COURT OF APPEAL FOR ONTARIO

CITATION: McEwen (Re), 2020 ONCA 511

DATE: 20200817

DOCKET: M51208 (C67520)

Gillese, Brown and Paciocco JJ.A.

In the Matter of the Bankruptcy of Robert Morris Jr. McEwen and Caroline Elizabeth McEwen, of the Town of Perth, in the County of Lanark, in the Province of Ontario

BETWEEN

Barbara Lynn Carroll by Her Litigation Guardian Shannon Luknowsky, Shannon Luknowsky, Jeffrey Carroll and Shannon Luknowsky as Executor for the Estate of Lorne Carroll

Plaintiffs (Respondents/Responding Parties)

and

Robert McEwen and Caroline McEwen

Respondents (Respondents)

and

Traders General Insurance Company, improperly described in Superior Court of Justice Court File Number CV-17-00073740-0000 as Aviva Canada Inc.

Person Affected by an Order

Obtained on Motion Without Notice

(Appellant/Moving Party)

Harvey Chaiton and Alan L. Rachlin, for the moving party, Traders General Insurance Company

Joseph Y. Obagi, for the responding parties, Barbara Lynn Carroll et al.

Heard: in writing

BROWN J.A.:

I. OVERVIEW

[1] Traders General Insurance Company (“Traders”) moves, pursuant to s. 7(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”), for an order setting aside the order of a single judge of this court (the “Chambers Judge”) that denied Traders leave to appeal, under s. 193(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”), from the September 26, 2019 order of Kershman J. (the “2019 Review Order”). Traders’ motion raises two issues:

i. In the circumstances of this case, does this panel have the jurisdiction to review the decision of the Chambers Judge that refused leave to appeal sought under BIA s. 193(e)?

ii. If we have jurisdiction, should we grant Traders leave to appeal?

[2] For the reasons set out below, I conclude that in the circumstances of this case the panel has jurisdiction to consider Traders’ CJA s. 7(5) motion. I would set aside the order of the Chambers Judge and grant Traders leave to appeal the 2019 Review Order.

[3] Although the issues on this motion are narrow, the events that led up to the 2019 Review Order require some detail to explain.

II. EVENTS LEADING UP TO THE TRIAL JUDGMENT

A. The Carroll Plaintiffs’ MVA Action

[4] On March 28, 2009, the responding party, Barbara Carroll, a pedestrian, was struck by a car driven by Robert McEwen and owned by Caroline McEwen. She suffered serious injuries.

[5] On March 25, 2011, Ms. Carroll and the other plaintiffs (collectively the “Carroll Plaintiffs”) commenced an action in Ottawa against Mr. and Mrs. McEwen (the “MVA Action”). They also named Aviva Canada Inc. (“Aviva”) and Pilot Insurance Company (“Pilot”) as defendants on the basis that one or both of them had issued motor vehicle liability policies that provided the Carroll Plaintiffs with additional coverage with respect to inadequately insured motorists under an OPCF Family Protection Coverage 44R endorsement.

[6] In fact, Pilot, not Aviva, insured the Carroll Plaintiffs. As well, it was determined that Traders had insured the McEwens, not Aviva, which is a corporate holding company that operates Traders.

B. The McEwens’ bankruptcy

[7] On September 15, 2011, the McEwens made an assignment into bankruptcy and Doyle Salewski Inc. was appointed trustee of both their estates (the “Trustee”). The McEwens’ Statement of Affairs listed the realizable value of their unencumbered assets as $6,450.00, against which there were liabilities owed to unsecured creditors of $456,964.83. The lawyers for the Carroll Plaintiffs were identified as an unsecured creditor in the amount of $375,000.00.

[8] On June 16, 2012, the McEwens were discharged from their bankruptcies. The Final Dividend Sheet showed dividends paid to creditors totaling $2,985.85. Neither the Carroll Plaintiffs nor their lawyers were listed as creditors. Subsequently, the Trustee was also discharged.

C. The continuation of the MVA Action and the trial

[9] On October 12, 2012, the Carroll Plaintiffs obtained an order from Master Roger that: (i) declared the stays contained in BIA ss. 69 to 69.4 no longer operated with respect to the MVA Action “to have the proceeds of any liability insurance policy applied in or toward the satisfaction of the claim” (emphasis added); (ii) set aside the automatic stay of the MVA Action resulting from the assignments in bankruptcy; and (iii) granted the Carroll Plaintiffs leave to continue the MVA Action against the McEwens.

[10] The MVA Action proceeded to trial on September 14, 2015 before a jury and McLean J. In October 2015, the jury rendered a verdict awarding damages to the Carroll Plaintiffs.

[11] Prior to the start of the trial, the parties exchanged some offers to settle. Copies of the offers were not in the record on this motion. However, McLean J. described some of the offers in post-verdict reasons that he issued on May 19, 2016: Carroll v. McEwen, 2016 ONSC 2075, 37 C.BR. (6th) 70, at paras. 26-29. He identified two joint offers made by Traders and Pilot on August 27, 2015 and on September 11, 2015.

[12] McLean J. noted that the Carroll Plaintiffs had made various offers, but they stipulated that there would be no assignment of statutory accident benefits: para. 28. According to the Trustee’s factum filed on the motion before Kershman J. to set aside the BIA s. 38 Order, “[o]n or about September 9, 2015, the [Carroll] Plaintiffs offered to settle the [MVA] Action against the McEwens, within the policy limits of the McEwens’ policy, however, Traders refused to accept their offer”. This is the only information before this court of an offer made by the Carroll Plaintiffs to settle the MVA Action within the limits of the McEwens’ policy with Traders.

[13] On September 23, 2015, the Trustee – which had been discharged several years before in 2012 – sent the McEwens’ trial counsel and an Aviva claims analyst a communication that stated, in part:

We are advised that the claimants Barbara Carroll and her family have offered to settle this [MVA] Action against Robert and Caroline McEwen for the limits of their automobile liability policy, namely $1 million dollars, plus costs and that Aviva has failed to accept that offer and has proceeded to trial.

This course of conduct places Aviva’s financial interest in priority to that of its insureds – Robert and Caroline McEwen, and accordingly is bad faith conduct. Aviva has a duty to settle this lawsuit within the limits of the [McEwen] policy and it has failed to do so.

This is notice to you that in the event a Judgment is granted against Robert and Caroline McEwen for any sum greater than the limits of the liability policy, we hold Aviva fully liable for the excess amount.

It is unclear whether the Aviva claims analyst in fact received a copy of the Trustee’s communication.

III. FINALIZING THE TRIAL JUDGMENT

A. The trial judge’s post-verdict reasons

[14] In March 2016, the parties made submissions to the trial judge on several issues, one of which was the effect of the McEwens’ bankruptcy on the terms of the formal judgment to be issued. McLean J. addressed the issue at para. 16 of his reasons dated May 19, 2016:

It is the clear effect of the Bankruptcy Order that the McEwens’ exposure is limited to their policy limits. It is clear to this Court therefore that the judgment of the jury against the McEwens must be restricted to the amount of their liability and the jury verdict will be subject to the proviso that it is limited in its enforceability to the amount of insurance otherwise payable. [Emphasis added.]

B. Settling the trial judgment

[15] Following the release of the May 2016 reasons, the parties were unable to settle the terms of judgment. As a result, another hearing was held before McLean J. on September 19, 2016 to settle the judgment. The Carroll Plaintiffs proposed that two separate judgments should be issued, the second of which would deal with the issues of the assignment of statutory accident benefits (“SABs”) and the effect of the McEwens’ bankruptcies.

[16] Para. 1 of the second proposed separate judgment contained language that attempted to reflect what McLean J. had stated at para. 16 of his reasons reproduced above. Para. 2 would make Pilot and Aviva jointly liable for $1 million of the judgment pursuant to the terms of the OPCF 44R Family Protection Coverage endorsement. (The Judgment as issued limited this liability to Pilot.) The Carroll Plaintiffs also sought to include in the judgment the following para. 3:

This Court orders that nothing in paragraphs 1 and 2 operates so as to prohibit the plaintiffs from pursuing any remedy otherwise available to them under the Bankruptcy and Solvency Act as against the bankruptcy of Robert McEwen and Caroline McEwen. For greater certainty, the personal liability of Robert and Caroline, for any of the claims adjudicated herein, has been extinguished and only claims provable in their respective bankruptcies shall survive.

[17] During the discussion between the trial judge and plaintiffs’ counsel about the need for the additional language, McLean J. confirmed with counsel that the McEwens were bankrupt and “any liability of the McEwen’s is limited to their insurance limits”, as he had held in para. 16 of his May 2016 reasons. McLean J. went on to state that “I can’t make an order more than that”. At a later point, McLean J. stated:

I can tell you right now, the only order will be is their personal liability will be limited to the policy limit, period; and I’m not gonna say anything more because I’m not gonna get into a debate with the trustee over what should or shouldn’t have been filed, that’s up to the trustee. Because there’s a procedural order [of Master Roger] that allowed you to proceed, right? And I’m not gonna get – uh, that’s not before me and it’s not being litigated. So the only thing that’s gonna go in the order is the fact that their personal liability is limited to “x” dollars period.

[18] In the result, McLean J. declined to include in the final judgment the additional language sought by the Carroll Plaintiffs.

[19] A judgment dated October 30, 2015 was issued that stated the McEwens were liable to (i) Barbara Carroll for damages of $2.418 million, consisting of $186,000 in general damages and $2.232 million in future care costs; (ii) to the other Carroll Plaintiffs for damages totaling $102,132.60; and (iii) for pre-judgment interest on all amounts (“Judgment”). Pilot was adjudged liable to the Carroll Plaintiffs for $1 million. Para. 3 of the Judgment stated:

THIS COURT ORDERS AND ADJUDGES that the judgment against the Defendants Robert McEwen and Caroline McEwen, personally, is limited to the limits of their insurance policy with Aviva Insurance Company Canada in the amount of $1,000,000.00. [Emphasis added.]

C. The appeal

[20] The Carroll Plaintiffs delivered a notice of appeal dated June 16, 2016 asserting that McLean J. made various errors in his disposition of post-verdict issues and costs. This court dismissed the appeal but varied the SABs conditional assignment order: Carroll v. McEwen, 2018 ONCA 902, 143 O.R. (3d) 641.

IV. THE CARROLL PLAINTIFFS’ [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) s. 38 MOTION

[21] As mentioned, the McEwens were discharged from bankruptcy on June 16, 2012 and the Trustee sometime thereafter.

[22] In the summer of 2016, prior to the issuance of the formal Judgment, the Carroll Plaintiffs’ counsel wrote to the Trustee asking to reopen the bankruptcy in order to file a proof of claim for the portion of the Judgment not satisfied by the insurance policies. In the ensuing correspondence, the Trustee advised that: (i) it could complete the administration of the McEwens’ estates under BIA s. 41(10) without reopening them;[^1] (ii) the Carroll Plaintiffs could file a proof of claim; (iii) the estates were without funds; and (iv) the Trustee would consent to the Carroll Plaintiffs availing themselves of the provisions of BIA s. 38 to take action in their own name.

[23] Section 38 of the BIA provides, in part, as follows:

38(1) Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.

(2) On an order under subsection (1) being made, the trustee shall assign and transfer to the creditor all his right, title and interest in the chose in action or subject-matter of the proceeding, including any document in support thereof.

(3) Any benefit derived from a proceeding taken pursuant to subsection (1), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.

[24] On October 11, 2016, Ms. Carroll filed a proof of claim in the McEwens’ bankruptcies for an unsecured claim stating that “at the date of bankruptcy” the McEwens were indebted to her in the sum of $624,349.01, which represented the shortfall between the amount of the Judgment and the amounts of the insurance policies available to satisfy it.[^2]

[25] The Carroll Plaintiffs then moved under BIA s. 38 for an order that they be authorized to commence and prosecute proceedings in their own name and at their own expense and risk for the purpose of bringing an action against Aviva/Traders, the insurer for the bankrupts Robert McEwen and Caroline McEwen, for breach of the insurer’s duty of good faith by failing to settle the MVA Action within the policy limit of the McEwens’ insurance policy. Notice of the motion was not given to Aviva/Traders.

[26] On December 21, 2016, Kershman J. granted the order (the “BIA s. 38 Order”). The next day the Trustee assigned to the Carroll Plaintiffs all of its right, title and interest to and in the subject matter of the proposed action (the “Assignment”).

V. THE BAD FAITH ACTION

[27] On August 25, 2017, the Carroll Plaintiffs commenced an action against Traders seeking damages of $624,349.01 for breach of the duty of good faith in Traders’ dealings with their insureds, the McEwens, and their Trustee, together with punitive and exemplary damages of $1 million (the “Bad Faith Action”).[^3]

[28] The Bad Faith Action alleges that Traders breached its duty of good faith in two ways. First, Traders owed the McEwens a duty of good faith to settle the MVA Action “within the insurance policy limit of $1,000,000 as soon as such an opportunity arose” or “as expeditiously as possible”. However, Traders had refused to settle the action as against the McEwens “notwithstanding receiving an offer to settle the action against the McEwens within the policy limits”. The statement of claim does not specify the dates of the Carroll Plaintiffs’ settlement offers that Traders failed to accept. As mentioned, the only such offer of the Carroll Plaintiffs’ referred to in the record was dated September 9, 2015, just prior to the start of the trial.

[29] The second allegation complained that Traders adjusted the claims of the McEwens jointly with claims against Traders as OPCF 44R insurer of Barbara Carroll, contrary to its obligations of good faith to the McEwens. However, as mentioned, Pilot, not Aviva/Traders, insured the Carroll Plaintiffs with OPCF 44R coverage.

VI. TRADERS’ MOTION TO REVIEW THE BIA s. 38 ORDER

[30] Following service of the statement of claim in the Bad Faith Action on February 21, 2018, Traders moved before Kershman J. for orders: (i) reversing the Trustee’s decision to accept the Carroll Plaintiffs’ proof of claim; (ii) setting aside the BIA s. 38 Order; and (iii) setting aside the Trustee’s Assignment.

[31] Traders advanced three main sets of arguments, all of which the motion judge rejected. I shall set out each argument, followed by the motion judge’s treatment of it.

A. Traders’ standing to seek a review of the [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) s. 38 Order

[32] Traders argued that the Carroll Plaintiffs had acted improperly in obtaining the BIA s. 38 Order by failing to give Traders notice of the motion.

[33] The motion judge held that as a general rule a proposed defendant is not entitled to receive notice of a BIA s. 38 motion or to seek a review of the order: Re McEwen, 2019 ONSC 5593, 97 C.C.L.I. (5th) 310, at paras. 36-38. However, the motion judge recognized that exceptions existed to that general rule. One exception is that a proposed defendant may seek to review a s. 38 order where the person who obtained the s. 38 order engaged in certain misconduct, such as abuse of process, non-disclosure, procedural irregularities, fraud or misrepresentation to the court: Shaw Estate (Trustee of) v. Nicol Island Development Inc., 2009 ONCA 276, 248 O.A.C. 35, at para. 48. Traders argued that the Carroll Plaintiffs failed to disclose on the s. 38 motion the scope of the restriction on the McEwens’ liability to them contained in para. 3 of the Judgment and other material matters: Re McEwen, at para. 52. Kershman J. found there was appropriate disclosure by the Carroll Plaintiffs to the extent required by the BIA: at para. 88.

[34] Traders also contended that it had the status to seek a review of the BIA s. 38 Order as it was an “aggrieved person” within the meaning of BIA s. 37, which states:

37 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. [Emphasis added.]

[35] The motion judge held that Traders lacked standing to review the order under BIA s. 37 because it had not demonstrated how it was a “person aggrieved” by the Trustee’s decisions to accept the Carroll Plaintiffs’ proof of claim, consent to their s. 38 motion, and make the Assignment: Re McEwen, at para. 42. Even if Traders was an aggrieved person, the motion judge stated that he would exercise his residual discretion under BIA s. 37 to refuse an application against a trustee because the Trustee’s decisions were reasonable in the circumstances: para. 45.

[36] The motion judge recognized that a potential defendant might have standing in respect of a BIA s. 38 motion when “there is a discrete issue of the law that, if decided in favour of the potential defendant, might avoid the need to defend a lawsuit that should never have been commenced”: para. 84. However, the motion judge did not deal with that argument in his reasons.

B. The Carroll Plaintiff’s status as a “creditor” under [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html) s. 38

[37] Traders contended that the Trustee should not have accepted the Carroll Plaintiffs’ proof of claim because it was filed in violation of para. 3 of the Judgment that limited the McEwens’ personal liability to the $1 million policy limit. As a result of that restriction, the Carroll Plaintiffs were not creditors of the bankrupts for the $624,349.01 portion of the Judgment that was in excess of the policy limit. Consequently, the Carroll Plaintiffs lacked the status to file a proof of claim or seek a s. 38 order.

[38] In addition, Traders argued that the actions of the Trustee – who had been previously discharged – in admitting the proof of claim, consenting to the BIA s. 38 order, and assigning the claim were not authorized by BIA s. 41(10), which enables a discharged trustee to perform such duties as may be “incidental to the full administration of the estate”.

[39] The motion judge rejected Traders’ argument that the Judgment limited the McEwens’ liability to the limits of their insurance policy and, as a result, the Trustee was precluded from accepting their proof of claim for the excess amount of $624,349.01. The motion judge reasoned as follows, at paras. 96-97:

The Trustee correctly notes that the language of McLean, J.’s Judgement does not preclude a proof of claim in bankruptcy for the amount owed to the [Carroll] Plaintiffs by the Bankrupts’ estates, and that this amount forms the basis for the [Carroll] Plaintiffs’ continued creditor status. To reiterate, it appears that McLean, J.’s Judgement sought only to ensure that the personal liability assigned to the Bankrupts was not one that survived bankruptcy.

The Court therefore finds that the Proof of Claim does not violate the orders of McLean J.’s Judgement.

C. The bad faith claim was not property of the bankrupts

[40] Traders submitted that any chose in action for a bad faith claim was not property of the McEwens on their date of bankruptcy and was not acquired or did not devolve on the McEwens before their discharges from bankruptcy: BIA s. 67(1)(c). Relying on the decision of this court in Dundas v. Zurich Canada, 2012 ONCA 181, 109 O.R. (3d) 521, Traders argued that any cause of action against it for an alleged breach of its duty of good faith to its insured, the McEwens, could only arise when the liability of the McEwens had been determined by judgment after trial. Only at that point could one determine whether the McEwens were liable to the Carroll Plaintiffs for any amount in excess of the policy limits.

[41] In the present case, the Judgment was dated October 30, 2015, over three years after the McEwens had been discharged from bankruptcy on June 18, 2012. Traders submitted that therefore the bad faith claim was not a chose in action that was “property of the bankrupt” and, as a result, the Trustee had no interest in a bad faith claim that could be assigned to the Carroll Plaintiffs under BIA s. 38(2).

[42] The motion judge rejected this argument. He concluded that the bad faith claim was property that had devolved to the bankrupts’ estates and therefore was assignable by the Trustee to the Carroll Plaintiffs. The motion judge reasoned as follows:

i. A trustee’s discharge is not an automatic impediment to the assignment of property and some flexibility should be allowed in terms of when assets cease to vest in a trustee after discharge: at para. 122;

ii. Realizable choses in action that the trustee was unable to deal with during the administration of the bankrupt’s estate do not necessarily automatically return to the discharged bankrupt; a trustee may sometimes access them by virtue of the powers conferred under BIA s. 41(10): at para. 124;

iii. This implied that the bad faith claim was property of the bankrupt that devolved before discharge: at para. 126;

iv. Claims for breach of contract are assignable choses in action. Claims against third parties for breach of contract need not be immediately pursuable for the claim to vest as property in a bankrupt’s estate: at para. 127; and

v. Consequently, the bad faith claim did not have to ‘crystalize’ through a judgment as to underlying liability before becoming vested in the Trustee: at para. 128.

VII. THE MOTION TO THE CHAMBERS JUDGE FOR LEAVE TO APPEAL

[43] Traders appealed the 2019 Review Order by notice of appeal dated October 2, 2019. Shortly thereafter, it filed a motion seeking leave to appeal the 2019 Review Order pursuant to BIA s. 193(e).

[44] The Chambers Judge rejected Traders’ submission that it had a right to appeal under BIA s. 193(a). He held that the point at issue did not involve future rights. On this motion to review, Traders does not challenge that conclusion.

[45] Instead, Traders takes issue with the decision of the Chambers Judge to refuse leave to appeal pursuant to BIA s. 193(e). The entirety of the Chambers Judge’s reasons for denying leave to appeal are as follows:

The argument for leave to appeal must fail. The motion judge found that the moving party has no standing to attack the proof of claim or the s. 38 order.

On this motion, the moving party advances the new argument that there was a procedural irregularity per s. 187(5). I am not persuaded that any procedural irregularity has been identified. The motion judge resolved the motion based on a substantive finding that the claim is breach of good faith, and that this claim vests in the trustee. The attempt to re­characterize this as a procedural matter fails.

Accordingly, I conclude the motion for leave fails on an assessment of the merits, even without regard to the further criterion that no issues of importance have been identified and no public policy arguments support granting leave.

VIII. THE ISSUES ON THIS CJA s. 7(5) MOTION TO REVIEW

[46] This motion to review raises two main issues.

[47] First, relying on the decision of this court in Business Development Bank of Canada v. Aventura II Properties Inc., 2016 ONCA 408, 132 O.R. (3d) 159, the Carroll Plaintiffs submit that under CJA s. 7(5) this panel has no jurisdiction to review the decision of the Chambers Judge that denied leave to appeal under BIA s. 193(e). On its part, Traders submits that the principle set out in the Aventura II decision is not absolute and, in exceptional circumstances, a panel can review and set aside an order denying leave to appeal. Such exceptional circumstances include where the judge mistakenly declines jurisdiction by acting on a wrong principle or by applying the wrong test such that the judge did not reach a decision on the merits of the motion. The Carroll Plaintiffs contend that any such exception has no application to the circumstances of this case.

[48] Second, if this panel decides that it can consider Traders’ motion to review, Traders submits that it meets the test for leave to appeal set out in Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617. The Carroll Plaintiffs submit that Traders has not met the test.

IX. FIRST ISSUE: DOES THIS PANEL HAVE THE JURISDICTION TO CONSIDER TRADERS’ MOTION?

A. The provisions of the [BIA](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)

[49] Under BIA s. 183(2), the Court of Appeal for Ontario is “invested with power and jurisdiction at law and in equity, according to [its] ordinary procedures, except as varied by this Act or the General Rules, to hear and determine appeals from the courts vested with original jurisdiction under this Act” (emphasis added).

[50] Under BIA s. 193(e), motions for leave to appeal are to be heard by a single judge of the appellate court. The Bankruptcy and Insolvency General Rules, C.R.C., c. 368 do not contain any specific procedure for reviewing the decision of a single judge of a provincial appellate court that denies leave to appeal under BIA s. 193(e). However, r. 3, following the language of BIA s. 183(2), provides that: “In cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdictions, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules” (emphasis added).

[51] What is the “ordinary procedure” of this court? Section 7(5) of the CJAstates that “[a] panel of the Court of Appeal may, on motion, set aside or vary the decision of a judge who hears and determines a motion”. Given the absence of a specific provision in the BIA or General Rules regarding the ability of an appellate court panel to review a decision of a single judge made under BIA s. 193(e), the combined language of BIA s. 183(2) and General Rules r. 3 would suggest that a party could seek a CJA s. 7(5) panel review of a decision of a single judge made under BIA s. 193(e) in accordance with its “ordinary procedure”.

B. The decision in Aventura II

[52] The parties point out that the decision of this court in Aventura II would suggest the contrary. As I will explain, I have strong reservations about the reasons offered in Aventura II in support of its conclusion that a panel of this court lacks the jurisdiction to review a decision of a single judge of this court denying leave to appeal under BIA s. 193(e).

[53] Aventura II involved a motion under CJA s. 7(5) to review a decision of a single judge of the Court of Appeal that, in part, had denied leave to appeal under BIA s. 193(e). The panel concluded that it did not have jurisdiction to review the order: at para. 3. In reaching that conclusion, the panel adopted and applied the two reasons that led this court in a criminal appeal, R. v. Scherba (2001), 54 O.R. (3d) 555 (C.A.), to conclude that there is no right to review a decision of a single judge granting or denying leave to appeal a summary conviction under s. 839(1) of the Criminal Code, R.S.C. 1985, c. C-46.

[54] The first reason given by the court in Scherba was that the Criminal Appeal Rules, S.I./93-169 did not provide for such an appeal. The court in Scherba held that the Criminal Appeal Rules were not competent to incorporate a right of appeal or review by reference through the Rules of Civil Procedure because a right of appeal is a substantive right that does not come within any of the matters in respect of which Criminal Code s. 482(2) authorizes a court to make rules: at para. 11. The panel in Aventura II adopted this analysis, stating that the BIA also does not provide for such an appeal.

[55] However, the provisions of the BIA differ from those in the Criminal Code and Criminal Appeal Rules. As mentioned, BIA s. 183(2) expressly provides that provincial appellate courts are invested with power and jurisdiction “according to their ordinary procedures, except as varied by this Act or the General Rules, to hear and determine appeals” (emphasis added). As noted, General Rules r. 3 is to the same effect. A panel review of the decision of a single judge is part of the ordinary procedure of this court.

[56] The second reason given by the court in Scherba concerned the provisions of the CJA regarding the composition of this court on motions for leave to appeal. CJA s. 7(2) sets out the general rule: “[a] motion in the Court of Appeal … shall be heard and determined by one judge”. However, CJA s. 7(3) provides that this general rule does not apply to a motion for leave to appeal, which is to be heard by a panel of three judges: CJA s. 7(1). In Scherba, this court stated, at para. 13:

As s. 7(3) expressly excludes a motion for leave to appeal from “a motion” over which a single judge is given jurisdiction by the operation of this section, s. 7(5) does not create jurisdiction to set aside or vary the decision of a single judge denying leave to appeal.

The panel in Aventura II concluded that the Scherba analysis applied equally to BIA leave to appeal motions.

[57] However, the authority for a single judge to hear a motion for leave to appeal an order made under the BIA does not flow from CJA s. 7(2), but from BIA s. 193(e). That section specifically provides that where an appeal does not lie as of right under BIA ss. 193(a)-(d), an appeal lies to the Court of Appeal “by leave of a judge of the Court of Appeal”. BIA s. 193(e) specifically varies the requirements set out in CJA ss. 7(2) and (3) regarding the composition of the court hearing a motion for leave to appeal: BIA s. 183(2); General Rules r. 3. Under the doctrine of federal paramountcy, the conflict between BIA s. 193(e) – a single judge hears a leave motion – and CJA s. 7(3) – a panel hears a leave motion – is resolved in favour of the federal provision: Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327, at paras. 18-19; Business Development Bank of Canada v. Astoria Organic Matters Ltd., 2019 ONCA 269, 69 C.B.R. (6th) 13, at paras. 67-68.

[58] I would note that in adopting the analysis in Scherba, the Aventura II panel did not refer to BIA s. 183(2) or General Rules r. 3.

[59] I certainly understand that good policy reasons exist to limit the circumstances in which a panel of this court can review the decision of a single chambers judge denying leave to appeal. It has been suggested that having a single judge weed out unnecessary or frivolous requests for leave to appeal without subjecting those decisions to further review by a panel economizes judicial resources. Otherwise, the merits of a matter could be considered three times by judges of the same court: on the motion for leave; on a panel review of that motion; and, should the panel grant leave, by a panel on the appeal proper: Millcraft Investment Corp. v. Ontario (Regional Assessment Commissioner, Region No. 3) (2000), 46 O.R. (3d) 685 (Div. Ct.), at para. 17. Of course, against those considerations must be balanced the need to do justice in each case.

[60] But, the decision in Aventura II did not turn on the degree of scrutiny or deference that should be accorded to a decision of a single chambers judge. Instead, the panel held that it lacked the jurisdiction to review the decision of a single chambers judge that refused leave to appeal under BIA s. 193(e). As I have outlined in paras. 54 to 58 above, I have serious reservations about that conclusion, especially given the panel’s lack of consideration of the effect of BIA s. 183(2) and General Rules r. 3.

[61] Notwithstanding those strong reservations, for purposes of this review motion I must treat the decision in Aventura II as binding.

C. The Hillmond exceptions

[62] Traders submits that the apparently absolute rule set out in Aventura II is subject to exceptions. In support of its position, Traders relies on the decision of this court in Hillmond Investments Ltd. v. Canadian Imperial Bank of Commerce (1996), 29 O.R. (3d) 612 (C.A.). The Carroll Plaintiffs submit that the “rare exception” recognized in Hillmond is not applicable to the present case.

[63] The Hillmond case did not concern the power of a panel of this court to review the decision of a single judge of the same court. Hillmond dealt with the jurisdiction of a senior appellate court to hear an appeal from the decision of a single judge of an intermediate appellate court that had denied a party leave to appeal the decision of an arbitrator on a question of law pursuant to s. 45(1) of the Arbitration Act, 1991, S.O. 1991, c. 17. In that case, a judge of what was then the Ontario Court (General Division) refused to grant leave to appeal. Hillmond Investments Limited then appealed to this court, arguing that the decision of the judge was a final order from which an automatic right of appeal existed to the Court of Appeal.

[64] In concluding that it had no jurisdiction to entertain an appeal from the order of the lower court judge, this court examined, at some length, the jurisprudence regarding the ability of a senior appellate court to hear an appeal from the order of an intermediate appellate court that had denied a party leave to appeal. This court observed that a statutory leave requirement, such as that in the Arbitration Act, 1991, grants an intermediate appellate court the power to stop unnecessary or frivolous appeals: at pp. 617-618. That power would become illusory if a party could appeal to a senior appellate court the intermediate appellate court’s grant or denial of leave to appeal. In those circumstances, as this court stated at p. 618, “[t]he Court of Appeal could then hear every case”.

[65] Nevertheless, this court went on to state, at p. 624, that “there must be an avenue of redress in exceptional cases”, holding that “[i]f a General Division judge mistakenly declines jurisdiction on a leave motion by acting upon a wrong principle, redress should be had to an appellate court”: see also, Denison Mines Ltd. v. Ontario Hydro (2001), 56 O.R. (3d) 181 (C.A.), at paras. 4-11. However, if the judge denying leave “has not mistakenly declined jurisdiction but has reached a decision on the merits of the application”, then no appeal would lie from the refusal of leave: Hillmond, at p. 624.

[66] In Hillmond, this court stated that a judge of an intermediate appellate court does not decline jurisdiction where he or she has considered the application for leave to appeal on its merits and concluded that the questions on which leave was sought did not qualify as ones for which leave should be granted: at p. 624. Accordingly, the failure of the single judge of the intermediate appellate court to recognize errors in law on the part of the arbitrator did not amount to declining jurisdiction: at p. 624.

[67] In Denison Mines, this court applied the exception where the lower court judge had not dealt with the merits of an application for leave to appeal but only with the preliminary jurisdictional issue of whether the parties had contracted out of a right to appeal through their arbitration agreement: at paras. 9-10.

[68] The Divisional Court has used Hillmond to fashion its approach to panel review motions under CJA s. 21(5), which states that “[a] panel of the Divisional Court may, on motion, set aside or vary the decision of the judge who hears and determines a motion”. The Divisional Court has taken the position that under CJA s. 21(5) a panel of that court has the jurisdiction to review the decision of a single judge on a motion for leave to appeal, but it has applied Hillmond to limit the circumstances in which a panel may grant relief. The Divisional Court jurisprudence holds that a panel may only interfere if the single judge declined jurisdiction by acting on a wrong principle, including applying the wrong test in deciding whether to grant leave, disregarding a statutory right, or failing to give the moving party the right to be heard: Millcraft, at para. 28; Universal Am-Can Ltd. v. Tornorth Holdings Ltd. et. al.(2003), 177 O.A.C. 297 (Div. Ct.), at para. 3; Tseng v. Toronto (City), 2011 ONSC 191 (Div. Ct.), at para. 2; Exchange Tower Ltd. v. Municipal Property Assessment Corp., Region No. 9, 2012 ONSC 415 (Div. Ct.), at para. 5.

D. Analysis

[69] The present motion does not involve a request for this panel to review a decision of a single judge of a lower court that refused leave to appeal; it concerns the ability of a panel to review the decision of a single member of this court. We are not being asked to interfere with the power of a lower court to regulate the flow of appeals to it. Instead, we are being asked to review the legal adequacy of a decision by a single judge of this court denying leave to appeal. As such, the policy concerns expressed in Hillmond that militate against a senior appellate court interfering with the ability of an intermediate appellate court to exercise its gate-keeper function to stop unnecessary or frivolous appeals do not apply with equal force.

[70] In my view, the principle set out in Aventura II should be subject to Hillmond’s acknowledgement that “there must be an avenue of redress in exceptional cases”. The Hillmond exception which, it will be recalled, includes where the judge “mistakenly declines jurisdiction” on a leave motion, applies to the present case: at p. 624.

[71] In my view, the Hillmond exception applies because the reasons of the Chambers Judge do not disclose that he reached a decision on the merits of Traders’ leave to appeal motion, resulting in him mistakenly declining jurisdiction. With due respect to my colleague, the Chambers Judge, his reasons, when read in context and applying the functional approach, do not explain how he dealt with the critical issues that Traders argued merited granting leave to appeal. Nor do they disclose that he “seized the substance of the issue” on the leave motion: R. v. R.E.M., 2008 SCC 51, [2008] 3 S.C.R. 3, at paras. 50 and 55.

[72] On the leave to appeal motion, Traders submitted that errors by the motion judge in his interpretation of the relevant provisions of the BIA and related jurisprudence led him to fail to find that:

i. Traders had standing to request the court to vary or set aside the BIA s. 38 Order as a person aggrieved by the acts or decisions of the Trustee, within the meaning of BIA s. 37;

ii. The BIA s. 38 Order was improperly granted because the Carroll Plaintiffs were not creditors of the bankrupt McEwens in excess of the available policy limits and para. 3 of the Judgment precluded the Trustee from accepting the proof of claim filed by the Carroll Plaintiffs for the excess amount; and

iii. The bad faith claim was not property belonging to the McEwens on the date of bankruptcy and did not devolve on the McEwens before their discharges from bankruptcy. As a result, the Trustee had no interest in the bad faith claim, had no standing to consent to a s. 38 order, and could not assign the bad faith claim to the Carroll Plaintiffs.

[73] In his reasons, the Chambers Judge noted that “the motion judge found that the moving party had no standing to attack the proof of claim or the s. 38 order”. However, the reasons provide no explanation as to why the Chambers Judge did not consider Traders’ argument that it was an aggrieved person entitled to review the Trustee’s acts and decisions under BIA s. 37. Nor did the reasons consider whether Traders fell within one of the recognized exceptions to the general rule that a proposed defendant could not seek to review a s. 38 order.

[74] As well, although the Chambers Judge observed that the “motion judge resolved the motion based on a substantive finding that the claim is breach of good faith, and that this claim vests in the trustee”, his reasons do not grapple with the two key errors Traders contended the motion judge had made: namely, that (i) given the terms of the Judgment, the Carroll Plaintiffs were not creditors of the McEwens for any amount in excess of the policy’s limits; and (ii) the law and evidence showed that any claim for breach of the insured’s duty of good faith did not arise until long after the McEwens and the Trustee had been discharged. The Chambers Judge’s reasons are silent on both of these key issues.

[75] The reasons of the Chambers Judge are not sufficient to explain why he denied Traders leave to appeal, which leads me to conclude that the Chambers Judge declined jurisdiction by not making a decision on the merits of the leave motion. In the circumstances, the Hillmond exception applies, enabling this panel to review under CJA s. 7(5) the Chambers Judge’s refusal to grant leave to appeal.

X. SECOND ISSUE: SHOULD TRADERS BE GRANTED LEAVE TO APPEAL?

A. The Pine Tree Resorts test

[76] As set out in Pine Tree Resorts, at para. 29, three factors guide a decision whether to grant leave to appeal under BIA s. 193(e). The proposed appeal must:

i. raise an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole, and the issue is one that this court should consider and address;

ii. be prima facie meritorious; and

iii. not unduly hinder the progress of the bankruptcy/insolvency proceedings.

B. Effect of an appeal on the bankruptcy proceedings

[77] With respect to the third Pine Trees Resorts factor, which I will address first, Traders’ proposed appeal would not hinder the progress of the McEwens’ bankruptcy proceedings since those proceedings came to an end with the McEwens’ discharge in 2012.

C. The merits and general importance of the issues raised by Traders

[78] In my view, Traders’ proposed appeal also satisfies the first and second Pine Tree Resorts factors: the appeal raises issues that are prima facie meritorious and of general importance to the practice of bankruptcy matters.

Traders’ standing to review the BIA s. 38 Order.

[79] The motion judge recognized that exceptions exist to the general principle that the proposed defendant to a BIA s. 38 action does not have standing on a s. 38 motion or to review a s. 38 order.

[80] The motion judge acknowledged, at para. 84, that a potential defendant might have standing “where there is a discrete issue of law that, if decided in favour of the potential defendant, might avoid the need to defend a lawsuit that should never have been commenced”: see also: Isabelle v. The Royal Bank of Canada, 2008 NBCA 69, 336 N.B.R. (2d) 332, at para. 39. Yet, having acknowledged the exception, the motion judge failed to deal with it.

[81] The motion judge also recognized that a person “aggrieved” by an act or decision of a trustee could apply to a court to reverse the decision under BIA s. 37, but he concluded that Traders had not identified a specific basis to be classified as an aggrieved person.

[82] In my view, Traders’ submission that the motion judge erred in holding that it had no standing to review the BIA s. 38 Order crosses the prima facie meritorious threshold. On its motion to review the BIA s. 38 Order, Traders advanced two arguments that challenged the status of the Carroll Defendants to bring a s. 38 action and the authority of the Trustee to consent to a s. 38 motion and make the Assignment. The two arguments were in the nature of complete bars to the s. 38 motion, namely: (i) by reason of the limitation on the personal liability of the bankrupts contained in para. 3 of the Judgment, the Carroll Plaintiffs were not creditors of the bankrupts in excess of the policy limits, and therefore, did not have the status to seek to bring a BIA s. 38 action; and (ii) the claim that Traders had breached its duty of good faith to its insureds, the McEwens, was not property of the bankrupts on the date of bankruptcy and did not devolve on the bankrupts before their discharge because the claim could not arise until a judgment was issued fixing any liability of the McEwens in excess of the policy limits. The Judgment did not issue until many years after the bankrupts’ discharge.

[83] On the record before us, both arguments appear to have merit. Yet, the record is clear that were Traders to assert those arguments by way of defences to the Bad Faith Action, the Carroll Plaintiffs would take the position that Traders would be foreclosed from litigating in the Bad Faith Action the issues involving the validity of the Assignment, including whether the statutory conditions for a BIA s. 38 action had been met. The Carroll Defendants would argue that any attempt to do so would amount to a collateral attack on the BIA s. 38 Order, as indicated in an email dated November 12, 2019 from counsel for the Carroll Plaintiffs to Traders’ counsel and in para. 13 of the Carroll Plaintiffs’ Supplementary Factum.

[84] It would be unfair to deprive Traders of some mechanism to have a court determine those issues which, if resolved in a manner favourable to Traders, might avoid the need for Traders to defend a lawsuit that should never have been commenced. Such unfairness constitutes a form of prejudice that, arguably, renders Traders an aggrieved person within the meaning of BIA s. 37.

[85] In those circumstances, Traders’ position that it has the standing to move for a review of the BIA s. 38 Order is prima facie meritorious, is worthy of consideration by this court, and is of general importance to the practice of bankruptcy matters.

The Carroll Plaintiffs’ status as “creditors” of the bankrupt McEwens.

[86] I also conclude that there is merit in Traders’ argument that the motion judge misconstrued the limits placed on the McEwens’ liability by para. 3 of the Judgment issued by McLean J. As mentioned, para. 3 of the Judgment limited the liability of the McEwens personally to the $1 million limit of the Traders/Aviva policy. The motion judge held that the language of para. 3 did not preclude the Carroll Plaintiffs from filing a proof of claim with the McEwens’ estates in bankruptcy for the amount of the Judgment in excess of the policy limits. However, in his reasons the motion judge did not take into account the limits placed by Master Roger in the October 12, 2012 continuation order that the BIA stays were lifted “to have the proceeds of any liability insurance policy applied in or toward the satisfaction of the [Carroll Plaintiffs’] claim”. By contrast, the transcript of the hearing before McLean J. disclosed that he was influenced by the limits imposed by Master Roger when crafting para. 3 of the Judgment and rejecting the attempt by the Carroll Plaintiffs to include additional language in the Judgment.

[87] While the interpretation of a provision in a judgment usually is a matter of concern only to the parties involved, this issue does raise the larger question of the practical limits on the liability of the estates of bankrupts where motor vehicle accident actions are initiated against the bankrupts prior to the date of bankruptcy but are not determined until after the bankrupts’ discharge. As such, I regard it as an issue of general importance to the practice in bankruptcy matters.

Whether the bad faith claim is property of the bankrupts assignable by the Trustee.

[88] Finally, Traders’ proposed appeal raises issues about when a chose in action for a breach of a duty of good faith to a bankrupt insured arises such that it constitutes property of the bankrupt assignable by a trustee.

[89] Part of Traders’ argument that the Carroll Plaintiffs’ bad faith claim was not the property of the bankrupts is based on the decision of this court in Dundas. In that case, an insured’s action for breach of duty of good faith alleged that the insurer had delayed settling a motor vehicle accident claim against it and failed to pay the policy limits into an interest-bearing account prior to the ultimate settlement. Given the high rates of pre-judgment interest then prevailing, the insurer’s alleged delay pushed the amount of the final settlement over the policy limits, thereby exposing the insured to liability for the excess. The insured’s action sought to recover the excess.

[90] In Dundas, this court had to determine the limitation period applicable to the insured’s claim against its insurer for breach of the duty of good faith: Was it the one-year limitation period applicable to any claim under the policy, or was it subject to the then standard six-year limitation period? This court adopted the latter limitation period, stating at para. 38:

In my view, the cause of action did not arise until Zurich had a liability to indemnify the Reid estate under the policy of insurance. This only occurred when the liability of the Reid estate had been finally ascertained by judgment after trial or by settlement between the parties with the consent of the insurer, using the language of condition 6(2). On the facts, this did not occur until the issues of interest and costs had been resolved by the consent judgments that were taken out on August 21, 1995. It was at this time that the Reid estate had a liability to pay the third parties and it was at this time that it was entitled to demand indemnity from Zurich. [Emphasis added.]

[91] Relying on Dundas, Traders submitted to the motion judge that any cause of action for breach of its duty of good faith to the McEwens could not arise until the Judgment fixed the McEwens’ liability, and then only if the Judgment exposed the McEwens to liability in excess of the policy’s limits. The motion judge acknowledged the argument, at para. 111 of his reasons, but failed to deal with it.

[92] The Carroll Plaintiffs contend, in effect, that the motion judge’s failure to do so was of no consequence because what Dundas held was that it is a claim for indemnity under a policy, not a claim for breach of a duty of good faith, that crystallizes upon judgment. As a result, the holding in Dundas has no application to the present case. This submission is difficult to reconcile with the fact that the holding of this court in para. 38 of Dundas, reproduced above, responded directly to the question of when the insured’s cause of action for breach of the insurer’s duty of good faith arose.

[93] Traders’ submission that the motion judge committed a material error in failing to address the principle in Dundas is prima facie meritorious, merits consideration of this court, and is of general importance to the practice in bankruptcy matters.

[94] Further, the crux of the Bad Faith Action is that Traders breached its duty of good faith to its insureds by failing to accept an offer by the Carroll Plaintiffs to settle the MVA Action within the policy’s limits. On the materials filed by the Carroll Plaintiffs and the Trustee, it appears that the offer in question was the Carroll Plaintiffs’ September 9, 2015 offer, which was made on the eve of the trial, many years after the McEwens and the Trustee had been discharged. In those circumstances, it is certainly questionable whether the chose in action for a breach of the duty of good faith, as framed against Traders, constituted property of the bankrupts that could be assigned by the Trustee.

[95] Accordingly, Traders has demonstrated prima facie meritorious arguments that the motion judge erred in holding that: (i) the chose in action that Traders breached its duty of good faith was property of the McEwen bankrupts on the date of their bankruptcies or devolved to their estates prior to discharge: at para. 129; and (ii) that BIA s. 41(10) provided authority to the Trustee in the circumstances to accept the Carroll Plaintiffs’ proof of claim and make the Assignment: at paras. 102-108. Both issues are of general importance to the practice of bankruptcy matters.

D. Conclusion

[96] Accordingly, in my view, Traders has satisfied all three elements of the test in Pine Tree Resorts.

XI. DISPOSITION

[97] For the reasons set out above, I would set aside the order of the Chambers Judge and grant Traders leave to appeal the order of Kershman J. dated September 26, 2019.

[98] I would order the costs of this motion to Traders. I would set aside the costs order of the Chambers Judge and order that the Carroll Plaintiffs pay Traders costs of $15,000, inclusive of applicable taxes and disbursements, for the motion before the Chambers Judge. If the parties are unable to agree on the costs of this motion, they may submit brief written costs submissions within 15 days of the release of these reasons.

Released: “EEG” AUG 17 2020

“David Brown J.A.”

“I agree. E.E. Gillese J.A.”

“I agree. David M. Paciocco J.A.”

[^1]: BIA s. 41(10) provides: “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”.

[^2]: As pleaded in para. 24 of the statement of claim in the ensuing bad faith action, the amount of $624,349.01 was described as “the amount outstanding on the Judgment as of October 11, 2016”.

[^3]: Although the Carroll Plaintiffs named Aviva as the defendant in the Bad Faith Action, as mentioned above it was Traders, not Aviva, that insured the McEwens. In the balance of these reasons, I shall refer to Traders as the defendant in the Bad Faith Action.