Title v. Canadian Asset Based Lending Enterprise (CABLE) Inc. et al.

[Indexed as: Title v. Canadian Asset Based Lending Enterprise (CABLE) Inc.]

108 O.R. (3d) 71

2011 ONCA 715

Court of Appeal for Ontario,

Sharpe, Juriansz and Watt JJ.A.

November 15, 2011

Bankruptcy and insolvency -- Practice and procedure -- Leave of court -- Plaintiff bringing action in Ontario alleging conspiracy to use fraudulent bankruptcy proceedings in Quebec to defeat process of Ontario courts -- Motion judge erring in dismissing trustee in bankruptcy's motion to stay Ontario action -- Plaintiff requiring leave of Quebec court under s. 215 of Bankruptcy and Insolvency Act to bring action -- Failure to obtain leave was curable irregularity but plaintiff required to obtain leave in order to cure irregularity -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 215.

Conflict of laws -- Jurisdiction -- Real and substantial connection -- Ontario-resident plaintiff bringing action in Ontario alleging breach of contract and oppression -- Two defendants making assignments in bankruptcy in Quebec -- Plaintiff bringing second action in Ontario alleging conspiracy to use fraudulent bankruptcy proceedings in Quebec to defeat process of Ontario courts -- Ontario court having jurisdiction to hear second action -- Real and substantial connection existing [page72 ]between claim and Ontario -- Trustee in bankruptcy who was defendant in second action attorning to jurisdiction of Ontario court by asking that court to stay proceedings on ground that leave was not obtained pursuant to s. 215 of Bankruptcy and Insolvency Act -- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 215.

The plaintiff, an Ontario resident, brought an action in Ontario alleging breach of contract and oppression (the "first action"). Without notice to the plaintiff, two of the defendants in that action made assignments in bankruptcy in Quebec. The plaintiff brought a second action in Ontario alleging conspiracy to use fraudulent bankruptcy proceedings in Quebec to defeat the process of the Ontario courts. The defendants in the second action moved to have the second action dismissed as Ontario lacked jurisdiction to entertain the claim, or for a stay of the action on the ground that Quebec was the more appropriate forum. The trustee in bankruptcy (a defendant in the second action) also moved to have the action stayed on the ground that the plaintiff failed to obtain leave pursuant to s. 215 of the Bankruptcy and Insolvency Act (the "BIA"). The motion was dismissed. The defendants appealed.

Held, the appeal should be allowed in part.

The motion judge did not err in finding that there was a real and substantial connection between the claim and Ontario so that Ontario had jurisdiction. Although they were resident in Quebec, the personal defendants attorned to the first action in Ontario and were alleged to have conspired with the other defendants to defeat the process of the Ontario courts. Where a party conspires to defeat the process of the Ontario courts, that party has "participated in something of significance" or has been "actively involved" in Ontario and therefore can reasonably be brought within the embrace of Ontario's jurisdiction. Moreover, the trustee attorned to Ontario's jurisdiction by asking the Ontario court to stay the proceedings on the ground that leave had not been obtained under s. 215 of the BIA. The plaintiff was not required to proceed within the Quebec bankruptcy proceedings. The Ontario proceedings did not amount to either a direct or a collateral attack on the Quebec bankruptcy.

The motion judge did not err in refusing to stay the action on ground of forum non conveniens.

The motion judge erred in failing to stay the action against the trustee on the ground that leave was not obtained pursuant to s. 215 of the BIA. While the motion judge correctly found that failure to obtain leave is an irregularity that can be cured, the action could not proceed until the irregularity was cured by obtaining leave. "The court" in s. 215 referred to the court having general control and superintendence of the bankruptcy. Leave of the Quebec Superior Court was required.

APPEAL from the order of Newbould J., [2011] O.J. No. 611, 2011 ONSC 922 dismissing a motion to dismiss or stay an action.

Cases referred to Canada (Attorney General) v. TeleZone Inc., [2010] 3 S.C.R. 585, [2010] S.C.J. No. 62, 2010 SCC 62, 273 O.A.C. 1, 410 N.R. 1, 2011EXP-42, J.E. 2011-18, 56 C.E.L.R. (3d) 1, 327 D.L.R. (4th) 527, 96 C.L.R. (3d) 1, 196 A.C.W.S. (3d) 98, apld

Other cases referred to Beals v. Saldanha, [2003] 3 S.C.R. 416, [2003] S.C.J. No. 77, 2003 SCC 72, 234 D.L.R. (4th) 1, 314 N.R. 209, J.E. 2004-127, 182 O.A.C. 201, 39 B.L.R. (3d) 1, 39 C.P.C. (5th) 1, 113 C.R.R. (2d) 189, 127 A.C.W.S. (3d) 648; Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, 2004 SCC 25, 237 D.L.R. (4th) 385, 319 N.R. 38, J.E. 2004-931, 186 O.A.C. 128, 43 B.L.R. (3d) 163, 9 E.T.R. (3d) 163, 130 A.C.W.S. (3d) 32; M.J. Jones Inc. v. Kingsway General Insurance Co. (2004), 2004 CanLII 6211 (ON CA), 72 O.R. (3d) 68, [2004] O.J. No. 3286, 242 D.L.R. (4th) 139, 189 O.A.C. 272, 6 C.P.C. (6th) 121, 132 A.C.W.S. (3d) 835 (C.A.); [page73 ]New Alger Mines Ltd. v. Thorne Riddell Inc. (1986), 1986 CanLII 2530 (ON CA), 54 O.R. (2d) 562, [1986] O.J. No. 144, 26 D.L.R. (4th) 719, 14 O.A.C. 25, 59 C.B.R. (N.S.) 113, 35 A.C.W.S. (2d) 389 (C.A.); Sauer v. Canada (Attorney General) (2006), 2006 CanLII 74 (ON SC), 79 O.R. (3d) 19, [2006] O.J. No. 26, [2006] O.T.C. 13, 17 B.L.R. (4th) 319, 36 C.C.L.T. (3d) 296, 144 A.C.W.S. (3d) 1129, 147 A.C.W.S. (3d) 919 (S.C.J.); Van Breda v. Village Resorts Ltd. (2010), 98 O.R. (3d) 721, [2010] O.J. No. 402, 2010 ONCA 84, 264 O.A.C. 1, 316 D.L.R. (4th) 201, 81 C.P.C. (6th) 219, 185 A.C.W.S. (3d) 68, 71 C.C.L.T. (3d) 161, 77 R.F.L. (6th) 1; Wolfe v. Wyeth, [2011] O.J. No. 2035, 2011 ONCA 347, 282 O.A.C. 64, 92 C.P.R. (4th) 208, 84 C.C.L.T. (3d) 167, 332 D.L.R. (4th) 157

Statutes referred to Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 2 [as am.], 183(1) [as am.], (1.1) [as am.], 215 [as am.]

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 17.02

Howard Borlack and Lisa La Horey, for appellants Druker & Associates Inc.

Jeffrey A.L. Kriwetz, for appellants Canadian Asset Based Lending Enterprise Inc. and Allan Rubin.

François Sauvageau, for appellants 7178255 Canada Inc., 9208 -- 9945 Quebec Inc., Druker & Associates Inc., Allen Rubin, Michael Leiberman, Fred Leiberman and Joel Leiberman.

Michael Gayed, for respondent.

The judgment of the court was delivered by

[1] SHARPE J.A.: -- This appeal concerns the jurisdiction of the Superior Court of Justice of Ontario to entertain an action alleging a conspiracy to use fraudulent bankruptcy proceedings in Quebec to defeat the process of the Ontario courts.

Facts

[2] The respondent, Title, plaintiff in the action that is the subject of this appeal (the "second action"), is an Ontario resident. The personal appellants, defendants in the same action, are Quebec residents, and the corporate appellants, also defendants, have their head offices in Quebec. The appellant Druker & Associates Inc. ("Druker"), also a defendant, is a Quebec trustee in bankruptcy.

[3] The Quebec bankruptcy proceedings at the core of Title's claim involve two companies, 6048668 Canada Inc. ("Sistek") [page74 ]and 2924218 Canada Inc. ("Premier"). Title is a shareholder and an officer of Sistek. On March 5, 2009, Title commenced an Ontario action against Sistek, Premier, and Fred and Joel Leiberman, shareholders and directors of Sistek and Premier. He alleges breach of contract and oppression, and is seeking damages and shares in Premier (the "first action").

[4] Fred and Joel Leiberman, Sistek and Premier initially failed to defend the first action. Title set down a motion for partial default judgment, returnable May 7, 2009. Title also sought the appointment of a receiver as Canadian Asset Based Lending Enterprise ("CABLE"), a Sistek secured creditor, was entitled to enforce its security on the following day. Within a day of receiving notice of this motion, and without notice to Title, both Sistek and Premier made assignments in bankruptcy. Druker was appointed trustee. Within three weeks, a company newly formed by Fred and Joel Leiberman and their brother Michael, 9208-9945 Quebec Inc. ("9208"), purchased Sistek and Premier's assets for $2.26, and assumed CABLE's debt. The appellant, 7178255 Canada Inc. ("7178255"), a company also controlled by the Leibermans, took over the operation of the business acquired by 9208 from the trustee.

[5] Title alleges that Fred and Joel Leiberman, their brother Michael Leiberman, Druker (the trustee in bankruptcy for Sistek and Premier), CABLE and Allan Rubin (CABLE's president) conspired to bring fraudulent bankruptcy proceedings.

[6] In January 2010, Fred and Joel Leiberman delivered a statement of defence and counterclaim in the first action, pleading, among other things, that they did everything they could to save Sistek and Premier from bankruptcy. In April 2010, Title commenced the second action that is the subject of this appeal.

[7] The appellants moved to have the second action dismissed on the basis that Ontario lacks jurisdiction to entertain the claim or to stay the action on the ground that Quebec is the more appropriate forum. Druker also moved to have the action dismissed on the ground that Title failed to obtain leave pursuant to s. 215 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"). The motion judge dismissed the motion, holding that (1) there was a sufficient real and substantial connection between the claim and Ontario to support jurisdiction simpliciter; (2) the appellants failed to demonstrate that Quebec was a more appropriate forum; and (3) that the failure to obtain leave pursuant to the s. 215 of the BIA was a mere irregularity.

Issues

[8] The issues raised on this appeal are: [page75 ] (1) Did the motion judge err in holding that Ontario had jurisdiction simpliciter to entertain the claim? (2) Did the motion judge err by refusing to stay the action on grounds of forum non conveniens? (3) Did the motion judge err by failing to stay the action against Druker on the ground that leave had not been obtained pursuant to s. 215 of the BIA?

Analysis

(1) Did the motion judge err in holding that Ontario had jurisdiction simpliciter to entertain the claim?

(a) Real and substantial connection

[9] I see no error in the motion judge's reasons for finding that Title satisfied the test for real and substantial connection established in Van Breda v. Village Resorts Ltd. (2010), 98 O.R. (3d) 721, [2010] O.J. No. 402, 2010 ONCA 84. As the claim did not fall within any relevant enumerated categories of rule 17.02 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194], the motion judge placed the onus of satisfying the Van Breda test on Title.

[10] There was ample evidence to support the motion judge's factual findings that the test had been satisfied.

[11] There is a strong connection between the Title's claim and Ontario. Title is an Ontario resident who, when employed by Sistek, worked from his home in Ontario. The claim alleges a fraudulent conspiracy to deprive Title of the legal rights he asserts in the first action.

[12] The defendants also have a strong connection with Ontario with respect to this matter. Although they are resident in Quebec, the personal appellants, Fred and Joel Leiberman, attorned to the first action in Ontario and are alleged to have conspired with the other appellants to, in effect, defeat the process of the Ontario courts. In my view, where a party conspires to defeat the process of the Ontario courts, that party has "participated in something of significance" or has been "actively involved" in Ontario and therefore "can be reasonably brought within the embrace" of Ontario's jurisdiction: Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416, [2003] S.C.J. No. 77, at para. 32; Van Breda, at para. 92.

[13] In addition, 9028 and 7178255, successors to Sistek and Premier, sell products and conduct a substantial volume of their business in Ontario. They have a senior officer and employee responsible for sales residing in Ontario. CABLE has also [page76 ]engaged in relevant activity in Ontario having taken security over Title's home in Ontario to secure a loan to Sistek and Premier.

[14] On this record, the motion judge did not err in finding a real and substantial connection sufficient to justify the assertion of Ontario jurisdiction over the claim and against these defendants.

(b) Attornment

[15] I also agree with the motion judge's conclusion that Druker attorned to Ontario jurisdiction by asking the Ontario court to stay the proceedings against it on the ground that leave had not be obtained pursuant to s. 215 of the BIA. As the motion judge held, at para. 34, by asking the Ontario court to grant a stay under s. 215, Druker asked the court "to assume jurisdiction to the extent necessary to enforce section 215 of the BIA" and it would be "inconsistent to do that and at the same time assert that the Court has no jurisdiction over the case": see Wolfe v. Wyeth, [2011] O.J. No. 2035, 2011 ONCA 347, 332 D.L.R. (4th) 157, at para. 44; Sauer v. Canada (Attorney General) (2006), 2006 CanLII 74 (ON SC), 79 O.R. (3d) 19, [2006] O.J. No. 26 (S.C.J.), at para. 87; M.J. Jones Inc. v. Kingsway General Insurance Co. (2004), 2004 CanLII 6211 (ON CA), 72 O.R. (3d) 68, [2004] O.J. No. 3286 (C.A.) (Lang J.A. in chambers), at para. 20.

(c) Quebec bankruptcy proceedings

[16] While I agree with Druker's submission that the action against it should be stayed under s. 215 of the BIA unless and until leave to proceed against Druker has been obtained (a point to which I return below), I do not agree that Title is otherwise required to proceed in Quebec within, or on account of, the bankruptcy proceeding now pending in that province.

[17] The remedy Title seeks in this Ontario action is damages against parties who, with the exception of Druker, are not even before the Quebec bankruptcy court. Title could therefore not claim damages against those parties in the Quebec bankruptcy proceedings.

[18] Moreover, Title is not asking the Ontario Superior Court to nullify or set aside the Quebec bankruptcy proceedings. Title asserts a claim for damages that he alleges he suffered as a result of that bankruptcy. The bankruptcy is simply a factual ingredient to the cause of action Title asserts in Ontario. If Title succeeds with his Ontario claim that the Quebec bankruptcy was the result of a fraudulent conspiracy, that finding will have no legal effect on the Quebec bankruptcy. The Ontario proceedings do not amount to either a direct or a collateral attack on the Quebec bankruptcy. The principle [page77 ]expressed in Garland v. Consumers' Gas Co., [2004] 1 S.C.R. 629, [2004] S.C.J. No. 21, 2004 SCC 25, at para. 72, and Canada (Attorney General) v. TeleZone Inc., [2010] 3 S.C.R. 585, [2010] S.C.J. No. 62, 2010 SCC 62, at para. 64, is apposite: where "the specific object" of a litigant "is not to invalidate or render inoperative" an order made in another proceeding, but rather to recover money owed to the litigant as a result of the order, the doctrine of collateral attack does not deprive a court of jurisdiction. TeleZone stands as authority for the proposition that where the litigant seeks a monetary remedy in a provincial superior court, and does not seek to set aside or nullify the order of another tribunal that is subject to the jurisdiction of another court, the practical concern for access to justice prevails. The litigant should not be put through the unnecessary expense and inconvenience of setting aside the order simply as a preliminary step to pursuing the claim for damages.

[19] I hasten to add, however, that I express no view, one way or the other, as to any substantive defence any of the appellants may have to Title's claim that may arise from the Quebec bankruptcy proceedings. I am dealing strictly with the issue of jurisdiction.

(2) Did the motion judge err by refusing to stay the action on grounds of forum non conveniens?

[20] I see no error in the motion judge's analysis of forum non conveniens. In particular, I agree that the appellants failed to demonstrate that Quebec is clearly a more appropriate forum for this action. I agree with the motion judge's conclusion that if Title were forced to sue in Quebec, the result would be a multiplicity of proceedings on closely related issues.

(3) Did the motion judge err by failing to stay the action against Druker on the ground that leave had not been obtained pursuant to [s. 215](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) of the [Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)?

[21] The BIA, s. 215 provides:

215. Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act.

[22] I agree with the motion judge's conclusion that failure to obtain leave is an irregularity that can be cured: see New Alger Mines Ltd. v. Thorne Riddell Inc. (1986), 1986 CanLII 2530 (ON CA), 54 O.R. (2d) 562, [1986] O.J. No. 144 (C.A.). However, until that irregularity has been cured, the action cannot proceed in the face of s. 215. It follows, [page78 ]in my respectful view, that the motion judge erred by failing to grant a stay of the action against Druker unless and until "the court" grants leave pursuant to s. 215.

[23] I would add that it is my view that "the court" refers to the court with jurisdiction over the bankruptcy proceedings, namely, the Quebec Superior Court. "Court" is defined in s. 2, with exceptions not relevant here, as "a court referred to in subsection 183(1) or (1.1) or a judge of that court, and includes a registrar when exercising the powers of the court conferred on a registrar under this Act". Section 183(1.1) provides:

183(1.1) In the Province of Quebec, the Superior Court is invested with the jurisdiction that will enable it to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act during its term, as it is now, or may be hereafter, held, and in vacation and in chambers. The Ontario Superior Court of Justice has the same jurisdiction by virtue of s. 183(1). However, when read in the context of the BIA as a whole, the reference to "the court" in s. 215 (rather than "a court") indicates that it is the court having general control and superintendence of the bankruptcy that must grant leave to allow a suit against a trustee to proceed.

Disposition

[24] Accordingly, I would allow Druker's appeal, but only with respect to a stay pursuant to s. 215 of the BIA. The appeals of the other appellants are dismissed.

[25] The motion judge awarded Title costs fixed at $35,000 payable jointly and severally by the appellants. In view of the result on appeal, I would award Title costs of $50,000, inclusive for the motion and the appeal against all parties except Druker on a joint and several basis. Given Druker's partial success, I would award Druker costs of $25,000, inclusive for the motion and the appeal as against Title.

Appeal allowed in part.