COURT FILE NO.: CV-12-453485

DATE: 20140730

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Vittorio Joseph Vetro, Plaintiff

AND:

The Canadian National Exhibition Association, Defendant

BEFORE: Madam Justice L.B. Roberts

COUNSEL:
Glenn Solomon, for the Plaintiff
Jordan Goldblatt, for the Defendant

HEARD: March 10, April 27 and May 22, 2014

REASONS FOR JUDGMENT

Overview and Conclusion:

[1] The defendant brings this motion to dismiss the plaintiff’s action on the bases that the plaintiff lacked the capacity to bring this action and this action is an abuse of the court’s process.

[2] It is undisputed that, at the time that the plaintiff commenced this action on May 11, 2012, he was an undischarged bankrupt. The plaintiff still is an undischarged bankrupt and his discharge hearing has not yet been scheduled.

[3] The defendant also seeks to set aside the respective Orders of Master B. Glustein, dated March 1, 2013, and of Master D. Short, dated March 26, 2013, which the plaintiff obtained without notice to the defendant.

[4] The plaintiff seeks to set aside on the basis of mistake my Order of March 10, 2014. One of the consent terms of my March 10th Order is that if the plaintiff’s discharge hearing was not heard before the return of the defendant’s motion, the plaintiff would not oppose the defendant’s motion.

[5] For the reasons that follow, I allow the defendant’s motion and dismiss the plaintiff’s action, with costs to the defendant on a substantial indemnity basis.

Analysis:

Plaintiff’s Motion to Set Aside my March 10, 2014 Order:

[6] Under rule 59.06 of the Rules of Civil Procedure, an order may be set aside, amended or varied on various grounds, including mistake. The plaintiff seeks to set aside the term of my March 10, 2014 Order that the plaintiff would not oppose the defendant’s motion, on the ground that he was mistaken as to whether or not a discharge hearing could be heard before the return of the defendant’s motion.

[7] I do not accept that the plaintiff was mistaken. On March 10, 2014, the plaintiff sought a further adjournment of the defendant’s motion, which date was peremptory against the plaintiff, in accordance with the November 6, 2013 Order of Lederer J. One of the reasons that the plaintiff sought the second adjournment was to enable him to have a discharge hearing before the return of the defendant’s motion. My Registrar confirmed in the courtroom during the March 10th attendance that no discharge hearing date had yet been scheduled.

[8] According to the May 6, 2014 email transmission from Frances Doria of the plaintiff’s trustee in bankruptcy, which was appended as Exhibit B to the affidavit of Louisa Tsa, sworn May 9, 2014, the trustee notified by email the plaintiff and his then lawyer, Alan Price, about the problems obtaining court dates for a discharge hearing.

[9] These problems included the requirement that the plaintiff pay the trustee $1,000 plus HST, which was not finalized as at March 10, 2014; and, as directed by Registrar Nettie in his disposition of June 14, 2010, that “The Trustee, or any Sec. 169(1) applicant is not to schedule a new application hearing for discharge without evidence as to all 2004 and subsequent ITA filings having been made and assessed by CRA”. There was and still is no evidence that all ITA filings have been made and assessed by CRA. As noted in paragraph 7 of Ms. Doria’s May 6, 2014 email transmission, no assessments or tax returns have been provided by the plaintiff for the 2012 taxation year and no information has been provided for the 2013 taxation year.

[10] In the course of the hearing of his adjournment request on March 10, 2014, I asked Mr. Vetro what his position was if the discharge hearing did not take place before the return of the defendant’s motion. As recorded in the court transcript, Mr. Vetro (who was not represented by counsel at that time) stated that, “I’ll take my chances. If I don’t get a date then I won’t oppose.” The plaintiff’s assertion that he would not oppose the defendant’s motion if a discharge hearing did not take place before the return of the defendant’s motion was included in my Order as a term of the granting of the adjournment of the peremptory motion date at the plaintiff’s request.

[11] As a result, the plaintiff cannot now argue that he was mistaken about a position that he himself asserted.[^1] Moreover, the plaintiff had ample time to fulfill all of the criteria required before he could seek a discharge hearing, prior to the return of the defendant’s motion on May 22, 2014, and failed to do so, notwithstanding that the May 22nd date was again made peremptory against Mr. Vetro. It would be unjust to the defendant and detrimental to the effective and fair administration of justice to grant the plaintiff a further indulgence.

[12] In consequence, I decline to set aside the term of my March 10, 2014 Order that the plaintiff not oppose the defendant’s motion if his discharge hearing was not heard before its return.

Defendant’s Motion:

[13] As Mr. Goldblatt fairly submitted, the defendant still has the onus on this motion to demonstrate that the plaintiff’s action should be dismissed and that the Orders of Masters Glustein and Short should be set aside, notwithstanding that the defendant’s motion is not opposed.

[14] For the reasons that follow, even if the defendant’s motion had been opposed on the grounds put forward by the plaintiff, the defendant’s motion should be allowed.

i. Did the plaintiff have the capacity to commence and continue this action?

[15] The plaintiff’s action is for breach of contract against the defendant for its allegedly wrongful termination of the plaintiff’s licences with the defendant to operate food concessions in the Food Building during the Canadian National Exhibition, for a period of 3 years, commencing in 2009. The plaintiff pleads that the defendant wrongfully terminated these licences on May 11, 2010 because the plaintiff was an undischarged bankrupt.

[16] The defendant asserts that, as an undischarged bankrupt, the plaintiff had no capacity to start or continue his action and that pursuant to the provisions of rule 21.01(3)(b) and (d) of the Rules of Civil Procedure, the plaintiff’s action is a nullity and an abuse of process, and should be dismissed.

[17] The notion of legal capacity referred to in rule 21.01(3)(b) is a relatively narrow and technical one. It relates to a plaintiff’s legal ability to commence litigation and not to the merits of the litigation.[^2]

[18] Section 71 of the Bankruptcy and Insolvency Act expressly provides that upon a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with his or her property, which immediately passes to and vests in the trustee named in the bankruptcy order or assignment.

[19] The definition of “property” under s. 2 of the Bankruptcy and Insolvency Act is extremely broad and covers property of every kind whatsoever, including assets in relation to which the bankrupt has contractual or contingent rights, such as the licence agreements in the present case.[^4]

[20] Under the scheme of the Bankruptcy and Insolvency Act, it is not simply the property of the bankrupt owned at the date of bankruptcy which passes to the trustee; any property acquired by the bankrupt prior to his discharge also vests in the trustee.[^5]

[21] As the Supreme Court of Canada held in Wallace v. United Grain Growers Ltd., per Iacobucci J. for the Court:

The clear wording of the statute indicates that, upon assignment into bankruptcy, the bankrupt relinquishes his ability to deal with both existing and after-acquired property, all of which vests in the trustee in bankruptcy. As property has been defined under the Act to include things in action, it appears that an undischarged bankrupt has no capacity to maintain an action for breach of contract.[^6]

[22] An action commenced by an undischarged bankrupt in relation to property that vests in the trustee is a nullity.[^7] If a bankrupt brings an action relating to property that vests in the trustee, the action should be struck as an abuse of process of the court.[^8]

[23] It is undisputed that the plaintiff in the present case was bankrupt at the time of the licence renewals with the defendant and that he is not yet discharged from bankruptcy. At the time that he became bankrupt, all of the plaintiff’s property vested with his trustee in bankruptcy.

[24] The plaintiff submits that the licence renewals that form the basis for his action against the defendant were after-acquired property and do not form part of his property that vested with the trustee.

[25] In support of this submission, the plaintiff relies on Lewis v. St. Paul Fire & Marine Insurance Co.[^9], a 1966 decision of the Manitoba Court of Queen Bench and on Robins v. Kuttner[^10], a 1990 decision of the Ontario Divisional Court. As I read them, these cases do not stand for the categorical proposition that a bankrupt can maintain an action for after-acquired property. Rather, both cases concern a bankrupt’s right to pursue personal claims that did not form part of the bankrupt’s property that vests with the trustee.[^11]

[26] To the extent that these cases do stand for the proposition argued by the plaintiff, as already noted, the Supreme Court of Canada in Wallace expressly rejected the proposition that an undischarged bankrupt has the capacity to deal with his or her property whether that property was acquired before or after the assignment in bankruptcy.

[27] In Wallace, the Supreme Court of Canada recognized two exceptions that do not apply in the present case.

[28] First, the Court discussed the following provisions of s. 99(1) of the Bankruptcy and Insolvency Act: “All transactions by a bankrupt with any person dealing with him in good faith and for value in respect of property acquired by the bankrupt after the bankruptcy, if completed before any intervention by the trustee, are valid against the trustee and any estate or interest in the property that by virtue of this Act is vested in the trustee shall determine and pass in such manner and to such extent as may be required for giving effect to any such transaction”.

[29] The Court noted that the exception provided for under s. 99(1) of the Bankruptcy and Insolvency Act was restricted to the very narrow circumstances of “those situations involving good faith third-party transactions for value with an undischarged bankrupt regarding the after-acquired property of the bankrupt” and designed to act “as a shield for the benefit of third parties who might otherwise be liable to lose to the trustee property which they had purchased from the bankrupt in good faith and for value”.[^12]

[30] Further, the Supreme Court of Canada in Wallace recognized as an exception to the bankrupt’s general incapacity to deal with property the exemption under s. 68(1) of the Bankruptcy and Insolvency Act, where the property in question can be characterized as “salary, wages or other remuneration from a person employing the bankrupt”.

[31] The Court held that the plaintiff Wallace could maintain in his own name an action against his former employer in relation to the wrongful dismissal that occurred following his bankruptcy because the damages sought for the wrongful dismissal would be the salary, wages or other remuneration that would have been earned by the plaintiff had he worked during the period of reasonable notice. The Court concluded that the damages in a wrongful dismissal action were not divisible among a bankrupt’s creditors and did not vest in the trustee and that the right of action as the means of attaining these damages was similarly exempt.^13

[32] An undischarged bankrupt’s inability to bring property as opposed to personal claims was also noted by Farley J. in the following passage from Watt v. Beallor Beallor Burns Inc.[^14]:

After acquired property vests immediately in the trustee: see Wallace v. United Grain Growers Ltd. (1997), 1997 332 (SCC), 152 D.L.R. (4th) 1 (S.C.C.). As per Wallace, Watt has no ability to deal with existing and after acquired property. As per s. 71(2), Watt is precluded as an undischarged bankrupt from bringing any “property” actions, but he can bring “personal” actions: see Rahall v. McLennan (1996), 1996 10487 (AB KB), 44 C.B.R. (3d) 191 (Alta. Q.B.); McNamara Pagecorp Inc. (1988), 68 C.B.R. (N.S.) 303 (Ont.H.C.J.).

[33] In the present case, the plaintiff seeks damages for breach of contract arising out of the allegedly wrongful termination of licences. In accordance with Wallace, the defendant is not a third party in the sense in which that term is used in s. 99(1) of the Bankruptcy and Insolvency Act nor are the damages claimed for “salary, wages or other remuneration” earned by the plaintiff under s. 68(1) of the Act.

[34] As a result, any property in the licences and/or their renewals that the plaintiff subsequently acquired automatically vested with the trustee in bankruptcy. The plaintiff’s right to deal with his property, including any cause of action that the plaintiff may have had against the defendant in relation to the termination of the licences, also vested with his trustee in bankruptcy.

[35] For these reasons, I conclude that the plaintiff had no capacity to commence or continue this action against the defendant. This action is a nullity and an abuse of process, and must be dismissed.

ii. Should the Orders of Masters Glustein and Short be set aside?

[36] It is important to examine the circumstances under which the Orders of Masters Glustein and Short were made.

[37] The March 1, 2013 Order of Master Glustein, which extended the time for the service of the plaintiff’s statement of claim to April 30, 2013, was preceded by the Orders of Master Brott dated October 23, 2012 and of Master Muir dated February 12, 2013.

[38] By her Order dated October 23, 2012, Master Brott extended the time for the service of the plaintiff’s statement of claim to January 31, 2013. The plaintiff failed to serve the claim by that date.

[39] The plaintiff subsequently brought a motion in writing which was read by Master Muir. By his Order of February 12, 2013, Master Muir refused to grant any further extensions of time for the service of the claim without notice to the defendant. Master Muir wrote in his Endorsement that the plaintiff’s motion record contained no evidence as to when the cause of action arose and whether a limitation period might have expired. Master Muir adjourned the motion without a date, to be heard orally, and on notice to the defendant.

[40] In clear contravention of Master Muir’s Order, the plaintiff brought his motion to extend time for service of the claim without notice to the defendant before Master Glustein on March 1, 2013. The plaintiff did not bring Master Muir’s Order to the attention of Master Glustein.

[41] In purported explanation for his failure to comply with Master Muir’s Order, Alan Price, the plaintiff’s former lawyer, stated in his letter dated May 8, 2013 to the defendant’s lawyer, Mr. Goldblatt, as follows:

The motion heard by Master Muir was an over-the-counter motion without counsel appearing. Master Muir’s concerns with the material were met by providing the Court with additional information that you will see in the motion heard by Master Glustein. It was my view that since the matter before Master Muir was over the counter, there was no one able to satisfy his concerns and that could be done by bringing the motion back with further material, which was done.

[42] Mr. Price’s explanation is not credible. First, if he truly thought Master Muir required more information, he did not explain why he did not seek to return before Master Muir and provide the further material that he claims the Master needed to satisfy his concerns. Moreover, even if true, Mr. Price’s explanation does not explain why he did not comply with Master Muir’s clear direction to serve the defendant with the plaintiff’s motion materials. The inescapable inference to be drawn from this conduct is that compliance with the term to give notice to the defendant was undesirable, as the defendant would likely oppose the plaintiff’s motion for an extension of time, and it was hoped that another Master would grant the relief sought by the plaintiff.

[43] Master Muir’s direction could not be clearer: in the first and last sentences of his Order, he requires the plaintiff to serve the defendant. The plaintiff expressly failed to do so without any legitimate excuse. The circumstances under which Master Glustein’s Order was obtained were an egregious abuse of the court’s process: an unambiguous court order was deliberately disobeyed in order to covertly obtain an advantage that might not have been granted had the order been followed.

[44] If the plaintiff disagreed with Master Muir’s Order, he had many legitimate courses of action open to him, among which, he could have sought leave to appeal the Order; and he could have sought to appear before Master Muir with further material. It was not open to the plaintiff and his counsel to ignore Master Muir’s Order, or, worse, as is the case here, to expressly try to circumvent it and obtain a more desirable result by appearing before another Master.

[45] As a result, Master Glustein’s Order must be set aside.

[46] I agree with the defendant’s submission that the March 26, 2013 Order of Master Short must also be set aside, for the following reasons:

i. Master Short’s Order cannot be viewed in isolation but was obtained as part of the plaintiff’s abuse of the court’s process and contravention of Master Muir’s February 12, 2013 Order. Although the plaintiff’s motion materials referenced the history of the extensions for service of his statement of claim, Master Muir’s Order was not brought to Master Short’s attention. While Master Muir’s Order did not expressly provide that the plaintiff was obliged to serve the defendant with all future motions, but for the plaintiff’s breach of Master Muir’s Order and his improper motion before Master Glustein to obtain an extension in which to serve his claim without giving the required notice to the defendant, there would have been no action to continue under his name.

ii. In any event, as an undischarged bankrupt, the plaintiff lacked the capacity to continue this action in his own name while he was not yet discharged from bankruptcy. The present case is different from the particular and unusual circumstances in Murphy v. Stefaniuk where the Court of Appeal varied the date of the order of the plaintiff’s discharge to pre-date the plaintiff`s commencement of his action; in Murphy, the plaintiff had become entitled to a discharge five months before starting his action, although the formal order of discharge was not issued until about two months after he started his action.[^15] Here, the plaintiff is an undischarged bankrupt, has no demonstrated entitlement to a discharge order, and no date for the plaintiff’s discharge hearing has even been scheduled. As stated by the Court of Appeal in Murphy, an undischarged bankrupt should wait until he or she obtains an order of absolute discharge before commencing proceedings and failure to do so will ordinarily be fatal.^16

[47] As a result, Master Short’s Order is set aside.

Conclusion:

[48] For these reasons, the defendant’s motion is allowed and the plaintiff’s action is dismissed.

Costs:

[49] The defendant requests its costs of this action on a substantial indemnity basis. I agree that this is one of those rare cases where an award of costs on a substantial indemnity basis is justified, for the following reasons:

i. As an undischarged bankrupt, the plaintiff clearly had no capacity to commence or continue this action. From the affidavit material filed in support of the motions before Masters Brott, Muir and Glustein[^17], the plaintiff appears to have been aware that he lacked the requisite capacity to start the action in his own name, as the plaintiff relied on the fact that he needed the trustee’s consent to commence this action in his motion materials to obtain extensions of time to serve his statement of claim. As such, this action is an abuse of the court’s process and its dismissal merits costs on a substantial indemnity basis.

ii. The plaintiff’s deliberate breach of Master Muir’s Order and his abuse of the court’s process by “Master shopping” in order to obtain a different and more desirable result justify an award of costs on a substantial indemnity basis. The defendant was required to bring this motion in order to set aside the Orders of Master Glustein and Master Short, which would not have been necessary had the plaintiff obeyed Master Muir’s Order.

[50] With respect to the amount of costs to be awarded, it is common ground that the amount awarded must be fair, reasonable and proportionate and within the reasonable contemplation of the parties.

[51] The defendant claims costs on a substantial indemnity basis of $18,351.20 for fees and $1,441.86 for disbursements, including the applicable HST, for a total of $19,793.06.

[52] The plaintiff takes no issue with the hourly rates claimed and, other than the additional costs claimed by the defendant for the previous attendances, agrees that the defendant’s costs are not otherwise unreasonable.

[53] As a term of the three adjournments of the defendant’s motion granted to the plaintiff, the defendant’s costs thrown away due to the adjournments were awarded to the defendant. These costs included the time spent in preparation for the three attendances and the three attendances to deal with the adjournments.

[54] Other than the general description of preparing for and attending the second and third hearings of the defendant’s motion, there were no further particulars provided which would permit me to differentiate the additional costs claimed from the costs already awarded for the defendant’s wasted costs in relation to the adjournments. In consequence, I agree with plaintiff’s counsel that the additional costs appear to be duplicative of the costs previously awarded and I do not allow them.

[55] With respect to the disbursements, I do not allow the amounts of $5.25 for the fax expense and the $22.12 for the taxi transportation expense. These expenses are not expressly provided for under the tariffs; and there was no basis provided for me to conclude that these expenses were reasonably necessary for the conduct of the proceeding pursuant to Tariff A, paragraph 35. I therefore do not allow them.

[56] For these reasons, I fix the defendant’s total costs of this action in the amount of $17,276.13, including fees, disbursements and applicable HST, and order that the plaintiff pay these costs to the defendant within 60 days of to-day’s date.

L.B. Roberts J.

Date: July 30, 2014

[^1]: I would like to note that Mr. Solomon bears no responsibility for and was unaware of the plaintiff’s previous assertions which the plaintiff did not share with him.

[^2]: Western Delta Lands Inc. v. Zurich Indemnity Co. of Canada, [1999] O.J. No. 2984 (C.A.), at para. 4.

[^3]: R.S.C., 1985, c. B-3.

[^4]: Caisse Populaire Vanier Lteé v. Bales, 1991 7294 (ON SC), at paras. 15, 41 and 42; Wyssling (Trustee of) v. Latreille Estate, 1990 6950 (ON SC).

[^5]: McNamara v. Pagecorp Inc., [1989] O.J. No. 1461 (C.A.); Watt v. Beallor Beallor Burns Inc., 2004 18877 (ON SC).

[^6]: Wallace v. United Grain Growers Ltd., 1997 332 (SCC).

[^7]: Murphy v. Stefaniuk, 2007 ONCA 819.

[^8]: Watt v. Beallor Beallor Burns Inc., supra.

[^9]: 1966 CarswellMan 2.

[^10]: 1990 CarswellOnt 186.

[^11]: McNamara v. Pagecorp Inc., [1988] O.J. No. 189 (H.C.J.).

[^12]: Wallace v. United Grain Growers Ltd., supra.

[^14]: Watt v. Beallor Beallor Burns Inc., supra.

[^15]: Murphy v. Stefaniuk, supra.

[^17]: Motion Record of the Defendant (returnable November 6, 2013): Tab 3, p. 23, para. 3 of the Affidavit of Janet Temple, sworn October 4, 2012; Tab 4, p. 45, para. 3 of the Affidavit of Janet Temple, sworn January 24, 2013; and Tab 5, p. 57, para. 7 of the affidavit of Janet Temple, sworn February 21, 2013.