ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO: CV-12-464348
DATE: 20130122
B E T W E E N:
Sunwell Investments Limited
Applicant
- and –
Betty Cheung also known as Betty Fong also known as Betty Fong Cheung also known as Fong Suk Han also known as Cheung Suk Han
Respondent
Robert C. Harason & Maria Triggiani,
for the Applicant
James C. Morton & Jason Murad, Student-at-Law,
for the Respondent
HEARD: January 17, 2013
GOLDSTEIN J.:
[1] The Applicant Sunwell seeks a declaration that a judgment debt owed to it by the Respondent will survive bankruptcy pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“the BIA”).
[2] Sunwell is a family business. The shareholders are Ms. Cheung’s brothers and sisters. Sunwell was started as, and remains, a family investment vehicle. It was started by the father of the family. Ms. Cheung, while president of Sunwell, misappropriated funds. Sunwell obtained a judgment from Justice Spence on a summary judgment motion. Justice Spence found that Ms. Cheung misappropriated the funds while acting in a fiduciary capacity.
[3] Section 178(1)(d) of the BIA states:
- (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 or, in the Province of Quebec, as a trustee or administrator of the property of others
[4] Mr. Morton, for Ms. Cheung, concedes that the judgment is one that would fall under s. 178(1)(d) of the BIA. He argues that the application is merely hypothetical and that the Court does not issue declarations in hypothetical cases. See: R. v. Solosky, 1979 9 (SCC), [1980] 1 S.C.R. 821; Risebrough v. Cooperator’s General Insurance Co., 2012 CarswellOnt 5546, 2012 ONSC 2738(Sup.Ct.).
[5] Before the summary judgment was obtained from Justice Spence, one of Ms. Cheung’s siblings, John Fong, settled an outstanding action against Ms. Cheung based on the same facts that resulted in Justice Spence’s judgment. Ms. Cheung consented to a judgment as part of the settlement although that judgment had not yet been taken out. Mr. Fong then brought an application before this Court seeking a declaration that a judgment debt owed to him by Ms. Cheung would survive bankruptcy pursuant to s. s. 178(1)(d) of the BIA. This is identical to the relief sought by Sunwell in this Application.
[6] Justice Frank granted the Application to Mr. Fong. I excerpt the key parts of Her Honour’s judgment:
[42] This is not a case, as discussed in Simone, of the impugned acts being no more than reasonable, but ultimately unwise acts by a debtor and therefore not warranting precluding his or her obtaining the benefits of a discharge after bankruptcy from the liability resulting from the acts. Rather, Ms. Cheung’s conduct is unacceptable to society and is of a nature that should not be rewarded by a release of liability. In my view, a declaration that the acts of Ms. Cheung amount to misappropriation and defalcation is not inconsistent with the rehabilitative purpose of the BIA.
[43] In my view, this application is properly brought though Ms. Cheung has not been declared a bankrupt.
[44] There is nothing in the cases that have been put before me that supports Ms. Cheung’s position that bankruptcy is a precondition to the determination of whether a debt is of a nature that brings it within s. 178(1)(d) of the BIA.
[45] The fact that the cases on which Mr. Fong relies were decided in the context of a bankruptcy does not mean that the issue cannot be determined in advance of a bankruptcy.
[46] The evidence before me shows that the issue is not merely hypothetical. Ms. Cheung’s counsel has stated in correspondence in the settled action that Ms. Cheung had limited financial resources available to her and that once those resources were expended, she would be, for all intents and purposes, judgment
proof. At another time, Ms. Cheung’s counsel advised that Ms. Cheung has no funds of her own, but for some dividends her ownership of which is in dispute.
[47] It appears to me that obtaining a determination of the effect of bankruptcy on Ms. Cheung’s debt to Mr. Fong at this time is an efficient way of proceeding. It will allow Mr. Fong to assess what are the most appropriate steps for him to take in attempting to obtain payment of the debt, including whether he should continue with his efforts to have Ms. Cheung declared a bankrupt. The application is neither a pointless exercise nor an inefficient use of the courts.
[7] Mr. Morton factually distinguishes Justice Frank’s decision from this decision on the grounds that in that case there was a BIA proceeding that was imminent. As well, the letters from Ms. Cheung’s former counsel are now somewhat old, being from 2009. Justice Frank made her decision in 2010. Mr. Morton also very candidly argues that Justice Frank did not deal with the argument that one must examine the automatic stay provisions of sections 69 and following of the BIA. Broadly, those sections of the BIA state that creditors may only proceed in the face of a bankruptcy proceeding with leave of the Court.
[8] Notwithstanding Mr. Morton’s skilful argument, I respectfully disagree. I find that the facts are not distinguishable from those before Madam Justice Frank. There is no evidence of a change in Ms. Cheung’s financial position since 2009, and the judgment obtained from Justice Spence remains unsatisfied. As well, as in this case, there was no actual bankruptcy judgment.
[9] As well, I disagree that issuing a declaration today would be merely hypothetical, given the status of the judgment and Ms. Cheung’s financial position. I agree with Justice Frank’s reasoning and conclusions and follow them here. Sunwell is entitled to the declaration so that it may take measures to protect its rights. Likewise, the declaration makes it clear to Ms. Cheung what her position will be vis-a-vis Sunwell in the event of bankruptcy and she, too, can take steps to protect or otherwise deal with her position. I agree with Mr. Harason that the leave provisions are not relevant to this proceeding. The rights of creditor and bankrupt that crystallize on bankruptcy do not apply at this point.
[10] Accordingly, there will be a declaration that Ms. Cheung misappropriated the funds while acting in a fiduciary capacity and that the judgment debt survives bankruptcy pursuant to s. 178(1)(d) of the BIA.
COSTS
[11] In a very complete and helpful endorsement, Madam Justice Frank found that it was Ms. Cheung’s breach of trust that necessitated the application before her. She found no basis to depart from the usual rule that a finding of dishonesty, wrongdoing, or misconduct by a person in a position of trust results in costs on a substantial indemnity basis. Given that this application is based on virtually the same facts, I see no reason why the usual rule would not apply here.
[12] Sunwell is entitled to substantial indemnity costs. Costs of $13,290.59 are awarded to Sunwell, payable within 30 days.
GOLDSTEIN, J.
DATE: January 22, 2013
COURT FILE NO: CV-12-464348
DATE: 20130122
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Sunwell Investments Limited
Applicant
- and -
Betty Cheung also known as Betty Fong also known as Betty Fong Cheung also known as Fong Suk Han also known as Cheung Suk Han
Respondent
JUDGMENT
GOLDSTEIN J.
Released: January 22, 2013