SUPERIOR COURT OF JUSTICE - ONTARIO

IN BANKRUPTCY

COURT FILE NO.: 31-1362614
DATE: 20130121

RE: IN THE MATTER OF THE BANKRUPTCY OF IWHL INC. OF THE CITY OF TORONTO IN THE PROVINCE OF ONTARIO

BEFORE: MESBUR J.

COUNSEL:
C. Francis, for the Trustee

C. Chang, for the creditor New Solutions Financial Corporation

Adrian Donnelley, President and CEO of Dart Supply Chain Solutions, with the assistance of Gord Steventon, a principal of 1078570 Ontario Limited operating as Dart Logistics

HEARD: January 11, 2013

E N D O R S E M E N T

Nature of the motion:

1The Trustee in Bankruptcy of IWHL Inc. moves for the court’s advice and direction, and in particular, for an order expunging all claims of 1078570 Ontario Limited operating as Dart Logistics (1078570), Dart Supply Chain Solutions Inc. (Dart) and NFM Investments Corp. (NFM), an order declaring they are not creditors in the estate of IWHL, and an order prohibiting them, or anyone affiliated with them, including NFM’s Trustee in bankruptcy, from filing any further proofs of claim in this bankruptcy.

Some history:

2The bankrupt, IWHL was formerly in receivership. In September of 2011 I heard a motion in the receivership to approve a proposed settlement between IWHL and one of its creditors/stakeholders, TTR. I approved the settlement, which resulted in $1 million being paid to the Receiver for distribution in the receivership. A portion of the money was paid out in the receivership proceedings, the Receiver’s activities were approved, and its fees approved and paid. The Receiver was then discharged. There was a surplus of about $750,000 in the receivership. It was paid to the Trustee in the IWHL bankruptcy, to be distributed in this estate. Segal & Partners Inc. was IWHL’s Receiver, and is also its Trustee in Bankruptcy.

3In my reasons of September 2011 in the receivership¹ I set out the convoluted and confusing history of IWHL and other entities, namely Wheels Holdco Inc., New Solutions Financial Corporation, NFM, Dart and 1078570. I will not repeat them here.

4Once the remaining funds from the settlement came into the IWHL bankruptcy, the Trustee took steps to deal with the proofs of claim. Adrian Donnelley, who is the president and CEO of Dart, filed a proof of claim on behalf of 1078570 in the amount of $1.2 million, a proof of claim on behalf of Dart in the amount of $189,000 and a proof of claim on behalf of NFM in the amount of $600,000.

5The Trustee, acting on the instructions of the inspector of the estate, disallowed each of the claims. As required by the Bankruptcy and Insolvency Act it sent notices of disallowance to each of Dart, 1078570 and NFM. Each disallowance set out in detail the reasons the claims were being disallowed.²

6The Trustee disallowed 1078570’s claim because:

a) The proof of claim was not properly filed with the Trustee;

b) There was no Schedule “A” attached to the proof of claim;

c) 1078570 did not advance $1,200,000 or any other amount to IWHL;

d) IWHL borrowed $1.2 million from New Solutions and advanced this amount to 1078570, making 1078570 indebted to IWHL, not the other way around.³

7The Trustee disallowed Dart’s claim because:

a) Schedule “A” to the proof of claim was inadequate and failed to particularize or evidence the claim;

b) IWHL was not indebted to Dart at the date of bankruptcy.⁴

8The Trustee disallowed NFM’s claim because:

a) The claim was filed by Andrew Wong, a purported director of NFM. NFM is bankrupt and the claim, if any, vested exclusively in Kunjar Sharma & Associates Inc. in its capacity as trustee in bankruptcy of NFM;

b) Sharma has not filed a proof of claim on behalf of NFM;

c) The documents attached as Schedule “A” to the proof of claim do not support the claim filed by NFM;

d) The sum of $600,000 referenced in the documents attached to Schedule “A” represent an amount which was payable by IWHL to Wheels Holdco Inc. (Wheels) under the terms of a Share Purchase Agreement between NFM and Wheels;

e) Payment of the $600,000 from IWHL to Wheels was financed by a loan from New Solutions to IWHL;

f) NFM did not advance any funds to IWHL for the purpose of making this payment;

g) The advance of $600,000 forms part of a proof of claim filed by New Solutions, which has been accepted by the Trustee. Any claim by NFM violates the rule against double proofs of claim;

h) Alternatively, if IWHL repaid the $600,000 advance to New Solutions, then IWHL owes nothing further on account of this advance, either to New Solutions of NFM;

i) To the extent the funds New Solutions advance to IWHL for payment to Wheels could be construed as having been notionally advanced to NFM for the purpose of making the payment to Wheels, then NFM would be indebted to IWHL for the same amount, and set-off would apply.⁵

9The BIA provides that a Trustee’s disallowance of a claim is final and binding unless “within a thirty day period after the service of the notice referred to in subsection (3) or such further time as the court may on application made within that period allow, the person to whom the notice was provided appeals from the trustee’s decision to the court in accordance with the General Rules.”⁶.

10On the last day before the disallowance became final and binding, the Trustee’s counsel received a motion record titled: “Appeal from Disallowance of Claim”. The appellants are described as “Dart Supply Chain Solutions Inc., 1078570 Ontario Ltd, and NFM Investment Corp.” The motion stated it was to be scheduled “on a date to be set”, and also sought an order approving the claims of the appellants, and for a further order “expunging the claims of the following creditors Train Trailers Rentals Limited, Wheels, PowerTrain Resources, Trailcon Trailers Inc, and Hazco Services Inc.

11Trustee’s counsel, Ms. Francis, immediately contacted Mr. Quance, whose name appeared on the notice of appeal as counsel for “the Defendants, Dart Supply Chain Solutions Inc., 1078570 Ontario Ltd., and …..”. Trustee’s counsel asked for evidence the appeal had been filed with the court, evidence that the appellants had served the parties whose proofs of claim they wished to expunge, and evidence of Mr. Quance’s authority to act on behalf of NFM, a bankrupt.⁷

12Mr. Quance did not reply. Ms. Francis followed up the next day, asking for confirmation Mr. Quance had received her email from the day before.

13Ms. Francis emailed Mr. Quance a second time on May 29, asking for confirmation the appeal record had been filed. Mr. Quance replied, saying “thank you … am following up …”

14Two days later Ms. Francis emailed Mr. Quance again. She asked for a response to her earlier communications, saying she had been unable to find any record the appeal had been filed with the court. There was no response.

15On June 25 Mr. Donnelly wrote to Ms. Francis saying:

I understand that you are representing the Trustee of IWHL, Inc. as counsel. I have attached an electronic copy of the claim of NFM Investment Corp that was sent to Segal & Partners who are the Trustee of IWHL, INC. Please add this to the register of creditors of IWHL. Thank you.

16The proof of claim Mr. Donnelly attached to his email was stated to be the proof of claim of NFM. It was in the sum of $1,989,000 -- coincidentally the aggregate of the three claims the Trustee had formerly disallowed.

17On July 23, Ms. Francis wrote to Mr. Quance again. In her letter, she outlined all her prior correspondence with him. She also mentioned that on June 25, 2012 Mr. Donnelly had sent her a new proof of claim, purportedly on behalf of NFM. She raised various questions about this new proof of claim, and asked Mr. Quance for a response to them. He replied the same day, saying his firm was not retained in relation to the new proof of claim, and Ms. Francis should deal directly with Mr. Donnelly.

18She did. On July 23 Ms. Francis, on behalf of the Trustee, wrote to Mr. Donnelly, raising the same questions about the new proof of claim she had posed to Mr. Quance. There was no response.

19On July 31 Ms. Francis followed up with another email to Mr. Donnelly, requesting a response to her questions about the new proof of claim. Mr. Gord Steventon, a principal of 1078570, replied to this letter on Mr. Donnelly’s behalf, advising Mr. Donnelly was out of the office for the next week. He asked that Ms. Francis put her request “in writing.”

20Ms. Francis asked what he meant. Mr. Steventon responded that he was referring to “a letter format”.

21Accordingly, Ms. Francis sent her request for information in letter format on August 7, 2012. Mr. Donnelly’s response was to ask Ms. Francis in what capacity she was posing her questions, since Segal & Partners was the Trustee of IWHL’s estate.

22Ms. Francis responded, reminding Mr. Donnelly that he had sent the new proof of claim to her, in her capacity as counsel for the estate. She confirmed that she was asking questions in that capacity. She set out her questions again.

23Mr. Donnelly responded on August 10, saying: “now that your role has been clarified, I will respond to your questions in a reasonable time.”

24Since no response was forthcoming, Ms. Francis emailed Mr. Donnelly on August 27, stating her position that he had had more than a reasonable period of time to respond to the questions she had been posing since June. She said: “If we do not receive satisfactory responses by the end of the week, we will proceed on the assumption that you do not intend to respond.”

25Mr. Donnelly did not respond. The Trustee then launched this motion. In support of the motion, the Trustee filed its Second Report in the Bankruptcy of IWHL Inc. In it, the Trustee sets out its position regarding the disallowed proofs of claim, and the new proof of claim.

26The Trustee served its motion on Mr. Quance, as solicitor of record for 1078570, the lawyers for Wheels Holdco Inc., New Solutions Financial Corporation, the trustee in bankruptcy of NFM, and Mr. Donnelly, as president and CEO of Dart. No one filed any responding material on the motion, although Mr. Donnelly filed a factum. He has still not responded to the questions the Trustee has been asking about the new proof of claim since June of last year.

27The lawyer for New Solutions did not file any material, but appeared and supported the Trustee’s position. NFM’s trustee in bankruptcy did not appear on the motion or take any position.

Position of the parties:

28The Trustee takes the position that first, since Dart and 1078570 did not serve and file their appeal from the Trustee’s disallowance of their claims within the statutory 30-day period, the disallowances are final and binding.

29Second, the Trustee says the new proof of claim, which is purportedly filed on behalf of NFM, is essentially the same proof of claim as the disallowed claims.

30Third, the Trustee says that if the current proof of claim is purportedly filed on behalf of NFM, it is effectively a nullity, since NFM is a bankrupt, and any claims it has vested in its Trustee. NFM’s Trustee did not appear on this motion, and took no position on it, even though properly served.

31Last, the Trustee says that to permit the new proof of claim to go forward would be an abuse of the court’s process, offending the principles of both res judicata and issue estoppel.

32Mr. Chang appears for New Solutions, a major creditor of the bankrupt. He supports the Trustee’s motion. He says that to permit the new proof of claim to go forward would constitute a collateral attack on the Trustee’s initial disallowance of what is effectively the same claim.

33Mr. Donnelly is the President and CEO of Dart. The court permitted him to make submissions on behalf of Dart and 1078570. Mr. Steventon appeared for Dart, and to assist Mr. Donnelly. Mr. Donnelly did not file any affidavit material in response to the Trustee’s motion. He did, however, file a factum. He relied on prior material filed in the IWHL bankruptcy as well as in the IWHL Receivership.

34Mr. Donnelly had a great deal of difficulty articulating his response to the issue the court must actually decide. The focus of his remarks, as set out in his factum, can be simply stated as follows:

The Respondents seek the dismissal of the Trustee’s Motion on the basis that the Trustee has failed to serve the disallowances on 107ONT, DART and NFM, nor have they properly reviewed the Proof of Claim. The Trustee has a statutory obligation to maintain impartiality and fairness in the review of the claims failing which in this situation the Claims of 107ONT, DART and NFM should be accepted as creditors of the estate.⁸

35Mr. Donnelly did not actually respond to the Trustee’s position that the new proof of claim is essentially a re-submitting of the disallowed proofs of claim. Mr. Donnelly has not responded to the Trustee’s argument that the disallowances of the initial proofs of claim are final and binding. Mr. Donnelly seems to be of the view that the Trustee is in some kind of position of conflict, although he has not formally raised this issue on this motion.

Discussion:

36Mr. Donnelly seems to be under the impression that the Trustee is trying to obtain an order that bars “the Respondents from taking any further civil remedies available at law against the Receiver and Trustee of IWHL.” This is how his factum describes the nature of the Trustee’s motion.

37To be clear, the Trustee seeks only to expunge the first proofs of claim, expunge the second proof of claim, and/or declare that 1078570, Dart and NFM are not creditors in the estate of IWHL It also seeks an order barring 1078570, Dart, NFM or any affiliates of these companies, including NFM’s Trustee in bankruptcy, from filing any further claims in the estate of IWHL, on the basis that to permit further claims would be an abuse of the court’s process.

38As far as the Receiver of IWHL is concerned, the receivership has been concluded, and the Receiver discharged. This motion is by IWHL’s Trustee in bankruptcy, and deals only with the IWHL bankruptcy, as opposed to IWHL’s receivership.

The original proofs of claim

39The law is very clear that an appeal from a Trustee’s disallowance of a proof of claim must be both served and filed with the court within thirty days of service of the disallowance.⁹

40Mr. Donnelly suggests that the disallowances of the three original proofs of claim were not properly served, and thus the disallowances themselves are a nullity. I simply cannot accept this argument.

41A notice of appeal from the three disallowances was served on the Trustee’s counsel. The disallowances must therefore have properly come to the attention of Dart, 1078570 and NFM. How else could they have started an appeal from the disallowances? I can only conclude the disallowances were properly served.

42Although the appeal from the disallowances was served within the requisite time frame, it was not filed with the court within that time. In fact, it has never been filed with the court. As a result, section 135(4) of the BIA applies, and the disallowances of the three proofs of claim are final and conclusive.

43The Trustee seeks an order expunging those claims. That is contemplated by s.135 (5) of the BIA. An order will therefore issue to that effect.

The new proof of claim

44The new proof of claim is stated to be on behalf of NFM. NFM is bankrupt. All its assets have vested in its Trustee. There is no basis on which Mr. Donnelly has any ability or authority to submit a proof of claim on behalf of NFM. Only its Trustee has that authority. NFM’s Trustee was served with this motion. It did not respond, and did not appear. I assume, therefore, it does not oppose the relief sought.

45That alone is really sufficient to deal with the new proof of claim. The Trustee, however, raises other bases on which it should be dealt with. These are important since they go to the Trustee’s position that the doctrines of res judicata, issue estoppel and abuse of process apply here, and that the new claim should be expunged as well. Counsel for New Solutions takes the same position, saying the new proof of claim is really a collateral attack on the original disallowances, thus constituting an abuse of process.

46The new proof of claim is for $1,989,000, the sum of the amounts claimed in the disallowed original three proofs of claim. The Trustee, through its counsel, repeatedly sought information from Mr. Donnelly about the new proof of claim. The Trustee wanted information about on whose behalf the claim had been filed, confirmation of whether the new claim was in substitution for the three previously disallowed claims, and Mr. Donnelly’s authority to act on behalf of NFM, a bankrupt. The Trustee also sought a breakdown of and support for the amounts claimed in the new proof of claim. Mr. Donnelly has not responded in any meaningful way to these questions.

47When I look at the first proofs of claim, and the material filed in support of them, and the material filed in support of the new proof of claim, I can only conclude the new proof of claim is essentially the same claim as the three disallowed proofs of claim. I say this because:

a) In his affidavit filed in support of the appeal of the disallowed proofs of claim, Mr. Donnelly alleged that Dart had advanced $790,000 to NFM on August 14, 2009, attaching a copy of a cheque and wire transfer from Dart to IWHL. Mr. Donnelly has attached the same cheque and wire transfer as attachments to support the new proof of claim;

b) It was New Solutions that had advanced $790,000 to Dart so that Dart could finance NFM’s acquisition of IWHL’s shares in 2009. Since the Trustee has admitted New Solutions’ claim for this sum, a further claim by Dart or NFM for this sum would constitute a double proof of claim.

c) In his affidavit filed in support of the appeal of the disallowed proofs of claim Mr. Donnelly alleged that Dart and other affiliated companies had provided staff and services to IWHL under a Shared Services Agreement. He attached copies of 84 invoices to support what he claimed was IWHL’s indebtedness to Dart and its affiliates. Mr. Donnelly has attached the same 84 invoices to support the new proof of claim.

d) In his affidavit filed in support of the appeal of the disallowed proofs of claim, Mr. Donnelly alleged that on June 27, 2010 Dart had filed a claim in support of the outstanding balances related to the services provided. The new claim appears to relate to the same alleged Shared Services Agreement.¹⁰

48The doctrines of res judicata and issue estoppel prevent the re-litigation of claims that have already been decided. They are founded on two public policy concerns, namely finality and fairness. The concept of finality means that it is in the public interest to put an end to litigation. The concept of fairness here means that no one should be “twice vexed by the same cause”.¹¹

49The doctrines of res judicata and issue estoppel apply to all claims which properly belonged to the subject matter of the previous litigation. What this means is that a party cannot attempt to “re-litigate a case by advancing a new legal theory in support of a claim based on essentially the same facts.”¹² This doctrine also applies to bankruptcy proceedings, including the establishment of a proof of claim.¹³ Therefore, Mr. Donnelly cannot try to advance what is effectively the same proof of claim as the proofs of claim that have already been conclusively disallowed. To allow this would be an abuse of the court’s process, since it is no more than an attempt to re-file a proof of claim which has already been disallowed.

50I accept the Trustee’s argument that the new proof of claim is frivolous and vexatious and an abuse of process. The Trustee needs an order dealing with the new proof of claim, as well as an order preventing a repetition of an attempt to re-file. It needs such an order so that it can proceed to finish its administration of the estate. The order the Trustee seeks is reasonable and appropriate in all the circumstances.

Conclusion:

51An order will therefore issue in the following terms:

a) Expunging the claims of 1078570 Ontario Limited operating as Dart Logistics, Dart Supply Chain Solutions Inc. and NFM Investments Corp.;

b) Declaring that 1078570 Ontario Limited operating as Dart Logistics, Dart Supply Chain Solutions Inc. and NFM Investments Corp. are not creditors in the estate of IWHL;

c) Barring 1078570 Ontario Limited operating as Dart Logistics, Dart Supply Chain Solutions Inc. and NFM Investments Corp. or any affiliates of these companies, including the trustee in bankruptcy of NFM Investments Corp. from filing any further claims in the estate of IWHL.

52The Trustee suggests I should make an order for costs against Mr. Donnelly and/or his corporations, pointing out that Mr. Donnelly’s actions have necessitated an expenditure of legal fees on the estate’s behalf, thus reducing the funds available to distribute to creditors with proven claims. The Trustee has delivered only two reports to the court in this bankruptcy. As far as I am aware, this is the first motion the Trustee has brought for advice and directions. The outcome of the motion should bring some finality to the issue of further claims from 1078570, Dart or NFM, and allow the Trustee to complete its administration of the estate. In these circumstances I see no reason to depart from the general practice of awarding no costs to the estate. There will therefore be no order as to costs of the motion.

Footnotes

1. 1IWHL Inc. (Re), 2011 ONSC 5672 at paragraphs 9 - 48
2. 2See subsection 135(3) of the BIA.
3. 3Trustee’s disallowance of 1078570’s claim, dated April 19, 2012
4. 4Trustee’s disallowance of Dart’s claim, dated April 19, 2012
5. 5Trustee’s disallowance of NFM’s proof of claim, dated April 19, 2012
6. 6See subsection 135(4) of the BIA
7. 7Ms. Francis’ email to Mr. Quance dated May 28, 2012.
8. 8Paragraph 45 of the factum filed on behalf of the “Respondents”, who are described as “NFM Investments Corp., Dart Supply Chain Solutions Inc., 1079570 Ontario Ltd. and Adrian Donnelly
9. 9Re Stein, (1976), 1976 633 (ON CA), 12 O.R. (2d) 1 (O.C.A.)
10. 10See paragraph 35 of the Trustee’s Second Report
11. 11EnerNorth Industries Inc.,(Re), 2009 ONCA 536 (O.C.A.)
12. 12Britannia Airways Ltd. v. Royal Bank of Canada, [2005] O.J. No. 2
13. 13EnerNorth Industries Inc.,(Re), supra