Court of Appeal for Ontario
Date: February 14, 2018
Docket: C64299 & C64300
Judges: Doherty, Paciocco and Nordheimer JJ.A.
Parties
First Action
Between
Lydia Luckevich and Pemberley Investments Ltd. Plaintiffs (Respondents)
and
Howard Paul Ivany and Terrence S. Reiber Defendants (Appellants)
Second Action
And Between
Janet Louise Hilson and 1771085 Ontario Limited Plaintiffs (Respondents)
and
Howard Paul Ivany and Terrence S. Reiber Defendants (Appellants)
Counsel
Michael Katzman, for the appellant
Howard W. Reininger, for the respondents
Tim Duncan, for the Trustee in Bankruptcy
Hearing and Appeal
Heard: February 5, 2018
On appeal from: The orders of Justice Meredith Donohue of the Superior Court of Justice, dated August 8, 2017, sitting without a jury.
Decision
Nordheimer J.A.:
Introduction
[1] These two appeals were heard together as they raise two common issues. First, does a claim for contribution and indemnity represent property of the bankrupt that vests in the Trustee under s. 71 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA")? Second, if the answer to the first issue is "Yes", and the Trustee refuses to advance the claim for contribution and indemnity, is the bankrupt entitled to advance it where a creditor/plaintiff has sought, and obtained, a lifting of the stay of proceedings under s. 69 of the BIA?
Background Facts
[2] The background facts that are common to both proceedings are as follows. The appellant is a defendant in the within actions initiated by the respondents. The actions also originally named Terrence S. Reiber as a defendant.
[3] The appellant was petitioned into bankruptcy by the respondents after initiating these actions. A stay was accordingly imposed upon the actions pursuant to s. 69 of the BIA.
[4] The actions continued against Reiber and were eventually settled. Further to the settlement, the actions against Reiber were dismissed. The respondents have yet to disclose the amount paid to them or any other details of the settlement.
[5] The respondents then moved to lift the stay, in order to allow these actions to continue against the appellant. The purpose of lifting the stay was to permit the respondents to seek declarations that the indebtedness of the appellant came within s. 178 of the BIA, such that it would survive the appellant's discharge.
[6] The stays were lifted by orders of the Registrar in Bankruptcy. However, the orders provide that any judgment that may be obtained against the appellant will be released unless the debt or liability comes under the exemption provisions of s. 178 of the BIA. The respondents subsequently obtained orders amending the statements of claim to seek a declaration that the indebtedness comes within s. 178 of the BIA. The amended statements of claim were served upon the appellant, who filed statements of defence.
[7] In April of 2016, the appellant was examined for discovery. The appellant says that during the examination it became clear to him, for the first time, that the respondents were seeking damages against him for actions or omissions of Reiber.
[8] The appellant wished to commence a third party claim in each action against Reiber for contribution and indemnity. He took steps to obtain the consent of the respondents to issue the third party claims. The respondents refused to consent. The appellant then brought a motion for leave to issue the third party claims against Reiber and to extend the time for so doing.
[9] Reiber took no position on the appellant's motion. The respondents and the Trustee in Bankruptcy opposed the motion, arguing that the proposed claim for contribution and indemnity constituted property which is vested in the Trustee by virtue of s. 71.
[10] The motion judge found that the Trustee did not have any intention of pursuing the third party claims. However, she also found that the appellant could not pursue the third party claims because he is an undischarged bankrupt and thus has no capacity to dispose of or otherwise deal with his property pursuant to s. 71. Consequently, she dismissed the appellant's motion.
Analysis
Statutory Framework
[11] I begin my analysis with reference to s. 71 which reads:
On a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass to and vest in the Trustee named in the bankruptcy order or assignment, and in any case of change of Trustee the property shall pass from Trustee to Trustee without any assignment or transfer
[12] "Property" is defined in s. 2 as follows:
property means any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property.
[13] "[T]hings in action" has the same meaning as a "chose in action". A chose in action is defined in Black's Law Dictionary, 10th ed, as:
A proprietary right in personam, such as a debt owed by another person, a share in a joint-stock company, or a claim for damages in tort;
The right to bring an action to recover a debt, money, or thing;
Whether Contribution and Indemnity Claims Constitute Property
[14] The issue is whether a claim for contribution or indemnity is a chose in action such that it falls within the definition of property in s. 2 of the BIA.
[15] The appellant relies on this court's decision in Placzek v. Green, 2009 ONCA 83, 245 O.A.C. 220, where Simmons J.A. said, at para. 35:
There is ample authority in Ontario for the proposition that a claim for contribution and indemnity under s. 1 of the Negligence Act is not a damage claim arising out of a tort, but instead is a statutory claim founded on principles of restitution and unjust enrichment.
[16] The appellant proceeds from this authority to assert that the third party claim is strictly defensive in nature and serves only to limit his exposure to liability and damages. Consequently, the appellant asserts that the result of the third party claim does not constitute property within the meaning of the BIA.
[17] I do not agree. In my view, a third party claim for contribution and indemnity is properly considered property as that term is defined in the BIA. I reach that conclusion for the following reasons.
[18] First, I appreciate that a claim for contribution and indemnity does not exist until another claim is launched to which the claim for contribution and indemnity can attach. That reality does not change the fact, though, that a third party claim for contribution and indemnity is an action that can result in a benefit to the bankrupt and thus is a potential asset in which all of the bankrupt's creditors should share. For example, if a stay was lifted to permit a claim to be advanced against a bankrupt and the Trustee knew that the bankrupt had insurance for the claim, the Trustee would presumably want to advance a claim for contribution and indemnity to protect against that claim. In that situation, some portion of the plaintiff's judgment would be recovered from the third party and would come into the bankrupt's estate.
[19] Second, the definition of "property" is very broad. It is clear that the intention was to vest all of the property of the bankrupt in the Trustee. As noted in Chetty v. Burlingham Associates Inc., 25 Sask. R. 249 (C.A.), at para. 10:
This is a very broad description designed to catch every conceivable type of asset. Indeed, the general scheme of the Act is to include virtually all assets and then to exclude certain specific assets from distribution to the creditors as is provided in s. 67(1).
[20] Third, the conclusion that a claim for contribution and indemnity constitutes property is consistent with the decision in Meisels v. Lawyers Professional Indemnity Co., 2015 ONCA 406, 126 O.R. (3d) 448, where this court concluded that a claim for indemnity under an insurance policy was a claim that vested in the Trustee.
Relief Under Section 37 of the BIA
[21] The fact that the claim for contribution and indemnity was property that vested in the Trustee is not the end of the inquiry, however. The court was still entitled to review the decision of the Trustee not to pursue the claim and, if appropriate, authorize the bankrupt to advance it under s. 37 of the BIA. Section 37 reads:
Where the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the Trustee, he may apply to the court and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.
[22] The appellant raised this point before the motion judge. She dismissed it on the basis that no motion had been brought by the appellant for such relief. In my view, the motion judge erred in her approach to this issue. Rather than simply dismissing it, the motion judge ought to have taken one of the following three routes. One, she could have dealt with the s. 37 issue since it was squarely before her. Two, she could have adjourned the motion before her to permit the bankrupt to bring a s. 37 motion so that the matters could be addressed together. Three, failing to take either of the first two routes, she ought to have made it clear that her decision did not resolve whether the appellant should be entitled to relief under s. 37.
[23] The problem created by the manner in which this proceeding has unfolded is that there is an outstanding order of the Superior Court denying the bankrupt the right to advance the third party claim. It is not clear, therefore, that a judge hearing the s. 37 motion would now have jurisdiction to grant the bankrupt the right to do so. Had the motion judge expressly made her order without prejudice to the bankrupt seeking the same relief through a s. 37 motion, that problem would have been avoided. However, she did not do so, either in her order or in her endorsement.
Inequity of the Motion Judge's Order
[24] Precluding the bankrupt from bringing a claim for contribution and indemnity, in light of the Trustee's refusal to do so, leaves the situation that the bankrupt could be faced with a judgment for the entire amount due to the respondents, that will come out of his or her estate, with no ability to reclaim some portion of that amount from another person who contributed to the loss. Not only does that result work to the detriment of the bankrupt, it also works to the detriment of all creditors who would otherwise share in the benefit that would result from a reduction (or possible elimination) of any judgment that the respondents might obtain. That result becomes even more egregious in a situation, such as this, where the respondents are seeking to have their claims declared to come within s. 178. If that relief is granted, then the appellant, once discharged, still has the judgment to honour and yet has no ability to then claim the contribution due to him by the third party. The inequity of that result is obvious.
Respondents' Arguments
[25] The respondents and the Trustee attempt to avoid this inequity in two ways. One is that they claim that their settlement with the third party has dealt with any contribution that the third party might have to make to the respondents' claims. With respect, that is not the result of that settlement. The appellant was not a party to that settlement and is not bound by whatever determination was made as to the third party's responsibility for the matters in issue. All the settlement does, at most, is require the respondents to reduce their claims by the amount of any monies received.
[26] The other is the suggestion that the respondents are only seeking damages against the appellant for which he is solely responsible. In that regard, the respondents and the Trustee say that the situation here mirrors the decision in Taylor v. Canada (Minister of Health), 2009 ONCA 487, 95 O.R. (3d) 561. In Taylor, the plaintiff had clearly limited her claim to the alleged negligence of Health Canada. That is not how the amended statements of claim are drafted in this case. In this case, the claims are advanced for the joint actions of the appellant and Reiber. There is no similar restriction of the claims just to the individual responsibility of the appellant.
Trustee's Concerns
[27] The inequity that results from the order of the motion judge remains. I acknowledge the possibility that there might be circumstances where a Trustee could have legitimate and pressing concerns regarding the impact that advancing a third party claim might have on the overall administration of the bankrupt's estate. No such concerns are apparent in this case nor were any outlined for us during the course of the appeal hearing. However, if there are any such issues, they can be considered on the s. 37 motion.
Disposition
[28] The motion judge erred in dismissing the appellant's motions for leave to issue third party claims in these circumstances. The appeal must be allowed and the order below set aside. That result will permit the question of whether the appellant should be granted leave to issue the third party claims to be dealt with in the outstanding s. 37 motion.
Costs
[29] The parties may make submissions on the matter of costs. The appellant shall file his submissions within 10 days of the release of these reasons and the respondents and the Trustee shall file their submissions within 10 days thereafter. No reply submissions are to be filed without leave of the court. None of the submissions shall exceed five pages in length.
Released: February 14, 2018
"I.V.B. Nordheimer J.A."
"I agree. Doherty J.A."
"I agree. David M. Paciocco J.A."
Footnotes
[1] I note that a third party claim is defined as an action in s. 1(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 and r. 1.03(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] We are advised that, since the motion judge's decision, a s. 37 motion has been brought but it has been adjourned pending the outcome of this appeal.