COURT OF APPEAL FOR ONTARIO

DATE: 20220713 DOCKET: C69594

Lauwers, Nordheimer and Zarnett JJ.A.

In the Matter of the Bankruptcy of Brian Wayne Flight of the City of London, in the County of Middlesex in the Province of Ontario

Counsel: Haddon Murray, for the appellants Adamson & Associates Inc. and John Adamson Tara Vasdani, for the respondents Brian Wayne Flight and Amber Nicole Flight Jacob Pollice and Jennifer L. Caruso, for the intervener the Superintendent of Bankruptcy

Heard: April 28, 2022

On appeal from the order of Justice Kelly C. Tranquilli of the Superior Court of Justice dated June 15, 2021, with reasons reported at 2021 ONSC 4278, 90 C.B.R. (6th) 54.

Zarnett J.A.:

INTRODUCTION

[1] Section 215 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) requires that permission of the court be obtained to bring an action against, among others, a trustee in bankruptcy “with respect to a report made under, or any action taken pursuant to, this Act”. This appeal [^1] concerns the type of lawsuit to which s. 215 of the BIA applies.

[2] The motion judge decided that the respondents did not require permission of the court, under s. 215 of the BIA, to bring an action against the appellant, John Adamson, related to the administration of four bankruptcies of the respondent Brian Wayne Flight. Mr. Adamson’s firm was the trustee in each bankruptcy. The motion judge held that the section did not apply because the action was against the trustee in a personal capacity and because it alleged omissions. She did not assess whether, if s. 215 did apply, permission to proceed with the action should be granted.

[3] For the reasons that follow, I would grant leave to appeal and set aside the order of the motion judge. Permission to bring the action under s. 215 is required. I would direct the matter back to the bankruptcy court to consider whether that permission should be granted.

[4] The motion judge erred in concluding that the capacity in which Mr. Adamson was sued made s. 215 inapplicable. An action does not fall outside of s. 215 because it names an individual rather than the corporate trustee as the defendant, where the action alleges that the individual owed the duties of a trustee and is liable as if he were the trustee. Nor does an action fall outside of s. 215 because the claim asserts that it is brought against the trustee in a personal capacity, where the gist of the claim is wrongdoing in the performance of the trustee’s role.

[5] The motion judge also erred in holding that an action that makes any allegation of an omission falls outside of s. 215. Although s. 215 does not apply to an action premised on the failure of a trustee to do an act specifically and expressly mandated by the BIA, that is not the core allegation in the respondents’ claim. Section 215 applies to the respondents’ action, which alleges common law wrongdoing in the performance of the trustee’s role, even if an aspect of that wrongdoing is described as an omission to act.

BACKGROUND

[6] Mr. Flight made assignments into bankruptcy on four occasions: in 2004, 2006, 2011, and 2016. The appellant Adamson and Associates Inc. (“Adamson Inc.”) was the trustee in respect of each of these bankruptcies. The appellant Mr. Adamson was the individual at Adamson Inc. with carriage of Mr. Flight’s bankruptcies.

[7] The total of the proven claims in the first three bankruptcies was $324,800. The total amount distributed to creditors of those bankruptcies was about $3,200. Proven claims in the fourth bankruptcy were $127,870.

[8] In 2018, during his fourth bankruptcy, Mr. Flight discovered that between 2003 and 2018, Julie LeBlanc – his former spouse, bookkeeper, and power of attorney – had misappropriated substantial sums from Mr. Flight’s business. Ultimately, Mr. Flight determined that the amount of the misappropriations was approximately $206,000.

[9] Mr. Flight was able to recover about $30,300 from Ms. LeBlanc, which he did not turn over to Adamson Inc. In April 2018, he complained to the Office of the Superintendent of Bankruptcy about the trustee’s failure to detect what Ms. LeBlanc had done. As a consequence of that complaint, the appellants learned of Ms. LeBlanc’s activities and the payments Mr. Flight recovered from her.

[10] Disputes then arose between the trustee and Mr. Flight concerning whether and on what terms he would be discharged from bankruptcy and how the payments from Ms. LeBlanc should be treated. In August 2019, Mr. Flight was granted a conditional discharge on terms that, if complied with, allowed him to receive an absolute discharge after twelve months. The trustee and Mr. Flight did not agree as to whether those conditions were met.

[11] In September 2019, Mr. Flight and his current spouse, the respondent Amber Nicole Flight, commenced an action against Mr. Adamson, seeking declaratory and monetary relief (the “Action”). The Action does not name, or refer to, Adamson Inc., but it treats Mr. Adamson as though he were the trustee. The central allegation in the Action is that Mr. Adamson, as the “Licensed Insolvency Trustee” for each of the bankruptcies, ought to have detected Ms. LeBlanc’s misappropriations and, once told about them, ought to have taken steps including suing Ms. LeBlanc. As Mr. Flight states in his affidavit: “At the heart of this action is the Trustee’s failure to detect, prevent, and once he became aware of it, to litigate, the theft and fraud committed by my former Accountant, Bookkeeper, and Power of Attorney, Julie LeBlanc”.

[12] Mr. Adamson, and Adamson Inc., objected to the Action on the basis that at the time of its commencement, (i) Mr. Flight had not been discharged from bankruptcy, and (ii) no permission was obtained under s. 215 of the BIA to bring the Action.

[13] Mr. Flight brought a motion, in his bankruptcy proceeding, seeking directions with respect to whether he had the right to commence the Action as an undischarged bankrupt and, if required, seeking leave to do so under s. 215 of the BIA.

[14] In September 2020, and before the motion for directions was heard, Mr. Flight launched, but did not proceed with, a motion for an absolute discharge. In October 2020, working with a different insolvency professional, he filed a Consumer Proposal pursuant to s. 66.11 of the BIA. It was accepted by Mr. Flight’s sole significant creditor in February 2021, and his bankruptcy was deemed annulled.

[15] Following acceptance of the Consumer Proposal, the motion judge heard the motion for directions with respect to the Action.

The Motion Judge’s Decision

[16] The motion judge, sitting in the bankruptcy court, determined that permission was not required under s. 215 to commence the Action. She expressly did not determine whether, if permission were required, it should be granted. She did not address whether Mr. Flight’s status as an undischarged bankrupt at the time the Action was started prevented him from bringing it.

[17] The motion judge described the Action as one seeking “a declaration that the defendant [Mr. Adamson] engaged in misfeasance, negligence, fraud and breach of fiduciary duty in his personal capacity, and that the defendant was unjustly enriched.” She described the claims in the Action as alleging a theft (by Ms. LeBlanc) that caused Mr. Flight’s repeated bankruptcies, and as alleging that Mr. Adamson was liable since the “defendant trustee ought to have detected this fraud in the administration of the four bankruptcies”. She described the Action as claiming damages flowing from Mr. Adamson’s alleged failure to: “take any meaningful action to address the alleged fraud and its impact on the fourth bankruptcy after its discovery”; “diligently commence an action against the former bookkeeper”; “investigate the fraud”; “adjust the plaintiff’s surplus income”; “recommend a consumer proposal in alternative to bankruptcy”; and “have the plaintiff promptly discharged from his fourth bankruptcy”.

[18] The motion judge gave two reasons for finding that the Action did not require permission under s. 215. First, in her view, actions against trustees in their personal capacity do not require permission. Second, actions that allege omissions do not require such permission.

[19] The motion judge stated:

There is authority to support the plaintiffs’ position that leave is not required where the trustee is being sued in its personal capacity: Canadian Glacier Beverage Corp. v. Barnes & Kissack Inc., Re 298157 Alberta Ltd., 2005 ABQB 941, Environmental Metal Works Ltd. v. Murray, Faber & Associates, 2013 ABQB 479. More particularly, the Supreme Court of Canada held that the leave provision under the BIA is not to be interpreted as though it applied to any action arising out of the administration of the estate. That is not the way the section is worded. To allege that the trustee made an act of omission is not with respect to a report made under or any action taken pursuant to the BIA: Mercure v. Marquette & Fils, [1977] 1 S.C.R. 547 at 551-552.

Analysis

[20] I begin by explaining why, although the appellants do not have an appeal as of right from the motion judge’s decision, I would grant leave to appeal. I then explain why, in my view, the motion judge’s interpretation of the scope of s. 215 was erroneous and that, on the proper interpretation of s. 215, permission to bring the Action is required. I explain why the issue of whether that permission should be granted should be returned to the bankruptcy court for determination. I also discuss where Mr. Flight’s status as an undischarged bankrupt at the time the Action was started factors into the analysis.

(1) Is the Appeal as of Right, and if Not, Should Leave to Appeal be Granted?

[21] Appeals to this court from orders made under the BIA are governed by s. 193, which provides:

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.

[22] The appellants describe their appeal as having two aspects – one concerning the decision of the motion judge about whether s. 215 of the BIA applied to the Action, and the other concerning the failure of the motion judge to address the question of Mr. Flight’s status to commence an action as (at the time) an undischarged bankrupt. As I explain, only the first aspect controls whether the appellants have an appeal as of right.

[23] The appellants argue that the appeal may be brought as of right because either s. 193(b) or s. 193(c) applies to the decision concerning whether permission under s. 215 of the BIA was required. I agree with the respondents that neither is applicable.

[24] Section 193(b) applies only where the order sought to be appealed is likely to affect other cases in the same bankruptcy proceedings: 2403177 Ontario Inc. v. Bending Lake Iron Group Limited, 2016 ONCA 225, 396 D.L.R. (4th) 635, at para. 32. There are no other cases in Mr. Flight’s bankruptcy that would be affected by the decision about the applicability of s. 215. The appellants’ argument that the decision will have precedential value for bankruptcy law generally does not bring the proposed appeal within s. 193(b).

[25] Section 193(c) does not apply to orders that refuse permission to proceed with an action: see Romspen Investment Corporation v. Courtice Auto Wreckers Limited, 2017 ONCA 301, 138 O.R. (3d) 373, at paras. 21-22, leave to appeal refused, [2017] S.C.C.A. No. 238. All the more so, this provision does not apply to an order determining that no permission to sue is required. Such an order does not decide the merits of the proceeding; it simply decides that the BIA screening process is inapplicable, leaving the merits to be determined in the forum in which the action is brought. Orders that are procedural in nature do not come within s. 193(c): Bending Lake, at para. 53.

[26] In oral argument, the appellants submitted that, because an aspect of the appeal concerns the status of an undischarged bankrupt to sue, the decision should be appealable without leave under s. 193(b) because it would impact other proceedings Mr. Flight commenced before his bankruptcy was deemed annulled. I do not accept that this changes the analysis. In the context of a motion for directions in a bankruptcy proceeding, the motion judge could only properly reach the status to sue issue if she decided that s. 215 was applicable and thus had to decide whether the Action had sufficient merit to be granted permission to proceed. If s. 215 was not applicable, then the merits of the Action, including the capacity of a plaintiff to commence it, are matters to be decided according to the procedures governing the Action itself, not as a freestanding bankruptcy court determination.

[27] I would, however, grant leave to appeal under s. 193(e) because the proposed appeal, which relates to the proper scope of s. 215 of the BIA, meets the test for leave to appeal. It (a) raises an issue – the circumstances in which a trustee can be sued without leave of the court – that is of general importance to the practice in bankruptcy/insolvency matters; (b) is prima facie meritorious; and (c) would not unduly hinder the progress of the bankruptcy proceedings: Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617, at para. 29.

(2) Does s. 215 Apply to the Action?

[28] As noted above, the motion judge found that s. 215 did not apply because “the trustee is being sued in its personal capacity” and because the Action alleges omissions. In order to explain why, in my view, the motion judge erred in these findings, I first examine the nature of the allegations in the Action and then turn to the text, context, and purpose of s. 215.

(a) The Nature of the Action

[29] The Action names Mr. Adamson as the only defendant. The amended statement of claim seeks a number of declarations based on common law causes of action including that “the Defendant engaged in misfeasance, negligence, fraud, and breach of fiduciary duty”. It asserts that he did so “in a personal capacity” but does not further explain that reference. It seeks damages, including damages for Ms. Flight under the Family Law Act, R.S.O. 1990, c. F.3.

[30] Although the claim is lengthy, it is clear that at its core, it is rooted in an alleged relationship between Mr. Flight, on the one hand, and Mr. Adamson in his role as trustee in Mr. Flight’s bankruptcies on the other. The statement of claim pleads Mr. Flight’s bankruptcies, and although it does not name or refer to Adamson Inc., which was actually the trustee in the bankruptcies, it describes Mr. Adamson in equivalent terms. It states that: “The Defendant, John Adamson … is a Licensed Insolvency Trustee, licensed to practice insolvency … and during each of Mr. Flight’s four (4) bankruptcies … was Mr. Flight’s acting Licensed Insolvency Trustee”. [^2]

[31] After describing Ms. LeBlanc’s alleged defalcations and their discovery, the claim alleges that Mr. Adamson’s wrongdoing consisted of the failure to: (i) correct records and reports; (ii) investigate Ms. LeBlanc’s fraud; (iii) have Mr. Flight promptly discharged from bankruptcy; and (iv) sue Ms. LeBlanc.

[32] For the claim in negligence, the Action alleges that Mr. Adamson owed a duty of care to the respondents because of his role as the “Licensed Insolvency Trustee” in each of the bankruptcies and was negligent in that role. It alleges among other things, that:

[A]s the acting Licensed Insolvency Trustee, the Defendant owed a duty to the Plaintiffs to administer Mr. Flight’s bankruptcy and prior bankruptcies diligently, and with due regard for [the Flights’] livelihood, and Mr. Flight’s finances.

As the only individual with the ability to administer Mr. Flight’s assets and his estate, the Defendant was sufficiently proximate to Mr. Flight to discover the theft, and moreover, to prosecute Ms. LeBlanc for it.

Furthermore, as the acting Licensed Insolvency Trustee, the Defendant was entrusted with administering Mr. Flight’s estate in the most financially reasonable, and expeditious fashion.

Finally, the Defendant remained the only individual capable of prosecuting Ms. LeBlanc, of discharging Mr. Flight, and of initiating a Consumer Proposal, from 2004-2020.

The Defendant owed a duty to perform his duties in a timely manner and to carry out his functions with competence, integrity, honesty, and due care in accordance with paragraph 36 of the Trustee’s Code of Ethics. [Emphasis in original.]

[33] The claim grounded in “misfeasance” is also premised on the role and power Mr. Adamson is alleged to have had as trustee. It asserts:

The Defendant’s position as a public officer exercising his power as the Licensed Insolvency Trustee for Mr. Flight, and his knowledge that he as Licensed Insolvency Trustee to Mr. Flight had the power to have Mr. Flight discharged, to investigate the theft and fraud of Julie LeBlanc, to correct the falsified records, and to file a Consumer Proposal, was absolute, and the Defendant failed to exercise these powers.

[34] The claims in fraud and breach of fiduciary duty have a similar grounding. They consist of allegations of knowingly false representations in reports to the court, creditors, and the Canada Revenue Agency (“CRA”). The claim asserts that as “the Licensed Insolvency Trustee for Mr. Flight, the Defendant was in a fiduciary relationship with Mr. Flight, and breached this relationship when he failed to act in good faith, and to place Mr. Flight’s interests first.”

[35] In summary, the Action sues Mr. Adamson as trustee. The claims against him, although common law causes of action, are grounded in, and alleged to flow from, his role and responsibilities as trustee.

(b) Section 215 of the BIA

[36] Section 215 of the BIA states: “Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to any report made under, or any action taken pursuant to, this Act.”

[37] The Supreme Court explained the context in which s. 215 is to be understood, its purpose, and the test that governs whether permission to sue a trustee should be granted, in GMAC Commercial Credit Corporation – Canada v. T.C.T. Logistics Inc., 2006 SCC 35, [2006] 2 S.C.R. 123.

[38] In general, “the duty of the trustee is to protect both the creditors and the public interest in the proper administration of the bankrupt estate”: GMAC, at para. 58. But the BIA does not, except for specific matters, confer immunity from suit on a trustee. Instead, s. 215 serves a gatekeeping function. It allows the bankruptcy court to screen out or prevent actions that are frivolous or vexatious or that do not disclose a cause of action, or for which there is no factual support, so that the trustee need not respond to them. This avoids the cost and distraction of litigation that would make the bankruptcy process unworkable. Section 215 sets a low threshold of review for the bankruptcy court, which does not involve a final determination of the merits of a claim. Rather, the section focuses on screening out only “manifestly unmeritorious claims”, ensuring that legitimate claims can be advanced for adjudication in forums, other than the bankruptcy court, that have jurisdiction over the merits of the claim: GMAC, at paras. 55-61, 66.

(c) Is the Action Against Mr. Adamson in a Personal Capacity and Therefore Outside the Scope of s. 215 of the BIA?

[39] The appellants argue that there is uncertainty about what the motion judge meant when she found that the Action did not require leave under s. 215 of the BIA because it was against the trustee in a personal capacity. They submit that if she meant that s. 215 was not applicable because Mr. Adamson, rather than Adamson Inc., was named as defendant, then she erred.

[40] The appellants submit that when an individual who is a director, officer, or employee of a corporate trustee is sued in relation to the performance of the trustee’s duties, s. 215 is applicable just as it would be if the corporate trustee was sued. They rely on Braich (Re), 2007 BCSC 1604, 41 C.B.R. (5th) 260, a decision of the Supreme Court of British Columbia that stated, at paras. 35-36:

The object of s. 215 is to ensure that the bankruptcy process is not rendered unworkable by the Trustee being hindered by actual or threatened vexatious lawsuits in connection with the administration of the bankruptcy.

In Canada many trustees in bankruptcy are corporations. The BIA imposes on bankruptcy trustees many duties, some of which have been described above. A corporate entity can only discharge its duties through its directors, officers and employees. If the scope of s. 215 were limited to protecting only the corporate trustee in bankruptcy itself, then the trustee’s directors, officers and employees who execute the trustee’s obligations under the BIA could be subjected to vexatious lawsuits without leave of the bankruptcy court. Such a result cannot have been the intention of Parliament when it passed the statute. Such a restriction would undermine the entire purpose of s. 215 as consistently articulated by the courts.

See also Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra, Bankruptcy and Insolvency Law of Canada, loose-leaf (2022-Rel. 6), 4th ed. (Toronto: Thomson Reuters, 2009), at para. 10-6.

[41] I agree with the view expressed in Braich. Section 215 applies when an action alleges that the individual was the trustee and the alleged wrongdoing is predicated on the individual having the powers and responsibilities of the trustee.

[42] However, it is not clear that the motion judge was relying on the distinction between Mr. Adamson and Adamson Inc. when she referred to the Action as having been brought against the trustee in its personal capacity. She nowhere makes that distinction, and the distinction is not made in the amended statement of claim in the Action. The motion judge analysed the claim as one against the trustee, and the claim itself refers to Mr. Adamson as though he was the trustee.

[43] As illuminated by the cases she cited, the motion judge might have been relying on a different distinction, one that juxtaposes an action against a trustee in a representative capacity with one complaining that the trustee’s conduct was in a personal capacity. The distinction is made in a case referred to by the motion judge, Environmental Metal Works Ltd. v. Murray, Faber & Associates Inc., 2013 ABQB 479, 568 A.R. 198, at para. 48, in these terms:

Had the legislature not enacted s. 215, the bankrupt’s creditors would have the right to commence an action and obtain a judgment against the trustee in its representative capacity for actions taken pursuant to the BIA. Such creditors would thereby subvert the bankruptcy process by suing the trustee as representative instead of proving their claims in bankruptcy. Therefore, a plaintiff must only apply for leave when suing the trustee in its representative capacity not when suing the trustee in its personal capacity. [Emphasis added.]

[44] With respect, I doubt the analytical utility of this distinction in identifying what s. 215 covers.

[45] Section 215 requires a relationship between the substance of the action and the role of the defendant as trustee. The text of the section specifies that it applies to an action “with respect to any report made under, or any action taken pursuant to, this Act”. The words “with respect to” connote the broadest possible connection between two subject matters: R. v. Nowegijick, [1983] 1 S.C.R. 29, at p. 39; R. v. Penunsi, 2019 SCC 39, [2019] 3 S.C.R. 91, at para. 41. And the section clearly contemplates that in the course of an “action taken pursuant to” the BIA, an actionable wrong may be committed; otherwise, there would be no point in providing that the court may grant permission to bring such an action.

[46] The phrase “suing the trustee in its personal capacity” is intended to describe an action where the required connection is lacking, while the phrase “suing the trustee in its representative capacity” is intended to describe an action where the required connection is made. The problem is that the phrases simply reflect a conclusion without explaining how that conclusion is reached.

[47] The central question in deciding whether s. 215 applies is whether the connection contemplated by the section is present, and this question is answered by examining the relationship between the alleged wrongdoing complained of in the Action and the role of a trustee. Neither the descriptive tags applied to the causes of action, such as negligence or breach of fiduciary duty, nor the assertion in the statement of claim that those causes of action are advanced against Mr. Adamson in a personal capacity are determinative.

[48] Here, Mr. Adamson’s alleged involvement in the trustee’s administration of Mr. Flight’s bankruptcies forms the basis of the negligence claim. It is the basis on which Mr. Adamson is alleged to have owed a duty to the respondents, and it sets the standard of care he is alleged to have breached. It undergirds the fiduciary duty claim, as it forms the basis on which he is alleged to have owed, and breached, his fiduciary duties. Each of his alleged failures is of something he is said to have been required to do, and failed to do, and in some cases had the sole power to do, as trustee. The misfeasance alleged is misfeasance in his role as trustee. Even the allegation of fraud is in respect of statements made to creditors, the court, and the CRA in his role as trustee.

[49] Where a person sued was involved in the acts complained of as a trustee in a bankruptcy, is alleged to have been performing duties incidental to the administration of the estate, and is alleged to have owed the plaintiff duties as a trustee, the claim falls within s. 215: Grimanis v. Harris & Partners Inc., at paras. 31-34, per Morawetz J. That is the situation here.

[50] It follows that the motion judge erred in finding that because the Action alleged that Mr. Adamson was sued in “his personal capacity”, the Action was outside the scope of s. 215.

(d) Does an Action Complaining of Omissions Fall Outside of s. 215?

[51] The other basis of the motion judge’s conclusion was that an action alleging omissions falls outside s. 215. In support of this proposition, she cited the Supreme Court of Canada’s decision in Mercure v. Marquette & Fils Inc., [1977] 1 S.C.R. 547. Mercure dealt with a claim against a trustee who was specifically required by the BIA at the time to insure the debtor’s property but did not do so.

[52] In holding that permission was not required to sue the trustee for the consequences of that omission under the predecessor to s. 215, the Supreme Court stated, at pp. 551-52:

The Court of Appeal, in the words of Salvas J., rejects this conclusion [that permission under s. 171, which is now s. 215 of the BIA, was required] for reasons I find entirely acceptable (at p. 577):

[TRANSLATION] Plaintiff does not complain of ‘any report made under, or any action taken pursuant to, the provisions of this Act’. On the contrary, it blames the trustee for not having taken action expressly required by the Act (s. 9(1)), that of insuring the debtor’s buildings against fire. It seems obvious to me that s. 171, the wording of which does not lend itself to misinterpretation, cannot apply in this case.

I would add only this: appellant asks this Court to read s. 171 as if any action arising out of his administration came under the provisions of this section. To be more precise, he asks the Court to find that leave of the Court is a prerequisite whenever an action is brought against a trustee by reason of his fault, whether this be an act of omission or commission. This is not the way in which the legislation is worded, however. Since the legislator used a much more restrictive wording in s. 171, it is not possible to come to any conclusion other than the one reached by the Court of Appeal.

[53] The parties disagree on the reach of the decision in Mercure. The respondents argue that the reasoning in Mercure extends beyond the particular scenario that was in issue – in which the trustee had failed to do something the BIA expressly required – and implies that if the claim is for any omission to act, then s. 215 does not apply. Because the Action alleges a number of failures by Mr. Adamson as trustee – to detect, prevent, and litigate about Ms. LeBlanc’s misappropriations – it therefore comes within this extended reading of Mercure. This is the interpretation the motion judge seems to have applied.

[54] The appellants, supported by the intervener, argue that Mercure applies, and that an action is outside of s. 215, only where the gist of the action is the omission to do something expressly and specifically required by the BIA. They submit that Mercure should not be read so broadly as to take every claim which asserts any kind of an omission outside of s. 215. Here, the gist of the Action is failures to act which allegedly give rise to common law claims, rather than failures to do something specifically and expressly required by the BIA.

[55] I agree with the argument of the appellants and the intervener on this point.

[56] Section 215 contemplates that in the course of making a report under, or taking an action pursuant to, the BIA, a trustee might commit an actionable wrong; indeed, it contemplates wrongs that would be litigated in civil courts. Most civil claims involve the defendant having failed, in some way, to do what was required – for example, by failing to fulfill a contract, meet a standard of care, fulfill a fiduciary duty, tell the full truth, or correct a misstatement. In a civil claim, what was done by the defendant is often criticized by comparing it to what should have been, but was not, done. Doing the wrong thing and omitting to do the right thing can be two ways of describing the same complaint.

[57] The extended reading of Mercure advocated by the respondents, beyond the specific circumstance Mercure addressed, would therefore put any claim that could be characterized as asserting some omission as part of the wrongdoing outside of the application of s. 215, even if the omission does not relate to something specifically and expressly required by the BIA. Such an interpretation would rob s. 215 of its screening function for such claims, and subject trustees to the type of claims it is designed to weed out. This would be inconsistent with the description of the section’s gatekeeping role in GMAC, which analyzed s. 215 in light of its context and purpose. Nor is it possible to reconcile this extended reading with many decisions that have applied s. 215 to actions in which the claims could be seen as asserting, in whole or in part, some omission on the part of the trustee: see, for example, The Bank of Nova Scotia v. David Allin, 2013 ONSC 7937, 12 C.B.R. (6th) 315 (in which it was alleged that a trustee failed to provide notice of a proposal, sale, or bankruptcy to a creditor), and Society of Composers, Authors and Music Publishers of Canada v. Armitage (2000), 50 O.R. (3d) 688 (C.A.) (in which it was alleged, in the underlying application for permission under s. 215, that the trustee failed to receive payments for post-proposal creditors and to remit them to these creditors in breach of the trustee’s duty to do so).

[58] In my view, the extended reading of Mercure is not required by the decision itself, which was addressing a specific scenario. While a trustee who fails to do something expressly required by the BIA is not acting “pursuant to” the BIA within the meaning of s. 215, nothing in the language of s. 215 requires giving similar effect to other kinds of alleged omissions. An action can be in relation to anything done pursuant to the BIA, even if it involves an alleged omission in the course of acting pursuant to the BIA that is said to make the trustee’s performance of its role under the BIA wrongful and therefore actionable.

[59] The central omissions asserted by the respondents in the Action – that Mr. Adamson failed to detect or prevent Ms. LeBlanc’s misappropriations or take the right steps as a consequence of learning about them – are not omissions to do things specifically and expressly required by the BIA akin to the duty to insure the debtor’s property in Mercure. The omissions are asserted as breaches of common law duties arising from the role of trustee, making aspects of the performance of the trustee role wrongful and actionable. Section 215 therefore applies.

[60] The respondents also refer, in their factum, to actions they claim the trustee failed to take that are required by various provisions of the BIA, such as an obligation under s. 21 to verify the bankrupt’s statement of affairs. However, whether the Action falls within s. 215 should be assessed on the basis of the core claims in the statement of claim, not claims that are “incidental to the main complaint”: see Mpampas v. Schwartz Levitsky Feldman Inc., 2008 ONCA 581, at para 4; World Class Bakers Corporation, Re, at para 20. Mr. Flight described the allegations of the failure to detect, prevent, and litigate Ms. LeBlanc’s fraud as being at the heart of the Action. I agree with that assessment.

[61] In my view, s. 215 applies to the Action, and the motion judge erred in concluding otherwise.

(3) Should the Matter be Returned to the Bankruptcy Court to Determine Whether Permission to Sue Should be Granted?

[62] The motion judge explicitly declined to express her opinion as to whether, if she had decided s. 215 was applicable, she would have granted permission to bring the Action.

[63] The appropriate disposition is to return the matter to the bankruptcy court to determine whether leave under s. 215 should be granted. I reach this conclusion for the following reasons.

[64] The appellants argue that the Action is a nullity since it was commenced while Mr. Flight was an undischarged bankrupt. Although raised as a freestanding issue by the appellants, as I have indicated above, this issue is properly considered on the question of whether permission to proceed with the Action should be granted.

[65] The appellants submit that the conclusion must be that Mr. Flight could not commence the Action while an undischarged bankrupt, and that this is an incurable defect despite the subsequent annulment of his bankruptcy. They rely on the provisions of the BIA that a bankrupt ceases to have capacity to deal with their property upon bankruptcy (under s. 71 of the BIA) and that “property” is defined (under s. 2 of the BIA) to include “things in action”, which encompasses rights to sue, as well as Mr. Flight’s own assertions that only the trustee could sue Ms. LeBlanc for her alleged wrongdoing.

[66] None of the authorities cited by the appellants, however, expressly deal with the ability of an undischarged bankrupt to sue the trustee. It is one thing to say that, as against a third party, the bankrupt has no capacity to bring an action because only the trustee can. Without deciding the question, I simply note that it may be another thing to make this assertion where the claim is against the trustee itself.

[67] Re New Alger Mines Limited (1986), 54 O.R. (2d) 562 (C.A.), leave to appeal refused, [1986] S.C.C.A. No. 201, involved an action by the bankrupt against (among others) the trustee in bankruptcy. The action alleged wrongdoing that led to the occurrence of the bankruptcy and negligence of the trustee in the administration of the bankruptcy. The action was commenced without permission first being obtained under what is now s. 215 of the BIA.

[68] This court upheld the decision of the bankruptcy judge, who found that the action was not frivolous or vexatious and that it should be given retrospective (nunc pro tunc) permission to proceed under what is now s. 215 to avoid the consequence of a limitation period having expired between the date the action was started and the date permission was obtained: at pp. 565, 570-71.

[69] New Alger is frequently cited on the question of when it is appropriate to grant s. 215 permission retrospectively, but it cannot be overlooked that this court decided that permission was appropriate for an action by a bankrupt against a trustee for wrongdoing leading to a bankruptcy and in the administration of the bankrupt estate. Although the decision of the bankruptcy judge quoted in this court’s decision is brief, it was upheld and there is no suggestion in this court’s decision that the bankrupt was without capacity to assert the claims in the action.

[70] Because the motion judge did not express a view on the issue, we do not have the benefit of a first instance analysis of the legal questions involved, including whether Mr. Flight’s claim, or any aspect of it, arguably fits within a category of case in which a bankrupt will be permitted to sue a trustee for the way the bankruptcy occurred and was administered despite initially failing to seek leave, and whether, if it does, it has the required factual support. We do not have the benefit of any findings of fact on disputed matters, such as whether there is a viable assertion that Mr. Flight (rather than his creditors) would have been financially better off if the trustee had sued Ms. LeBlanc earlier [^3], given the amount and timing of the alleged misappropriations, the amounts owed to creditors in each bankruptcy, the value of lost opportunities to avoid any of the bankruptcies or to exit from them earlier, and so on. Whether a cause of action has factual support is a critical part of the GMAC enquiry: GMAC, at para. 59. [^4]

Disposition

[71] In light of the foregoing, I would grant leave to appeal, allow the appeal, and return the matter to the bankruptcy court to determine whether the respondents should be granted permission to sue Mr. Adamson. The appellants are entitled to the costs of the appeal, fixed in the amount of $13,000, inclusive of disbursements and applicable taxes. No costs are awarded for or against the intervener.

Released: July 13, 2022 “PDL”

“B. Zarnett J.A.”

“I agree. P. Lauwers J.A.”

“I agree. I.V.B. Nordheimer J.A.”

[^1]: The appellants also seek leave to appeal, if required. [^2]: “Licensed Insolvency Trustee” is a term used by the Office of the Superintendent of Bankruptcy to identify a trustee holding a valid licence issued by the Superintendent under s. 13 of the BIA. [^3]: Adamson Inc. commenced an action against Ms. LeBlanc on September 11, 2020. [^4]: In highlighting these matters, I am not to be taken as limiting what should be considered on the question of whether permission to sue should be granted. These comments simply respond to the specific matters that were raised in argument.