COURT OF APPEAL FOR ONTARIO
CITATION: Aslan (Re), 2014 ONCA 245
DATE: 20140401
DOCKET: C57318
Sharpe, LaForme and Tulloch JJ.A.
In the Matter of the Bankruptcy of Ibrahim Aslan of the Town of Richmond Hill, in the Province of Ontario, self employed
Sean N. Zeitz, for the appellant/respondent by cross-appeal Harris & Partners Inc.
Alfred S. Schorr, for the respondent/cross-appellant Nezahat Aslan
Heard: March 24, 2014
On appeal from the order of Justice C.L. Campbell of the Superior Court of Justice, dated June 26, 2013.
By the Court:
[1] This appeal involves three issues as between the appellant trustee of the Estate of Ibrahim Aslan and the respondent, Nezahat Alsan, the bankrupt’s former spouse.
[2] The trustee appeals the motion judge’s dismissal of its claim for one half of the proceeds of a fire insurance policy on the contents of the former matrimonial home.
[3] The other two issues involve payments made by the respondent as a joint guarantor with the bankrupt to secure debts owed by the bankrupt’s corporation
[4] The trustee appeals the motion judge’s determination that the respondent is entitled to assert a claim in the bankruptcy for 100% of the amount she paid as a joint guarantor to BDC.
[5] The respondent cross-appeals the motion judge’s determination that she is precluded by the rule against double proof from claiming in the bankruptcy for the amount she paid as a joint guarantor to RBC to partially discharge another debt.
The Contents of Matrimonial Home
[6] The respondent and the bankrupt were married in 1986. They separated prior to the assignment of bankruptcy on May 21, 2010. The bankrupt was discharged February 22, 2011 and the parties were divorced July 19, 2011.
[7] The spouses jointly owned their matrimonial home. In November 2010, there was a fire in the matrimonial home which resulted in substantial losses. They jointly filed a “Fire Proof of Loss” in November 2011 for $669,216.70 for replacement costs for the home’s contents. Despite the bankruptcy, they jointly commenced an action for a loss of over $1.5 million for rebuilding the home and other structures and $967,680 for the replacement cost of the contents. The trustee took over the bankrupt’s claim. Following mediation, the trustee, the respondent and the insurer settled the contents claim for $384,500.00 net of legal fees and disbursements.
[8] The trustee agreed to the release of $192,500.00, to the respondent, i.e. 50% of the settlement proceedings. The trustee then sought a declaration from the court that 50% of the settlement was the property of the bankrupt.
[9] The motion judge gave brief reasons dismissing the trustee’s claim. He accepted what he described as “[t]he position of Ms. Aslan”, namely, “that when she and her husband separated he agreed as part of the matrimonial settlement to take his own personal belongings and live in the basement of the matrimonial home until he could find you [sic] accommodation and the remaining assets would become her property.”
[10] In our respectful view, this finding cannot be supported on the record and reflects a misapprehension of the evidence on the part of the motion judge. There was no evidence of a “matrimonial settlement”. The respondent’s evidence was not that the property “became” hers as a result of a settlement but that she already owned everything in the house and that the bankrupt “never owned anything.” The respondent’s position in that regard was highly implausible as the bankrupt was the main bread winner. Her position was also seriously at odds with the way in which the insurance claim was presented and settled. She provided no explanation for why she did not assert a claim for the value of all the contents until after the insurance claim was settled.
[11] Accordingly, the motion judge’s dismissal of the trustee’s claim is set aside and we allow the trustee’s claim for half of the net proceeds of the insurance claim for the contents of the matrimonial home.
The BDC debt
[12] The respondent filed a Proof of Claim for $45,350.22 relating to her joint and several guarantee of the bankrupt’s corporation’s obligations to BDC. The trustee argued that as a joint and several guarantor, she is only entitled to claim 50% of what she paid pursuant to the Mercantile Law Amendment Act, R.S.O. 1990, c. M.10, s. 2(3) which provides that “[n]o co-surety… is entitled to recover from any other co-surety… more than the just proportion to which, as between themselves, the last-mentioned person is justly liable.”
[13] The motion judge did not elaborate on why he was allowing the respondent to “claim in the bankruptcy for the entire amount of what she paid.” However, the reason for that exercise of his discretion is, in our view, discernible from the record. Though speaking with respect to the RBC guarantee, the motion judge observed that given the respondent’s limited understanding of English and evidence that the bankrupt exerted pressure on her to sign guarantees, he accepted that she had signed “with considerable reluctance” and was reluctant to conclude that she had a full understanding of the nature of the obligation she was undertaking. There was no indication that the respondent took any role in the affairs of the bankrupt’s corporation. In these circumstances, we conclude that there was a basis on the record to support the motion judge’s decision that as between her and the bankrupt, her “just proportion” was a claim for 100% of the BDC debt. We dismiss the trustee’s appeal from that order.
The RBC debt
[14] The respondent provided a similar guarantee to RBC. After setting aside RBC’s default judgment, the respondent negotiated a settlement whereby she paid RBC $145,000 in return for a release on her guarantee.
[15] The total debt owing to RBC was $400,000. RBC initially submitted a proof of claim in the bankruptcy for the difference between that amount and what it had received from the respondent. However, the trustee pointed out that RBC was entitled to claim the entire amount of the debt ahead of the respondent, provided that after taking into account the amount it had received from the respondent in the settlement, it did not recover more that 100% of the debt. RBC then submitted a proof of claim for the full amount of the debt. The trustee rejected the respondent’s claim for $145,000 on the basis of the rule against double proof of a debt in bankruptcy. The motion judge agreed with the trustee and dismissed the respondent’s claim.
[16] As the motion judge held, there is a well-established rule against double proof of a single debt in bankruptcy: see Olympia & York Developments (1998), 4 C.B.R. (4th) 189 (Ont.C.J.), at paras. 23-24. The rule prohibits two proofs of claim in the same estate for the same debt. The rationale for the rule is to ensure pari passu distribution of the bankrupt’s assets to all unsecured creditors. If more than one claim were allowed, those creditors would get a larger share of the available assets than is properly attributable to the debt: Olympia & York, at para. 25.
[17] We agree that there is only one debt to RBC and that as principal creditor in respect of that debt, RBC is entitled to assert a claim in priority to the respondent. RBC is not required to reduce its claim against the bankrupt estate by the amount it received from the respondent provided it does not recover more than 100% of the debt: see Wood, Bankruptcy and Insolvency Law, (Toronto: Irwin Law, 2009) at p. 251.
DISPOSITION
[18] For these reasons, we allow the trustee’s appeal with respect to para. 3 of the motion judge’s order, set aside that paragraph and in its place order that the Trustee’s claim for one half of the net proceeds of the insurance settlement be allowed. We dismiss the trustee’s appeal from para. 2 of the order and we dismiss the respondent’s cross-appeal from para. 1 of the order.
[19] As the trustee has achieved substantial (although not complete) success on the appeal, we order the respondent to pay the trustee’s costs here and below fixed at $30,000, inclusive of disbursements and applicable taxes.
“Robert J. Sharpe J.A.”
“H.S. LaForme J.A.”
“M.H. Tulloch J.A.”
Released: 1 April, 2014