COURT FILE NO.: 251510/10
DATE: 20120720
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LEE-ANN PETTENUZZO, Estate Trustee of the late ANDRE-LYNN KINGSTON
Applicant/Plaintiff
– and –
JAMES CHARRETTE and SHARLA CHARRETTE
Respondent/Defendants
H. MacDonald, Counsel for the Applicant
G. Wasyliniuk, Counsel for the Respondents
HEARD: February 16, 2012
ELLIES, j.
decision on section 178 of the bankruptcy and insolvency act
and on costs
(CORRIGENDUM)
[1] In reasons for decision dated December 12, 2011[^1] I found in favour of the plaintiff (the "estate trustee") and held that the defendants (the "Charrettes") had not been given a gift of $25,000 by the late Andre-Lynn Kingston ("Lynn") just before she died, as they alleged. I ordered the Charrettes to pay the sum of $25,000 to the estate, together with prejudgment interest, and I invited submissions with respect to the issue of costs.
[2] However, because the Charrettes went bankrupt after this proceeding was commenced[^2], the order that I made is worthless unless the debt created by it survives the bankruptcy. The estate trustee, therefore, seeks an order that the debt now owed by the Charrettes is not discharged by their bankruptcy because it either:
a. arose out of fraud, misappropriation or defalcation while they were acting as fiduciaries; or
b. resulted from obtaining the money by false pretences or by fraudulent misrepresentation.
[3] For the following reasons, I find that the debt survives the bankruptcy and order that the Charrettes pay costs in the amount of $43,249.62.
Overview
[4] In her statement of claim, the estate trustee requested a declaration that the debt or liability owed by the Charrettes arose in the circumstances set out in sections 178(1)(d) and (e) of the Bankruptcy and Insolvency Act (the "BIA"), which read:
- (1) An order of discharge does not release the bankrupt from
(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity...;
(e) any debt or liability resulting from obtaining property by false pretences or fraudulent misrepresentation;
[5] I declined to make such an order at trial because the estate trustee made no argument nor did she submit any written material with respect to that request. At paragraph 107 of my earlier decision, I wrote:
In paragraph 1(c) of the statement of claim, the plaintiff also seeks a declaration that the $25,000 constituted a debt or a liability arising out of a fraud, embezzlement, misappropriation, et cetera. However, during the trial, no argument was made with respect to the issue of whether Mr. and Mrs. Charrette were acting as fiduciaries or with respect to the meaning of "false pretences" or "fraudulent misrepresentation" in section 178(1) of the Bankruptcy and Insolvency Act. Therefore, I leave to the trustee in bankruptcy or to another court, if necessary, the determination of these issues, based on the facts as I have found them.
[6] I later received correspondence from the estate trustee's counsel, requesting an opportunity to address the issues under section 178 of the BIA, which I granted. In his responding submissions, counsel for the Charrettes argues that the court was without jurisdiction (i.e. was functus) with respect to this matter or, in the alternative, that the facts as I found them do not permit a finding under either subsection of section 178. I reserved on the issue of jurisdiction and heard argument on the merits, following which I requested further written submissions from both parties on the issue of fiduciary duties. I also requested written submissions with respect to the issue of costs.
[7] I have now had an opportunity to consider the written submissions, for which I am grateful to both counsel.
Does the court have jurisdiction to consider the issues under section 178(1) of the BIA?
[8] Counsel for the Charrettes argues that I can only consider this matter further if there has been an error in the order made or in the decision upon which it is based. He relies on two cases from the Supreme Court of Canada, namely Paper Machinery Ltd. v. J.O. Ross Engineering Corp.[^3] and Chandler v. Alberta Association of Architects[^4].
[9] In my view, these cases stand for the proposition advanced on behalf of the estate trustee, namely, that until the judgment is issued and entered, this court has the jurisdiction to re-open the matter. In Chandler, Sopinka, J. wrote on behalf of the majority:[^5]
The general rule that a final decision of a court cannot be reopened derives from the decision of the English Court of Appeal in I Re St. Nazaire Co. (1879), 12 Ch. D. 88. The basis for it was that the power to rehear was transferred by the Judicature Acts to the appellate division. The rule applied only after the formal judgment had been drawn up, issued and entered, and was subject to two exceptions:
where there had been a slip in drawing it up, and,
where there was an error in expressing the manifest intention of the court. See Paper Machinery Ltd. v. J.O. Ross Engineering Corp., 1934 1 (SCC), [1934] S.C.R. 186. (emphasis added)
[10] As no formal order has yet been drawn up, I have jurisdiction to deal with the order requested under section 178.
[11] Even if a final order had been drawn up, issued, and entered, it is clear from my earlier decision that the declarations sought under section 178 were to be determined as a separate matter, based upon the facts as I found them. Therefore, no prejudice arises to the Charrettes by granting the plaintiff's request. They were aware from the date that they first had notice of these proceedings that an order under section 178 of the BIA would be sought. Further, no additional evidence is required in order for this court to consider the matter.
[12] I believe it is in the best interests of justice that this court exercise its jurisdiction to deal with this issue. Indeed, it is unlikely that any other court would be in as good a position as this one is to do so.
Did the debt or liability arise in circumstances referred to in s. 178(1)(d)?
[13] The Charrettes argue that two factual findings made by this court after trial now preclude a finding that they were acting in a fiduciary capacity, namely: (1) the finding that Lynn did not speak to them about the money; and (2) the finding that Darlene Cook could not remember if she told Mrs. Charrette why she wanted her to accompany her to the bank. In my view, neither factual finding affects the creation of a fiduciary duty.
[14] It is not necessary that a beneficiary communicate directly or even indirectly with a fiduciary in order to create a fiduciary duty. It is sufficient if the fiduciary is aware that the property in question is being held on behalf of the beneficiary and that the following things are true:
the fiduciary has scope for the exercise of some discretion or power;
the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and
the beneficiary is particularly vulnerable to or at the mercy of the fiduciary holding the discretion or power. [^6]
[15] All of these features were present in the case at bar. It was clear to Mrs. Charrette from the start that the money belonged to Lynn. Mrs. Charrette also knew that she was being asked to retain the funds until Lynn could instruct Darlene Cook as to what to do with them. That is why Mrs. Charrette brought them to the hospital and kept them there all night. Mr. Charrette was also made aware of these facts. In my view, therefore, the Charrettes were acting as fiduciaries at the time that they held the money.
[16] A failure on the part of a fiduciary to return funds held for the benefit of a beneficiary will constitute misappropriation. In the recent decision of Ieluzzi (Re)[^7], Master Short referred approvingly to the decision of the British Columbia Court of Appeal in Janco (Huppe) v. Vereecken[^8], in which the court found that the bankrupt became a fiduciary when his common law spouse turned money over to him to manage for her benefit. In Janco, the British Columbia Court of Appeal found that the common law husband had misappropriated the funds contrary to section 178(1)(d) of the BIA when he failed or refused to return them when requested to do so.
[17] The situation is similar in the present case. Failing to return the funds when requested to do so by Mrs. Cook constituted misappropriation by the Charrettes, in the circumstances contemplated by s.178(1)(d).
Did the debt or liability arise in circumstances referred to in s. 178(1)(e)?
[18] In argument, counsel for the estate relied heavily on section 178(1)(e). I have doubts as to whether it could be said in this case that the defendants obtained the money in question by any false pretence or fraudulent means. In my view, it might be said that the Charrettes retained the money under such circumstances. However, I need not decide that issue, given the finding made above that the conditions of section 178(1)(d) have been met.
Costs
[19] In my earlier decision, I awarded costs to the estate on a substantial indemnity basis. I also requested that counsel for the estate trustee separate the costs for the re-attendance on February 16, 2012 from the other costs claimed.
[20] The estate trustee's bill of costs on a substantial indemnity basis totals $51,367.01.
[21] As a first step in the process, I have examined the bill of costs to ensure that only those proceedings which are properly the subject of my costs award are reflected in the bill. Three items in the bill are not properly included, in my view.
[22] The first item is the costs claimed in connection with the application, in the amount of $3,436.88. Contrary to the submission made by counsel for the estate trustee, these were dealt with in the costs awarded by Tranmer, J. on October 18, 2010[^9] (see paragraph 8).
[23] The second item is the costs requested in connection with the respondent's motion to transfer the claim to the Small Claims Court, in the amount of $1,548. These costs should have been pursued either by bringing the motion back before the motion judge or by requesting an assessment under rule 58.07. This court is not in as good a position to assess these costs as either the motion judge or an assessment officer, before whom counsel may appear to give evidence and respond to questions. Nonetheless, given that either of these things could still be done at this point in time and the need for finality in this matter, I have reviewed the costs claimed in this regard and I find them to be reasonable. Further, I disagree with the submission made by counsel for the Charrettes that it was improper for the estate trustee not to bring the matter in the Small Claims Court. The Small Claims Court is not empowered to make a declaration under section 178 of the BIA, as this court is empowered to do.
[24] The third area of concern are the costs claimed in connection with the estate trustee's motion to continue following the Charrettes' bankruptcy. That relief was one of two main requests made in the motion brought before me, the other being a request for an order to strike the Charrettes' response. The request to continue was consented to by the Charrettes and by the trustee in bankruptcy, on certain conditions. The other relief requested was denied for reasons released by me on April 8, 2011[^10]. In those reasons, I awarded costs to the estate trustee, fixed in the amount of $2,000, in the cause (see paragraph 6). The amount requested in the present Bill is $3,157.88. Therefore, it must be reduced.
[25] Taking these things into account, the substantial indemnity costs claimed must be reduced by a total of $4,594.76.
[26] As the next step in the fixing of costs, I have reviewed the remaining items in the bill to determine if the amount claimed with respect to each is reasonable. In this regard, I have difficulty with the amount claimed with respect to "post-judgment clarification". I agree with the submission made by counsel for the Charrettes that the onus rested upon the estate trustee to address whether any debt found owing by the Charrettes survived their bankruptcy under s. 178. This was a major issue in the case. The court is not required to point out that a party has failed to address an important issue, either in evidence or in argument. Indeed, it might be said that the court should not come to the aid of one party or another by doing so. Had counsel for the estate trustee addressed the matter initially, certainly some of the effort later required would not have been necessary, including the writing of letters and the need to seek leave. For that reason, I would reduce the amount claimed in connection with this item from $10,022.63 to $6,500.
[27] I have reviewed the balance of the bill of costs, including the disbursements claimed, and I find all other items to be reasonable on an individual basis.
[28] The last step in the process involves an assessment of the reasonableness of the overall amount claimed, after adjustments. This is true even where substantial indemnity costs are awarded[^11]. The fact that the costs sought significantly exceed the amount claimed is not determinative[^12].
[29] The test is whether the amount sought is fair and reasonable, taking into account the factors referred to in rule 57.01. In my view, the sum of $43,249.62 (on a substantial indemnity basis) is both, for a trial of this length and a matter of this nature. Therefore, an order will go accordingly.
Ellies, J.
Released: 20120720
ONTARIO
SUPERIOR COURT OF JUSTICE
LEE-ANN PETTENUZZO, Estate Trustee of the late ANDRE-LYNN KINGSTON
– and –
JAMES CHARRETTE and
SHARLA CHARRETTE
decision on section 178 of the bankruptcy and insolvency act and on costs
Ellies, J.
Released: 20120720
[^1]: 2011 ONSC 7126; [2011] O.J. No. 5663. [^2]: The trustee in bankruptcy consented to an order granting leave to continue with the law suit. See paragraph 9 of my decision of December 12. [^3]: 1934 1 (SCC), [1934] S.C.R. 186. [^4]: 1989 41 (SCC), [1989] 2 S.C.R. 848. [^5]: At para. 19, 1989 41 (SCC), [1989] S.C.J. No. 102. [^6]: Per Wilson, J. in dissent in Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, and subsequently adopted by the majority of the Supreme Court of Canada in Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 34 (SCC), [1989] 2 S.C.R. 574. [^7]: [2012] O.J. No. 1036. [^8]: (1982), 1982 487 (BC CA), 44 C.B.R. (N.S.) 211, 40 B.C.L.R. 106. [^9]: 2010 ONSC 5739. [^10]: 2011 ONSC 2255 [^11]: MacKinnon v. Ontario Municipal Employees Retirement Board (2007), 2007 ONCA 874, 88 O.R. (3d) 269 (Ont. C.A.). [^12]: See A & A Steelseal Waterproofing Inc. v. Kalovski, 2010 ONSC 2652 (S.C.J.)