si Spergel Inc., as Trustee of the Estate of Dilollo, a Bankrupt v. I.F. Propco Holdings (Ontario) 36 Ltd.

[Indexed as: Dilollo Estate (Trustee of) v. I.F. Propco Holdings (Ontario) 36 Ltd.]

Ontario Reports

Court of Appeal for Ontario,

Feldman, Sharpe and Strathy JJ.A.

October 2, 2013

117 O.R. (3d) 81 | 2013 ONCA 550

Case Summary

Bankruptcy and insolvency — Limitations — Limitation period applicable to motion by trustee to set aside preferential payment by bankrupt not suspended by stay under s. 195 of Bankruptcy and Insolvency Act upon filing of appeal — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 195.

Limitations — Extension of limitation period — Limitation period applicable to motion by trustee to set aside preferential payment by bankrupt not suspended by stay under s. 195 of Bankruptcy and Insolvency Act upon filing of appeal — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 195.

After a bankruptcy order was made and a trustee appointed, the bankrupt filed an appeal from the bankruptcy order. Under s. 195 of the Bankruptcy and Insolvency Act ("BIA"), the bankruptcy order was stayed upon the filing of the appeal. The trustee brought a motion under s. 95 of the BIA for a declaration that a pre-bankruptcy payment by the bankrupt to the respondent constituted a preference. The respondent brought a motion for an order that the trustee's claim was time-barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. The motion judge granted the motion, holding that the limitation period applicable to a motion by a trustee to set aside a preferential payment by a bankrupt under s. 95 of the BIA is not suspended by the stay under s. 195 of the BIA. The trustee appealed.

Held, the appeal should be dismissed.

While the motion judge was correct in his ultimate conclusion, he erred in holding that before s. 20 of the Limitations Act can apply to extend, suspend or vary a limitation period, there must be a limitation period in another statute and that other statute must provide for the extension, suspension or other variation of that limitation period. Section 20 speaks to two situations: (a) where a statute contains a limitation period or time limit to which the Limitations Act does not apply and a provision for the extension, suspension or variation of that period or time limit; and (b) where a statue simply contains a provision for the extension, suspension or variation of a limitation period or other time limit imposed "by or under" another statute. An "extension, suspension or other variation" contained in the BIA would be capable of suspending the operation of the limitation period in the Limitations Act. However, s. 195 did not have that effect.

Guillemette v. Doucet (2007), 88 O.R. (3d) 90, [2007] O.J. No. 4172, 2007 ONCA 743, 48 C.P.C. (6th) 17, 287 D.L.R. (4th) 522; Joseph v. Paramount Canada's Wonderland (2008), 90 O.R. (3d) 401, [2008] O.J. No. 2339, 2008 ONCA 469, 294 D.L.R. (4th) 141, 56 C.P.C. (6th) 14, 241 O.A.C. 29, 166 A.C.W.S. (3d) 762; Sally Creek Environs Corp. (Re), [2013] O.J. No. 2288, 2013 ONCA 329, consd [page82 ]

Other cases referred to

Canada (Attorney General) v. Fekete, [1999] A.J. No. 384, 1999 ABQB 262, 242 A.R. 193, 10 C.B.R. (4th) 102, 87 A.C.W.S. (3d) 374; Cohen (Re), 1948 282 (ON CA), [1948] O.J. 545, [1948] 4 D.L.R. 808 (C.A.); Coulson v. Citigroup Global Markets Canada Inc., [2012] O.J. No. 717, 2012 ONCA 108, 16 C.P.C. (7th) 1, 288 O.A.C. 355; Crosley (Re); Munns v. Burn (1887), 35 Ch. D. 266 (C.A.); Dilollo v. Es-Lea Holdings Ltd., [2010] O.J. No. 4060, 2010 ONCA 624, 69 C.B.R. (5th) 207, affg [2010] O.J. No. 93, 2010 ONSC 129, 62 C.B.R. (5th) 223 (S.C.J.); Edwards Estate (Trustee of) v. Food Family Credit Union, [2011] O.J. No. 3205, 2011 ONCA 497, 79 C.B.R. (5th) 264, 336 D.L.R. (4th) 719, 204 A.C.W.S. (3d) 912; Employers Liability Assurance Corp. v. Ideal Petroleum (1959) Ltd., 1976 142 (SCC), [1978] 1 S.C.R. 230, [1976] S.C.J. No. 114, 75 D.L.R. (3d) 63, 14 N.R. 503, 26 C.B.R. (N.S.) 84, [1977] 1 A.C.W.S. 562; Fimax Investments Group Ltd. v. Grossman, [2012] O.J. No. 1821, 2012 ONSC 2436 (S.C.J.); Gingras v. General Motors Products of Canada Ltd., 1974 215 (SCC), [1976] 1 S.C.R. 426, [1974] S.C.J. No. 152, 57 D.L.R. (3d) 705, 13 N.R. 361; Goorbarry v. Bank of Nova Scotia (2011), 109 O.R. (3d) 92, [2011] O.J. No. 5770, 2011 ONCA 793, 286 O.A.C. 282, 345 D.L.R. (4th) 624, 210 A.C.W.S. (3d) 514; In re Benzon; Bower v. Chetwynd, [1914] 2 Ch. 68 (C.A.); July v. Neal (1986), 1986 149 (ON CA), 57 O.R. (2d) 129, [1986] O.J. No. 1101, 32 D.L.R. (4th) 463 (C.A.); Lakehead Newsprint (1990) Ltd. v. 893499 Ontario Ltd., 2001 32747 (ON CA), [2001] O.J. No. 3717, 155 O.A.C. 328, 28 C.B.R. (4th) 53, 113 A.C.W.S. (3d) 384 (C.A.), varg 2001 28443 (ON SC), [2001] O.J. No. 1, 23 C.B.R. (4th) 170, 102 A.C.W.S. (3d) 274 (S.C.J.); Letang v. Cooper, [1965] 1 Q.B. 232 (C.A.); Mawji (Re), [2012] O.J. No. 1048, 2012 ONCA 152, 94 C.B.R. (5th) 135 (C.A.), affg [2011] O.J. No. 6535, 2011 ONSC 4259, 94 C.B.R. (5th) 77 (S.C.J.); Toronto-Dominion Bank v. Barry-Kays, [2010] O.J. No. 2667, 2010 ONSC 3535, 69 C.B.R. (5th) 243 (S.C.J.); Westby ex p. Lancaster Banking Corp. (Re) (1879), 10 Ch. D. 776 (Ch. Div.); Wilson Truck Lines Ltd. v. Pilot Insurance Co. (1996), 1996 1012 (ON CA), 31 O.R. (3d) 127, [1996] O.J. No. 3735, 140 D.L.R. (4th) 530, 94 O.A.C. 321, 38 C.C.L.I. (2d) 159, [1997] I.L.R. 1-3402, 22 M.V.R. (3d) 216, 66 A.C.W.S. (3d) 754 (C.A.), supp. reasons (1997), 1997 660 (ON CA), 33 O.R. (3d) 37, [1997] O.J. No. 1182, 147 D.L.R. (4th) 242, 98 O.A.C. 329, [1997] I.L.R. I-3447, 70 A.C.W.S. (3d) 150 (C.A.)

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 69 [as am.], 69.1 [as am.], 69.2 [as am.], 69.3 [as am.], (1) [as am.], (1.1), (2), 69.4 [as am.], 69.5 [as am.], 95 [as am.], (1)(a), 178(1) [as am.], (2), 195 [as am.], 215

Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 28

Courts of Justice Act, R.S.O. 1990, c. C.43 [as am.]

Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.], ss. 4, 19 [as am.], 20

Solicitors Act, R.S.O. 1990, c. S.15 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 63.01

Authorities referred to

Houlden, L.W., G.B. Morawetz and Janis Sarra, Bankruptcy and Insolvency Law in Canada, 4th ed. rev., vol. 3, looseleaf (Toronto: Carswell, 2013)

APPEAL from the order of D.M. Brown J., [2013] O.J. No. 373, 2013 ONSC 578 (S.C.J.) that the claim by the trustee in bankruptcy was statute-barred. [page83 ]

Mervyn D. Abramowitz and Philip Cho, for appellant.

Harvey Chaiton and Douglas A. Bourassa, for respondent.

The judgment of the court was delivered by

[1] STRATHY J.A.: — Under s. 195 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended ("BIA"), a bankruptcy order is stayed upon the filing of an appeal. This appeal raises the issue of whether that stay suspends the limitation period applicable to a motion by a trustee to set aside a preferential payment by a bankrupt under s. 95 of the BIA.

[2] The motion judge found that the limitation period was not suspended by the stay and dismissed the preference motion as time-barred. For the reasons that follow, although I do not agree entirely with the motion judge's analysis, I agree with his conclusion and would dismiss the trustee's appeal.

A. The Facts

[3] On July 6, 2006, the respondent, I.F. Propco Holdings (Ontario) 36 Ltd. ("Propco"), obtained a default judgment against the bankrupt, Cosimo Dilollo ("Dilollo"), for $22,031,787.67.

[4] On December 15, 2006, Propco brought a bankruptcy application against Dilollo. Ultimately, Propco and Dilollo agreed to compromise Propco's judgment for $1.2 million. They agreed that if this sum was paid, both parties would consent to the dismissal of Propco's bankruptcy application and would exchange releases.

[5] Between August and December 2007, Dilollo paid $1,136,500, which, although less than the agreed amount, Propco accepted in satisfaction of the settlement. As matters transpired, the bankruptcy application was not dismissed and releases were not exchanged. By early 2008, Propco's bankruptcy application remained outstanding and by order dated May 22, 2008, three other creditors were added as applicants to it.

[6] On June 5, 2009, the bankruptcy application was heard by Morawetz J. Dilollo admitted at the hearing that he had settled Propco's claim for "something around" $1.185 million. A bankruptcy order was made on January 11, 2010 [ [2010] O.J. No. 93, 2010 ONSC 129 (S.C.J.)], and a trustee was appointed. In his endorsement granting the application, Morawetz J. referred to the settlement of the debt between Propco and Dilollo for $1.185 million.

[7] On January 20, 2010, Dilollo filed an appeal from the bankruptcy order. This court dismissed that appeal on September 27, 2010 [[2010] O.J. No. 4060, 2010 ONCA 624]. [page84 ]

[8] At the first meeting of creditors on May 31, 2011, the appellant, msi Spergel Inc. (the "Trustee"), was appointed in place of the original trustee.

[9] On August 24, 2012, the Trustee brought a motion under s. 95 of the BIA for a declaration that the $1.1365 million paid by Dilollo to Propco under the settlement constituted a preference and sought an order that Propco repay that amount to the Trustee.

[10] Propco, for its part, brought a motion for an order that the Trustee's claim was time-barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the "Limitations Act"). Alternatively, it sought an order that if the Trustee's claim was not time-barred, it was entitled to file a proof of claim in Dilollo's estate for the full amount of its $22,031,787.67 judgment. Propco said that if the preferential payment was set aside, the settlement agreement under which the payment had been made should also be set aside, with the result that the full amount of its claim was outstanding and provable in the bankruptcy. The difference was important, because if Propco could file a claim for the full amount of the judgment, it would account for about 90 per cent of the value of proven claims.

B. Statutory Provisions

[11] The Trustee brought its motion to set aside the payment to Propco as a preference under s. 95(1)(a) of the BIA:

95(1) A transfer of property made, a provision of services made, a charge on property made, a payment made, an obligation incurred or a judicial proceeding taken or suffered by an insolvent person

(a) in favour of a creditor who is dealing at arm's length with the insolvent person, or a person in trust for that creditor, with a view to giving that creditor a preference over another creditor is void as against -- or, in Quebec, may not be set up against -- the trustee if it is made, incurred, taken or suffered, as the case may be, during the period beginning on the day that is three months before the date of the initial bankruptcy event and ending on the date of the bankruptcy.

[12] There is no limitation period in the BIA applicable to the time within which the trustee is required to bring a motion to set aside a preference. In Edwards Estate (Trustee of) v. Food Family Credit Union, [2011] O.J. No. 3205, 2011 ONCA 497, 336 D.L.R. (4th) 719, at para. 4, this court applied the proposition that "general limitation periods in provincial statutes apply to bankruptcy proceedings", referring to Gingras v. General Motors Products of Canada Ltd., 1974 215 (SCC), [1976] 1 S.C.R. 426, [1974] S.C.J. No. 152 and Employers Liability Assurance Corp. v. Ideal Petroleum (1959) Ltd., 1976 142 (SCC), [1978] 1 S.C.R. 230, [1976] S.C.J. No. 114. [page85 ]

[13] Both parties, therefore, agreed that the general two-year limitation period in s. 4 of the Limitations Act applied to the motion to set aside the preference. That section provides:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[14] The Trustee acknowledged that it was aware of the potential preference claim on January 11, 2010, the date of release of the reasons of Morawetz J. granting the bankruptcy order. It also conceded that the limitation period began on the date of the bankruptcy order, but argued that Dilollo's appeal to this court suspended the running of the limitation period pending the disposition of the appeal. It relied in this regard on the combined operation of s. 20 of the Limitations Act and s. 195 of the BIA.

[15] Section 19 of the Limitations Act has the effect of invalidating any limitation period not specifically referred to in the schedule to that Act, unless it was in effect on January 1, 2004, and incorporates by reference a statutory provision listed in the schedule. It states:

19(1) A limitation period set out in or under another Act that applies to a claim to which this Act applies is of no effect unless,

(a) the provision establishing it is listed in the Schedule to this Act; or

(b) the provision establishing it,

(i) is in existence on January 1, 2004, and

(ii) incorporates by reference a provision listed in the Schedule to this Act.

[16] However, s 20 of the Limitations Act provides:

20. This Act does not affect the extension, suspension or other variation of a limitation period or other time limit by or under another Act.

[17] The Trustee argued that s. 195 of the BIA operated as a "suspension" of the limitation period pending the appeal to this court. That section provides:

195. Except to the extent that an order or judgment appealed from is subject to provisional execution notwithstanding any appeal therefrom, all proceedings under an order or judgment appealed from shall be stayed until the appeal is disposed of, but the Court of Appeal or a judge thereof may vary or cancel the stay or the order for provisional execution if it appears that the appeal is not being prosecuted diligently, or for such other reason as the Court of Appeal or a judge thereof may deem proper.

[18] Returning to the time periods at issue here, the key dates are as follows: [page86 ]

January 11, 2010

Bankruptcy order

January 20, 2010

Appeal filed by Dilollo

September 27, 2010

Appeal dismissed by Court of Appeal

January 11, 2012

Two-year limitation period expired

August 24, 2012

Preference motion commenced

[19] If the stay of proceedings pursuant to s. 195 of the BIA during the appeal of the bankruptcy order had the effect of suspending the limitation period for the preference motion, the limitation period would have expired on September 18, 2012, and the Trustee's preference motion would have been brought in time. If the stay did not suspend the limitation period, it would have expired two years after the date of the bankruptcy order -- that is, on January 11, 2012 -- and the preference motion, which was brought about 30 months after the bankruptcy order, would have been time-barred.

C. The Motion Judge's Reasons

[20] There were two issues before the motion judge. The first was whether the limitation period for the Trustee's preference motion was "suspended" by the stay of proceedings in s. 195 of the BIA during the pendency of the appeal from the bankruptcy order.

[21] The second issue was whether, if the motion was not time-barred, and if the Trustee was ultimately successful in voiding the preferential payment under s. 95 of the BIA, Propco was entitled to file a claim for the full amount of its judgment (in excess of $22 million), or was confined to claiming the settlement amount of $1,136,500.

[22] The motion judge found that before s. 20 can apply to extend, suspend or vary a limitation period, there must be a limitation period in another statute and that other statue must provide for the extension, suspension or other variation of that limitation period. Since there was no limitation period in s. 195 of the BIA, and that provision did not purport to suspend or extend a limitation period in the BIA, the ordinary limitation period applied. He expressed this conclusion as follows, at para. 16:

To engage section 20 of the Limitations Act, 2002 requires that some other statute provides for a limitation period and also provides for the "extension, suspension or other variation of a limitation period or other time limit by or under another Act". Section 195 of the BIA does not contain any limitation period or provide for the "extension, suspension or other variation" of a limitation period. Since BIA s. 195 does not purport to extend, suspend or vary a [page87 ]limitation period contained in the BIA, section 20 of the Limitations Act, 2002 does not apply. Since no other suspension provision contained in the Limitations Act, 2002 would apply in the circumstances of this case, the basic two year limitation period set out in section 4 governs. The parties agreed that time started to run on the day the Bankruptcy Order was made, so the basic two-year limitation period expired on January 11, 2012, well before the Trustee initiated the Preference Motion. That motion, therefore, is statute-barred.

(Citations omitted)

[23] The motion judge also concluded that the stay pending appeal under s. 195 of the BIA was not functionally equivalent to a limitation period, and it was open to the Trustee to move to lift the stay if so advised. He stated, at para. 17 of his reasons:

That a stay pending appeal might prevent a person from taking some step does not alter that conclusion. A stay of proceedings pending the hearing of an appeal is not the functional equivalent of a limitation period. Limitation periods set deadlines by which a person must initiate legal process in respect of a cause of action. Stays pending appeal are engaged following the initial disposition of the legal process in which the cause of action was asserted. Limitation periods and stays pending appeal conceptually are quite different creatures. If a stay might operate to prejudice a person's legal rights, recourse generally is available to seek a lifting of the stay from the court. Section 195 of the BIA specifically provides that "the Court of Appeal or a judge thereof may vary or cancel the stay . . . for such other reason as the Court of Appeal or judge thereof may deem proper". In the present case it was always open to the Trustee to seek a lifting of the stay from the Court of Appeal if the Trustee thought that its ability to initiate a preference motion might be prejudiced by the appeal. As matters transpired, the Trustee was left with ample time following the dismissal of the appeal to commence its Preference Motion.

[24] In the result, he found that the Trustee's motion was time-barred. Although not necessary to do so in the circumstances, the motion judge went on to consider whether, if the claim under s. 95(1)(a) of the BIA was not statute-barred, and if the payment under the settlement was found void as a preference, Propco was entitled to claim for the full amount of its judgment or was restricted to the compromised amount. He concluded that the Trustee could file a claim for the full amount of the judgment.

D. The Parties' Submissions

[25] The Trustee's position, both before the motion judge and in this court, was that pursuant to s. 195 of the BIA, the appeal of the bankruptcy order resulted in an automatic stay of proceedings and suspended the limitation period applicable to the s. 95 preference motion. In that case, the preference motion [page88 ]would not be statute-barred until two years less nine days¹ after the appeal of the bankruptcy order was dismissed by this court on September 27, 2010. Under this theory, the preference motion was brought about a month before the expiry of the two-year limitation period.

[26] The Trustee submits that the motion judge failed to follow "established jurisprudence" concerning the effect of a stay under the BIA on the running of limitation periods. It refers to case law under s. 69 of the BIA which holds that the limitation period ceases to run for creditors' claims against the bankrupt while the bankruptcy is in effect.

[27] The Trustee also submits that the motion judge erred in holding that the absence of a limitation period in the BIA for bringing a preference motion meant that s. 20 of the Limitations Act was inapplicable. In this regard, the Trustee argues that the motion judge failed to properly consider and apply this court's decision in Joseph v. Paramount Canada's Wonderland (2008), 90 O.R. (3d) 401, [2008] O.J. No. 2339, 2008 ONCA 469.

[28] Propco submits that the motion judge was correct in finding that s. 195 of the BIA does not extend, suspend or vary the basic two-year limitation period, because it does not contain a limitation period or provide for the "extension, suspension or other variation" of a limitation period. It relies on this court's decision in Guillemette v. Doucet (2007), 88 O.R. (3d) 90, [2007] O.J. No. 4172, 2007 ONCA 743, which it submits makes it clear that s. 20 of the Limitations Act only applies where the other statute contains both a limitation period and a provision extending, suspending or varying that limitation period. Propco also relies on Joseph for the proposition that a common law extension of the limitation period is not available under s. 20.

[29] Finally, Propco distinguishes the authorities under s. 69 of the BIA relied upon by the Trustee, none of which involved s. 20 of the Limitations Act and which, it says, are based on English authority inapplicable to Ontario's comprehensive limitations regime.

E. Analysis

[30] The appropriate starting point for the analysis of the issues is the language of the statutory provision relied upon by the Trustee to suspend the limitation period. Section 195 of the BIA states that "all proceedings under an order or judgment [page89 ]appealed from shall be stayed" until the disposition of the appeal. It provides, however, that this court or a judge of this court may vary or cancel the stay if the appeal is not being prosecuted diligently, "or for such other reason as the Court of Appeal or a judge thereof may deem proper".

[31] The section contains no limitation period and makes no express reference to the extension, suspension or variation of any limitation period. For this reason, the motion judge found that s. 20 of the Limitations Act was inapplicable and the basic two-year limitation period applied.

[32] I agree within this conclusion, but do not agree with the portion of the motion judge's reasons dealing with the interpretation of s. 20 of the Limitations Act. In my view, read together, this court's decisions in Guillemette and Joseph establish that s. 20 speaks to two situations: (a) where a statute contains a limitation period or time limit to which the Limitations Act does not apply and a provision for the extension, suspension or variation of that period or time limit; and (b) where a statute simply contains a provision for the extension, suspension or variation of a limitation period or other time limit imposed "by or under" another statute.

[33] In Joseph, Feldman J.A. adopted this interpretation, but found that the "special circumstances" doctrine was a creature of the common law, and could not be considered an extension under the Courts of Justice Act, R.S.O. 1990, c. C.43. It is apparent from her reasons that, had she found it to be a statutory extension, she would have applied it to the limitation period under the Limitations Act.

[34] While there is language in Guillemette that could be taken to suggest, as Propco argues and as the motion judge held, that the operation of s. 20 is limited to statutes that contain their own limitation periods, that was not, in fact, the result in Guillemette. In that case, the limitation period in the Solicitors Act, R.S.O. 1990, c. S.15 was found to be of no effect by virtue of s. 19 of the Limitations Act, because it was not listed in Schedule A of the statute, but its "suspension" provision nevertheless applied to extend the limitation period in the Limitations Act.

[35] Section 28 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 is a well-recognized example of such a statutory extension. It suspends the operation of the applicable limitation period in favour of class members when a class proceeding is commenced. There is no limitation period in the statute itself that is suspended, but the statute operates to suspend another statutory limitation period applicable to the cause of action: see, for [page90 ]example, Coulson v. Citigroup Global Markets Canada Inc., [2012] O.J. No. 717, 2012 ONCA 108, 16 C.P.C. (7th) 1.

[36] I therefore agree with the Trustee's submission that an "extension, suspension or other variation" contained in the BIA would be capable of suspending the operation of the limitation period in the Limitations Act. The question is whether s. 195 of the BIA has that effect. I agree with the motion judge's conclusion that it does not.

[37] The Trustee acknowledges that there is no direct authority that a stay under s. 195 of the BIA suspends the limitation period. It submits, however, that there is a long line of authority holding that the statutory stay of creditors' claims under s. 69 of the BIA has the effect of suspending the limitation period. It submits that the principles contained in the case law under s. 69 apply equally to s. 195.

[38] Section 69 of the BIA and several sections that follow -- s. 69.1 (Division I proposals), s. 69.2 (consumer proposals) and s. 69.3 (bankruptcies) -- provide for a stay of proceedings against an insolvent person or debtor, as the case may be, after the filing of a notice of intention, after filing a proposal or after a bankruptcy order. The wording of s. 69.3(1), dealing with bankruptcies, is typical:

69.3(1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor's property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.

[39] Subsection (1.1) provides that the stay ceases to apply on the day the trustee is discharged. Subsection (2) deals with the claims of secured creditors, who are permitted to realize their security unless the court orders otherwise. Section 69.4 provides that a creditor may apply to the court to have the stay lifted, and s. 69.5 permits the collection of withholdings or deductions under provincial tax laws.

[40] These provisions promote the objects of the BIA by providing an orderly and fair distribution of the property of the bankruptcy amongst creditors and by preventing proceedings by a creditor that would give that creditor an advantage over others: see Cohen (Re), 1948 282 (ON CA), [1948] O.J. No. 545, [1948] 4 D.L.R. 808 (C.A.), at para. 12.

[41] These provisions stipulate that on the happening of the particular act, "no creditor has any remedy against the debtor or the debtor's property" (emphasis added).

[42] Although the heading of these provisions refers to a "stay of proceedings", they accomplish this result by preventing the exercise of the creditor's remedy -- the cause of action. [page91 ]

[43] This court has, on a number of occasions, adopted the definition of "cause of action" propounded by Morden J.A. in July v. Neal (1986), 1986 149 (ON CA), 57 O.R. (2d) 129, [1986] O.J. No. 1101 (C.A.), at p. 137 O.R., adopting the words of Lord Diplock in Letang v. Cooper, [1965] 1 Q.B. 232 (C.A.), at pp. 242-43 Q.B.: "a factual situation the existence of which entitles one person to obtain from the court a remedy against another person". For other examples, see Wilson Truck Lines Ltd. v. Pilot Insurance Co. (1996), 1996 1012 (ON CA), 31 O.R. (3d) 127, [1996] O.J. No. 3735 (C.A.), supp. reasons (1997), 1997 660 (ON CA), 33 O.R. (3d) 37, [1997] O.J. No. 1182 (C.A.); Goorbarry v. Bank of Nova Scotia (2011), 109 O.R. (3d) 92, [2011] O.J. No. 5770, 2011 ONCA 793.

[44] By providing that the creditor has no "remedy" against the bankrupt, s. 69 prevents the exercise of the creditor's cause of action while the bankruptcy is in effect. This is entirely consistent with the purpose of the BIA of providing for the orderly and fair distribution of a bankrupt's property and preventing any creditors from gaining an advantage. The section does not suspend the limitation period. It prohibits any action on a claim that is provable in the bankruptcy. In most cases, the limitation period becomes irrelevant because, by s. 178(2) of the BIA, on discharge the bankrupt is released of all claims provable in the bankruptcy other than those set out in s. 178(1).

[45] The Trustee relies, however, on a line of cases under s. 69, which are summarized by the following quote from L.W. Houlden, G.B. Morawetz and Janis Sarra, Bankruptcy and Insolvency Law in Canada, 4th ed. rev., vol. 3, looseleaf (Toronto: Carswell, 2013), at p. 5-99:

When a bankruptcy occurs, the Statute of Limitations ceases to run against claims . . . The creditor's ability to take proceedings against the debtor is stayed by the Act, and the stay of proceedings suspends the operation of the limitation period . . . . The suspension ends when the trustee is discharged (s. 69.3(1)), and the Statute of Limitations commences to run again at that time.

(Citations omitted)

Cases that follow this principle include Lakehead Newsprint (1990) Ltd. v. 893499 Ontario Ltd., 2001 28443 (ON SC), [2001] O.J. No. 1, 23 C.B.R. (4th) 170 (S.C.J.), vard 2001 32747 (ON CA), [2001] O.J. No. 3717, 155 O.A.C. 328 (C.A.); Canada (Attorney General) v. Fekete, [1999] A.J. No. 384, 1999 ABQB 262, 242 A.R. 193; Toronto-Dominion Bank v. Barry-Kays, [2010] O.J. No. 2667, 2010 ONSC 3535, 69 C.B.R. (5th) 243 (S.C.J.); Mawji (Re), [2011] O.J. No. 6535, 2011 ONSC 4259, 94 C.B.R. (5th) 77 (S.C.J.), affd [2012] O.J. No. 1048, 2012 ONCA 152, 94 C.B.R. (5th) 135; Fimax Investments Group Ltd. v. Grossman, [2012] O.J. No. 1821, 2012 ONSC 2436 (S.C.J.). [page92 ]

[46] The common root of these authorities runs deep -- an 1887 decision of the English Chancery Division, Crosley (Re); Munns v. Burn (1887), 35 Ch. D. 266 (C.A.). In that case, Crosley, a broker, was adjudged bankrupt in February 1874. It was discovered that he had misappropriated securities that he had held for a customer, Captain Ayscough. Ayscough made a claim in the bankruptcy and received a small dividend. The administration of the bankrupt estate was completed in 1880, and an order was made annulling Crosley's bankruptcy.

[47] Crosley died in 1885 and in May 1896 an order was made for the administration of his estate. Captain Ayscough made a claim for the balance of what he was owed, on the basis that the debt was incurred by Crosley's fraud and therefore survived the bankruptcy.

[48] It was argued, however, that the claim was barred by the six-year statute of limitations. Lord Justice Cotton said this, at p. 270 Ch. D.:

Then it is said that the claim is barred by the Statute of Limitations. But the fraud was not discovered till after the adjudication in bankruptcy. While the bankruptcy was in force no action could be brought, so the statute could not begin to run till the annulling of the bankruptcy, and within six years from that time an order for administration was made. The Statute of Limitations is therefore no defence, and the appeal must be dismissed.

[49] Lindley J. agreed, at p. 271 Ch. D., stating:

The short answer to the argument founded on the Statute of Limitations is that the statute did not begin to run till the bankruptcy had been annulled.

[50] While the respondent argues that the court referred to no authority in support of the proposition that the statute of limitations did not run during the bankruptcy, the proposition was not new. In Westby ex p. Lancaster Banking Corp. (Re) (1879), 10 Ch. D. 776 (Ch. Div.), at p. 784 Ch. D., the bankruptcy commenced in 1870. After the estate had been realized, and the trustees determined that nothing more could be brought in, the bankruptcy was deemed to be closed. The bankrupt failed to pay his creditors the requisite ten shillings on the pound, which would have entitled him to a discharge, and he never obtained a discharge. Subsequently, in 1878, the bankrupt inherited a large amount of money. A creditor, whose debt had appeared on the statement of affairs, but who had not proven his debt before the close of the bankruptcy, sent a proof of claim to the receiver, who had taken over as trustee.

[51] It was held that the creditor was entitled to apply for leave to enforce his debt as a judgment debt against the debtor's property. In answer to the argument that the creditor's claim [page93 ]was time-barred, Sir James Bacon, the chief judge in bankruptcy, abruptly dismissed the assertion, at p. 272:

The argument founded on the Statute of Limitations as an answer to this claim is not tenable for a moment. The Statute of Limitations has nothing to do with the bankruptcy laws. When a bankruptcy ensues, there is an end to the operation of that statute, with reference to debtor and creditor. The debtor's rights are established and the creditor's rights are established in the bankruptcy, and the Statute of Limitations has no application at all to such a case, or to the principles by which it is governed.

(Emphasis added)

[52] In my view, this proposition remains valid. Section 69 of the BIA is not, as such, a provision that extends, suspends or varies a limitation period. It takes away creditors' civil remedies and requires them to submit their claims through the bankruptcy process. The bar on commencing or continuing proceedings serves this end and preserves the integrity of the bankruptcy process. In most cases, the limitation period is of no further significance because creditors' claims are dealt with in the bankruptcy. In the rare case, where the bankrupt is not discharged or the claim survives bankruptcy, the limitation period may resume running. It also continues to run against a creditor who seeks to recover a debt in proceedings unconnected to the bankruptcy: see Houlden, Morawetz and Sarra, at 5-99, referring to In re Benzon; Bower v. Chetwynd, [1914] 2 Ch. 68 (C.A.).

[53] The stay under s. 195 of the BIA serves a very different purpose. It simply provides that on the appeal of any order or judgment made in the course of a bankruptcy, the status quo will be preserved, unless the court orders otherwise. This is not dissimilar to the automatic stay of a judgment for the payment of money, under rule 63.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Its purpose is to ensure that no steps are taken that cannot be unwound if the appeal succeeds.

[54] The Trustee also argued that the motion judge failed to appreciate that a trustee is incapable of acting where the very order from which it derives its authority is under appeal. It submits that during the stay under s. 195, a trustee is unable to hold a first meeting of creditors, hold a meeting with the inspectors, investigate potential claims and obtain legal opinions about such claims. This, said the Trustee, would put a trustee and creditors at risk, because the limitation period could slip away before the trustee had an opportunity to investigate potential claims or to take action. It argued that a trustee must have a full two years after its appointment to be able to investigate the situation and make decisions, with the advice of the creditors and the inspectors, before deciding whether to commence proceedings. [page94 ]

[55] The motion judge addressed this issue, at para. 17 of his reasons, referred to above at para. 23, where he noted that it was open to the Trustee to apply to lift the stay if it interfered with its ability to initiate the preference motion. As the motion judge also noted, the Trustee had ample time to commence the preference motion.

[56] Accordingly, I regard s. 69 of the BIA, and the line of cases under it, to be entirely distinguishable from s. 195 and from the case before this court. Both provisions are also distinguishable from s. 20 of the Limitations Act, which is concerned with provisions in other acts for the extension, suspension or other variation of limitation periods contained in those other acts.

[57] To conclude, this is not a case in which a statute other than the Limitations Act contains either a limitation period or an express extension, suspension or other variation of the limitation period. The Trustee relies, in effect, on an implicit or implied statutory extension of the limitation period. This court considered a somewhat similar argument in Sally Creek Environs Corp. (Re), [2013] O.J. No. 2288, 2013 ONCA 329. In that case, certain creditors of the bankrupt brought a motion for leave pursuant to s. 215 of the BIA to commence an action for negligence against the Office of the Superintendent of Bankruptcy and two of its employees. They alleged that the OSB was negligent in supervising the trustee in bankruptcy, with the result that the dividend paid to creditors was less than it would otherwise have been.

[58] In a taxation hearing, the registrar in bankruptcy made findings of serious misconduct on the part of the trustee. It was acknowledged that the limitation period for an action against the OSB began to run when the registrar's decision was released on June 23, 2008, because the creditors were aware on that date of the material facts with respect to their cause of action.

[59] In response to the motion for leave, the OSB argued that the motion was time-barred because it had been brought more than two years after the registrar's decision. The creditors responded, however, that the registrar's decision had been appealed, first to the Superior Court of Justice and then to this court. They argued that the appeal had the effect of "suspending" the limitation period. The motion judge found that all material facts were known by June 23, 2008, and the running of the limitation period was unaffected by the appeals.

[60] This court affirmed the decision of the motion judge. It noted, at para. 11, that the appellants had provided no authority for the proposition that the limitation period, [page95 ]having begun to run, was tolled by an appeal or as a result of the outcome of the appeal.

[61] The decision of this court in Sally Creek, like Guillemette and Joseph, is consistent with the purpose of the Limitations Act of promoting certainty and clarity in the law of limitation periods. That purpose is not accomplished by extending, suspending or varying a limitation period unless expressly authorized by statute. In my view, this is not such a case.

F. Conclusion

[62] For these reasons, I would dismiss the appeal. As a result, the payment to Propco could not be impeached and it is unnecessary to consider the second issue before the motion judge.

[63] In default of agreement as to costs, I would direct the parties to file brief written submissions, no more than three pages in length, exclusive of the costs outline. I would order that Propco's submissions be delivered within 20 days and the Trustee's submissions within 20 days thereafter.

Appeal dismissed.

Notes

1 Nine days being the time between the bankruptcy order and the filing of the appeal.

End of Document