Shelson v. Gowling Lafleur Henderson LLP et al. [Indexed as: Shelson v. Gowling Lafleur Henderson LLP]
70 O.R. (3d) 171
[2004] O.J. No. 850
Docket No. C39831
Court of Appeal for Ontario
McMurtry, C.J.O., Catzman and Abella JJ.A.
March 9, 2004
Bankruptcy and insolvency -- Discharge -- Property of bankrupt -- Non-realizable property -- Property returnable to bankrupt -- Before bankruptcy, bankrupt pursuing action against law firm -- Trustee in bankruptcy taking no steps with respect to action before being discharged -- Bankrupt pursuing action for four and a half years after discharge from bankruptcy -- Bankrupt applying for order that trustee assign its interest in action -- Appropriate in circumstances to order action to be assigned to bankrupt -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 40. [page172]
In 1989, Dr. S. purchased an interest in a limited partnership. The investment was unsuccessful and, in 1994, eight of the limited partners, including Dr. S., sued a number of parties, including GLH, a law firm. In 1996, Dr. S. made an assignment in bankruptcy. The creditors did not give Dr. S's trustee in bankruptcy any instructions about the action, and the trustee did nothing about it when Dr. S. applied for a discharge. The discharge was granted in August 1997. Dr. S. continued to pursue the action for some five years, until April 2002, when his status was raised during an attendance before Wilson J. As a result of this attendance, the trustee was advised about the action, and it responded by soliciting offers for the sale of its interest in the action. The trustee then purported to accept an offer from GLH, subject to court approval.
Dr. S. moved for an order that the trustee assign to him all of its interest in the action. From the uncontested affidavit evidence, the Deputy Registrar drew the inference that Dr. S., as a result of discussions he had had with the trustee, believed that as long as the creditors did not instruct the trustee to the contrary, title to the action would return to him after the discharge from bankruptcy. The Deputy Registrar granted the motion, relying on the authority of Zemlak v. Deloitte, Haskins & Sells Ltd. and s. 40(1) of the Bankruptcy and Insolvency Act, which provides that "with the permission of the inspectors, any property of a bankrupt found incapable of realization shall be returned to the bankrupt prior to the trustee's application for a discharge". The Deputy Registrar treated the Zemlak judgment as authority for the proposition that the trustee is obliged either to return the non-realizable property under s. 40(1) of the Act or to carry on with the administration of the estate and not seek a discharge. The Deputy Registrar dismissed the trustee's cross-motion for an order authorizing the sale to GLH. The Deputy Registrar's order was reversed by Ground J., who authorized the trustee to accept GLH's offer. Dr. S. appealed.
Held, the appeal should be allowed.
In the immediate case, it was appropriate for the Deputy Registrar to rely on the Zemlak judgment. However, the proposition from that case was stated too broadly. The proposition admitted exceptions, and it could not be framed as a "bright-line" rule. For example, where assets previously unknown to the trustee are discovered within a reasonable time of the application for discharge, it would be inappropriate to apply the proposition from the Zemlak case. Another example is where the trustee learns within a reasonable time of the application for a discharge that an asset previously considered to be unrealizable in fact has a realizable value. However, the Zemlak proposition did apply in the immediate case. The trustee had knowledge of the existence of the action before Dr. S. made an assignment in bankruptcy. It took no steps with respect to the action during the 14 months between its appointment and its discharge. It took no steps for more than four and a half years after its discharge, during which Dr. S. continued to pursue the action. It ultimately moved to assert its claim only after Dr. S's status was queried. It was then too late for the trustee to come forward and seek to realize on the value of its professed interest in the action. The Deputy Registrar was correct in ordering the trustee to assign its interest in the action to Dr. S.
APPEAL from an order authorizing a trustee in bankruptcy to accept an offer to purchase its interest in a cause of action.
Cases referred to Canadian Foundation for Children, Youth and the Law v. Canada (Attorney General), 2004 SCC 4, 234 D.L.R. (4th) 257, 315 N.R. 201, 180 C.C.C. (3d) 353, 46 R.F.L. (5th) 1, 16 C.R. (6th) 203, [2004] S.C.J. No. 6, affg (2002), 2002 21983 (ON CA), 57 O.R. (2d) 511, 207 D.L.R. (4th) 632, 90 C.R.R. (2d) 223, 161 C.C.C. (3d) 178, 48 C.R. (5th) 218, 23 R.F.L. (5th) 101 (C.A.); [page173] Condon, ex parte James (Re) (1874), 9 Ch. App. 609 (U.K.); Equity Waste Management of Canada Corp. v. Halton Hills (Town) (1997), 1997 2742 (ON CA), 35 O.R. (3d) 321, 40 M.P.L.R. (2d) 107 (C.A.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, 219 Sask. R. 1, 211 D.L.R. (4th) 577, 286 N.R. 1, 272 W.A.C. 1, [2002] 7 W.W.R. 1, 30 M.P.L.R. (3d) 1, 2002 SCC 33, 10 C.C.L.T. (3d) 157; 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.); Rocher v. H. & M. Diamond & Associates (2003), 2003 29646 (ON CA), 43 C.B.R. (4th) 134, 11 R.P.R. (4th) 20, [2003] O.J. No. 1049 (QL) (C.A.); Thompson v. Coulombe (1984), 54 C.B.R. (N.S.) 254, [1984] Q.J. No. 11 (QL) (C.A.); Zemlak v. Deloitte, Haskins & Sells Ltd. (1987), 1987 4662 (SK CA), 58 Sask. R. 203, 42 D.L.R. (4th) 395, [1987] 6 W.W.R. 114, 66 C.B.R. (N.S.) 1 (C.A.) (sub nom. Zemlak v. Deloitte, Haskins & Sells Ltd., Zemlak v. Zemlak) Statutes referred to Bankruptcy Act, R.S.C. 1970, c. B-3 Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 40, 49(6), 155(e)
Sean E. Cumming, for appellant. Ronald G. Slaght, Q.C., and Estée L. Garfin, for respondents.
The judgment of the court was delivered by
CATZMAN J.A.: --
The Appeal
[1] The origin of this appeal lies in a civil action, in which the bankrupt was a plaintiff, that was pending at the time he made his assignment in bankruptcy. More than five years after he was discharged, and almost five years after the discharge of his trustee in bankruptcy, the trustee asserted the right to an interest in the action, and solicited offers for its sale.
[2] The Deputy Registrar granted the bankrupt's motion for an order that the trustee assign to him all of its interest in the action, and dismissed the trustee's cross-motion for an order authorizing it to accept an offer to purchase that interest. An appeal from the decision of the Deputy Registrar by Gowling Lafleur Henderson LLP ("Gowlings") was allowed by Ground J., who set aside the order of the Deputy Registrar and authorized the trustee to accept Gowlings' offer to purchase the trustee's interest.
[3] The bankrupt appeals to this court from the decision of Ground J. For the reasons that follow, I would allow the appeal. [page174]
Facts
[4] In 1989, before his bankruptcy, Dr. Shelson purchased an interest in a limited partnership as part of a tax-driven real estate investment vehicle. The investment was unsuccessful and, in 1994, eight of the limited partners -- including Dr. Shelson -- commenced an action against a number of parties, including Gowlings, who were associated with the investment. The statement of claim in that action alleged that Gowlings acted on the purchase of the property, on the preparation of the offering memorandum and on the resale of some of the units, including the unit purchased by Dr. Shelson. The action sought damages against Gowlings for breach of contract, negligence, negligent misrepresentation and breach of fiduciary duty.
[5] Dr. Shelson made an assignment in bankruptcy in November 1996. Before he did so, he met with Mr. Edward White, an officer of the trustee. Part of the discussion between them related to the pending civil action. There is some controversy, with which I deal below, about the content and the purport of their discussion.
[6] Dr. Shelson's application for discharge from bankruptcy, which was not opposed by any of his creditors, was granted in August 1997. The trustee received its discharge in January 1998.
[7] There is no evidence that the bankrupt's creditors gave the trustee any instructions about the action during the period of Dr. Shelson's bankruptcy, and the trustee did nothing about the action at the time it applied for its discharge. Dr. Shelson continued to pursue the action for some five years until, in April 2002, during an attendance before Wilson J., his status to pursue the action was raised for the first time. Wilson J. ordered him to disclose all relevant documents with respect to his bankruptcy and his status, and directed that a copy of her order be served upon the trustee. When the trustee was advised, it solicited tenders for the sale of its interest in the cause of action. Two offers were received: one by Stephen Shefsky, a friend of Dr. Shelson, and a second by Gowlings. The trustee purported to accept Gowlings' offer, subject to court approval.
[8] The result was the motion by the bankrupt and the cross- motion by the trustee referred to in para. 2.
[9] Three affidavits were before the court on the return of the motion and cross-motion. The first, in point of time, was that of the bankrupt. The second, sworn some five weeks later, was that of Mr. White, as an officer of the trustee. The third, sworn shortly [page175] after that of Mr. White, was that of Mr. Shefsky. None of the deponents was cross-examined on his affidavit.
[10] At no stage in this litigation has there been any question about Gowlings' entitlement to tender for the assignment of the trustee's interest in an action in which Gowlings was a defendant.
The Decision of the Deputy Registrar: [2002] O.J. No. 5062 (QL)
[11] There was considerable dispute between the parties about the meaning of the evidence of the bankrupt's conversation with Mr. White prior to the filing of the assignment. It is useful to reproduce the paragraphs in the bankrupt's affidavit that relate to this conversation. He said, at paras. 4, 5 and 6:
One of my assets listed on [my Personal Data form] was a civil litigation claim described in an action between myself and others as plaintiffs and Jeffrey Dennis and others as defendants. . . .
I was concerned about the status of the Action and what would happen to the rights I had there under (the "Property") and in particular, whether or not I would be entitled to continue with the Action after I filed for bankruptcy.
Mr White advised me that the right to the Property would vest in the Trustee. I however clearly understood from my discussion with Mr. White that the trustee believed the Property was of little value to the estate and that he was not interested in the Property and as long as the creditors did not during the period of my bankruptcy instruct Mr. White to the contrary I would be entitled to the Property after my discharge.
[12] The Deputy Registrar said the following about this evidence:
The Bankrupt maintains in his affidavit that it was always his understanding from his discussions with the Trustee prior to making the assignment, that, so long as there were no contrary instructions from his creditors, the rights to the Action would be returned to him after his discharge from bankruptcy. The Bankrupt states that he clearly understood that, during bankruptcy, title to the Action would vest in the Trustee, and accepted this, subject to his understanding as to what would occur on discharge. That he had these discussions with Mr. White of the Trustee is not controverted by the Trustee. In fact, the Trustee's evidence in this matter is absolutely silent on the point. I accept the Bankrupt's evidence, and draw the inference that it was his discussions with the Trustee which led him to those beliefs.
(Emphasis added)
[13] The Deputy Registrar framed the question before him to be whether the court should order the action to be returned to the bankrupt. The answer, he found, was "overwhelmingly in the affirmative". He accepted both of the grounds advanced on Dr. Shelson's behalf: [page176]
(1) the first, based on the decision in Zemlak v. Deloitte, Haskins & Sells Ltd. (1987), 1987 4662 (SK CA), 66 C.B.R. (N.S.) 1, 58 Sask. R. 203 (C.A.), that the trustee was obliged either to return the non-realizable property under what is now s. 40(1) [see Note 1 at the end of the document] of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA") or to carry on with the administration of the estate and not seek its discharge. As the trustee had sought its discharge without realizing upon its interest in the action, the trustee must have determined that interest to be incapable of realization and remained its legal owner only as trustee for the bankrupt; and
(2) the second, based on the rule in Re Condon, ex parte James (1874), 9 Ch. App. 609, which he described as "an equitable rule which may be invoked to prevent a trustee from relying upon its strict legal rights to the inequitable detriment of a bankrupt or others".
The Decision of Ground J.: (2003), [2003 7931 (ON SC)](https://www.canlii.org/en/on/onsc/doc/2003/2003canlii7931/2003canlii7931.html), 39 C.B.R. (4th) 292, [2003] O.J. No. 941 (QL) (S.C.J.)
[14] Ground J. found both of the bases of the Deputy Registrar's decision to constitute errors in law.
[15] With respect to the first, he distinguished Zemlak as a case in which the trustee was held to be disentitled from maintaining a caveat against real property in which the bankrupt had no non-exempt equity in order that, when the property eventually appreciated in value, it could be realized for the benefit of the creditors. Regarding the present case, Ground J. said, at para. 6 of his reasons:
[T]here is no evidence that the Trustee had, at any time, made a determination that the interest of the Bankrupt in the Action had no realizable value. The most that the Trustee did was to indicate to the Bankrupt that it did not feel that the interest of the Bankrupt in the Action was of sufficient value that it justified the estate continuing to prosecute the Action and that, unless the creditors directed the Trustee to do otherwise, the Bankrupt would be entitled to have the interest in the Action reconveyed to him on his discharge. This would require a motion to be brought by the Bankrupt pursuant to subsection 40(2) [see Note 2 at the end of the document] of the BIA to require the Trustee to transfer the interest of the estate in the Action to him. [page177]
[16] With respect to the second, he held that the rule in Ex parte James was inapplicable because the estate was not being enriched to the detriment of a third party in circumstances where there was unusual hardship to a third party or manifest injustice in permitting the trustee to rely on its strict legal rights. He observed that the only person detrimentally affected by the trustee's decision was the bankrupt and that he knew of no precedent for applying the rule in Ex parte James where the person challenging the right of the trustee to rely upon its strict legal rights was the bankrupt himself.
[17] Ground J. authorized the trustee to accept Gowlings' offer to purchase the estate's interest in the action for the sum of $20,000.
"Property of a Bankrupt Found Incapable of Realization"
[18] In the disposition of this appeal, I find it necessary to deal with only the first issue considered by the Deputy Registrar and by Ground J.: whether, in applying for its discharge, the trustee found, or was deemed to have found, the bankrupt's interest in the action to be incapable of realization and that, having so found, he was obliged to return that asset to the bankrupt under s. 40(1) of the BIA. As appears in footnote 1, above, that section provides:
40(1) With the permission of the inspectors [see Note 3 at the end of the document], any property of a bankrupt found incapable of realization shall be returned to the bankrupt prior to the trustee's application for discharge.
[19] It will be recalled that the Deputy Registrar accepted the evidence of the bankrupt set out in paras. 4-6 of his affidavit and drew the inference that it was his discussions with the trustee that led the bankrupt to hold the beliefs to which he deposed in those paragraphs. On the appeal, Gowlings' counsel took issue with the inference drawn by the Deputy Registrar, and carefully parsed the language appearing in para. 6 of the bankrupt's affidavit. In his submission, while the first sentence of para. 6 deposed to a fact, the balance of the paragraph (beginning with the words "I clearly understood") did not. He downplayed the trustee's failure to respond, suggesting that the balance of the paragraph lacked evidentiary value and did not merit a response.
[20] I do not agree. In my view, it was open to the Deputy Registrar to draw, from paras. 4-6 of the bankrupt's affidavit and [page178] from the trustee's failure to respond to those paragraphs, the inference that the bankrupt's conversation with Mr. White led Dr. Shelson to believe that, on his discharge, the interest in the action which passed to the trustee in bankruptcy would revest in him. Such a finding, whether described as a finding of fact or an inference of fact, is entitled to deference and will not be overturned in the absence of a palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, 211 D.L.R. (4th) 577 at paras. 10 and 19. This deference is paid whether the evidence in the first instance is given in the form of oral testimony or on written material by way of affidavit: Equity Waste Management of Canada v. Halton Hills (Town) (1997), 1997 2742 (ON CA), 35 O.R. (3d) 321, 40 M.P.L.R. (2d) 107 (C.A.), at p. 336 O.R.; Canadian Foundation for Children, Youth and the Law v. Canada (Attorney General) (2002), 2002 21983 (ON CA), 57 O.R. (3d) 511, 207 D.L.R. (4th) 632 (C.A.) at para. 11.
[21] Everything the bankrupt did subsequent to his discharge, together with the trustee's prolonged disinterest in the action, is consistent with and supports the Deputy Registrar's finding. I therefore proceed on the basis found by the Deputy Registrar with respect to paras. 4 to 6 of the bankrupt's affidavit.
[22] However, that finding is not conclusive of this appeal. Even if, putting it at its highest, there was an agreement by the trustee that the interest in the action would be returned to the bankrupt after his discharge, such an agreement would not prevail if it ran contrary to the interests of the creditors of the estate.
[23] I therefore proceed to the first of the two bases of the Deputy Registrar's decision. Relying on the decision in Zemlak v. Deloitte, Haskins & Sells Ltd. (1987), 1987 4662 (SK CA), 66 C.B.R. (N.S.) 1, 58 Sask. R. 203 (C.A.), he said [at para. 23]:
The Court in Zemlak concluded on the facts that the trustee was obliged to either return the non-realisable property under what is now s. 40(1) of the Act, or carry on with administration of the estate, and not seek its discharge. I adopt this reasoning. The Trustee must make a decision when it applies for its discharge. On the facts at bar, the Trustee's actions speak loudly that it considered the Action incapable of realisation in that it applied for its discharge, and did nothing in relation to the Action until this year.
[24] In Zemlak, the trustee sought to maintain a caveat against the bankrupt's residential property in which, at the time that both the bankrupt and the trustee were discharged, the bankrupt had little or no non-exempt equity. The object of maintaining the caveat was to wait until non-exempt equity built up in the property that would form a realizable fund for creditors at some [page179] future date. The judge of first instance granted an order permitting the discharged trustee to continue the caveat. The bankrupt appealed to the Saskatchewan Court of Appeal. That court allowed the appeal, holding that the maintenance of the caveat was not in accordance with the philosophy of the Bankruptcy Act, R.S.C. 1970, c. B-3. In doing so, the court said, at p. 11 C.B.R.:
In the circumstances of this case, we have concluded that the trustee was obliged to either return the real property under s. 22(1) [now s. 40(1)] and be discharged or alternatively establish that there was a non-exempt equity in the home and then continue with the administration of the estate until completion. Since neither of these requirements have been met, the caveat must be vacated and we so order.
[25] In reaching that conclusion, Zemlak relied upon the earlier decision of the Quebec Court of Appeal in Thompson v. Coulombe (1984), 54 C.B.R. (N.S.) 254, [1984] Q.J. No. 11 (QL) (C.A.). Thompson involved a discharged bankrupt who brought an action to set aside a sale of shares that took place prior to his bankruptcy. The action was brought after the discharge of both the bankrupt and the trustee. The action was met by an exception to dismiss on the basis that the plaintiff had no interest in the action because he was a discharged bankrupt and because he had not obtained an assignment of the trustee's rights. Following service of the exception to dismiss, but before it was heard, the plaintiff obtained from the trustee a reassignment of all of the rights claimed in the action. The Court of Appeal reversed an order dismissing the action. It held that the ground raised in the exception to dismiss did not involve a fundamental lack of interest in the object of the action but rather an irregularity resulting from a lack of capacity to bring action prior to obtaining a reassignment from the trustee or a court order. In language that was specifically adopted in Zemlak, Rothman J.A. said, at para. 12:
Under s. [40(1)] of the Act, the trustee had an obligation, prior to applying for his discharge, to return to appellant any property which he found incapable of realization. These claims, by their nature, would obviously have been difficult of realization and they were not exercised prior to his discharge. Although the trustee did not reassign them prior to his discharge, he did, in fact, reassign them to appellant prior to the hearing of the exception. Had the trustee not done so, appellant could have applied for a court order under s. [40(2)].
[26] Both Thompson and Zemlak, in turn, were cited in the decision of the Supreme Court of Canada in Ramgotra (Trustee of) v. North American Life Assurance Co., 1996 219 (SCC), [1996] 1 S.C.R. 325, 37 C.B.R. (3d) 141 ["Royal Bank"]. In that case, the bankrupt had, within five years prior to his bankruptcy, transferred registered [page180] retirement savings plan funds (which were not exempt from the claims of creditors) into a registered retirement income fund, or RRIF (which under provincial law was exempt from the claims of creditors) and designated his wife as beneficiary of the RRIF. The trustee in bankruptcy, who had not been discharged, sought to set aside the transfer as a settlement under the BIA. His application was dismissed by the chambers judge. One of the creditors pursued an appeal, which was dismissed by the Saskatchewan Court of Appeal. The creditor appealed, again unsuccessfully, to the Supreme Court of Canada. The judgment of the court was delivered by Gonthier J. In holding that the RRIF was an exempt asset unavailable to creditors of the bankrupt, he said, at para. 52:
Therefore, even though [the bankrupt] effected a void settlement under the second branch of s. 91(2) when he designated his wife as beneficiary of his RRIF, that does not allow the trustee to use the funds in the RRIF to satisfy the claims of creditors such as the appellant bank. The RRIF is an exempt asset pursuant to the provincial legislation incorporated into s. 67(1)(b), meaning that it is not property which is divisible among creditors. Given this, even though [the bankrupt's wife's] future contingent interest in the RRIF had passed into the possession of the trustee through the application of s. 91(2), the RRIF was property "incapable of realization" by the trustee pursuant to s. 40(1) BIA. Therefore, the trustee was obliged to return it to [the bankrupt] prior to applying for his discharge: Thompson v. Coulombe (1984), 54 C.B.R. (N.S.) 254 (Que. C.A.) at p. 257; Zemlak (Trustee of) v. Zemlak (1987), 66 C.B.R. (N.S.) 1 (Sask. C.A.), at pp. 9 and 11.
[27] Of the three cases -- Thompson, Zemlak and Royal Bank -- only Zemlak is factually similar to the case at bar. Thompson involved a discharged bankrupt and a discharged trustee who, before the hearing of a motion to dismiss the bankrupt's action, provided him with the necessary assignment of his action. Royal Bank involved a bankrupt who had been discharged, who was being pursued by a creditor to set aside a settlement under the BIA and whose trustee had not yet applied for his discharge.
[28] Zemlak, on the other hand, involved a discharged bankrupt and a discharged trustee who sought to tie up the bankrupt's property indefinitely in the hope that it would enhance in value and turn what was an exempt equity in the property into a non-exempt equity.
[29] I do not quarrel with the result in Zemlak or with the Deputy Registrar's reliance on that case. But, with deference, I am concerned with the breadth of the proposition stated by the Deputy Registrar: that when a trustee applies for its discharge, it must elect, or be considered to have elected, to return to the bankrupt its interest in non-realizable property under s. 40(1) of [page181] the BIA and, if it fails to do so, it holds that interest as trustee for the bankrupt and must return that interest to him.
[30] In my view, the proposition cannot be framed as a "bright-line" rule that admits of no exceptions. Even the court in Zemlak qualified its statement of the proposition by the introductory phrase "[I]n the circumstances of this case": see para. 24, above. This court distinguished Zemlak and permitted a trustee in bankruptcy, following his discharge and that of the bankrupts, to take proceedings to pursue two properties, the values of which had been misrepresented by the bankrupts in their statements of affairs: Rocher v. H. & M. Diamond & Associates (2003), 2003 29646 (ON CA), 43 C.B.R. (4th) 134, [2003] O.J. No. 1049 (QL) (C.A.). Even in instances short of misrepresentation or other misconduct by the bankrupt, it is not difficult to think of examples where an exception to the proposition would be appropriate. One is where an asset previously unknown to the trustee is discovered within a reasonable time of his application for discharge. Another is where the trustee learns within a reasonable time of his application for discharge that an asset previously considered to be unrealizable in fact had realizable value. In both examples, assuming that the asset is one which should, in the interests of the creditors of the estate, be realized, the court must retain some discretion to decide whether the proposition does or does not apply [see Note 4 at the end of the document]. Failure to imbue the rule with some measure of flexibility renders a trustee's application for discharge a trap for the unwary.
[31] However, even crediting the proposition with some measure of flexibility, I am of the view that it does apply in the factual context of the present case. The trustee incontrovertibly had knowledge of the existence of the action before Dr. Shelson made his assignment in bankruptcy. It took no steps with respect to the action during the 14 months between its appointment and its discharge. It took no steps for more than four and a half years after its discharge, during which Dr. Shelson continued to pursue the action. It was ultimately moved to assert its claim to an interest in the action only after a judge who queried Dr. Shelson's status directed that notice be given to it. In my view, it was by then far too late for the trustee to come forward and seek to realize on the value of its professed interest in the action. [page182]
[32] In the result, I agree with the Deputy Registrar that the trustee should be ordered to assign its interest in the action to the bankrupt.
Disposition
[33] I would allow the appeal, set aside paras. 1 and 2 of the order of Ground J., and order that the trustee assign to the bankrupt all of its right, title and interest in the action. By para. 3, Ground J. ordered that there be no costs to or against any party of the proceedings before the Deputy Registrar or before him, and I would not disturb that part of his order. I would award the appellant his costs of this appeal which, having regard to the submissions made by counsel at the conclusion of the argument, I would fix in the amount of $7,500 plus disbursements and GST.
Order accordingly.
Notes
Note 1: Subsection 40(1) reads:
40(1) With the permission of the inspectors, any property of a bankrupt found incapable of realization shall be returned to the bankrupt prior to the trustee's application for discharge.
Note 2: Subsection 40(2) reads:
40(2) Where a trustee is unable to dispose of any property as provided in this section, the court may make such order as it may consider necessary.
Note 3: This was a summary administration bankruptcy, and no inspectors were appointed: see ss. 49(6) and 155(e) of the BIA.
Note 4: In such cases, the trustee could act under s. 41(10) of the BIA, which provides:
41(10) Notwithstanding his discharge, the trustee remains the trustee of the estate for the performance of such duties as may be incidental to the full administration of the estate.