In the matter of the bankruptcy of Landry [Indexed as: Landry (Re)]
50 O.R. (3d) 1
[2000] O.J. No. 3249
Docket No. C33175
Court of Appeal for Ontario
Osborne A.C.J.O., Weiler and Charron JJ.A.
September 6, 2000
Bankruptcy -- Property -- Exemption -- Award for unjust dismissal -- Prior to her bankruptcy bankrupt making claim for unjust dismissal under Canada Labour Code -- Trustee in bankruptcy claiming arbitrator's award as property vesting in trustee for benefit of creditors -- Arbitrator's award for unjust dismissal not automatically vesting in trustee pursuant to ss. 67 and 71 of Bankruptcy and Insolvency Act -- Treatment of arbitrator's award and whether it became part of estate in bankruptcy governed by s. 68 of Act -- Section 68 allowing trustee to apply to court for determination of amount that bankrupt required to pay to estate of bankrupt out of her total income -- Trustee in bankruptcy not precluded from resorting to s. 68 after discharge of bankrupt -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 2, 67, 68, 71.
Before L declared bankruptcy in June 1997, an arbitrator under the Canada Labour Code, R.S.C. 1985, c. L-2 determined that she had been unjustly dismissed from her employment as a pilot with First Air, but the employer appealed and a second hearing was ordered. In October 1998, NL was discharged from bankruptcy, but her trustee in bankruptcy made it clear that it was maintaining the right to claim any award for unjust dismissal for the creditors of her estate. The main creditor was the solicitor who had acted on the original arbitration hearing and whose costs had been assessed in the amount of $77,500. In December 1998, the second arbitrator also having determined that L had been unjustly dismissed, L's trustee in bankruptcy unsuccessfully attempted to intervene in the arbitration since an award was anticipated. The attempt to intervene failing, the trustee applied for a determination of its rights with respect to the expected award. The trustee sought a declaration that any amount awarded was property of the bankrupt that vested in the trustee for the benefit of creditors either (a) automatically, through the operation of ss. 67 and 71(2) of the Bankruptcy and Insolvency Act ("BIA"), or (b) by court order pursuant to s. 68 of the BIA. As to the s. 68 claim, there was a question about whether the current or former version of s. 68 applied. The trustee also sought a declaration that L's unjust enrichment claim had vested in the trustee, who was therefore entitled to intervene in the arbitration to seek an order for costs in relation to the solicitor's account in the first arbitration hearing. Chadwick J. dismissed the trustee's application, and it appealed.
Held, the appeal should be allowed.
L's unjust dismissal claim was "property" under the BIA because the definition of "property" under s. 2 of the BIA included "things in action" and "things in action" encompassed a claim for damages for breach of contract including an action for wrongful dismissal. Thus, subject to the other provisions of the BIA, s. 71(2) of the BIA would vest L's claim against her former employer in the trustee on the date she declared bankruptcy. Section 71(2) of the BIA was restricted by s. 67, which defines what property is or is not divisible among a bankrupt's creditors. The claim for unjust dismissal would have been divisible property within the wide language of s. 67(1) (c); however, s. 67(1)(b) excluded it as divisible property if it was exempt from execution or seizure under the laws of Ontario, which was the case; that is, it would have been exempt pursuant to s. 7(2) of the Ontario Wages Act, R.S.O. 1990, c. W.1 which provides that "80 per cent of a person's wages are exempt from seizure or garnishment". On the authority of the Supreme Court of Canada's decision in Wallace v. United Grain Growers Ltd. to the extent that the arbitrator's award related to pay in lieu of notice of dismissal, it constituted "wages" and it would qualify for the exemption under s. 67(1)(b).
However, this did not end the analysis about whether the arbitrator's award would be divisible among the creditors of L's estate. This followed because s. 67 of the BIA was superseded by the provisions of s. 68 in relation to a bankrupt's wages. In this regard, it was clear from the transitional provision under the BIA that the current version of s. 68 was the relevant provision. Nevertheless, it was necessary to analyze both the former and the current versions of s. 68 to determine whether the reasoning of the Supreme Court of Canada in the Wallace v. United Grain Growers Ltd. case and in Marzetti v. Marzetti about the interconnection between ss. 67 and 68 still applied. In those cases, it was determined that the former s. 68 was a complete code that controlled the disposition of a bankrupt's "salary, wages or other remuneration". The same interpretation applied to the current s. 68, which did not refer to "salary, wages or other remuneration", but to "total income". Therefore, in the immediate case, the arbitrator's award did not automatically vest in the trustee under ss. 67 and 71 and resort had to be made to s. 68 for payment of any portion thereof to the estate of the bankrupt.
Section 68 allows the trustee to apply to the court for a determination of the amount that a bankrupt is required to pay to the estate of the bankrupt out of her total income but an elaborate procedure must be followed before such application is made. The trustee in bankruptcy was not precluded from resorting to s. 68 after the discharge of the bankrupt. Section 68 applies because of the nature of the property in question regardless of the timing of the application of the property or of the fact that the payment is made in a lump sum. Further, in the immediate case, the trustee was not precluded from resorting to s. 68 notwithstanding that the procedure set out in s. 68(10) had not been followed. At worst, the motion was premature. In the circumstances of this case, it was appropriate to direct that any moneys awarded by the arbitrator should be paid into court until the resolution of the parties' respective rights under s. 68 or until further direction of the court.
The remaining issue on the appeal was whether the trustee had standing to intervene in the proceedings under the Canada Labour Code to seek an order for costs in relation to the solicitor's account in the first arbitration hearing. The answer to this question was "no". On the authority of Wallace v. United Grain Growers Ltd., L's claim did not vest in the trustee upon her bankruptcy. She could pursue the claim in her own right. The trustee did not establish any basis upon which it could intervene.
APPEAL from a decision of Chadwick J. in proceedings under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.
Cases referred to Holley (Re) (1986), 1986 2586 (ON CA), 54 O.R. (2d) 225, 14 O.A.C. 65, 26 D.L.R. (4th) 230, 59 C.B.R. (N.S.) 17, 12 C.C.E.L. 161 (C.A.); Marzetti v. Marzetti, 1994 50 (SCC), [1994] 2 S.C.R. 765, 20 Alta. L.R. (3d) 1, 116 D.L.R. (4th) 577, 169 N.R. 161, [1994] 7 W.W.R. 623, 26 C.B.R. (3d) 161, 5 R.F.L. (4th) 1; Salloum (Re) (1990), 1990 2260 (BC CA), 51 B.C.L.R. (2d) 336, 1 C.B.R. (3d) 204 (C.A.); Wallace v. United Grain Growers Ltd., 1997 332 (SCC), [1997] 3 S.C.R. 701, 123 Man. R. (2d) 1, 152 D.L.R. (4th) 1, 219 N.R. 161, 159 W.A.C. 1, [1999] 4 W.W.R. 86, 36 C.C.E.L. (2d) 1, 97 C.L.L.C. 210-029, 3 C.B.R. (4th) 1 Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (am. 1992, c. 27; 1997, c. 12), ss. 2 "property", 67, 68, 71(2), 180 Canada Labour Code, R.S.C. 1985, c. L-2 Solicitors Act, R.S.O. 1990, c. S.15, s. 34 Wages Act, R.S.O. 1990, c. W.1, s. 7(2)
Robert J. Smith and John P. O'Toole, for appellant, Deloitte & Touche. Matthew J. Halpin, for respondent, Nycole Landry.
The judgment of the court was delivered by
[1] CHARRON J.A.: -- The respondent, Nycole Landry, declared bankruptcy on June 4, 1997 and the appellant, Deloitte & Touche, was appointed trustee of the bankrupt's estate. Landry has been discharged from bankruptcy on October 15, 1998. The trustee has not yet been discharged and is still attempting to realize upon the assets of the bankrupt's estate for the benefit of the creditors. This proceeding concerns one potential asset.
A. THE FACTS
[2] The relevant facts can be stated succinctly.
[3] In 1993, Landry was dismissed from her employment as a pilot with First Air. That same year, she brought a claim for unjust dismissal against First Air under the Canada Labour Code, R.S.C. 1985, c. L-2. At the end of a first hearing, the arbitrator found that Landry had been unjustly dismissed.
[4] The employer successfully appealed the arbitrator's finding and a new hearing was ordered. Shortly before the second hearing, Landry changed solicitors. In May 1997, the first solicitor's costs were assessed in the amount of $77,500. Landry declared bankruptcy on June 4, 1997. The first solicitor is the main, if not the only, creditor in the bankruptcy.
[5] Landry obtained an absolute discharge from her bankruptcy on October 15, 1998 which effectively discharged her from her debt to the first solicitor. The trustee did not oppose the discharge but made it clear to Landry that the trustee maintained the right to claim any part of an eventual award of damages for unjust dismissal.
[6] In December 1998, at the conclusion of a second hearing under the Canada Labour Code, a different arbitrator also found that Landry was unjustly dismissed. When the trustee became aware of the arbitrator's decision, the trustee unsuccessfully attempted to intervene in the proceedings to claim the first solicitor's costs.
[7] The arbitrator's decision on the award has not yet been delivered and apparently awaits the outcome of this appeal. Although the exact amount is uncertain, the parties agree that Landry can expect to receive, as part of the award, some moneys for lost wages.
B. THE TRUSTEE'S MOTION
[8] In the spring of 1999, the trustee moved before Chadwick J. under ss. 67, 68 and 71 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA") for various forms of relief with respect to the expected arbitrator's award. The trustee sought a declaration that any amount awarded in relation to lost wages [See Note 1 at end of document] constituted property of the bankrupt that vested in the trustee for the benefit of the creditors, either through the automatic operation of ss. 67 and 71(2) or pursuant to an order that the court should make under s. 68. (Simply put, s. 67 defines the property of the bankrupt that is divisible among the creditors, s. 71(2) is a general vesting provision and s. 68 makes specific provisions with respect to either the "total income" of the bankrupt, if the current provision applies, or the bankrupt's "salary, wages, or other remuneration" from employment, if the former version applies.) The trustee also sought a declaration that Landry's claim against First Air vested in the trustee on the date of bankruptcy and that the trustee was therefore entitled to intervene in the proceedings before the arbitrator to seek an order for costs in relation to the first solicitor's account. Finally, the trustee sought an order for a lien under s. 34 of the Solicitors Act, R.S.O. 1990, c. S.15.
C. THE DECISION UNDER APPEAL
[9] Chadwick J. held that, even if that part of the settlement related to wages in lieu of notice could arguably form part of the bankrupt estate under s. 67, 80 per cent of this amount would be exempt pursuant to the provisions of the Wages Act, R.S.O. 1990, c. W.1 incorporated under s. 67(1)(b) of the BIA. In view of the small amount of money that could be apportioned, the motions judge stated that he was not prepared to make any order under s. 67. The motions judge held further that the current s. 68 applied but that the trustee was precluded from resorting to its provisions because the section applied only to undischarged bankrupts and because the trustee had not followed the procedure set out under s. 68. On the question of costs, the motions judge held that neither the trustee nor the former solicitors had any status in seeking an order for costs before the arbitrator as the costs are those of the client Landry and that she had waived her claim for costs as a result of her bankruptcy. Finally the motions judge refused to make an order for a lien under the Solicitors Act and dismissed the trustee's motion. The trustee appeals from this decision on all questions except that the trustee does not pursue the request for a lien under the Solicitors Act.
D. THE ISSUES ON THE APPEAL
[10] This appeal therefore raises the following questions:
Does Landry's claim against First Air or any part of the resulting award constitute property of the bankrupt that vests in the trustee under ss. 67 and 71(2) of the BIA?
If so, does any exemption apply pursuant to s. 67(1)(b) so as to except any part of the property from the estate of the bankrupt?
Is s. 67 superseded by the provisions of s. 68 in relation to a bankrupt's wages?
If so, which provision applies, the former s. 68, which was in force at the time Landry declared bankruptcy, or the present s. 68, which was in force at the time the trustee brought its motion?
Is the trustee precluded from resorting to s. 68 after the discharge of the bankrupt?
Is the trustee precluded from resorting to the current s. 68 because the procedure set out thereunder has not been followed?
Does the trustee have standing to intervene in the proceeding under the Canada Labour Code to claim Landry's costs incurred at the first arbitration hearing?
E. ANALYSIS
1. Does Landry's claim against First Air or any part of the resulting award constitute property of the bankrupt that vests in the trustee under [ss. 67](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) and [71(2)](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) of the [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)?
[11] As stated earlier, s. 71(2) is a general vesting provision. It reads as follows:
71(2) On a receiving order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with his property, which shall, subject to this Act and to the rights of secured creditors, forthwith pass to and vest in the trustee named in the receiving order or assignment, and in any case of change of trustee the property shall pass from trustee to trustee without any conveyance, assignment or transfer.
[12] "Property" is defined under s. 2 of the BIA as including:
. . . money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, and whether situated in Canada or elsewhere, and includes obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property.
(Emphasis added)
[13] "Things in action" encompass a claim for damages for breach of contract, including an action for wrongful dismissal: Wallace v. United Grain Growers Ltd., 1997 332 (SCC), [1997] 3 S.C.R. 701, 152 D.L.R. (4th) 1. The parties do not dispute that Landry's claim against her former employer under the Canada Labour Code is a "thing in action" and therefore constitutes "property" for the purpose of the BIA. Hence, pursuant to s. 71(2), Landry's claim against her former employer would vest in the trustee on the date she declared bankruptcy and she would cease to have any capacity to deal with it. However, s. 71(2) is subject to the other provisions of the BIA.
[14] Section 67 of the BIA defines what property of a bankrupt is divisible among her creditors and can serve to restrict the ambit of s. 71(2). The relevant part of s. 67 reads as follows:
67(1) The property of a bankrupt divisible among his creditors shall not comprise
(a) property held by the bankrupt in trust for any other person,
(b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides, or
(b.1) such goods and services tax credit payments and prescribed payments relating to the essential needs of an individual as are made in prescribed circumstances and are not property referred to in paragraph (a) or (b),
but it shall comprise
(c) all property wherever situated of the bankrupt at the date of his bankruptcy or that may be acquired by or devolve on him before his discharge, and
(d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own benefit.
[15] It is clear that s. 67(1)(c) is wide enough to encompass Landry's claim against her former employer and, consequently, any award of damages (other than those relating to personal claims, see fn. 1, supra) would form part of the property divisible among her creditors under that provision. A question then arises whether any part of the property falls within the exception made for exempt property under s. 67(1)(b).
2. Does any exemption apply pursuant to s. 67(1)(b) so as to except any part of the property from the estate of the bankrupt?
[16] As provided under s. 67(1)(b), the property of the bankrupt divisible among her creditors shall not comprise any property that as against Landry is exempt from execution or seizure under the laws of Ontario. Landry relies on s. 7(2) of the Ontario Wages Act which provides that "80 per cent of a person's wages are exempt from seizure or garnishment." Therefore, if any part of the arbitrator's award constitutes "wages" within the meaning of s. 7(2), 80 per cent of that amount would not constitute property divisible among Landry's creditors and, hence, would not vest in the trustee.
[17] At the hearing, counsel did not seriously dispute that the case of Wallace, supra, provides support for the contention that the arbitrator's award of damages for unjust dismissal, in so far as it relates to lost wages, can be equated to actual wages.
[18] Wallace made a voluntary assignment into personal bankruptcy and remained an undischarged bankrupt when he commenced an action for wrongful dismissal against his former employer. A question arose whether Wallace could bring this action in his own name given the vesting provisions under s. 71(2) of the [then] Bankruptcy Act which, as s. 71(2) of the present BIA, provided that a bankrupt ceases to have any capacity to deal with his property.
[19] Iacobucci J., in the majority judgment (all justices were in agreement on this issue), stated (para. 58) that the wording of the Act is clear and that an undischarged bankrupt has no capacity to deal with his or her property, including an action for breach of contract, outside the circumstances described in s. 99(1) (which circumstances are of no relevance to this appeal). The court held further that the Act made no distinction whether that property was acquired before or after the assignment in bankruptcy. However, the court went on to consider the provisions of s. 68(1) of the Bankruptcy Act as it then read (this is the provision which was in force at the time Landry declared bankruptcy) and concluded that it carved out an additional exception to this general rule. Section 68(1), in this earlier version, provided as follows:
68(1) Notwithstanding subsection 67(1), where a bankrupt
(a) is in receipt of, or is entitled to receive, any money as salary, wages or other remuneration from a person employing the bankrupt . . .
the trustee may, on the trustee's own initiative or, if directed by the inspectors or the creditors, shall, make an application to the court for an order directing the payment to the trustee of such part of the money as the court may determine, having regard to the family responsibilities and personal situation of the bankrupt.
[20] More will be said about the effect of s. 68 later in these reasons. What is of relevance to the question presently under consideration is the finding by the court that Wallace, an undischarged bankrupt, could maintain his action against his former employer for damages for wrongful dismissal not because of the timing of the acquisition of the property "but rather, because of the nature of the property in question" (para. 59) which the court equated to "wages". Iacobucci J. wrote as follows (paras. 65-66):
As I see the matter, the underlying nature of the damages awarded in a wrongful dismissal action is clearly akin to the "wages" referred to in s. 68(1). In the absence of just cause, an employer remains free to dismiss an employee at any time provided that reasonable notice of the termination is given. In providing the employee with reasonable notice, the employer has two options: either to require the employee to continue working for the duration of that period or to give the employee pay in lieu of notice: D. Harris, Wrongful Dismissal (1989 (loose-leaf)), at p. 3-10. There can be no doubt that if the employer opted to require the employee to continue working during the notice period, his or her earnings during this time would constitute wages or salary under s. 68(1) of the Act. The only difference between these earnings and pay in lieu of notice is that the employee receives a lump sum payment instead of having that sum spread out over the course of the notice period. The nature of those funds remains the same and thus s. 68(1) will also apply in these circumstances.
In the event that an employee is wrongfully dismissed, the measure of damages for wrongful dismissal is the salary that the employee would have earned had the employee worked during the period of notice to which he or she was entitled: Sylvester v. British Columbia, 1997 353 (SCC), [1997] 2 S.C.R. 315. The fact that this sum is awarded as damages at trial in no way alters the fundamental character of the money. An award of damages in a wrongful dismissal action is in reality the wages that the employer ought to have paid the employee either over the course of the period of reasonable notice or as pay in lieu of notice. Therefore, in accordance with the exception which is carved out in s. 68(1) for "salary, wages or other remuneration", this money is not divisible among a bankrupt's creditors and does not vest in the trustee. The right of action is the means of attaining these damages and is similarly exempt.
[21] On the authority of Wallace, I conclude that, to the extent that the arbitrator's award relates to the pay Landry should have received in lieu of notice, the moneys would constitute "wages" for the purpose of the s. 67(1)(b) exception. However, what is also clear from Wallace is that s. 67 must be considered in conjunction with s. 68. This brings us to the next question.
3. Is s. 67 superceded by the provisions of s. 68 in relation to a bankrupt's wages?
[22] Two versions of s. 68 must be taken into account: the former version under the Bankruptcy Act that was considered in Wallace and the current version under the BIA which will be discussed shortly. There are two reasons why both versions must be examined. The first is that the former version and its interconnection with s. 67 was considered by the Supreme Court of Canada in Wallace and in Marzetti v. Marzetti, 1994 50 (SCC), [1994] 2 S.C.R. 765, 116 D.L.R. (4th) 577 and the question arises whether the reasoning in those cases applies to the new version. The second reason is that the trustee contends that the former version is applicable to this case since it was in force at the time Landry declared bankruptcy rather than the current version which was in force at the time the motion was brought. This latter argument forms the subject-matter of the next question on this appeal and will be dealt with later. I will now deal with the interpretation of s. 68 and its interconnection with s. 67.
(a) The former s. 68
[23] Section 68 under the Bankruptcy Act provided the trustee with the means to obtain part of a bankrupt's salary, wages or other remuneration from employment notwithstanding the provisions contained in s. 67(1). For our purposes, it is only necessary to consider s. 68(1) and I reproduce it again for convenience:
68(1) Notwithstanding subsection 67(1), where a bankrupt
(a) is in receipt of, or is entitled to receive, any money as salary, wages or other remuneration from a person employing the bankrupt, or
(b) is in receipt of, or is entitled to receive from a person any money as payment for or commission in respect of any services performed by the bankrupt,
the trustee may, on the trustee's own initiative or, if directed by the inspectors or the creditors, shall, make an application to the court for an order directing the payment to the trustee of such part of the money as the court may determine, having regard to the family responsibilities and personal situation of the bankrupt.
[24] This provision was considered at length by the Supreme Court of Canada in Marzetti. The particular facts and a number of other issues in Marzetti are not relevant to our discussion. What is relevant to this case is the Court's consideration of the interconnection between s. 67 [See Note 2 at end of document] and s. 68. Iacobucci J., in writing for the court, set out the issue as follows (at p. 786):
. . . I must determine whether s. 68 always controls the disposition of a bankrupt's wages. Is s. 68 a substantive provision, that is, one which always removes wages from the scope of s. 67, or does it simply create a procedural device for trustees?
[25] Following his analysis, he concluded as follows (at p. 794):
To summarize briefly, it is my opinion that the language of s. 68, the inferred purpose of that provision, and the decision of this Court in Vachon, supra, all support the conclusion that s. 68 is a substantive provision, one which is intended to operate as a complete code in respect of a bankrupt's salary, wages, or other remuneration. These forms of property cannot fall within s. 67(c) of the Bankruptcy Act as a bankrupt's after-acquired "property", and they cannot be considered "property of a bankrupt divisible among his creditors" for the purposes of s. 67. They do not vest in the trustee through the simple operation of law.
[26] Hence, the Supreme Court in Marzetti, and later in Wallace, has authoritatively determined that s. 68 supersedes the provisions of s. 67 in so far as "salary, wages or other remuneration" from employment are concerned. It follows that, if this provision is applicable to this case, the Ontario Wages Act does not apply and neither does any other part of s. 67. There is no automatic vesting of Landry's claim against First Air or of any part of the arbitrator's award. The trustee, and the court, must look exclusively to s. 68 to determine what part, if any, of the award will form part of the bankrupt's estate for distribution to the creditors. The question becomes, does the same interpretation apply to the current s. 68 under the BIA?
(b) Section 68 under the [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)
[27] The current s. 68 in the BIA differs from the former version in a number of respects. The full text is appended to these reasons for ease of reference. First, the section does not refer to "salary, wages or other remuneration" but to "total income". "[T]otal income" is defined for the purpose of s. 68 as including, "notwithstanding s. 67(1)(b) and (b.1), all revenues of a bankrupt of whatever nature or source". The section still allows the trustee to apply to the court for a determination of the amount that a bankrupt is required to pay to the estate of the bankrupt out of her total income but an elaborate procedure must be followed before such an application is made. For our purposes, this procedure can be summarized as follows.
[28] First, the superintendent is directed to establish standards for determining the portion of the total income of an individual bankrupt that exceeds that which is necessary to enable the bankrupt to maintain a reasonable standard of living. Second, the trustee, having regard to these standards and to the personal and family situation of the bankrupt, must fix the amount that the bankrupt is required to pay, inform the official receiver of his decision and take reasonable measures to ensure that the bankrupt complies with the requirement to pay. Third, where the official receiver determines that the fixed amount is not in accordance with the applicable standards, the official receiver must recommend an appropriate amount. Fourth, where the trustee and the bankrupt disagree on the amount to be paid, the trustee must send to the official receiver a request that the matter be determined by mediation. A creditor can also make a request for mediation. Fifth, the mediation takes place in accordance with prescr ibed procedures.
[29] In addition to this procedure, an application may be made to the court under s. 68(10):
68(10) Where
(a) the trustee has not implemented a recommendation made by the official receiver under subsection (5),
(b) the issue submitted to mediation requested under subsection (6) or (7) is not thereby resolved, or
(c) the bankrupt fails to comply with the requirement to pay as determined under this section,
the trustee may, or on the request of the inspectors, any of the creditors or the official receiver shall, apply to the court for the hearing of the matter, and the court may, on the hearing, in accordance with the standards established under subsection (1) and having regard to the personal and family situation of the bankrupt, by order, fix the amount that the bankrupt is required to pay to the estate of the bankrupt.
[30] In my view, the reasoning in Marzetti and Wallace that led to the conclusion that s. 68 was a complete code with respect to wages applies equally to this new section. The current provision applies to the "total income" of the bankrupt and, as such, is even wider than the earlier reference to "salary, wages and other remuneration"; the provision expressly excludes the application of s. 67(1)(b) [See Note 3 at end of document]; its purpose is no different than that described in Marzetti (except that applications to the court now appear to be limited to those cases where the issue cannot be otherwise resolved); and the jurisprudential principles reviewed by the Supreme Court in Marzetti are equally relevant.
[31] I therefore conclude that s. 67 is superseded by the provisions of the current s. 68 in so far as the "total income" of the bankrupt is concerned. It follows that, as in Wallace, Landry's claim against her former employer and any consequent award relating to lost wages do not automatically vest in the trustee under ss. 67 and 71. Resort can only be had to s. 68 for payment of any portion thereof to the estate of the bankrupt.
4. Which provision applies, the former s. 68 which was in force at the time Landry declared bankruptcy, or the present s. 68 which was in force at the time the trustee brought its motion?
[32] In my view, the motions judge was correct in holding that the current s. 68 of the BIA applies to this motion. The following transition provision (S.C. 1997, c. 12, s. 60(2)) is relevant:
Subsection (1) [which re-enacted s. 68] applies to bankruptcies in respect of which proceedings are commenced after that subsection comes into force [April 30, 1998].
[33] A plain reading of the section would indicate that the trustee's motion under s. 68 itself is a proceeding within the meaning of that provision. Counsel could not articulate any policy reason why the new section should not apply.
[34] I therefore conclude that the current s. 68 under the BIA applies to this proceeding.
5. Is the trustee precluded from resorting to s. 68 after the discharge of the bankrupt?
[35] The motions judge held that s. 68 was no longer available to a trustee after the discharge of a bankrupt. First, the motions judge noted that s. 68 refers to "a bankrupt" and that s. 2 defined "bankrupt" as "a person who has made an assignment or against whom a receiving order has been made or the legal status of that person". Second, the motions judge held that the section was intended to apply in the period from the assignment in bankruptcy or the receivership order until the discharge of the bankrupt. He therefore concluded that s. 68 applied to a bankrupt and not to a discharged bankrupt.
[36] In my view, this interpretation cannot be supported.
[37] First, it disregards the fact that the definition of "bankrupt" does not only refer to "the legal status of [the] person" -- since Landry has been discharged, it is correct to say that she is no longer in the state of bankruptcy, but also to "a person who has made an assignment" -- a description that clearly applies to Landry. [See Note 4 at end of document]
[38] Second, the motions judge erred in his interpretation of the scope of the section. Although, from a practical standpoint, s. 68 may apply more commonly to periodic wages received during the period of time between the assignment and the discharge, I see nothing in the language of the provision that restricts its application to this time frame. It is clear from Wallace and Marzetti that s. 68 applies because of the nature of the property in question, regardless of the timing of the acquisition of the property or of the fact that the payment is made in a lump sum.
[39] Third, I do not see any policy reason why, in situations such as in this case where the income is only to be received after the discharge, resort to s. 68 would nonetheless have to be made before the discharge. Indeed, given the procedure set out under s. 68, it may be impossible to resort to its provisions before payment is made or at least its quantum ascertained. Further, if resort to s. 68 were to be limited to the pre-discharge period, the trustee or the creditors would likely oppose any discharge if any payment of income was still pending at the time the bankrupt applied for a discharge. I am therefore concerned that such an interpretation would have the effect of unnecessarily postponing discharges until the full administration of the estate is completed. In cases where there is pending litigation over the payment of such income, the delay in obtaining a discharge could prove quite substantial. This result, in my view would militate against the prompt rehabilitation of the bankrupt. Finally, such an interpretation runs contrary to the established principle and practice that the trustee's obligation to realize and distribute the estate of the bankrupt continues until the trustee is discharged regardless of the prior discharge of the bankrupt: see Re Salloum (1990), 1990 2260 (BC CA), 1 C.B.R. (3d) 204, 51 B.C.L.R. (2d) 336 (C.A.).
[40] I therefore conclude that the trustee is not precluded from resorting to s. 68 by the fact that Landry has been discharged.
6. Is the trustee precluded from resorting to s. 68 becuase the procedure set out thereunder has not been followed?
[41] The motions judge was correct in noting that, before an application can be made to the court under s. 68(10) to fix the amount of the bankrupt's income that is payable to the estate of the bankrupt, the trustee must bring himself under the terms of that provision. As discussed earlier, by its terms, s. 68(10) effectively limits the number of applications to the court to those cases where the issue has not otherwise been resolved by consent or mediation in accordance with the established procedure. In this case, of course, it was impossible for the trustee to have followed this procedure since the arbitrator's award was not yet ascertained. Once the arbitrator's decision is made, the trustee will be in a position to fix the amount which, in its view, must be paid to the estate and the balance of the procedure set out in s. 68 can follow its course. Hence, the trustee's motion, in so far as it purports to be made under s. 68(10), is simply premature.
[42] However, the trustee's motion was not made strictly under s. 68(10). It is apparent from the relief sought, which was mainly declaratory in nature, that the motion was brought with a view to preserving a potential asset in anticipation of a future determination of the parties' rights under s. 68. In my view, the motions judge erred in foreclosing any resort to s. 68 on the basis that the procedure set out thereunder had not been followed. At worst, the motion could have been dismissed as premature. However, in the circumstances of this case, it is my view that the motions judge should have exercised his discretion and directed that any moneys awarded by the arbitrator to Landry as compensation for lost wages be paid into court until the resolution of the parties' respective rights under s. 68 or until further direction of the court. It is open to this court to make an order which could have been made by the motions judge and I would therefore make such an order.
7. Does the trustee have standing to intervene in the proceeding under the [Canada Labour Code](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-l-2/latest/rsc-1985-c-l-2.html) to claim Landry's costs incurred at the first hearing?
[43] The question whether it would even be within the arbitrator's power to award costs in relation to the first hearing is not before this court. The issue here is whether Landry's right, if any, to claim costs in the Canada Labour Code proceeding vests in the trustee. In my view, it does not.
[44] As stated earlier, on the authority of Wallace, Landry's claim against her former employer did not vest in the trustee upon her bankruptcy. Hence Landry had the right, as she did, to pursue her proceeding under the Canada Labour Code in her own name. Any right she may have to claim costs in relation to this proceeding is not an independent thing in action. Rather, it is simply a consequential right that may flow from the result. The trustee has not established any basis upon which it could intervene. I would not interfere with the motions judge's decision on this point.
F. DISPOSITION
[45] I would therefore answer the questions as follows:
- Does Landry's claim against First Air or any part of the resulting award constitute property of the bankrupt that vests in the trustee under ss. 67 and 71(2) of the BIA?
Yes but these provisions are superseded by s. 68 of the BIA.
- If so, does any exemption apply pursuant to s. 67(1)(b) so as to except any part of the property from the estate of the bankrupt?
Yes but this exception is superseded by s. 68 of the BIA.
- Is s. 67 superseded by the provisions of s. 68 in relation to a bankrupt's wages?
Yes.
- If so, which provision applies, the former s. 68 which was in force at the time Landry declared bankruptcy, or the present s. 68 which was in force at the time the trustee brought its motion?
The current s. 68 under the BIA.
- Is the trustee precluded from resorting to s. 68 after the discharge of the bankrupt?
No.
- Is the trustee precluded from resorting to the current s. 68 because the procedure set out thereunder has not been followed?
No.
- Does the trustee have standing to intervene in the proceeding under the Canada Labour Code to claim Landry's costs incurred at the first arbitration hearing?
No.
[46] For these reasons, I would allow the appeal, set aside Chadwick J.'s order, order that any moneys awarded by the arbitrator to Landry as compensation for lost wages be paid into the bankruptcy court until the resolution of the parties' respective rights under s. 68 or until further directions of that court. I would allow the trustee its costs of the motion and of the appeal against the estate of the bankrupt.
Order accordingly.
APPENDIX
Section 68 of the Bankruptcy and Insolvency Act
68(1) The Superintendent shall, by directive, establish in respect of the provinces or one or more bankruptcy districts or parts of bankruptcy districts, the standards for determining the portion of the total income of an individual bankrupt that exceeds that which is necessary to enable the bankrupt to maintain a reasonable standard of living.
(2) For the purposes of this section,
(a) "total income" referred to in subsection (1) includes, notwithstanding paragraphs 67(1)(b) and (b.1), all revenues of a bankrupt of whatever nature or source; and
(b) a requirement that a bankrupt pay an amount to the estate of the bankrupt is enforceable against all property of the bankrupt, other than property referred to in paragraphs 67(1)(b) and (b.1).
(3) The trustee shall
(a) having regard to the applicable standards established under subsection (1), and to the personal and family situation of the bankrupt, fix the amount that the bankrupt is required to pay to the estate of the bankrupt;
(b) inform the official receiver in writing of the amount fixed under paragraph (a); and
(c) take reasonable measures to ensure that the bankrupt complies with the requirement to pay.
(4) The trustee may, at any time, amend an amount fixed under subsection (3) to take into account
(a) material changes that have occurred in the personal or family situation of the bankrupt; or
(b) a recommendation made by the official receiver under subsection (5).
(5) Where the official receiver determines that the amount required to be paid by the bankrupt under subsection (3) or (4) is substantially not in accordance with the applicable standards established under subsection (1), the official receiver shall recommend to the trustee and to the bankrupt an amount required to be paid that the official receiver determines is in accordance with the applicable standards.
(6) Where the trustee and the bankrupt are not in agreement with the amount that the bankrupt is required to pay under subsection (3) or (4), the trustee shall, forthwith, in the prescribed form, send to the official receiver a request that the matter be determined by mediation and send a copy of the request to the bankrupt.
(7) On the request in writing of a creditor made within thirty days after the date of bankruptcy or an amendment referred to in subsection (4), the trustee shall, within the five days following the thirty day period, send to the official receiver a request in the prescribed form that the matter of the amount the bankrupt is required to pay under subsection (3) or (4) be determined by mediation and send a copy of the request to the bankrupt and the creditor.
(8) A mediation shall be in accordance with prescribed procedures.
(9) Documents contained in a file on the mediation of a matter under this section form part of the records referred to in subsection 11.1(2).
(10) Where
(a) the trustee has not implemented a recommendation made by the official receiver under subsection (5),
(b) the issue submitted to mediation requested under subsection (6) or (7) is not thereby resolved, or
(c) the bankrupt fails to comply with the requirement to pay as determined under this section,
the trustee may, or on the request of the inspectors, any of the creditors or the official receiver shall, apply to the court for the hearing of the matter, and the court may, on the hearing, in accordance with the standards established under subsection (1) and having regard to the personal and family situation of the bankrupt, by order, fix the amount that the bankrupt is required to pay to the estate of the bankrupt.
(11) The court may fix an amount that is fair and reasonable
(a) as salary, wages or other remuneration for the services being performed by a bankrupt for a person employing the bankrupt, or
(b) as payment for or commission in respect of any services being performed by a bankrupt for a person,
where the person is related to the bankrupt, and the court may, by order, determine the part of the salary, wages or other remuneration, or the part of the payment or commission, that shall be paid to the trustee on the basis of the amount so fixed by the court, unless it appears to the court that the services have been performed for the benefit of the bankrupt and are not of any substantial benefit to the person for whom they were performed.
(12) On the application of any interested person, the court may, at any time, amend an order made under this section to take into account material changes that have occurred in the personal or family situation of the bankrupt.
(13) An order of the court made under this section may be served on a person from whom the bankrupt is entitled to receive money and, in such case,
(a) the order binds the person to pay to the estate of the bankrupt the amount fixed by the order; and
(b) if the person fails to comply with the terms of the order, the court may, on the application of the trustee, order the person to pay the trustee the amount of money that the estate of the bankrupt would have received had the person complied with the terms of the order.
(14) For the purposes of section 38, an application referred to in subsection (10) is deemed to be a proceeding for the benefit of the estate.
Notes
Note 1: The trustee acknowledged before the motions judge that any award of damages relating to personal claims other than for loss wages would not form part of the bankrupt's estate: Re Holley (1986), 1986 2586 (ON CA), 54 O.R. (2d) 255, 59 C.B.R. (N.S.) 17 (C.A.).
Note 2: Section 67 which was in force at the time has been modified in the current BIA but the changes are not relevant to this analysis.
Note 3: The fact that the current version is not expressly stated to apply notwithstanding the whole of s. 67 as the earlier version did is, in my view, of no consequence. The remaining rationale in Marzetti leads to the conclusion that s. 68 is a complete code with respect to this kind of property.
Note 4: The BIA contains many provisions where the word "bankrupt" is used in relation tot he post-discharge period. See for example s. 180 where the BIA provides that "[w]here a bankrupt after his discharge fails to perform the duties imposed on him by this Act, the court may, on application, annul his discharge." It is evident that "bankrupt" here applies to a discharged bankrupt.