tariff for "extraordinary services" in a summary administration estate, the court held that the trustee's fees and disbursements must be limited in accordance with the Bankruptcy Act to those prescribed in the Bankruptcy Rules applicable to such estates. At p. 188 Catzman J. held that submissions in support of allowing fees and disbursements for the trustee in excess of the tariff fail to "address the fundamental question of the court's lack of jurisdiction to accomplish that objective which can, in my view, only properly be achieved through amendment of the present tariff provisions, not through their disregard by court officers who are charged with the responsibility to superintend their observance." In my opinion the decision of Catzman J. is dispositive of the issue.
[19] Rumanek submits, however, that because the court has a discretion to reduce the trustee's fees below the tariff, it must have a discretion to increase them above the tariff. In Re Vanderbank (1995), 42 C.B.R. (3d) 112, (Que. S.C.), the parties agreed that the Registrar and the court kept their discretion in equity to reduce the fees prescribed by the tariff. In that case, the court followed the decision of Henry J. in Re Frustaglio (1985), 56 C.B.R. (NS) 158 (Ont. H.C.J.), where he reduced the fees of a trustee who had deliberately delayed submitting his account in order to take advantage of the higher tariff in the new rules. Following the principle in Frustaglio, the court in Vanderbank held that it is only after a trustee has fulfilled all of the objectives under the BIA of liquidation, distribution and rehabilitation of the bankrupt that he is entitled to look to the tariff for compensation. Because the trustee had not administered the estate in accordance with the Act and his duties, his compensation was reduced.
[20] I would reject the submission that there is a discretion to increase the fees above the tariff because there is discretion to reduce them. Section 156 states that the trustee "shall receive" prescribed fees. The mandatory use of the word "shall" is indicative of the intention of the BIA that the tariff is the maximum that can be allowed. As pointed out by Farley J., although the Superior Court of Justice in Bankruptcy does possess equitable jurisdiction, "that does not confer on this Court the ability, capacity, or jurisdiction to do something not allowed by the BIA." By allowing only prescribed fees, s. 156 excludes any fees not prescribed by regulation. No fees other than the tariff in Rule 128 are prescribed. Former Bankruptcy Rule 117 specifically provided that amounts in excess of the tariff could be awarded if there were extraordinary services. Rule 117 has been repealed. This supports the interpretation that the tariff establishes the maximum fee that can be allowed.
[21] Also supportive of this interpretation is the Policy Statement of the Superintendent of Bankruptcy's Programs, effective April 1, 1994. It states that the duties of the Office of the Superintendent have been expanded with the passage of the amendments to the BIA. It specifies that, if the statutory duties of the trustee are not fulfilled within the time limits contemplated under the Act, or at all, the fees that the trustee charges should be reduced, and letters of comment to that effect would be issued. No reference is made to increasing fees.
[22] The trustee's fees are based on and limited by the receipts of each estate under summary administration; they cannot exceed those receipts no matter how much extra work has been done. There is a need for a cap on the fees a trustee can charge because the summary administration of estates is a low value, high volume business. On the other hand, the compensation awarded to a trustee under the tariff is for fulfilling the requirements of the work to be done in administering the bankrupt's estate. If the work has not been done, the Official Receiver can require in its letter of comment, upon the statement of receipts and disbursements submitted by the trustee, that the trustee tax its fee claim. There is no mechanism provided to allow a trustee to have a taxation on a summary administration of a bankrupt's estate in order to increase fees. This structure further reinforces the conclusion that the tariff amount may be reduced but not increased.
[23] The determination of this issue effectively determines the answers to issues 2, 3, and 4 raised by Rumanek on appeal. I will, however, briefly address each of these issues.
Issue # 2: Did Farley J. err in holding that the Superior Court of Justice in Bankruptcy and the Superintendent do not have the inherent jurisdiction to authorize the payment of amounts from the estate funds held with respect to a summary administration estate for the payment of any amount other than a trustee's fees and disbursements related to the administration of the estate in question?
[24] Section 25(1.3) of the BIA enables a trustee to withdraw money from the trust account on application to the court. By way of exception, the trustee may withdraw money for the payment of dividends and charges incidental to the administration of the estate without court approval and without the permission in writing of the inspectors.
[25] This section contemplates the payment of money from summary administration estate funds for amounts other than a trustee's fees and disbursements. What the section does not say is whether amounts withdrawn for the trustee's expenses must be deducted from the compensation to which the trustee is entitled. Rumanek submits that the amounts that Sone and Rumanek were permitted to withdraw from the CTA for overhead by the Superintendent and by Houlden J. should not be deducted from the fees that may be found to be due to Rumanek.
[26] I have already held that there is no jurisdiction to award fees for the administration of summary estates in excess of the tariff. To allow overhead and operating expenses in addition to a trustee's fees would enable the trustee to do indirectly what it cannot do directly. A person who receives payment for services performed does not receive payment, in addition, for the overhead and operating expenses incurred in earning those fees. In a similar vein, Rumanek is not entitled to charge as a disbursement, the services of Sone's employees for clerical work such as bookkeeping, rendering accounts and collection of estate moneys. See Re Bryant Isard (1923), 4 C.B.R. 41 (Ont. S.C.).
[27] The "draws" from the CTA authorized by the Superintendent and by Houlden J. meant that the freeze imposed by the Superintendent against the withdrawal of amounts on account of fees from the CTA was temporarily lifted to allow certain specific draws to be made. The order made by Houlden J. and the authorization of the Superintendent did not, however, change the character of the money drawn out so as to make it additional compensation.
Issue # 3: Did Farley J. err in finding that the requests for services emanating from the Superintendent which were directed at Rumanek did not constitute mandatory directives pursuant to s. 5(5) of the BIA?
- [28] Section 5 of the BIA sets out the duties and powers of the Superintendent of Bankruptcy. Paragraph 5 of that section obliges every person to whom a directive is issued by the Superintendent under para. 4(b) or (c) to comply with the directive. Paragraph 4(b) requires a trustee to keep such records and to provide the Superintendent with such information as the Superintendent may require. Paragraph 4(c) enables the Superintendent to give directives in relation to the powers, duties and functions of trustees. While acknowledging that the Superintendent may have made requests of Rumanek for information, Farley J. held that these requests were not mandatory directives. In any event, to the extent that the requests related to the ordinary administration of the estates, the requests for information were covered by the tariff. To the extent that the requests were extraordinary, they did not relate to the regular administration of the estates and Rumanek could look to its lawsuit against the Superintendent. In my opinion, Farley J. did not err in holding that the requests for information were not mandatory directives.
Issue # 4: Did Farley J. err in finding that a trustee in bankruptcy such as Rumanek cannot claim payment out of a consolidated trust account in respect of the costs of extraordinary services performed pursuant to requests by the Superintendent?
- [29] The Guardian's position is that Rumanek is in effect asking to be appointed receiver nunc pro tunc. It was not a receiver. It was a trustee. Farley J. recognized this and stressed in his reasons that Rumanek was a trustee. If Rumanek was performing services not ordinarily performed by a trustee at the request of the Superintendent in Bankruptcy, Rumanek should have sought a further appointment other than trustee. Alternatively Rumanek has its action against the Superintendent.
Issue # 5: Did Farley J. err in finding that the doctrine of laches applied to Rumanek's claim for fees in addition to the summary administration tariff, and to its claim against the CTA for fees and disbursements for extraordinary services performed in response to directives by the Superintendent?
[30] The doctrine of laches is an equitable doctrine. Two circumstances relevant to whether or not it should be applied are the length of the delay, including any explanation for the delay, and whether there would be any prejudice if the relief requested were now to be granted: Lindsay Petroleum Co. v. Hurd (1874), L.R. 5 P.C. 221 at 239-40; K.M. v. H.M., 1992 31 (SCC), [1992] 3 S.C.R. 6 at para. 96.
[31] At the time that Rumanek sought to be discharged as trustee for cause, Rumanek did not apply to be treated differently than an ordinary trustee. During the delay of 14 months before it came forward, the Guardian closed many files. There appears to be no explanation for the delay. If the claim of Rumanek is allowed then the creditors in the estates whose files are not closed will have to bear a greater burden than those in the estates that have been closed. In argument this was described as the "cross-collateralization issue". Rumanek cannot take money out of the CTA for estates whose funds are not in the trust account but which have all been paid out.
[32] Instead of claiming all of its extra fees against the estate files that are not closed, Rumanek proposes to claim a proportionate amount. This would still place the creditors in the estates that have not been closed in a worse position than the creditors in the estates that have been closed. Rumanek has not offered any rational reason that would justify this result. Rumanek knew the extent of the work it had done at the time it was discharged. It is too late now for Rumanek to effectively recharacterize its position as other than trustee in bankruptcy. Even if there were discretion in the court to award fees in excess of the tariff, it would be inequitable to award them now.
Issue # 6: Did Farley J. err in finding that Wasserman is entitled to priority over the funds in the CTA as a person acting under a direction made under section 14.03(1)(a) of the BIA as provided for in s. 136(1)(b)(i) of the BIA? In particular, did Farley J. err in applying the newly amended section 136(1)(b)(i) of the BIA to this case, notwithstanding the argument that the application of that section amounted to a retrospective application of legislation which defeated Rumanek's vested right to priority?
- [33] Section 136(1)(b) subordinates claims for fees and expenses of a trustee to those of a person acting under a direction made by the Superintendent under section 14.03(1)(a). These sections provide, in part:
14.03 (1) The Superintendent may, for the protection of an estate in the circumstances referred to in subsection (2),
(a) direct a person to deal with property of the estate described in the direction in such manner as may be indicated in the direction, including the continuation of the administration of the estate;
- (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:
(b) the costs of administration, in the following order,
(i) the expenses and fees of any person acting under a direction made under paragraph 14.03(1)(a),
(ii) the expenses and fees of the trustee, ...
[34] The appellant submits that Farley J. erred in applying s. 136(1)(b) for two reasons which I will deal with summarily. The first reason is that Wasserman has not incurred fees and expenses because its fees and expenses are being paid by the Superintendent. The fact that the Guardian has an agreement to be paid by the Superintendent does not diminish its right to claim fees under s. 136(1)(b). The agreement of the Guardian with the Superintendent for the payment of fees, while subrogating the Superintendent to the Guardian's recovery of fees and disbursements out of the bankrupts' estates, is a financing device to allow the administration of the estates to move forward.
[35] The appellant alleges, secondly, that Farley J. applied s. 136(1)(b) retroactively. Section 136(1)(b), which gives priority to the fees of a person acting under the direction of the Superintendent over the trustee, came into force on September 30, 1997. Prior to this amendment the expenses of a trustee had first priority. Rumanek submits that on a number of files its work was substantially completed, with only certain procedural or administrative steps remaining, and that it had a vested right to payment for these files prior to the coming into force of s. 136(1)(b). Accordingly, Rumanek submits that it is entitled to payment on these files in priority to the Guardian, and that Farley J. erred in not recognizing this.
[36] The commentary in Dreidger on the Construction of Statutes, 3rd ed. (1994) at p. 517 is helpful in dealing with this submission. It states:
Legislation clearly is retroactive if it applies to facts all of which have ended before it comes into force. Legislation clearly is prospective if it applies to facts all of which began after its coming into force. But what of on-going facts, facts in progress? These are either continuing facts, begun but not ended when the legislation comes into force, or successive facts, some occurring before and some after commencement. The application of legislation to on-going facts is not retroactive because, to use the language of Dickson J. in Gustavson Drilling (1964) Ltd. v. M.N.R. 1975 4 (SCC), [1977] 1 S.C.R. 271, there is no attempt to reach into the past and alter the law or the rights of persons as of an earlier date. The application is prospective only to facts in existence at the present time. Such an application may affect existing rights and interests, but is not retroactive.
Legislation that applies to on-going facts is said to have "immediate effect". Its application is both immediate and general: "immediate" in the sense that the new rule operates from the moment of commencement displacing whatever rule was formerly applicable to the relevant facts, and "general" in the sense that the new rule applies to all relevant facts, on-going as well as new.
- [37] I agree with Farley J. that these files should be viewed as a continuing fact situation. Rumanek ceased its work prior to the enactment of s. 136(1)(b), but the files were not complete by that date. They were on-going in varying degrees. The Guardian was appointed to complete the administration of these files. Certificates of completion had not been filed. Strictly speaking, there is no entitlement to compensation and hence no vested right to payment until a certificate of completion has been filed. It is at the time of payment that priority is determined and, hence, the application of s. 136(1)(b) does not have retrospective effect. Rumanek does not have a vested right to any fees or disbursements arising from the completion of the Sone estates by the Guardian. Farley J. did not err in his appreciation of s. 136(1)(b).
Issue # 7: Did Farley J. err in finding that Rumanek should bear the burden of any further shortfall in the CTA after any shortfall is borne by Sone?
[38] A shortfall in the CTA could only happen because a fee claimant received estate funds to which it was not entitled. If there was only one trustee, Sone, it would be clear that the loss must be borne by Sone. The creditors would be entitled to receive the dividends they would otherwise have received if Sone had not made unauthorized withdrawals.
[39] As between the creditors and the Guardian, the Superintendent has instructed the Guardian that, should the CTA be insufficient to pay both the dividends and the proper fees of the Guardian, the Guardian should adjust its fee claim to the extent necessary to allow creditors to receive the dividends that they would otherwise have received but for the shortfall.
[40] Farley J. held that as between the creditors and Rumanek, Rumanek should bear the shortfall.
[41] Rumanek alleges that it was not advised by either Sone or the Superintendent of the extent of the problems with the estates, including the extent of the shortfalls in the trust accounts, the concerns regarding Sone's integrity, and the agreement with Sone that he surrender his trustee licenses. Rumanek submits that its involvement as sole trustee was continued at the request of the Superintendent.
[42] Rumanek's claim that it did not know of the seriousness of the irregularities in the bankruptcy estates is an issue between Rumanek and the Superintendent that will be determined in the action instituted by Rumanek. The issue of a shortfall is an issue between Rumanek and the creditors in the bankruptcy estates. Rumanek was not compelled to take on the administration of the estates. This was a business decision on its part. The Superintendent did not oblige Rumanek to continue as trustee. If Rumanek had applied for directions or its discharge at the point when it recognized the serious nature of the irregularity in the CTA, the terms on which Rumanek could have finished the work might have been resolved. As between the creditors and Rumanek, the creditors should not be disadvantaged. Farley J. did not err in holding that the burden of any further shortfall in the CTA, after Sone, must fall secondly upon Rumanek.
Conclusion for the Rumanek Appeal
- [43] For the reasons given, I would dismiss Rumanek's appeal.
The CIBC Appeal
- [44] The CIBC appeal raises two issues:
- Did Farley J. err in finding that CIBC takes only through Sone and in finding that priority to the $71,000 granted by orders of Justice Houlden December 15, 1995, and of Justice Blair September 24, 1999, as affirmed by the Court of Appeal June 6, 2000 is only as to those involved in the fees and disbursements remuneration for the Sone bankruptcy estates?
- Did Farley J. err in finding that a shortfall situation was never before Blair J. and the Court of Appeal when they rendered their decisions September 24, 1999 and June 6, 2000?
[45] CIBC argues that the payment of $71,000 was a payment to a third party in order to carry on the practice to administer the Sone estates. If successful, CIBC would then be a creditor and have priority over all the fee claimants including the Guardian. Farley J. held that any payments from the CTA were an advance on the trustees' fees. I would agree with him. CIBC is not a creditor.
[46] Blair J. determined that the CIBC claim was not to be subject to priority contests with the other fee claimants as of May 1997. This is not the same issue as who should bear the loss as between creditors and the fee claimants in the event of a shortfall. The latter issue is not an issue of priority and was not before Blair J. nor dealt with on appeal. Farley J. had the equitable jurisdiction to determine that, as between the unsecured creditors and those entitled to fees, CIBC was not a creditor but a fee claimant and, as such, should share in any shortfall. This decision is not inconsistent with that of Blair J. as to priorities and therefore the issues of res judicata, stare decisis and issue estoppel raised by CIBC are simply inapplicable in the circumstances.
[47] Other than confirming the Guardian's priority of payment under s. 136(1)(b) of the BIA, Farley J. was not asked to rank the fee claimants in terms of priority. The comment in his endorsement that CIBC takes through Sone is clearly obiter. It is trite law that an appeal is from the judgement of the court and not its reasons.
Conclusion for the CIBC Appeal
- [48] The appeal of the CIBC is dismissed.
Released: APR 08 2002 KMW
Signed: "Karen M. Weiler J.A."
"I agree R.S. Abella J.A."
"I agree S.T. Goudge J.A."
