Royal Bank of Canada v. Whalley
[Indexed as: Royal Bank of Canada v. Whalley]
59 O.R. (3d) 529
[2002] O.J. No. 2028
Docket No. C36440
Court of Appeal for Ontario,
Catzman, Carthy and Moldaver JJ.A.
May 24, 2002
Bankruptcy and insolvency -- Settlement -- Settlement having established meaning under Canadian case law -- For settlement, there must be intention that property, even if conveyed as gift, be kept for benefit of recipient either in its original form or in form that can be traced -- Established meaning of settlement not changed by amendments to Bankruptcy and Insolvency Act -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 2(1), 91.
In 1992, Harris Steel Limited obtained a judgment against Eric Whalley that was never paid. In 1996, Eric Whalley transferred ú40,855.41, the balance of his bank account at an English bank, into an account in the name of Eileen Whalley, his wife, at a bank in the Isle of Man. In October 1997, he made an assignment into bankruptcy. The Royal Bank brought an application to set aside the transfer from Eric to Eileen. The application was granted. Gillese J. found that the transfer represented a "settlement" of the property contrary to the provisions of s. 91(2) of the Bankruptcy and Insolvency Act ("BIA"). In reaching this decision, Gillese J. followed Re Grandview Ford Lincoln Sales Ltd. and held that, because of amendments to the BIA, the old case law about the definition of settlement no longer applied and that the transfer in this case was a settlement. Eileen Whalley appealed.
Held, the appeal should be allowed, and there should be a trial of an issue.
The concept of settlement had an established meaning under Canadian case law. In order for an impugned payment to constitute a settlement, there must be an intention that the property, even if conveyed as a gift, be kept for the benefit of the recipient either in its original form or in a form that can be traced. In Re Bozanich, the Supreme Court of Canada held that a disposition of property was only a settlement if the donor intended that the property be retained for the benefit of the donee either in specie or in traceable form. Both judicial and academic commentary led to the conclusion that this meaning was too firmly entrenched to have been changed by the amendments to the BIA that came into force in 1992. These amendments did not directly address the established meaning of settlement. Accordingly, the appeal should be allowed, and since the evidence before Gillese J. was insufficient to decide whether there was a settlement in this case, there should be a trial of an issue. [page530]
APPEAL of an order of Gillese J. (2001), 2001 28469 (ON SC), 26 C.B.R. (4th) 97 (S.C.J.) setting aside a transfer as a settlement under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 91.
Grandview Ford Lincoln Sales Ltd., Re (2000), 21 C.B.R. (4th) 51, [2000] O.J. No. 3280 (Ont. S.C.J.), supp. reasons (2000), 21 C.B.R. (4th) 51n (Ont. S.C.J.), ovruld Other cases referred to Bozanich (Re) (1942), 1942 2 (SCC), 23 C.B.R. 234, [1942] S.C.R. 130, [1942] 2 D.L.R. 145, revg 1940 103 (ON CA), [1941] O.R. 21, [1941] 1 D.L.R. 570 (C.A.), revg (1940), 22 C.B.R. 143; Dowswell (Re) (1999), 1999 3779 (ON CA), 178 D.L.R. (4th) 193, 11 C.B.R. (4th) 23 (Ont. C.A.); Geraci (Re), 1970 494 (ON CA), [1970] 3 O.R. 49, 14 C.B.R. (N.S.) 253, [1970] I.L.R. 1-343, 12 D.L.R. (3d) 314 (C.A.) (sub nom. Swallow v. Geraci), revg (1969) 13 C.B.R. (N.S.) 86, [1969] I.L.R. 1-296 (Ont. C.A.); Player, Ex p. Harvey (Re) (1885), 15 Q.B.D. 682, 54 L.J.Q.B. 554, 2 Morr. 265 (D.C.); R. v. Jetco Manufacturing Ltd. (1987), 1987 4436 (ON CA), 57 O.R. (2d) 776, 18 O.A.C. 313, 31 C.C.C. (3d) 171 (C.A.); Ramgotra (Trustee of) v. North American Life Assurance Co., 1996 219 (SCC), [1996] 1 S.C.R. 325, 141 Sask. R. 81, 132 D.L.R. (4th) 193, 193 N.R. 186, 114 W.A.C. 81, [1996] 3 W.W.R. 457, 37 C.B.R. (3d) 141, 96 D.T.C. 6157, 13 E.T.R. (2d) 1 (sub nom. Ramgotra Re, Royal Bank of Canada v. North American Life Assurance Co.); Tankard (Re), [1899] 2 Q.B. 57, 68 L.J.Q.B. 670, 80 L.T. 500, 47 W.R. 624, 125 T.L.R. 332, 43 Sol. Jo. 440, 6 Mans. 188 Statutes referred to Assignments and Preferences Act, R.S.O. 1990, c. A.33 Bankruptcy Act, 9-10 Geo. V., c. 36, s. 29 Bankruptcy Act, R.S.C. 1927, c. 11, ss. 60-62 Bankruptcy Act, S.C. 1949 (2nd Sess.), c. 7, s. 60 Bankruptcy Act, R.S.C. 1985, c. B-3, s. 91 Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 2(1), 91 [as am.] Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 Insolvency Act, 1986 (U.K.), c. 45 Authorities referred to Cuming, R.C.C., "Section 91 (Settlements) of the Bankruptcy and Insolvency Act: A Mutated Monster" (1995), 25 Can. Bus. L.J. 235 Fletcher, I.F., The Law of Insolvency, 2nd ed. (London: Sweet & Maxwell, 1996) Kerbel Caplan, L.H., "Case Comment" (1994), 26 C.B.R. (3d) 252 Review Committee on Insolvency Law and Practice, Report of the Review Committee, Cmnd. 8558 (London: H.M. Stationery Office, 1982) Springman, M.A., G.R. Stewart, and M.J. MacNaughton, Fraudulent Conveyances and Preferences, looseleaf (Toronto: Carswell, 1994)
Duncan M. McFarlane, Q.C., for applicant (respondent). Tony Van Klink, for respondent (appellant).
The judgment of the court was delivered by
CATZMAN J.A.: -- [page531]
The Appeal
[1] An Ontario judgment debtor transferred the entire balance of a large bank account in his name in an English bank into an account in his wife's name in an offshore branch of the bank. Twenty months later, he made an assignment in bankruptcy. After his bankruptcy, proceedings were brought to challenge the transfer to his wife. The challenge was heard as an application on affidavits and cross-examination transcripts.
[2] The applications judge found that the transfer was a "settlement" under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 and set it aside. This is an appeal by the bankrupt's wife from that order.
[3] For the reasons that follow, I would allow the appeal, set aside the order and direct the trial of an issue to determine the challenge to the impugned transfer.
The Facts
[4] Eric Whalley ("Eric") ran a construction business in south-western Ontario. In the early 1990s, his business ran into financial difficulties. Between 1991 and 1994, he purchased a number of annuities from an insurance company, designating his wife, Eileen Whalley ("Eileen"), as beneficiary. Payments under the annuities were to be made to Eric during his lifetime and, on his death, to Eileen.
[5] In 1992, Harris Steel Limited obtained a judgment against Eric for $78,266.44. In 1994, it tried, unsuccessfully, to garnish the periodic annuity payments being made to Eric, which were held to be exempt from garnishment. It received only one payment on account of its judgment, in 1995, for $26,040. The balance of the judgment remained, and remains, unpaid.
[6] A few years earlier, in 1987, Eric had received a substantial inheritance from the estate of his father in England. The inheritance was deposited into an account in his name with Barclays Bank in that country. On February 5, 1996, the balance in that account stood at 40,855.41 pounds. On that day, Eric transferred the entire balance into an account in Eileen's name with Barclays Bank in the Isle of Man ("the transfer"). Eileen's position, as it emerged in these proceedings, was that the transfer was in partial repayment of loans she had made to or on behalf of Eric between 1992 and 1995.
[7] Twenty months after the transfer, in October 1997, Eric made an assignment in bankruptcy. His debts, excluding contingent liabilities, exceeded $7,000,000. Eric did not list Eileen as a creditor in his bankruptcy, and Eileen proved no claim against his bankrupt estate. [page532]
[8] One of Eric's creditors, The Royal Bank of Canada ("the bank"), obtained an order authorizing it to commence and prosecute proceedings against Eileen and Eric to set aside the transfer.
[9] The application to set aside the transfer was heard by Gillese J. The evidence before her consisted of the affidavit of Anthony D'Amico (a member of the firm of solicitors representing the bank), two affidavits of Eileen, the affidavit of Mark Pequegnat (an officer of Harris Steel) and the transcripts of cross-examinations of Eileen and Mr. Pequegnat.
[10] In written reasons, Gillese J. found that the transfer represented a settlement of property contrary to the provisions of s. 91(2) of the Bankruptcy and Insolvency Act (the "BIA"), set aside the transfer and ordered Eileen to pay the 40,855.41 pounds and accrued interest to the bank. Her reasons are reported at (2001), 2001 28469 (ON SC), 26 C.B.R. (4th) 97.
The Reasons of Gillese J.
[11] In her reasons, Gillese J. found as follows:
(a) the moneys paid by Eileen to or on behalf of Eric were not loans but gifts (para. 26);
(b) the evidence fell far short of establishing a debtor- creditor relationship between Eric and Eileen and, on the contrary, was consistent with the making of gifts (para. 30);
(c) the transfer fell squarely within the plain meaning of "settlement" in the BIA, which includes gratuitous transfers (para. 34);
(d) the transfer was made by Eric with the intention that the property would be retained by Eileen for her benefit (para. 44);
(e) the money has been retained and, by her own admission, Eileen was free to use it (para. 44); and
(f) given the unpaid judgment against him and the amount of debt owed by Eric on his bankruptcy 20 months later, Eric was, at the time of the transfer, unable to pay his debts without the aid of the property comprised in the settlement (para. 52).
[12] In view of her finding that the transfer was a settlement in violation of the BIA, Gillese J. did not decide the bank's alternative contention that the transfer should be set aside pursuant to the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 or the Assignments and Preferences Act, R.S.O. 1990, c. A.33. [page533]
The Issue
[13] Eileen's appeal to this court raised a number of issues, but the primary focus was upon the untenability in law of the conclusions expressed by Gillese J. in the following paragraphs [35-37, 47] of her reasons:
I begin by noting that the transfer falls squarely within the plain meaning of the definition of "settlement". "Settlement" is defined to include transfers made gratuitously. Given my finding that the exchange of monies from Eileen Whalley to her husband were gifts, the transfer from Eric Whalley to his wife was gratuitous.
Relying on caselaw, counsel for the respondent argues that despite the plain and broad wording of the definition, a gratuitous transfer is not caught unless that transfer also has the hallmark characteristics of a settlement. To comprise a settlement within subsection 91(2), he argues, it must be intended that the donee retain or preserve the transferred property in its original form or in such form that it can be traced. If the transferred property could be used as the donee sees fit, the respondent's view is that the transaction is not a settlement within the meaning of subsection 91(2).
At the time that Eileen Whalley swore her affidavit, she had retained the transferred sums in her account in the Isle of Man but deposed that she was "free to use the money as I see fit".
Counsel gave a brief history of the definition of the word settlement in the bankruptcy legislation. As I understand it, the definition set out above was adopted in 1991 and is a considerable expansion of the former definition that simply read that "settlement shall include any conveyance or transfer of property". As a consequence of the change to the definition, it is my view that case law decided on the old definition must be treated with caution.
I adopt the reasoning of Pitt J. in Re Grandview Ford Lincoln Sales Ltd., [2000] O.J. No. 3280 at para. 13 where he concludes . . . that the plain language of the legislation when considered with the objective of fairness to creditors and to bankrupts warrants a determination that transfers of this sort are settlements.
[14] On Eileen's behalf, Mr. Van Klink submitted that, in order for the impugned payment to constitute a settlement, there must be an intention that the property, even if conveyed as a gift, be kept for the benefit of the recipient either in its original form or in a form that can be traced. He submitted that, if there is no such intention, the disposition constitutes a gift of a nature and kind that cannot be attacked as a settlement under s. 91(2). In his words, "retention of the property in some traceable form is an essential element for a settlement".
[15] In Mr. Van Klink's submission, Gillese J. erred in her view that the statutory definition of "settlement" introduced in 1992 invited a re-assessment or rejection of case law decided before that date. [page534]
[16] Mr. Van Klink impugned -- and, on behalf of the bank, Mr. MacFarlane supported -- Gillese J.'s adoption of the reasoning of Pitt J. in Re Grandview Ford Lincoln Sales Ltd. (2000), 21 C.B.R. (4th) 51 (Ont. S.C.J.) that "the plain language of the legislation when considered with the objective of fairness to creditors and to bankrupts warrants a determination that transfers of this sort are settlements".
[17] In these reasons, I will address only the competing submissions of Mr. Van Klink and Mr. MacFarlane concerning the meaning of "settlement" under s. 91 of the BIA. Having regard to my proposed disposition of this matter, I will refrain from any factual observations that might encumber the judge presiding at the trial of the issue that I propose to direct.
The Statutory Provisions Respecting Settlements
[18] The Bankruptcy Act was first enacted by Parliament in 1919 and came into force in 1920: 9-10 Geo. V., c. 36. Like all of its successors, it contained provisions respecting settlements. The Act and amendments were consolidated and revised in 1927: R.S.C. 1927, c. 11. In 1949, a substantially revised Bankruptcy Act was enacted, which came into force in 1950: S.C. 1949 (2nd Sess.), c. 7. The 1949 revision retained provisions respecting settlements but removed the definition of that term which, in slightly altered form, had been in the Act since 1919. Between 1949 and 1992, the Act contained no definition of "settlement". The 1949 Act and amendments were most recently consolidated as R.S.C. 1985, c. B-3. A further substantial revision of the Act, then renamed the Bankruptcy and Insolvency Act, took place in 1992: S.C. 1992, c. 27. The 1992 amendments did not change the English version of s. 91, the settlement provisions. [See Note 1 at end of doucment] However, the 1992 version restored a definition of " settlement", in a form considerably more specific than its pre-1949 predecessors.
[19] After the 1992 amendments, the settlement provisions of the Act read as follows:
91(1) Any settlement of property, if the settlor becomes bankrupt within one year after the date of the settlement, is void against the trustee.
(2) Any settlement of property, if the settlor becomes bankrupt within five years after the date of the settlement, is void against the trustee if the trustee can prove that the settlor was, at the time of making the settlement, unable to pay all his debts without the aid of the property comprised in the settlement or that the interest of the settlor in the property did not pass on the execution thereof. [page535]
(3) This section does not extend to any settlement made
(a) before and in consideration of marriage;
(b) in favour of a purchaser or incumbrancer in good faith and for valuable consideration; or
(c) on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the settlor's spouse or children.
and further:
2(1) In this Act,
"settlement"
"settlement" includes a contract, covenant, transfer, gift and designation of beneficiary in an insurance contract, to the extent that the contract, covenant, transfer, gift or designation is gratuitous or made for merely nominal consideration[.]
[20] Subsections 91(1) and (2) were replaced in 1997, and subsection 91(3) was replaced in 2000. The current s. 91 provides:
Certain settlements void
91(1) Any settlement of property made within the period beginning on the day that is one year before the date of the initial bankruptcy event in respect of the settlor and ending on the date that the settlor became bankrupt, both dates included, is void against the trustee.
If bankrupt within five years
(2) Any settlement of property made within the period beginning on the day that is five years before the date of the initial bankruptcy event in respect of the settlor and ending on the date that the settlor became bankrupt, both dates included, is void against the trustee if the trustee can prove that the settlor was, at the time of making the settlement, unable to pay all the settlor's debts without the aid of the property comprised in the settlement or that the interest of the settlor in the property did not pass on the execution thereof.
Non-application of section
(3) This section does not extend to any settlement made in favour of a purchaser or incumbrancer in good faith and for valuable consideration.
[21] The 1992 definition of "settlement" remains in force.
[22] The current provisions respecting settlements, as well as the settlement provisions as they appeared in the 1919, 1927, 1949, 1985 and 1992 versions of the Act, are set out in an appendix to these reasons.
Re Bozanich
[23] The meaning of "settlement", as it appeared in the 1927 version of the Act, fell to be considered by the Supreme Court of [page536] Canada in the case of Re Bozanich, 1942 2 (SCC), [1942] S.C.R. 130, [1942] 2 D.L.R. 145. In that case, a debtor gave a chattel mortgage on some of his business assets to secure a past-due indebtedness incurred in the course of his business. Six months later, the debtor became bankrupt. His trustee in bankruptcy attacked the validity of the chattel mortgage as a settlement.
[24] The trial judge found that [the] chattel mortgage did not constitute a settlement within the meaning of the Act and that it was valid and effectual as against the trustee in bankruptcy. An appeal by the trustee was allowed by Urquhart J., who held that the chattel mortgage did constitute a settlement and ordered a new trial on that basis: (1940), 22 C.B.R. 143. His decision was affirmed by the Court of Appeal: 1940 103 (ON CA), [1941] O.R. 21.
[25] An appeal to the Supreme Court of Canada by the chattel mortgagee was allowed and the trial judge's decision was restored. The court held that the settlement provisions of the Act did not apply to payments or transfers in favour of creditors in respect of the settlor's obligations to those creditors. In the course of reaching that conclusion, both the majority and the concurring minority of the court made some general observations about the term "settlement" in what was then s. 62(3) of the Act.
[26] The majority decision was written by Duff C.J.C. He said, at pp. 134-35 S.C.R.: [See Note 2 at end of document]
It is contended that by force of this section [s. 62(3)] the ordinary meaning of "settlement" is extended in such a manner as to bring within its scope any conveyance or transfer of property. The corresponding provision in the English Bankruptcy Act, which was found in the Act of 1869, was the subject of discussion and decision before the enactment of the Canadian Bankruptcy Act of 1919; and it may, I think, properly be said that in 1919 when these provisions were adopted by Parliament it was the settled law in England that, although in the form of definition these words purport to enlarge the meaning of the term "settlement", they must, by reason of the context, be restricted in their scope. Broadly speaking, the settled principle in England is that this clause has not the effect of bringing within the scope of the term "settlement", as used in the sections corresponding to sections 60, 61 and 62 of our Act, transactions which have none of the essential elements of a "settlement", as that term is commonly understood.
In the treatise on Bankruptcy and Insolvency in the 2nd edit. of Halsbury by Lord Justice Luxmoore, it is stated that the term "settlement" "implies an intention that the property shall be retained or preserved for the benefit of the donee in such a form that it can be traced". This construction was well settled in the year 1919 when the relative provisions of the English statute were enacted as part of the bankruptcy law of this country. It is proper to assume that it was the statute as it had been construed by the English courts and applied in the administration of bankruptcy law in England that Parliament intended to adopt. [page537]
[27] The concurring minority decision was written by Rinfret J. He said, at pp. 138-39 S.C.R.:
Whether, therefore, "settlement" is or not a technical expression, it is apparent that, in the mind of the legislator, the use of the word "settlement" was intended to connote a particular kind of gift or grant excluding the others. Both sections 60 and 62, since over a quarter of a century, had been in the English Act in similar language; and the Canadian Bankruptcy Act borrowed them from the English statute. The construction of the word had been settled in England for some appreciable time and it had there acquired an established meaning.
Without attempting to give a definition of the word -- and more particularly of that word as used in section 60 -- it seems to me sufficient for the purpose of interpreting the section to adopt a passage of Cave J. in the case of In re Player; Ex parte Harvey [(1885), 15 Q.B. 682, at pp. 686-87]:
. . . The transaction must be in the nature of a settlement, though it may be effected by a conveyance or transfer. The end and purpose of the thing must be a settlement, that is, a disposition of property to be held for the enjoyment of some other person.
and at p. 140 S.C.R.:
"Settlement", in the English Bankruptcy Act, was held [in In re Plummer, [1900] 2 Q.B. 790] to mean such a conveyance or transfer by the donor as contemplates the retention of the property by the donee, either in its original form or in such a form that it can be traced, and does not extend to a conveyance or transfer of property which cannot be traced, as, for instance, where there is a gift of money to be employed in a business or in the purchase of a business and the money is so employed or spent, the business itself not being settled.
[28] Thus, both the majority and the minority in Re Bozanich imported the English law qualification on the meaning of "settlement": a disposition of property was only a settlement if the donor intended that the property be retained for the benefit of the donee either in specie or in traceable form. According to the English cases, the rationale for this qualification was a concern that a broader definition could have far-reaching unintended consequences, especially for the donor's family members, who might be required to refund money already spent on their maintenance or advancement: In Re Player; Ex p. Harvey (1885), 15 Q.B.D. 682, 54 L.J.Q.B. 554 (D.C.), at pp. 686-87; In re Tankard, [1899] 2 Q.B. 57 at pp. 60-61, 68 L.J.Q.B. 670.
The Law Since Re Bozanich
[29] Re Bozanich has been applied in numerous cases since it was decided in 1942. [See Note 3 at end of document] It was specifically applied by this court in [page538] Re Geraci, 1970 494 (ON CA), [1970] 3 O.R. 49, 12 D.L.R. (3d) 314 (C.A.), which held that the designation of a bankrupt's wife as the beneficiary of his life insurance policy was a settlement. [See Note 4 at end of document] Writing for the court, Jessup J.A. identified the meaning of "settlement" in this way, at p. 51 O.R.:
I think there emerges from the authorities a definition of the ordinary meaning of "settlement" that it is a disposition of property to be held, either in original form or in such form that it can be traced, for the enjoyment of some other person . . .
(Emphasis added)
He cited in support a number of cases, including one quoted by Rinfret J. as a statement of the English law (In re Player, supra), and including Re Bozanich itself.
[30] Despite its widespread application, Re Bozanich has not been without its detractors. Some have felt that appending the English common law qualification to the term "settlement" has impeded the objective of setting aside conveyances or transfers by debtors for no consideration, or for inadequate consideration, that reduce the property available to their creditors. Some, indeed, had hoped that, with the disappearance of the definition of "settlement" between 1949 and 1992 and its reappearance in substantially altered form in 1992, the English common law qualification had been scotched in favour of a broad interpretation to achieve the goal of avoiding commercially indefensible dispositions of property in anticipation of bankruptcy: see Lisa H. Kerbel Caplan, "Case Comment" (1994), 26 C.B.R. (3d) 252, and Springman et al., Fraudulent Conveyances and Preferences, looseleaf (Toronto: Carswell, 1994) at pp. 21-26 to 21-31. Indeed, in the decision followed by Gillese J. in the case at bar, Pitt J. held [at p. 55 C.B.R.] the current state of the law to be that "a gratuitous transfer of money from a bankrupt's estate to the spouse of the bankrupt within the prohibited period cannot be achieved with impunity" and that such a transfer of funds was, without reference to the Re Bozanich gloss, a settlement caught by s. 91 of the BIA. His decision is now reported: Re Grandview Ford Lincoln Sales Ltd. (2000), 21 C.B.R. (4th) 51 (Ont. S.C.J.).
[31] Ironically, this result is more consistent with the modern English law on the subject than it is with current Canadian law. The English common law, which Re Bozanich imported into the concept of "settlement" in the bankruptcy law of this country, has now been jettisoned by statute in the country that give it birth. [page539] The Insolvency Act, 1986 (U.K.), c. 45 consolidated into one statute the law relating to both corporate and individual insolvencies. [See Note 5 at end of document] Chapter V of Part IX of that statute, headed Effect of Bankruptcy on Certain Rights, Transactions, etc., contains a number of sections aimed at transactions taking place within specified time periods prior to bankruptcy. These sections contain references to "transactions at an undervalue" and to "preferences". The statute does not even use the word "settlement", nor does it contain any expression of the qualification that was engrafted on that term in this country by Re Bozanich. The leading British text (Fletcher, The Law of Insolvency, 2nd ed. (London: Sweet & Maxwell, 1996)) has not only dropped the word "settlement" from its index but has also deleted any reference to the English cases that were relied on in Re Bozanich to show the construction "[developed] by the English courts and applied in the administration of bankruptcy law in England that Parliament intended to adopt": Re Bozanich, at p. 135.
[32] However, I have come -- though not without reluctance -- to the conclusion that the Re Bozanich qualification on the subject of settlements is too firmly entrenched in our bankruptcy law to have changed with the definition of "settlement" that came into force with the BIA in 1992. Both judicial authority and academic commentary since 1992 have led me to this conclusion.
[33] Royal Bank of Canada v. North American Life Assurance Co., 1996 219 (SCC), [1996] 1 S.C.R. 325, 132 D.L.R. (4th) 193 (reported elsewhere, and more frequently cited, as Ramgotra (Trustee of) v. North American Life Assurance Co.), dealt with the question whether a transfer of property to oneself could constitute a settlement. Gonthier J., who delivered the judgment of the court and who concluded it could not, said (at p. 341 S.C.R.) that his view was "confirmed by the traditional judicial understanding of 'settlement', as stated by this court in In Re Bozanich". Although, strictly speaking, it was not necessary for him to do so, he expressed no doubt about the proposition stated in the excerpts from the reasons of Duff C.J.C. and Rinfret J. in Re Bozanich that are set out above. [page540]
[34] Re Dowswell (1999), 1999 3779 (ON CA), 11 C.B.R. (4th) 23, 178 D.L.R. (4th) 193, a decision of this court, specifically hewed to the Re Bozanich line. In that case, Labrosse J.A. quoted a portion of the excerpt from the reasons of Duff C.J.C. set out above and concluded, at p. 30 C.B.R.:
Accordingly, to be properly viewed as a settlement, a disposition of property must be held for the enjoyment of another person where it was the intention of the settlor that the property would be retained for the benefit of that person in such a form that it could be traced.
[35] Further, a distinguished academic has expressed the view that this historical gloss remains undisturbed by the absence of a statutory definition of "settlement" between 1949 and 1992 and the inclusion of the new statutory definition in 1992. In his article entitled "Section 91 (Settlements) of the Bankruptcy and Insolvency Act: A Mutated Monster" (1995), 25 Can. Bus. L.J. 235 at p. 239, fn. 20, Professor Ronald C.C. Cuming said, following a reference to Re Bozanich:
Whether or not the new definition of the term "settlement" contained in s. 2 of the Act has the effect of removing the requirement that, in order for a transfer to be a settlement, the transferor must intend that the property transferred with [sic] be retained by the donee, either in its original form or in such form as it can be traced remains to be established through judicial interpretation. It is my opinion that the definition should not be interpreted to eliminate this requirement. If Parliament had intended to make such a significant change in the concept of "settlement" as enunciated by the Supreme Court of Canada, all it had to do was to say so. It did not.
[36] In her reasons, Gillese J. noted, correctly, that the definition of "settlement" introduced into the BIA in 1992 included "a . . . transfer . . . to the extent that the . . . transfer . . . is gratuitous" and held that the transfer to Eileen fell squarely within the plain meaning of that definition. However, as I have endeavoured to demonstrate, a judicial finding of gift does not end the inquiry. While "settlement" includes a transfer made gratuitously, the question still remains whether the impugned gratuitous transfer meets the further requirement expressed in Re Bozanich.
[37] For the reasons given, I have concluded that the importation into Canadian bankruptcy law by Re Bozanich of the English common law qualification on the meaning of "settlement" is too firmly entrenched to have been swept away by subsequent statutory changes that did not directly address it. In my respectful opinion, Gillese J. erred in holding to the contrary and in adopting, in support, the reasoning of Pitt J. in Re Grandview Ford Lincoln Sales Ltd. [page541]
The Nature of the Hearing Before Gillese J.
[38] Notwithstanding this conclusion, I find that the evidence before Gillese J., and before the court on this appeal, was and is insufficient to enable any informed finding to be made on the question whether the impugned transaction constitutes a settlement within the meaning of s. 91 of the BIA.
[39] When Gillese J. heard this application, she had before her only four affidavits and the transcripts of cross- examinations of two of the deponents. Although there were a number of material facts in dispute and Eileen's credibility was seriously in issue, no witnesses were called to give evidence at the hearing of the proceeding.
[40] During the course of the argument of the appeal, the court expressed some concern that this proceeding had been determined on the basis of a paper record. Both counsel candidly advised us that they had been content to proceed in that way because each believed that his client would be successful on such a record. While we are grateful for their frankness, it is my view -- with which both counsel, with the benefit of hindsight, agreed -- that if the contest between them had to be re-litigated, it should be by way of a trial of an issue, in which the evidence adduced by each side would be given by way of viva voce testimony before the trier of fact. The proper disposition of the challenge to the impugned transfer requires nothing less: cf. R. v. Jetco Manufacturing Ltd. (1987), 1987 4436 (ON CA), 57 O.R. (2d) 776, 31 C.C.C. (3d) 171 (C.A.), at p. 781 O.R.
Disposition
[41] Accordingly, I would allow the appeal, set aside the order of Gillese J. and direct the trial of an issue before a judge of the Superior Court of Justice at London. In that issue, the respondent will be plaintiff and the appellant will be defendant. The issue will comprise the bank's challenge to the transfer under both the BIA and provincial statutes. There will be pleadings, production and discovery in accordance with the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The costs of the proceeding before Gillese J. will be reserved for disposition by the judge presiding at the trial of the issue.
[42] The appellant is entitled to payment forthwith of her costs of the appeal. At the conclusion of the argument, counsel agreed that the costs of the successful party on the appeal should be fixed in the amount of $7,500, inclusive of disbursements and GST. I consider that to be an appropriate figure, and would fix the appellant's costs of the appeal in that amount.
Order accordingly. [page542]
APPENDIX OF STATUTORY PROVISIONS RESPECTING SETTLEMENTS
i. The 1919 Version
29(1) Any settlement of property hereafter made, not being a settlement made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or a settlement made on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife, shall, if the settlor becomes bankrupt or insolvent or makes an authorized assignment within one year after the date of the settlement, be void against the trustee in the bankruptcy or of the assignment and shall, if the settlor becomes bankrupt or insolvent or makes an assignment as aforesaid at any subsequent time within five years after the date of the settlement, be void against such trustee, unless the parties claiming under the settlement can prove that the settlor was, at the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement, and that the interest of the settlor in such property passed to the trustee of such settlement on the execution thereof.
(2) Any covenant or contract hereafter made by any person (hereinafter called "the settlor") in consideration of his or her marriage, either for the future payment of money for the benefit of the settlor's wife or husband or children, or for the future settlement on or for the settlor's wife or husband or children, of property, wherein the settlor had not at the date of the marriage any estate or interest, whether vested or contingent, in possession or remainder, and not being money or property in right of the settlor's wife or husband, shall, if the settlor is adjudged bankrupt or makes an authorized assignment as aforesaid, and the covenant or contract has not been executed at the date of the petition in bankruptcy or said assignment, be void against such trustee except so far as it enables the persons entitled under the covenant or contract to claim for dividend in the settlor's bankruptcy or assignment proceedings under or in respect of the covenant or contract, but any such claim to dividend shall be postponed until all claims of the other creditors for valuable consideration in money or money's worth have been satisfied.
(3) Any payment of money hereafter made (not being payment of premiums on a policy of life insurance in favour of the husband, wife, child or children of the settlor) or any transfer of property hereafter made by the settlor in pursuance of such a covenant or contract as aforesaid, shall be void against the trustee unless the person to whom the payment or transfer was made prove either, --
(a) that the payment or transfer was made more than six months before the date of the petition in bankruptcy or the date of the authorized assignment; or,
(b) that at the date of the payment or transfer the settlor was able to pay all his debts without the aid of the money so paid or the property so transferred; or,
(c) that the payment or transfer was made in pursuance of a covenant or contract to pay or transfer money or property expected to come to the settlor from or on the death of a particular person named in [page543] the covenant or contract and was made within three months after the money or property came into the possession or under the control of the settlor;
but, in the event of any such payment or transfer being declared void, the persons to whom it was made shall be entitled to claim for dividend under or in respect of the covenant or contract in like manner as if it had not been executed at the date of the said petition or assignment.
(4) "Settlement" shall, for the purpose of this section, include any conveyance or transfer of property.
ii. The 1927 Version
Any settlement of property made after the thirtieth day of June, one thousand nine hundred and twenty, shall, if the settlor becomes bankrupt or makes an authorized assignment within one year after the date of the settlement, be void against the trustee.
Any such settlement shall, if the settlor becomes bankrupt or makes an assignment as aforesaid at any subsequent time within five years after the date of the settlement, be void against such trustee, unless the parties claiming under the settlement can prove that the settlor was, at the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement, and that the interest of the settlor in such property passed to the trustee of such settlement on the execution thereof.
This section shall not extend to any settlement made
(a) before and in consideration of marriage, or
(b) in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or
(c) on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife.
Any covenant or contract made after the thirtieth day of June, one thousand nine hundred and twenty, by any person (hereinafter called "the settlor") in consideration of his or her marriage, either for the future payment of money for the benefit of the settlor's wife or husband or children, or for the future settlement on or for the settlor's wife or husband or children, of property, wherein the settlor had not at the date of the marriage any estate or interest, whether vested or contingent, in possession or remainder, and not being money or property in right of the settlor's wife or husband, shall, if the settlor is adjudged bankrupt or makes an authorized assignment as aforesaid, and the covenant or contract has not been executed at the date of the petition in bankruptcy or said assignment, be void against such trustee except so far as it enables the persons entitled under the covenant or contract to claim for dividend in the settlor's bankruptcy or assignment proceedings under or in respect of the co venant or contract, but any such claim to dividend shall be postponed until all claims of the other creditors for valuable consideration in money or money's worth have been satisfied.
Any payment of money made after the thirtieth day of June, one thousand nine hundred and twenty, not being payment of premiums on a policy of life insurance in favour of the husband, wife, child or children of the settlor, or any transfer of property hereafter made by the settlor in pursuance of such a [page544] covenant or contract as aforesaid, shall be void against the trustee unless the person to whom the payment or transfer was made, prove either
(a) that the payment or transfer was made more than six months before the date of the petition in bankruptcy or the date of the authorized assignment; or
(b) that at the date of the payment or transfer the settlor was able to pay all his debts without the aid of the money so paid or the property so transferred; or
(c) that the payment or transfer was made in pursuance of a covenant or contract to pay or transfer money or property expected to come to the settlor from or on the death of a particular person named in the covenant or contract and was made within three months after the money or property came into the possession or under the control of the settlor.
In the event of any such payment or transfer being declared void, the persons to whom it was made shall be entitled to claim for dividend under or in respect of the covenant or contract in like manner as if it had not been executed at the date of the said petition or assignment.
For the purpose of this section and sections sixty and sixty-one "settlement" shall include any conveyance or transfer of property.
iii. The 1949 Version
60(1) Any settlement of property, if the settlor becomes bankrupt within one year after the date of the settlement, is void against the trustee.
(2) Any settlement of property, if the settlor becomes bankrupt within five years after the date of the settlement, is void against the trustee if the trustee can prove that the settlor was, at the time of making the settlement, unable to pay all his debts without the aid of the property comprised in the settlement or that the interest of the settlor in the property did not pass on the execution thereof.
(3) This section shall not extend to any settlement made
(a) before and in consideration of marriage, or
(b) in favour of a purchaser or incumbrancer in good faith and for valuable consideration, or
(c) on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife.
iv. The 1985 Version
91(1) Any settlement of property, if the settlor becomes bankrupt within one year after the date of the settlement, is void against the trustee.
(2) Any settlement of property, if the settlor becomes bankrupt within five years after the date of the settlement, is void against the trustee if the trustee can prove that the settlor was, at the time of making the settlement, unable to pay all his debts without the aid of the property comprised in the settlement or that the interest of the settlor in the property did not pass on the execution thereof. [page545]
(3) This section does not extend to any settlement made
(a) before and in consideration of marriage;
(b) in favour of a purchaser or incombrancer in good faith and for valuable consideration; or
(c) on or for the spouse or children of the settlor of property that has accrued to the settlor after marriage in right of the settlor's spouse or children.
v. The 1992 Definition of "settlement"
2(1) In this Act,
"settlement"
"settlement" includes a contract, covenant, transfer, gift and designation of beneficiary in an insurance contract, to the extent that the contract, covenant, transfer, gift or designation is gratuitous or made for merely nominal consideration[.]
vi. The Current Version
Certain settlements void
91(1) Any settlement of property made within the period beginning on the day that is one year before the date of the initial bankruptcy event in respect of the settlor and ending on the date that the settlor became bankrupt, both dates included, is void against the trustee.
If bankrupt within five years
(2) Any settlement of property made within the period beginning on the day that is five years before the date of the initial bankruptcy event in respect of the settlor and ending on the date that the settlor became bankrupt, both dates included, is void against the trustee if the trustee can prove that the settlor was, at the time of making the settlement, unable to pay all the settlor's debts without the aid of the property comprised in the settlement or that the interest of the settlor in the property did not pass on the execution thereof.
Non-application of section
(3) This section does not extend to any settlement made in favour of a purchaser or incumbrancer in good faith and for valuable consideration.
2(1) In this Act,
"settlement"
"settlement" includes a contract, covenant, transfer, gift and designation of beneficiary in an insurance contract, to the extent that the contract, covenant, transfer, gift or designation is gratuitous or made for merely nominal consideration[.]
[page546]
Notes
Note 1: The French version of s. 91 was amended in 1992.
Note 2: The emphasis in the italicized portions of the quotes in this and the following paragraph have been added by me.
Note 3: A computer-generated search indicates 67 such cases decided between 1944 and 2001.
Note 4: This situation now falls expressly within the 1992 of "settlement": see para. 19, above.
Note 5: The Act was passed in response to recommendations made by the Review Committee on Insolvency Law and Practice, which reported in 1982. The Review Committee carried out a thorough analysis of the existing insolvency legislation and made recommendations for its comprehensive reform. One of its recommendations was the abolition of the concept of "settlements": see Report of the Review Committee, Cmnd. 8558 (London: H.M. Stationery Office, 1982), at pp. 278-82.