Court File and Parties

Court: Court of Appeal for Ontario Date: 2021-03-02 Docket: C68221

Before: MacPherson, Gillese and Nordheimer JJ.A.

Re: In the Matter of the Bankruptcy of Christine Ann Davidson (aka Christine Ann Ottewell) of the Town of Nottawa, in the County of Simcoe, in the Province of Ontario Summary Administration

Counsel: Sean N. Zeitz and Randy Schliemann, for the appellant Dale Ottewell Brandon Jaffe and Elaine S. Peritz, for the respondents Christine Ann Davidson and Eleanor McKay

Heard: February 25, 2021 by video conference

On appeal from the order of Justice Bernadette Dietrich of the Superior Court of Justice, dated March 11, 2020, with reasons reported at 2020 ONSC 1379, 79 C.B.R. (6th) 142 dismissing appeals from the order of Master May J. Jean dated September 16, 2019 and from the order of Master Janet E. Mills dated September 17, 2019.

Nordheimer J.A.:

[1] Dale Ottewell, a creditor of the bankrupt, appeals from the order of Justice Dietrich (“appeal judge”) that dismissed his appeals from the orders of Master Jean, and of Master Mills, each sitting as Registrars in Bankruptcy. Master Jean dismissed a motion by the appellant for leave to commence a proceeding under s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). Master Mills dismissed a motion by the appellant for leave to examine the bankrupt, and a number of individuals associated with the bankrupt, under s. 163(2) of the BIA. At the conclusion of the oral hearing of this appeal, the parties were advised that the appeal was dismissed for reasons to follow. I now provide those reasons.

[2] By way of brief background, the appellant is the former spouse of the bankrupt. While the bankruptcy proceedings were going on, there were concurrent family law proceedings underway between the appellant and the bankrupt. The issues raised here involve a house whose registered owner is the bankrupt’s mother but in which the bankrupt resides. The appellant sought to have the house included as an asset in the bankrupt’s estate, claiming that it is beneficially owned by the bankrupt. When the Trustee refused to pursue that claim, the appellant sought leave to commence his own proceeding for that relief. Meanwhile, however, the appellant had consented to an order in the family law proceedings which provided that the house “shall not form part of [his former spouse’s] property, assets or estate for any purpose.”

I: Is there an appeal as of right

[3] The first issue to be addressed is whether the appellant has a right of appeal from the order of the appeal judge in either of its aspects or whether he must obtain leave to appeal. That issue turns on the wording of s. 193 of the BIA which reads:

Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:

(a) if the point at issue involves future rights;

(b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;

(c) if the property involved in the appeal exceeds in value ten thousand dollars;

(d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and

(e) in any other case by leave of a judge of the Court of Appeal.

[4] The appellant contends that he has a right of appeal under any of s. 193 (a), (b) or (c) of the BIA. I do not agree that the appellant has a right of appeal regarding either aspect of the appeal judge’s order under s. 193 (a) or (b). Neither aspect of the order involves future rights as that expression has been defined in the case law. Future rights are future legal rights, not procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal: Re Ravelston Corp. (2005), 24 C.B.R. (5th) 256 (Ont. C.A.), at para. 18.

[5] Similarly, neither aspect of the order is likely to affect other cases of a similar nature under s. 193 (b). The existing case law establishes that s. 193 (b) “must concern ‘real disputes’ likely to affect other cases raising the same or similar issues in the same bankruptcy or receivership proceedings”: 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 35 C.B.R. (6th) 102, at para. 32.

[6] In terms of s. 193 (c), it does not apply to the aspect of the order regarding the examination of the bankrupt and others: see Enroute Imports Inc. (Re), 2016 ONCA 247, 35 C.B.R. (6th) 1, at para. 6. That aspect dealt with a strictly procedural matter that did not involve property at all. It dealt only with the examination rights available under the BIA. If the appellant wishes to appeal that aspect of the order, he requires leave under s. 193 (e).

[7] On that point, I would not grant leave to appeal. The proposed appeal does not satisfy any of the factors normally considered in granting leave to appeal. It does not raise any issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole; it is not prima facie meritorious, and it would unduly hinder the progress of the bankruptcy proceeding: Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617, at para. 29.

[8] The issue regarding any appeal of the aspect of the order dealing with the appellant’s motion seeking leave to proceed under s. 38 is more problematic, however. That aspect involves a proposed proceeding, the purpose of which is to seek to bring an asset, namely the house, into the bankrupt’s estate. The house has a value in excess of $200,000.

[9] There is an ongoing debate among provincial appellate courts regarding the proper scope of s. 193 (c). There are decisions suggesting that the section should be given a narrow interpretation. At the same time, there are other decisions that suggest that a broad view ought to be taken.

[10] Given the ultimate result in this case, a resolution of this issue is best left to another day. I will assume, for the purposes of this appeal, that the appellant has a right of appeal under s. 193 (c) from the s. 38 determination.

II: The appeal

[11] My reasons for the dismissal of the appeal differ in part from the courts below. In that regard, it is important to remember the distinction between the appellant’s personal status and his status as a creditor of the bankrupt.

[12] The family law order could not affect the Trustee’s rights to pursue any claim, including a claim that the house should be part of the bankrupt’s estate. The family law proceeding did not involve the Trustee and is not binding on the Trustee. In considering this issue, it is important to remember the nature of the relief that a creditor seeks under s. 38. It is worth reproducing the wording of ss.38(1) and (2), which read:

(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.

[13] As the section makes clear, what a creditor obtains by way of a request under the section is the right to pursue a proceeding that the Trustee refuses or neglects to take. That is why the creditor is given an assignment of the Trustee’s interest in the chose in action or subject matter of the proceeding under s. 38(2). The creditor is not pursuing a personal claim: see Re Zammit (1998), 3 C.B.R. (4th) 193 (Ont. Gen. Div.) at para. 7.

[14] This distinction is important to the proper application of the BIA. However, this concern does not alter the correctness of the result reached by the courts below. A request to commence a proceeding under s. 38 is not an absolute right. It is a discretionary remedy. It requires that the creditor show that there is some merit to the proposed claim. As Blair J. said in Re Jolub Construction Ltd. (1993), 21 C.B.R. (3d) 313, (Ont. Gen. Div.), at para. 19:

Without intending to introduce another phrase into the melee, a creditor must establish, in my opinion, that there is a sufficient case on the merits — as contemplated by the thrust of those tests outlined in earlier cases — to warrant the Court's approval to proceed, in the circumstances.

[15] The Master found that the appellant was attempting to do indirectly what he had expressly agreed not to do in the family law proceedings, that is, bring the house into his spouse’s (the bankrupt’s) assets. On appeal, the appeal judge said, at para. 33:

I find that Master Jean did not err in finding that the appellant failed to establish threshold merit to the proceeding in the face of the Vallee Order and that it would be inequitable to permit him to pursue an interest in the Property having consented to that Order. I also find that she did not err in declining to exercise her discretion to permit the appellant to step into the shoes of the Trustee to indirectly do what he had expressly agreed not to do. I find no error in principle or in law in her decision.

[16] There is no error in the appeal judge’s conclusion in this respect. The appellant has also failed to show that the Master’s exercise of her discretion under s. 38 was unreasonable.

[17] It is for these reasons that the appeal was dismissed. The respondents are entitled to their costs of the appeal. They have agreed on the costs of a motion that was heard by Coroza J.A. at $7,500. They do not agree on the costs of the appeal. I would fix those costs at $10,000 for a total costs award of $17,500 inclusive of disbursements and HST.

Released: March 2, 2021 “J.C.M” “I.V.B. Nordheimer J.A.” “I agree. J.C. MacPherson J.A.” “I agree. E.E. Gillese J.A.”