Court File and Parties
COURT FILE NO.: 31-457461
DATE: 20140910
SUPERIOR COURT OF JUSTICE – ONTARIO
(BANKRUPTCY AND INSOLVENCY)
IN THE MATTER OF THE BANKRUPTCY OF LUIGI MARTELLACCI aka LOUIE MARTELLACCI, of the CITY of TORONTO in the PROVINCE OF ONTARIO
BEFORE: Newbould J.
COUNSEL:
Mark A. Freake, for the Trustee Grant Thornton Limited
Brandon Jaffe, for Amy McIntosh
HEARD: September 8, 2014
ENDORSEMENT
[1] This is an appeal by the Trustee of the bankrupt Luigi Martellacci from the decision of Master Jean sitting as a registrar in bankruptcy in which she held that a report filed by the Trustee in an appeal by Amy McIntosh from a disallowance of her claim was inadmissible evidence and that the Trustee was required to file a sworn affidavit if it wished to proffer evidence on the appeal.
[2] Amy McIntosh filed a proof of claim with the Trustee in respect to a 1967 Corvette which is in the possession of the Trustee. The Trustee later notified Ms. McIntosh that her claim was disallowed as she had produced insufficient evidence of her beneficial ownership interest in the Corvette.
[3] Ms. McIntosh served the Trustee with a notice of motion and supporting affidavit in which she set out her intention to appeal the Trustee’s disallowance. In response, the Trustee delivered a Trustee’s report. Counsel for Ms. McIntosh then inquired as to the authority that permitted the Trustee in a contested disallowance to file a report rather than an affidavit, but stated that if the Trustee agreed to submit to cross-examination the mischief would be addressed. Counsel for the Trustee responded with case authority and then by e-mail stated that the standard protocol was for counsel to ask the Trustee any questions about the Trustee’s report and if not satisfied with the answers to seek leave to cross-examine. He further stated that the Trustee would be happy to follow this protocol except that he would consent to the cross-examination provided it was restricted to the questions raised and time limited.
[4] Counsel for Ms. McIntosh did not respond to the Trustee’s proposal. One day before the hearing he filed an affidavit alleging that the Trustee had refused to permit cross-examination on the Trustee’s report and at the hearing objected to the admissibility of the Trustee’s report. The registrar held that the report was inadmissible.
[5] For the reasons that follow, the appeal is allowed. The report of the Trustee is admissible.
Analysis
[6] An appeal of a registrar's order will be allowed where it is demonstrated that the registrar erred in principle or in law or failed to take into account a proper factor or took into account an improper factor which led to a wrong conclusion. See Impact Tool & Mould Inc. (Trustee of) v. Impact Tool & Mould (Windsor) Inc. (Receiver of) (2006), 2006 7498 (ON CA), 20 C.B.R. (5th) 220 at para 48 (Ont. C.A.) and Houlden, Morawetz and Sarra, The 2014 Annotated Bankruptcy and Insolvency Act, at I§54.
[7] In my view the registrar erred in principle and law in coming to her conclusion. She read more into the rules of practice than is provided and she failed to follow established authority binding on her.
[8] The registrar referred to BIA rule 11 which requires every application to the court to be made by motion and to BIA rule 13 which requires the party making the motion to file every affidavit in support of the motion, or the motion, as the case may be. Because the BIA rules do not specify what should be included in a responding motion record, the registrar looked at rule 39.01(1) of the rules of practice which states:
Evidence on a motion or application may be given by affidavit unless a statute or these rules provide otherwise.
[9] The registrar then stated that the rules provide only for affidavits on motions. This cannot be correct. The rule does not say that evidence must be by affidavit. The rule is permissive to allow affidavits unless a statute or rule provides otherwise.
[10] Rule 37.10(1) of the rules of practice provides for the need to serve and file a motion record for a motion. Rule 37.10(2) provides what is to be included in a motion record and in what order. Rule 37.10 (2)(c) requires the motion record to contain “a copy of all affidavits and other material served by any party for use on the motion”. As to this rule, the registrar said that the reference to “other material” referred to evidence that may be given because a statute or the rules provides for it, and as no statute or rule provided for a trustee’s report on an appeal from a disallowance of a claim, the Trustee’s report could not be filed.
[11] I do not read rule 37.10(2)(c) as limiting what “other material” may be used. The limitation to that rule by the registrar requiring “other material” to be authorized by statute or another rule is not contained in the rule and is not warranted. The rule is clearly intended to provide technical direction as to what and how materials are to be put together and filed with the court, and no more.
[12] The conclusion that the report was inadmissible because no statute or rule specifically authorized a trustee’s report disregarded the common law. The case authority put before the registrar, namely the decision of Justice Mesbur in Montor Business Corp. (Trustee of) v. Goldfinger (2004), 2011 ONSC 2044, 75 C.B.R. (5th) 170 and the cases referred to therein were clear authority that a trustee’s report is admissible evidence and there was no appropriate basis to distinguish that authority.
[13] In Goldfinger, the trustee responded to a motion to remove the trustee by filing a trustee’s report, and a motion was brought to strike the report on the basis that a trustee’s report was not admissible evidence. Justice Mesbur held that the trustee’s report was admissible evidence. She stated
11 Those who act as Trustees or Receivers, in bankruptcy proceedings, receiverships or restructuring under the CCAA, routinely report to the court and set out recommendations and responses to questions by way of reports. The courts routinely accept the reports as evidence. Courts do so not only in the situations specifically enumerated under the Bankruptcy and Insolvency Act.
[14] Some of the arguments made on behalf of Ms. McIntosh in this case were made and rejected by Mesbur J. Regarding the rules of practice, Mesbur J. stated:
21 The moving parties suggest that although this application arises in the context of various bankruptcies, the application itself is simply a proceeding commenced under the Rules of Civil Procedure, and absent any contrary provision under the Bankruptcy Rules, the general Rules of Civil Procedure must apply. They say Farbers is a litigant like any other, and must be subject to the same rules as any other litigant.
22 They rely on rule 39.01 which sets out the evidence to be used on a motion. Since the rule contemplates affidavit evidence, they suggest no other evidence is either permissible or admissible. As a result, they argue the report must be expunged.
23 I do not see it that way. Rule 39.01(1) simply states that evidence on a motion or application "may be given by affidavit unless a statute or these rules provide otherwise." The rule does not require that the only evidence to be used on a motion must be in affidavit form. I come to this conclusion by looking at rule 37.10(2) which sets out the necessary contents of a motion record. Subrule 37.10(2)(c) refers to "a copy of all affidavits and other material served by any party for use on the motion." [emphasis added] From this I infer that material other than affidavits may properly be used on a motion.
24 As Farbers' counsel pointed out, in CCAA proceedings, receiverships and bankruptcies, reports are admitted as evidence every day. They are admitted on a vast variety of motions, contested and not. I have already referred to a variety of situations in which this has been the case.
25 It seems to me that a Trustee's report, by both custom and law, is in no more diminished a position as far as its reliability is concerned as is an affidavit based on information and belief. In fact, given that it is prepared by an officer of the court, with both statutory and common law duties, it is in many ways more reliable than an affidavit that is based entirely on information and belief, but is nevertheless under the Rules of Civil Procedure, prima facie admissible.
[15] Justice Mesbur also dealt with an argument that a trustee’s report was inadmissible as being contrary to the hearsay rule. In dismissing this argument, she referred to a decision of Justice Farley in Bell Canada International Inc., Re, [2003] O.J. NO. 4378 as follows:
31 Farley J dealt with this in Bell Canada International Inc. Re, the only case that squarely deals with this issue. When faced with the argument that a Monitor's report was "not evidence", he stated first, it was not "necessary to delve deeply into this question but ... to observe that such a report by a court appointed officer is recognized by the common law as being admissible evidence in a proceeding."
32 In support of this proposition, Farley J quoted approvingly from Wigmore which stated that a report, if made under due authority, stands upon no less favourable footing than other official statements. It is admissible under the general principle. The general principle referred to is the hearsay exception that permits public documents (or as Wigmore calls them, "official statements") to be admitted into evidence. Reports by the court's officers meet the general criteria for the public document exception:
a) they are made by a public official - trustees are licensed by a government official, the Superintendent in Bankruptcy, and have public duties imposed both by the court and by the Bankruptcy and Insolvency Act;
b) the Trustee makes the report in the discharge of a public duty or function - the trustee functions in the context of its duties to the court and to the creditors, and its reports communicate the necessary information to discharge those duties;
c) the reports are made with the intention they serve as a permanent record - as part of the court record, reports are permanent; and
d) the report is available for public inspection - as part of the court record, the report, like the court file, is open to public viewing.
33 In addressing the issue of whether a report is made under "due authority", Farley J also referred approvingly to The Law of Receivers and Administrators of Companies which states that officers of the court (which would include Trustees) are "appointed by the Court and are subject to its general supervisory jurisdiction. In accordance with the rule in ex. p James (1874) 2 Ch. App 609 officers of the Court are obliged not only to act lawfully, but fairly and honourably."
[16] The registrar questioned the public authority aspect of a Trustee as follows:
Mesbur J. referred to “due authority” or “public official” exception. In my view the trustee is appointed under the legislation to administer the estate, has certain duties and obligations and is an “officer of the court”. Where I have difficulties with this line of argument is that the lawyers too are “officers of the court”. There is no suggestion that lawyers could “report to the court” as opposed to file affidavit evidence. I see no reason why trustees should be given special standing in this regard.
[17] Apart from the fact that the conclusions of Mesbur J., and that of Farley J. in Bell Canada International quoted by Mesbur J., were so far as the registrar was concerned not a line of argument but rather authority binding on her, the comparison of a trustee and counsel was misconceived. While each may be said to be an officer of the court with duties commensurate with their position, they are not officers in the same capacity. A trustee is a party to a proceeding appointed under statutory authority, or by the court if an order is made to replace a trustee, with statutory duties and duties to the court and to all stakeholders. A lawyer retained by a client advocates for the interests of his or her client and as an officer of the court has a duty of candour and respect for the court. But the advocate is not a public officer in the sense that a trustee in bankruptcy is and is not appointed by the court.
[18] The registrar distinguished Goldfinger on the basis that it was a factually different case in that Goldfinger involved a motion to remove a trustee whereas this case involves an appeal from a disallowance of a claim by the Trustee. I do not see that as being a legitimate way to distinguish Goldfinger. The decisions of Mesbur J. in Goldfinger and of Farley J. in Bell Canada International were dealing with the principle of the admissibility of a report by a trustee in Goldfinger and of a monitor in Bell Canada International in light of their positions as trustee and monitor, not just in light of the particular circumstance of each case.
[19] It was contended in argument that there is a distinction between an interim motion or proceeding and a final proceeding such as an appeal from an order disallowing a claim. I do not agree. There is no principled reason for the distinction. Nor is there a principled reason for distinguishing amongst a report of a monitor, a trustee in bankruptcy and a receiver. If the reasoning of the registrar were correct and a trustee’s report could not be introduced as evidence unless a statute or rule specifically allowed it, it would mean that reports of receivers and monitors that are routinely and widely accepted in many proceedings, interim or final, contested or not, could no longer be used. In my view, a report of a trustee in bankruptcy, a monitor or a receiver is admissible in evidence regardless of the nature of the particular motion or application, and whether interim or final or contested or not, unless there is some statutory prohibition of the use of such a report. The rules of practice do not prevent these reports from being admissible evidence.
[20] The registrar accepted the position of Ms. McIntosh that her counsel should have an unfettered right to cross-examine the Trustee and that it was not appropriate to impose restrictions on the cross-examination. This conclusion ignores the practice in Ontario at least regarding cross-examination of court officers such as trustees, receivers and monitors.
[21] The general practice accepted in Ontario is that if a party has questions regarding a report of such a court officer, those questions should be put to the court officer. Generally in my experience, the court officer will answer the questions fully and any follow-up questions that may arise and cross-examination is not necessary. If there is some good reason to cross-examine the court officer, it can be ordered. I do not agree that a person has a prima facie right at large to cross-examine a court officer such as a trustee and I would not extend the practice in that way. See Farley J. in Bell Canada International at paras. 8 and 9 and his discussion of the limits on cross-examination of a court officer. I agree with his comments.
[22] In this case, counsel for the Trustee suggested that questions could be put to the trustee and that if Ms. McIntosh was not satisfied with the answers, an application to cross-examine the trustee could be made. That is the normal practice. Counsel for the Trustee went further and said he would consent to an order for cross-examination provided it was restricted to the questions raised and time limited. This seemed to be a sensible offer but it was quite open to counsel for Ms. McIntosh to put questions to the Trustee and if not satisfied with the answers move to cross-examine on such terms as required.
[23] I make one last point. The issue here is as to the admissibility of the Trustee’s report, and not the weight to be given to it. Whether the Trustee could have filed other evidence, or chosen to file affidavit evidence, is not the issue. The weight to be given to the Trustee’s report will be for the registrar dealing with the appeal from the disallowance of Ms. McIntosh’s claim.
Conclusion
[24] The appeal is allowed. The Trustee’s report is admissible evidence on the appeal from the disallowance of the claim of Ms. McIntosh. The appellant has requested that this court decide the issue rather than returning it to the registrar. I decline to do so, but direct that the appeal from the disallowance be heard by a different registrar.
[25] The Trustee is entitled to its costs of $1,500 inclusive of HST and disbursements to be paid by Ms. McIntosh within 30 days.
Newbould J.
Date: September 10, 2014