SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF THE BANKRUPTCY OF Spiros Pantziris

BEFORE: D. M. Brown J.

COUNSEL: F. Bennett, for the Respondent/Moving Party, Spiros Pantziris

A. O’Brien, for the Applicant

HEARD: September 17, 2013

REASONS FOR DECISION

I. Motion on refusals made on cross-examination on affidavit of verification

[1] This past April, Cobalt Capital CA Textile Investments, L.P. (“Cobalt”), issued an application for bankruptcy order against the respondent, Spiros Pantziris. The affidavit of verification was sworn by Scott Dunlop, a director and officer of the general partner of Cobalt. Mr. Pantziris filed a notice disputing petition.

[2] The respondent conducted a cross-examination of Mr. Dunlop on his affidavit on August 13, 2013. Several dozen refusals were made. The application is scheduled for hearing on October 15, 2013. Mr. Pantziris now moves for an order requiring Mr. Dunlop to re-attend to answer the questions refused on his cross-examination.

II. Governing legal principles

[3] In Re Beam Ready Mix Limited, Registrar Ferron stated that “an examination on the affidavit of verification should be of wide latitude and unhampered in any technical way”.[^1] While that is so, an examination on an affidavit of verification is not without limits. Questions must relate to the issues in dispute on the application for a bankruptcy order or to the credibility of the affiant.

[4] The boundaries of relevance are set, in part, by the requirements imposed upon an applicant by the Bankruptcy and Insolvency Act. An application for a bankruptcy order by an unsecured creditor, such as Cobalt, must allege that the debt owing exceeds $1,000.00 and that the debtor has committed an act of bankruptcy within the six months preceding the filing of the application: BIA, ss. 43(1) and (3). Section 42(1) identifies the acts of bankruptcy. Questions directed to eliciting information from, or testing the evidence of the applicant about, those statutory requirements would be relevant.

[5] So, too, questions directed to defences which the respondent has asserted to the application would be relevant: for example, (i) the debtor’s ability to pay his debts,[^2] (ii) where the bankruptcy proceeding would be futile, (iii) where the proceedings were brought for an improper purpose or there has been improper conduct on the part of the applicant, or (iv) where the matter is one that is better resolved through civil proceedings.[^3]

[6] Questions solely directed to the credibility of the affiant of the affidavit of verification could fall within the permissible range of what can be asked on a cross-examination. Given, however, the limited forensic benefit of such types of out-of-court examinations, one would expect that questions directed solely to that issue would be held back until the hearing before a judicial officer.

III. Analysis

[7] In the present application Cobalt relies on three unpaid judgments or cost awards of this court as evidence of the respondent’s indebtedness to it. As to the act of bankruptcy, it pleads the failure of the respondent to meet liabilities generally as they fall due. In his Notice Disputing Petition Mr. Pantziris set out several grounds for his opposition to the issuance of a bankruptcy order:

(i) he is not insolvent and is paying his creditors in the ordinary course;

(ii) he disputes the two judgments relied upon by Cobalt which stemmed from the recognition of an arbitration award dated December 16, 2011 which Cobalt obtained against him. He stated:

I have a bona fide dispute as to the enforcement of the award.

As a result, I issued a statement of claim against the principals of the Applicant in August, 2010…and against the Applicant in March, 2012…for an accounting and substantial damages for wrongful taking and conversion of my interests [in the Texspin factory in El Salvador]

The Application is an abuse of process in that the Applicant is using bankruptcy proceedings to squelch the above actions which would otherwise be stayed, dismissed or discontinued if a bankruptcy order is made.

(iii) Mr. Pantziris also contended that two fraudulent conveyance actions commenced by Cobalt and a receiver of Spintex Yarns against him in 2012 also make this application an abuse of process. As well, he alleged a defect in the affidavit of verification.

[8] As his Notice reveals, there is a long history between the applicant and respondent. Their dispute originated in an investment made by both of them in a yarn manufacturing facility in El Salvador. They entered into a shareholders’ agreement dated July 13, 2007, and the manufacturing company, Texspin, entered into a Personal Services Agreement with Pantziris dated July 13, 2007. The new plant encountered delays in starting production, and by mid-2008 it had encountered cash flow difficulties. That led some on the Texspin Board to terminate Pantziris’s Personal Services Agreement in August, 2008. That, in turn, triggered a demand against Pantziris under the SHA to acquire Cobalt’s shares in Texspin. He did not. In June, 2009, Cobalt served a notice of arbitration on Pantziris seeking an award for the amount it contended Pantziris owed it for its shares in Texspin. Pantziris counterclaimed, seeking an award of damages for an amount equal to his investment in Texspin, repayment of his shareholder loans and payment of his salary.

[9] The above summary of events was taken from the December 16, 2011 Award made by the three-person arbitration panel. The arbitration hearing lasted 19 days. The panel made awards to Cobalt against Pantziris in the amounts of Cdn $2 million and US $1.415 million. It dismissed the counterclaims of Pantziris.

[10] Following a hearing at which Pantziris was represented by counsel, Chapnik J. made an order dated May 1, 2012 recognizing and enforcing the awards made against Pantziris in favour of Cobalt (the “Recognition Order”). Perell J. made an order on October 2, 2012 recognizing the panel’s cost award (the “Cost Order”). In this application Cobalt relies on the amounts awarded in the Recognition Order, together with another costs award, as evidence of the indebtedness of Pantziris. I understand that no appeal was taken from those orders. Cobalt has taken some steps to enforce the orders, including conducting a May 1, 2013 examination in aid of execution of Pantziris.

[11] Pantziris has commenced an action against Cobalt in the Superior Court of Justice, Action CV-12-449344, seeking damages for Cobalt’s alleged mismanagement of the Texspin venture, as well as the value of his shares. Pantziris also started a 2010 action against two former directors of Texspin, who were the nominees of Cobalt, advancing similar allegations. The defendants in those actions have pleaded that the proceedings are an abuse of process in view of the agreement to arbitrate between the two investors and the resulting Award.

[12] With that by way of background, let me turn to the refusals made by Dunlop on his cross-examination on the affidavit of verification:

(i) QQ. 43, 44, 45, 46: these questions regarding the personal employment history and experience of the affiant since 1993 were irrelevant. The parties’ business relationship started in 2007 and was fully set out in the Arbitration Award;

(ii) QQ. 79, 89, 90, 247: the respondent is entitled to obtain evidence that the applicant is authorized to commence this application. I understand from applicant’s counsel that such evidence will be provided. The respondent is not entitled to see the limited partnership agreement;

(iii) Q. 92: this was answered in Q. 95, which was a sufficient answer, rendering Q. 96 irrelevant;

(iv) QQ. 100, 115: these questions about how the Order recognizing the Arbitral Award arose were irrelevant. The Award ran to some 67 pages. The respondent was a party to that proceeding. All he has to do is read the Award to know how the Recognition Order arose and it is open to him to prove that Award at the hearing, if he so wishes;

(v) QQ. 116, 1117, 118, 128-9, 134, 164, 172, 173, 174, 175, 176, 177, 178, 179, 184-185, 186, 188, 197-198, 200, 405 and 409: These questions all dealt with the prior business history of the parties. Much of the information sought can be found in the Award, which can be proved at the hearing. All of the questions were irrelevant in that they sought to go behind the Order, from which no appeal was taken and in respect of which enforcement proceedings have been commenced. Pantziris cannot re-litigate, through his opposition to this bankruptcy application, the broad set of issues already disposed of by way of the Award;

(vi) QQ. 273, 280, 281, 282, 286, 287, 302, 303, 304, 310, 314, 320, 321, 322, 375, 376: On April 10, 2008, a private receiver was appointed over Spintex Yarns Limited, another company owned by Pantziris. The statement of defence filed by Pantziris in that action asserted that the receiver was appointed pursuant to security held by 1635278 Ontario Inc. That company was a party to the arbitration, but on the side of Pantziris, not Cobalt. Pantziris contended in his affidavit on this motion that Cobalt put in the receiver. These questions sought information in respect of that receivership, including the receiver’s conduct of a proceeding in this Court in which the receiver obtained a certificate of pending litigation. I do not see the relevance of these questions. Pantziris fully knows what steps have been taken in the receivership proceedings since he has been involved in them, and he can easily prove the pleadings and orders made in that proceeding if the hearing judge considers them relevant. On my reading of the questions, they were in the nature of an attempt to conduct a discovery in that other proceeding and therefore were improper.

[13] For these reasons, I order the applicant to provide the respondent with evidence of its authorization to commence this application, but otherwise dismiss the motion. I fix the costs of this motion at $3,500 on a partial indemnity basis, but leave the assignment of responsibility of those costs to the judge who hears the application.

D. M. Brown J.

Date: September 19, 2013

[^1]: (1979), 31 C.B.R. (N.S.) 95 (Ont. Reg. Bktcy.), p. 96.

[^2]: Bankruptcy and Insolvency Act, s. 43(7).

[^3]: Roderick Wood, Bankruptcy & Insolvency Law (Toronto : Irwin Law, 2009), p. 69.