COURT OF APPEAL FOR ONTARIO

CITATION: Thistle v. Schumilas, 2020 ONCA 88

DATE: 20200206

DOCKET: C66432

Watt, Hourigan and Trotter JJ.A.

BETWEEN

Jason Michael Thistle

Plaintiff

(Respondent)

and

James Schumilas, Jr., WCS Financial Services, Cinaber Financial Inc. and Bridgeforce Financial Group Inc.

Defendants

(Appellant)

Marie Sydney, for the appellant

Sean Zeitz, for the respondent

Heard: November 29, 2019

On appeal from the order of Justice Catrina D. Braid of the Superior Court of Justice, dated December 21, 2018.

Hourigan J.A.:

A. Introduction

[1] On June 4, 2009, Equitable Life of Canada issued a life insurance policy to the respondent’s spouse. The policy was in the amount of $600,000. The respondent was the sole beneficiary.

[2] The respondent made a voluntary assignment in bankruptcy, effective June 25, 2009. He was not discharged from bankruptcy until June 13, 2011.

[3] The respondent’s wife died on October 14, 2010. He made a claim under the policy. On February 22, 2011, Equitable Life denied the claim on the basis that the respondent’s wife had misrepresented or failed to disclose material facts on her application for insurance. Specifically, it was alleged that she failed to disclose an existing medical condition.

[4] The respondent commenced an action against Equitable Life on March 29, 2011, seeking a declaration that Equitable Life was required to pay $600,000 under the policy. During that litigation, in approximately December 2012, the respondent became aware of a potential claim in professional negligence against the appellant, who had acted as his wife’s insurance agent when she purchased the policy. The respondent commenced a claim against the appellant on February 11, 2013, seeking damages equivalent to the policy’s value.

[5] The appellant brought a motion for summary judgment to dismiss the action on the basis that any right to assert a claim against him arose when the respondent was an undischarged bankrupt and, therefore, the cause of action vested with his trustee in bankruptcy. The respondent brought a cross-motion seeking an order nunc pro tunc granting him “standing to bring this action issued February 11, 2013 in his own name and at his own risk and expense, notwithstanding his assignment in bankruptcy and subsequent discharge”.

[6] The motion judge found that she had a discretion under the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (“BIA”) and/or the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to validate the claim and regularize the proceedings. She relied on s. 187(9) of the BIA, which provides that no bankruptcy proceeding shall be invalidated by a formal defect or irregularity. According to the motion judge, the order the respondent sought was consistent with the interests of justice and would help protect innocent third-party creditors and the respondent. To do otherwise, she reasoned, would result in a potential windfall for the appellant and a corresponding loss to the creditors.

[7] The motion judge further found that the expiry of the limitation period was not an absolute bar to an order nunc pro tunc and that the court can still exercise its discretion. She determined that the order would not undermine the limitation period’s purpose because it was a mere procedural irregularity and there was no intent to defraud creditors. Further, the appellant was aware of the claim within the limitation period, defended the action from the outset, and did not take the position that it relied on the limitation period or that it had been prejudiced.

B. Issues

[8] The appellant raises two grounds of appeal. He submits that the motion judge erred in finding that: (1) she had a discretion to make an order regularizing the proceeding; and (2) the order could be made on a nunc pro tunc basis.

[9] For reasons I will explain, I am of the view that the motion judge erred on ground 2 – that is, the motion judge did not have the authority to make the order nunc pro tunc. I would allow the appeal on that basis. Accordingly, it is unnecessary to consider ground 1.

C. Analysis

(a) Necessity of the Order Sought

[10] To understand how the motion judge erred in finding that she could make an order nunc pro tunc, it is first necessary to consider the respondent’s cross-motion. On that cross-motion, the respondent sought an order granting him standing to bring the action.

[11] Was that order required? Section 71 of the BIA provides that upon an assignment in bankruptcy being filed, the bankrupt ceases to have any capacity to deal with his or property, which, subject to the BIA and the rights of secured creditors, immediately passes to and vests in the trustee. As the Supreme Court stated in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 58, “[a]n undischarged bankrupt has no capacity to deal with his or her property and no distinction is made with respect to whether that property was acquired before or after the assignment in bankruptcy.”

[12] The BIA makes no provision for the automatic re-vesting of the property of a bankrupt in the bankrupt either on his or her discharge or on the discharge of the trustee: Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192, 139 O.R. (3d) 721, at para. 64, leave to appeal refused [2018] S.C.C.A. No. 141. Instead, pursuant to s. 40 of the BIA, a trustee is obligated to return property — that is listed in the bankrupt’s statement of affairs or otherwise disclosed to the trustee, and that is found incapable of realization — to the bankrupt before the bankrupt’s discharge.

[13] Section 2 of the BIA defines “property” as follows:

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

[14] Section 67(1)(c) of the BIA states that a bankrupt’s property shall comprise “all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge”. There are only a few prescribed exemptions from this definition, as noted in ss. 67(1)(a)-(b.3).

[15] Here, the parties agreed before the motion judge and this court that the cause of action arose during the respondent’s bankruptcy, constituted property under the BIA, and thus vested in the trustee in bankruptcy.

[16] This panel raised with the parties whether the cause of action vested with the trustee, given that the respondent only discovered the cause of action after his discharge from bankruptcy. In response, the respondent submitted that he was not resiling from his position below that the cause of action vested with the trustee. However, the respondent suggested that this court should consider importing the concept of cause of action accrual/discoverability as an exemption to the automatic vesting of a cause of action pursuant to s. 71 of the BIA. He argued that until a bankrupt or a trustee has discovered a claim, there is nothing that can be practically done to prosecute a cause of action. Finding that a cause of action vests with the trustee regardless of discoverability, he submitted, would allow defendants like the appellant to wrongfully avoid liability.

[17] I am not persuaded by this argument. Pursuant to ss. 2 and 67(1)(c) of the BIA, the bankrupt’s property is broadly defined and includes a cause of action, regardless of whether it has been discovered or not. The respondent acquired the cause of action during the currency of his bankruptcy, notwithstanding that the running of the limitation period was contingent on discoverability. Grafting the concept of discoverability to the vesting procedure under s. 71 of the BIA would not only create uncertainty, it could incentivize bankrupts to avoid learning of and disclosing all assets to their trustee.

[18] The respondent’s argument also runs contrary to Parliament’s intention. The Supreme Court in Saulnier v. Royal Bank of Canada, 2008 SCC 58, [2008] 3 S.C.R. 166, at para. 43 has stated that:

The terms of the definition [of property] are very wide. Parliament unambiguously signalled an intention to sweep up a variety of assets of the bankrupt not normally considered “property” at common law. This intention should be respected if the purposes of the BIA are to be achieved.

[19] Parliament also created distinct and narrow exemptions to property, “to allow the bankrupt to continue a living pending discharge and, when discharged, to make a fresh start”: Saulnier, at para. 17. These limited exemptions are not analogous to the respondent’s proposed exemption based on discoverability.

[20] Nor am I persuaded that in this case the vesting of the cause of action in the trustee works an injustice. The trustee could have been reappointed pursuant to s. 41(11) of the BIA to prosecute the claim. If the trustee determined that it did not want to prosecute the claim, the respondent could have arranged to have the cause of action assigned to him. In either case, the doctrine of discoverability could be relied on to argue that the claim was not statute barred. Thus, the BIA does not prevent a claim from being asserted or prevent discoverability from operating; all it does is direct that a cause of action vests in the trustee.

[21] Rather than seek an assignment and/or arrange for the reappointment of the trustee, in his cross-motion the respondent sought an order granting him standing to bring and maintain an action that he said remained vested in the trustee. Consequently, to the extent that an order regularizing the proceeding was available, the respondent required that it be made on a nunc pro tunc basis. The question is whether the court had the capacity to make that order.

(b) Availability of the Nunc Pro Tunc Order

[22] To answer this question, regard must be had to the Supreme Court’s decision in Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801 (“Green”). That case considered three appeals (CIBC, IMAX and Celestica) where the respondent plaintiffs claimed damages under the common law tort of negligent misrepresentation and pleaded an intention to claim damages under the statutory cause of action in s. 138.3 of the Securities Act, R.S.O. 1990, c. S.5.

[23] None of the plaintiffs obtained leave to commence the statutory action, required under the Securities Act, before commencing the class proceeding based on the common law cause of action. In all the cases, the limitation period for the statutory action, if not suspended, would have run out prior to leave being obtained. In IMAX, the motion for leave was filed and argued before the expiry of the limitation period; in CIBC, the motion for leave was filed before the expiry of the limitation period; and in Celestica, the motion for leave was filed after the expiry of the limitation period.

[24] An issue arose in Green regarding whether the court had authority to make a leave order on a nunc pro tunc basis. Côté J., at para. 85, recognized that courts have a power to make nunc pro tunc orders, which she described as essentially backdated orders, noting that rule 59.01 of the Rules of Civil Procedure states: “An order is effective from the date on which it is made, unless it provides otherwise.” She reviewed a non-exhaustive list of factors courts have considered in determining whether to exercise their inherent jurisdiction to grant such an order. Côté J. then turned, at paras. 91 to 93, to the question of whether nunc pro tunc orders should be permitted where a plaintiff required leave to bring an action but failed to seek leave within the applicable limitation period:

Returning to the issue in the cases at bar, there are two schools of thought in the jurisprudence on whether a failure to obtain leave within a specified limitation period results in the nullity of the action or is merely a procedural irregularity. According to one view, a failure to do so results in the nullity of the action, which cannot be remedied by a nunc pro tunc order, and is therefore an “insurmountable obstacle”. According to the second view, such a failure is merely a procedural irregularity that can be corrected by a nunc pro tunc order.

In my opinion, van Rensburg J. correctly stated the law on this point in IMAX. She noted that the courts have been willing to grant nunc pro tunc orders where leave is sought within the limitation period but not obtained until after the period expires (as in Montego Forest Products). She also noted that, in the cases suggesting that an action commenced without leave was a nullity, the applicable limitation periods had expired before the application for leave was brought. A nunc pro tunc order in such cases would be of no use to the plaintiff, as it would be retroactive to a date after the expiry of the limitation period.

Thus, subject to the equitable factors mentioned above, an order granting leave to proceed with an action can theoretically be made nunc pro tunc where leave is sought prior to the expiry of the limitation period. [Citations omitted.]

[25] In circumstances where a motion is brought after the expiry of a limitation period, a nunc pro tunc order cannot be made for the simple reason that such an order is of no practical effect. It would only serve to backdate the order to the date of the motion, which was already beyond the expiry of the limitation period. In Celestica, the plaintiffs did not file their motion for leave prior to the limitation period expiring. Accordingly, on that basis, the Supreme Court denied the granting of a nunc pro tunc order: Green, at para. 111.

[26] This court followed Green in Douglas. Like this case, Douglas concerned a cause of action that arose when a party was an undischarged bankrupt and that was asserted at a time when the cause of action remained vested in the trustee. The party’s insurer attempted to bring the action in the party’s name, based on alleged subrogation rights. This court held that the party had no capacity to bring the action because an undischarged bankrupt lacks capacity to commence an action in his name, if his cause of action vested in the trustee on his assignment or at any time before his discharge: Douglas, at paras. 92-93.

[27] This court refused to make a nunc pro tunc order pursuant to ss. 38 or 40 of the BIA because, among other things, the insurer sought a nunc pro tunc order almost seven years after the limitation period had passed. Citing Green, this court ruled that “a court has no authority to make a nunc pro tunc order if the party did not seek an order before the relevant limitation period expired”: Douglas, at para. 104.

[28] This case is analogous to Douglas, the only difference being that at the time the action was commenced in this case, the respondent was a discharged bankrupt. The respondent sought a nunc pro tunc order in 2018, which was well after the expiry of the two-year limitation period pursuant to the Limitations Act 2002, S.O. 2002, c. 24, Sch. B. The limitation period for the respondent’s claim expired, at the latest, in 2015, which was two years after the respondent brought his action against the appellant. The motion judge thus had no authority to grant the nunc pro tunc order.

[29] The motion judge attempted to distinguish Douglas by noting that, in this case: (1) the respondent was discharged from bankruptcy when the cause of action was discovered, and the action commenced; and (2) the trustee consented to an order regularizing proceeding. Given that the nunc pro tunc order was only sought after the expiry of the limitation period, these factual differences are of no consequence in this particular case.

[30] The motion judge also cited Montego Forest Products Ltd. (Re) (1998), 1998 CanLII 2640 (ON CA), 37 O.R. (3d) 651 (C.A.), to demonstrate that “the expiry of the limitation period is not an absolute barrier to granting an order nunc pro tunc”. However, this court has noted that the nunc pro tunc order was properly granted in Montego Forest Products because the order was sought within the limitation period: Douglas, at para. 104; see also Green, at para. 92.

[31] Given the decisions in Green and Douglas, the motion judge erred in granting a nunc pro tunc order regularizing the proceeding for the respondent. She had no authority to make that order and, accordingly, it cannot stand.

D. Disposition

[32] For the foregoing reasons, I would allow the appeal, set aside the order below, and dismiss the respondent’s claim as against the appellant.

[33] Regarding the costs below, in my view the appellant is entitled to his costs of the motion and cross-motion. If the parties cannot agree on the quantum of those costs, they may make brief written submissions to this court. The appellant is also entitled to his costs of the appeal, which I would fix in accordance with the parties’ agreement, in the all-inclusive sum of $10,000.

Released: “D.W.” February 6, 2020

“C.W. Hourigan J.A.”

“I agree. David Watt J.A.”

“I agree. G.T. Trotter J.A.”