Court File and Parties

Citation: PricewaterhouseCoopers Inc. (in its capacity as Trustee in Bankruptcy) v. Osztrovics Farms Ltd., 2015 ONSC 2079 Court File No.: 32-1493347 Date: 2015-04-09 Superior Court of Justice – Ontario

In the Matter of the Bankruptcy of Victor Osztrovics of the Town of Burford, Province of Ontario

Re: PricewaterhouseCoopers Inc. in its capacity as Trustee in the Bankruptcy of Victor Osztrovics, Respondent on the Appeal And: Osztrovics Farms Ltd., Elysia Osztrovics and Violet Osztrovics, Appellants

Before: Mr. Justice H. Wilton-Siegel

Counsel: Robert Cohen and Christopher Horkins, for the Respondent on the Appeal Daniel Chitiz and Alastair J. McNish, for the Appellants

Heard: January 26, 2015

Endorsement

[1] In this proceeding, Osztrovics Farms Ltd. ("OFL"), Elysia Osztrovics ("Elysia") and Violet Osztrovics ("Violet") (collectively the "Appellants") appeal an order dated August 6, 2014 of Registrar in Bankruptcy Master Short (the "Order"). The Registrar ordered that OFL disclose a scheduled list of documents pursuant to s. 164 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"), that Elysia submit to an oral examination pursuant to s. 163 of the BIA, and that Violet answer written interrogatories pursuant to the same provision of the BIA. By cross-appeal, PricewaterhouseCoopers Inc., the trustee in bankruptcy of the estate of Victor Osztrovics (the "Bankrupt") (the "Trustee"), appeals the Order insofar as it requires Violet to answer written interrogatories in lieu of an oral examination and insofar as it provided that no costs would be awarded to the Trustee.

Background

[2] OFL is a corporation incorporated under the laws of Ontario that owns a family-held farming operation outside Burford, Ontario. Prior to his bankruptcy, the Bankrupt was also a director and officer of OFL. Currently, Elysia, the Bankrupt's wife, and Violet, the Bankrupt's mother, are the directors of OFL.

[3] As a result of an estate freeze undertaken by Violet in the late 1990's, Violet owns 948,572 Class A voting shares, representing 51.7% of the voting shares of OFL, which constitutes voting control of OFL. Prior to his assignment into bankruptcy, the Bankrupt owned 51 common shares and 886,530 Class A voting shares of OFL, representing 48% of the voting shares of OFL. These shares have now been registered in the name of the Trustee. The remaining 49 common shares of OFL are owned by Elysia.

[4] The Trustee seeks the information scheduled in the Order (the "Information") in order to value the shares in OFL previously owned by the Bankrupt. The Appellants opposed the request on the basis that the Trustee should be limited to the information to which a shareholder is entitled under the Business Corporations Act, R.S.O. 1990, c. B.16 (the "OBCA"). The Registrar disagreed and ordered such disclosure pursuant to s. 164 of the BIA as well as the examinations of Elysia and Violet pursuant to s. 163 of the BIA described above and discussed further below.

Applicable Law

[5] This appeal proceeds under s. 193 of the BIA. The parties agree that the standard of review, as set out in Impact Tool & Mould Inc. (Trustee of) v. Impact Tool & Mould (Windsor) Inc. (Receiver of), 2006 7498 (ON CA), [2006] O.J. No. 958 (C.A.) at para. 48, is demonstration of an error in principle or in law or a failure to take into account a proper factor or the taking into account of an improper factor which, in any case, led to a wrong conclusion i.e. it is a true appeal.

[6] The relevant provisions of ss. 163 and 164, with the portions relied upon by the Registrar in rendering the Order being italicized, are as follows:

163. (1) The trustee, on ordinary resolution passed by the creditors or on the written request or resolution of a majority of the inspectors, may, without an order, examine under oath before the registrar of the court or other authorized person, the bankrupt, any person reasonably thought to have knowledge of the affairs of the bankrupt or any person who is or has been an agent or a mandatary, or a clerk, a servant, an officer, a director or an employee of the bankrupt, respecting the bankrupt or the bankrupt’s dealings or property and may order any person liable to be so examined to produce any books, documents, correspondence or papers in that person’s possession or power relating in all or in part to the bankrupt or the bankrupt’s dealings or property. …

164. (1) Where a person has, or is believed or suspected to have, in his possession or power any of the property of the bankrupt, or any book, document or paper of any kind relating in whole or in part to the bankrupt, his dealings or property, or showing that he is indebted to the bankrupt, he may be required by the trustee to produce the book, document or paper for the information of the trustee, or to deliver to him any property of the bankrupt in his possession….

(3) Any person referred to in subsection (1) may be compelled to attend and testify, and to produce on his examination any book, document or paper that under this section he is liable to produce, in the same manner and subject to the same rules of examination, and the same consequences of neglecting to attend or refusing to disclose the matters in respect of which he may be examined, as would apply to a bankrupt.

The Registrar’s Reasons

[7] In his reasons dated August 6, 2014, (the "Reasons") the Registrar concluded that the language of ss. 163 and 164 was sufficiently broad to encompass documents of a corporation respecting its business and affairs, i.e. that such documents may also relate "in whole or in part to the bankrupt, his dealings or property". The Registrar further concluded in paragraph 73 of the Reasons that, in this case, the Trustee had demonstrated the necessary link between the Information and the Bankrupt, his dealings or property. On this basis, he ordered the disclosure of the Information. He also ordered the examinations of Elysia and Violet for the same reason, although he considered that the "proportionality principle" required a "hybrid solution" to the order sought under s. 163 in respect of Violet, being the delivery of responses to written interrogatories.

The Central Issue in this Proceeding

[8] By way of overview, the Trustee sought the Information under s. 164 of the BIA principally to value the shares of OFL previously owned by the Bankrupt and currently vested in, and registered in the name of, the Trustee. The Trustee sought the examinations of Violet and Elysia under s. 163 of the BIA for the same purpose. The Trustee might also have sought the Information in order to calculate any surplus income payments that the Bankrupt may be obligated to pay to his estate pursuant to s. 68 of the BIA, including in particular any deemed surplus income under s. 68(11) of the BIA. However, it appears that the Trustee did not raise this possibility in the hearing before the Registrar, although the surplus income issue was before the Registrar in another context.

[9] The Appellants are reluctant to provide the Information because, among other reasons, they say certain creditors of the Bankrupt, who operate competing farm businesses, have demonstrated by their prior conduct that they will use this information to ruin OFL's business.

[10] The Appellants argue that s. 164, while conferring broad powers of investigation on the Trustee, limits the Trustee's right of inspection of documents that are in the possession of a third party to documents pertaining directly to a bankrupt's business and dealings, such as documents of an auditor/accountant of a bankrupt. They say that the Information pertains to the dealings and property of OFL, of which the Bankrupt is only a minority shareholder, and is too broad to relate just to the Bankrupt's affairs or property. The Appellants argue that, in its capacity as a shareholder of OFL, the Trustee is limited to receiving the documents and other information specifically available to a shareholder under the OBCA. The parties agree that there is no case law on point.

The Appeal of the Order by the Appellants

[11] In reaching his conclusions in his Reasons, the Registrar concluded: (1) that the Information was relevant to the valuation of the Property; and (2) that the Trustee was entitled to the Information pursuant to s. 164 of the BIA. I will address each issue before addressing the Appellant's grounds of appeal.

[12] With respect to the issue of relevance, there was evidence before the Registrar, in the form of a statement in the First Report of the Trustee, that all of the Information was relevant to valuation of the common shares of OFL. The Appellants did not contradict this evidence in respect of any particular items of the Information. Instead, the Appellants took the position before the Registrar that, as a matter of principle, the Trustee was not entitled to any corporate information beyond that to which it was entitled as a shareholder, even if the additional information sought was relevant for a valuation of the Bankrupt's shares in OFL. Consequently, the hearing before the Registrar proceeded implicitly on the basis that all of the Information was relevant for a valuation of the Bankrupt's shares in OFL. There is, therefore, no basis on which the Appellants can appeal this determination of the Registrar. There is also no basis in the record upon which the Court could reach an independent conclusion on this issue.

[13] The central issue in this proceeding is therefore the Registrar's second conclusion – that the Trustee was entitled to the Information pursuant to s. 164. On this appeal, the Appellants do not actually challenge this determination of the Registrar, except perhaps indirectly in respect of the second ground of appeal as described below. I have nevertheless addressed this issue in view of its centrality to the concerns of the Appellants that have given rise to this appeal.

[14] The Appellants acknowledge that a Trustee has a right to examine third parties such as professional advisors to a bankrupt. However, as mentioned, they argue that a trustee's status as a shareholder of a corporation limits its access in respect of information pertaining to the corporation to the information to which a shareholder is entitled under the OBCA. I do not accept this argument for the following reasons.

[15] The disclosure provisions under the BIA and the OBCA are directed toward very different purposes. The limited disclosure available to shareholders under the OBCA reflects a balance between, on the one hand, a shareholder's entitlement to know the financial condition and performance of the corporation on an annual basis in order to assess the performance of the directors and, on the other hand, the vesting of direction and management of the corporation in the directors and officers of the corporation. The disclosure contemplated by ss. 163 and 164 of the BIA is directed toward ensuring that the trustee can fulfill its responsibilities to investigate and value, or otherwise establish, the assets and the liabilities of the bankrupt. In this regard, the valuation of any shares owned by a bankrupt is an important element, particularly where, as in the present circumstances, such shares represent the most significant asset of the estate.

[16] Accordingly, while there may be issues regarding the relevance of particular documents of a corporation for any valuation of the shares of such corporation, I think that the principle is clear. A trustee in bankruptcy is entitled to disclosure from a private corporation of such information as is relevant to permit a valuation of shares of a bankrupt in such corporation. Further, I do not accept the implicit premise of the Appellants' argument – that corporate documentation pertains solely to the business and affairs of the corporation. In the present circumstances, where the former shares of the Bankrupt in OFL constitute the most significant asset of his estate and represent a significant shareholding in OFL, there is no reason why the Information cannot pertain to both the Bankrupt and OFL for the purposes of s. 164 of the BIA.

[17] I would also note that, in the present circumstances as in the case of many private corporations, the most obvious purchaser will be the remaining shareholders either directly or through the corporation in order, among other things, to prevent shares falling into the hands of unrelated third parties. There can, however, be no meaningful negotiation with such shareholders unless and until the Trustee is in a position to reach an informed view as to the value of the shares at issue.

The Appellants’ Grounds of Appeal

[18] The Appellants assert three grounds of appeal based on the following elements of the Order: (1) the Registrar's alleged denial of natural justice in referring to a decision released subsequent to the hearing of the motion by the Registrar; (2) the Registrar's determination that ss. 163 and 164 did not conflict with s. 134 of the OBCA such that there was no constitutional concern for paramountcy; and (3) the Registrar's failure to address confidentiality concerns of the Appellants in his decision. They argue that each of these grounds justifies setting aside the Order. I will address each of these three grounds of appeal in turn.

The Alleged Denial of Natural Justice

[19] In the argument before the Registrar, the respondents relied on the decision of Brown J. (as he then was) in 2046272 Ontario Inc. (Re), 2013 ONSC 2180 ("Global Group #1") denying certain requested disclosure under s. 163 of the BIA. In his decision, the Registrar referred to a subsequent decision by the same judge in the same matter, 2046272 Ontario Inc. (c.o.b. Global Group) (Re), 2013 ONSC 6702, ("Global Group #2"), which was released after the hearing before the Registrar. In that later decision, Brown J. ordered much of the disclosure requested in Global Group #1 on a fuller evidentiary record.

[20] In their factum, the Appellants argue that the Registrar's reliance on this decision without giving them an opportunity to make submissions regarding its relevance was a denial of natural justice justifying setting the Order aside. They did not, however, press this submission with any vigour at the hearing of this appeal. In any event, I do not accept this ground of appeal.

[21] While it would have been preferable for the Registrar to have alerted the parties to the subsequent decision and invited submissions regarding its relevance, it is clear that the Registrar was not relying on the decision for the purposes suggested by the Appellant. The decision of the motion judge in Global Group #1 was that the evidentiary record before him did not demonstrate a link between the third party information sought and the affairs or property of the bankrupt. The decision in Global Group #2 was that the link had been established on a fuller evidentiary record.

[22] The parties do not dispute the principle articulated in each decision that there must be such a link. The determinations in each case, and indeed in the present case, are factually driven. It is clear that, insofar as the Registrar relied on Global Group #2, it was solely as evidence of the breadth of the investigative powers conferred on a Trustee in respect of third party records, which is well established in other case law. There is, however, no suggestion that the Registrar considered the documents addressed in Global Group #2 to be similar to the Information. Nor is there any suggestion that Global Group #2 broadened the investigative powers of the Trustee under the BIA in a manner that is relevant for the present proceeding.

[23] Moreover, and more importantly, the Appellants have not demonstrated that the failure to give them an opportunity to address Global Group #2 was significant, that is, that they were denied the opportunity to make a submission based on that decision that was relevant to their position on this motion.

[24] In these circumstances, I conclude that the Appellants' ground of appeal based on an alleged denial of natural justice must be dismissed.

The Operation of the Doctrine of Paramountcy

[25] The Registrar apparently raised the issue of the possible application of the doctrine of federal paramountcy in respect of the relief sought. Specifically, he questioned whether there was a conflict between the duties of the directors of OFL under s. 134 of the OBCA, given the directors' determination that disclosure of the Information was not in the best interests of the corporation, and the Trustee's right to compel disclosure of information under ss. 163 and 164 of the BIA.

[26] The parties agree that the applicable constitutional law principles are set out in Canadian Western Bank v. Alberta, 2007 SCC 22 per Binnie and Lebel JJ. at paras. 69-75 and in Husky Oil Operations Ltd. v. Minister of National Revenue, 1995 69 (SCC), [1995] 3 SCR 453 per Gonthier J. at paras. 121-122, which are set out in the Registrar's reasons and need not be repeated here.

[27] The Registrar concluded that a trustee in bankruptcy, having stepped into the shoes of a bankrupt shareholder, is not restricted or prevented by the provisions of the OBCA from exercising his federally created mandate under the BIA to investigate the affairs of a bankrupt and to seek to examine any available records of OFL that relate in whole or in part to the bankrupt, his dealings or his property.

[28] The Appellants argue that the Registrar's decision implies that the operational effect of s. 164 of the BIA is to remove from the directors of a corporation the discretion to act in the corporation's best interest. They say, therefore, that the Registrar erred in law in finding that the Trustee's rights under the BIA "trump" the directors' duties under the OBCA. They further argue that their interpretation, which restricts the Trustee to information to which it is entitled as a shareholder, avoids such a conflict between the two statutes. They say that the Registrar should have adopted their interpretation of the operation of ss. 163 and 164 of the BIA in the present circumstances in accordance with the constitutional principles articulated above. They also argue that their interpretation is consistent with the statutory interpretation that would have been given to ss. 163 and 164 of the BIA if the matter had arisen in respect of a corporation governed by the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the "CBCA") in order to harmonize the provisions of ss. 163 and 164 of the BIA and s. 122 of the CBCA.

[29] I am not persuaded that the Registrar erred in law in concluding that there was no operational conflict between s. 134 of the OBCA and ss. 163 and 164 of the BIA.

[30] The Appellant's argument incorrectly posits a conflict between the directors' duty or discretion, on the one hand, and a trustee's power to investigate. The real operational question is between the trustee's right to disclosure as a shareholder and its right to disclosure as a trustee in bankruptcy. The former is complementary to the latter, not in conflict with it.

[31] There is also no conflict between the provisions of s. 134 of the OBCA and the BIA. As the Appellants note, s. 134 merely codifies the obligations of directors to act in the best interests of a corporation. Any determination that directors may make regarding the best interests of a corporation is necessarily restricted by the obligation of the corporation to comply with statutorily mandated powers, whether derived from federal or provincial statutes.

Confidentiality Concerns of the Appellants

[32] As described above, the Appellants have expressed serious concerns regarding the use that certain of the creditors, in their capacities as inspectors of the estate of the Bankrupt, would make of the Information. The Registrar's conclusions on this issue are expressed in the following passages:

I agree it is appropriate to restrict the access of the farmer inspectors to any corporate records which could be regarded as potentially providing a competitive advantage to them.

The trustee is an Officer of the Court and clearly has a duty to protect against disclosure of any commercially sensitive data which does not relate to either income or assets of the bankrupt or the valuation of his shares in OFL.

However, I do not accept the conclusion asserted by the Respondents as to the likelihood of misuse of information obtained:

"41. The fiduciary duties and restrictions imposed on inspectors in this matter are of little comfort to the responding parties in light of the inspectors' conduct, since the commencement of Victor's bankruptcy proceeding. These are the same individuals who saw fit to bring a transparently meritless contempt motion against Elysia, a mother of three, to have her thrown in jail for six months, and also to commence an action against her for the preposterous sum of $36 million."

Remedies for these alleged actions may be available elsewhere; but in my view ought not to prevent the representatives of all the Bankrupt's creditors from carrying out its investigatory duties.

The Trustee must be alert to not violating these genuine privacy concerns in preparing its Reports to the Court. I fully expect a professional trustee to be able to protect the integrity of the underlying data while establishing accurate recommendations to the creditors and the courts based on its review of a complete array of information.

Subject to these caveats I have determined that the access to the documents listed in schedule "A" to the Trustee's proposed form of Order ought to be granted.

[33] The Appellants argue that it was an error in principle for the Registrar to delegate total responsibility to the Trustee to ensure that the Appellants' concerns were addressed, given his finding that their confidentiality concerns were legitimate and given that the Trustee acts on the instructions of, and with input from, hostile inspectors and creditors. I do not agree for the following reasons.

[34] First, and most important, the Registrar did not accept the Appellants' assertion regarding the likelihood of misuse of the information by the inspectors. The Registrar was fully familiar with the facts of this case from his on-going involvement. There is no evidence before the Court on this appeal that would render his decision unreasonable. The Court must therefore give such finding deference.

[35] Second, insofar as the controls that the Appellants contemplate must be imposed on the Trustee, the Trustee is an officer of the court. It is not necessary to impose such a regime on the Trustee in the absence of facts demonstrating that the Trustee will not be alert to, and address as required, the possibility of misuse of information by the inspectors or other creditors.

[36] Third, the Appellants' position is not supported by the case law. In Impact Tool, the Court of Appeal expressly held that, except in the rarest of cases, it is not appropriate to restrict an inspector from access to documents of a bankrupt notwithstanding that an inspector may be a competitor of the bankrupt. As mentioned, the Registrar's factual finding regarding the likelihood of misuse of the Information effectively determined that the present circumstances did not warrant an exception from this principle.

[37] Moreover, on the hearing before the Registrar, the Appellants did not seek any particular "controls" on either the Trustee or the inspectors. Instead, they put forward their concerns on this issue as a basis for denying the relief sought by the Trustee. There was, therefore, no issue regarding appropriate controls for the Registrar to address and, therefore, no determination of the Registrar that this court can address on this appeal. For this reason alone, I do not think the Appellants can raise the Registrar's failure to address this issue in the Order as a ground of appeal nor, can this Court impose any such order on this appeal.

[38] Lastly, as a related matter, as Impact Tool suggests in paras. 8, 25 and 40, the Appellants are able to apply for other relief specific to the individual inspectors, including removal of an inspector, to address their issues of confidentiality if they can convince a court of the likelihood of misuse of information. The inspectors were not, however, parties to the motion before the Registrar. It would, therefore, have been improper for him to provide for such relief in the Order.

The Cross-Appeal of the Respondent

[39] The Respondent appeals two elements of the Order which are addressed in turn.

Written Interrogatories of Violet

[40] The Trustee argues that the Registrar lacked the authority, and therefore erred in principle, in directing that Violet should answer written interrogatories rather than submit to an oral examination under s. 163 of the BIA as requested by the Trustee. It says his discretion was limited to determining whether or not Violet was a person to whom s. 163 applies. The Trustee also submits that the Master effectively modified or waived the requirement in s. 163(1) that the examination shall take place "before the registrar of the court or other authorized person".

[41] The Appellants say there is no need for an examination of Violet and that this element of the Order should be set aside. This is based on their position that Violet became a director of OFL in order to satisfy the required number of directors of the corporation only after the Bankrupt resigned as a result of his bankruptcy. The Appellants say the Registrar's "hybrid solution" acknowledges the limited value of any examination of Violet in light of these circumstances.

[42] In the alternative, however, the Appellants submit that the Registrar had the authority to order the "hybrid solution" in the exercise of his inherent jurisdiction pursuant to s. 183 of the BIA. They say a registrar in bankruptcy exercising authority under the BIA is acting as the Superior Court, and has all the powers of the Court including its inherent powers. For this proposition, it relies on the following dicta in Cowan Re, ONSC 3138 (S.C.J. Reg.) at para. 47:

…The Superior Court of Justice, in Bankruptcy and Insolvency is a superior court with the inherent power to control its own process and to cite for contempt, both in facie and ex facie. "Court" for the purposes of the BIA is defined as including a Registrar of the Court when exercising her authority under the BIA. Thus it seems a reasonable conclusion that a Registrar exercising authority under the BIA is acting as the Court, and has all of the powers of the Court, as defined by the BIA, and as are inherent to the Court at common law. Section 192(1) BIA is not, by its own terms, an exhaustive list of the powers of a Registrar. …

[43] In fashioning his order, the Registrar appears to have attempted to reach a middle ground between the positions of the parties. From his Reasons, it appears that the Registrar made a determination that Violet was a "person who had knowledge of the affairs of [the] [B]ankrupt" but was nevertheless entitled to be relieved of the examination requirement in s. 163. I agree that a Registrar in bankruptcy exercising the powers of the Superior Court has the power to exercise the inherent jurisdiction of such Court. However, in this case, while well intentioned, I do not think that the Registrar had the authority to make the order that he did on the following reasoning.

[44] On the express language of s. 163 of the BIA, a trustee has the right, without an order, to examine a third party reasonably thought to have knowledge of the affairs of a bankrupt. Critically, s. 163 does not provide any discretion to a court to deny such right to a trustee or to fashion a different remedy. As the Trustee argues, the role of a court in respect of s. 163 is limited to determining whether a proposed deponent is a "person reasonably thought to have knowledge of the affairs of the bankrupt", or other person described in s. 163, in the circumstances in which a proposed deponent resists an examination. Moreover, s. 163 requires that such person be examined under oath before the registrar of the court or other authorized person.

[45] There is also nothing in s. 163 that prevents a trustee from examining more than one director of a private corporation if the additional directors also have relevant knowledge. Moreover, in this case, Violet is also the controlling shareholder of OFL. On this basis, the Registrar’s finding that Violet was a person having knowledge of the Bankrupt's affairs for the purposes of s. 163 was not unreasonable. Given this finding, however, there is no authority in the language of s. 163 authorising the Registrar to deny the Trustee an order that Violet submit to any examination.

[46] Moreover, while the Appellants suggest that the Registrar’s order can be justified in terms of the application of the proportionality principle, I do not think that such principle is applicable in the present circumstances. The proportionality principle is concerned with securing "the just, most expeditious and least expensive determination of every civil proceeding on its merits": see Rule 1.04(1) of the Rules of Civil Procedure. In applying the Rules, the courts must make orders and give directions "that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding": see Rule 1.04(1.1). In this case, however, there is no suggestion that the Registrar’s award is directed to securing the just, most expeditious and least expensive determination of this proceeding. Nor is there any indication in his Reasons that the award is intended to restrain costs or respond to the importance and complexity of the matter. Rather, the Registrar proceeded on the basis that an examination under oath would be burdensome and unsettling to Violet, who is 72 years of age, as submitted by the Appellants.

[47] Accordingly, the only possible basis for the Registrar’s order would be the exercise of the inherent jurisdiction of the court. However, such jurisdiction is not unbounded. It must be exercised sparingly and only to permit a court to fill in gaps or omissions left by Parliament in statutes or regulations, including the Rules of Civil Procedure, in order to prevent injustice and to ensure a fair trial process. It does not enable a court to contravene express provisions of a statute: see I.H. Jacob, "The Inherent Jurisdiction of the Court" (1970) 23 Current Legal Problems 23 at pp. 50-51.

[48] In this case, Parliament has enacted a specific provision that addresses examinations of third parties. Given the Registrar's finding that Violet is a person described by s. 163, the Registrar had no further jurisdiction. The Trustee is entitled pursuant to that provision to examine her under oath before the registrar or other court officer. Any order to the contrary would contravene the express language of s. 163.

[49] The Registrar could only have made his order with respect to Violet if he first had determined that Violet was not a person described by s. 163. However, if the Registrar had made such a determination, the Registrar would have lacked the jurisdiction to compel Violet to submit to any examination, by answering interrogatories or otherwise, as the pre-condition to such an examination would not have been satisfied – a determination that Violet was a person described in s. 163. The objective of a fair trial process does not require that a person submit to any examination unless they are first determined to be a "person having knowledge of the affairs of the bankrupt".

[50] Based on the foregoing, I conclude that the Order cannot be supported as an exercise of the court’s inherent jurisdiction. In particular, given the Registrar’s determination that Violet was a "person who had knowledge of the affairs of [the] [B]ankrupt", the Order contravenes the specific provisions of the BIA. Accordingly, the Trustee’s appeal on this issue is granted, the Order is set aside in respect of the examination pertaining to Violet, and it is ordered that Violet submit to an examination pursuant to, and in accordance with the provisions of, s. 163 of the BIA.

The Registrar’s Order Regarding Costs

[51] The Registrar acknowledged that the Trustee had succeeded in obtaining generally what it was seeking in the motion before him. He stated, however, that he was reluctant to impose cost consequences on Violet and Elysia as they were willing to produce Elysia for examination and had "understandable concerns" regarding the disclosure of commercial information to their competitors. Instead, the Registrar concluded that each party should bear its own costs with the expectation that the Trustee will be reimbursed for its costs out of recoveries of the estate.

[52] The Trustee argues that the Registrar could not justifiably refuse to award costs to the Trustee based upon its substantial success on the motion. It also says that, as a factual matter, the Appellants were not prepared to make Elysia available on a meaningful basis, because they were not prepared to produce the Information in order to ensure a productive examination of Elysia and had also made her availability subject to satisfactorily addressing the "conflict of interest" concerns with the inspectors. In addition, the Trustee says the award of costs is contradicted by the Registrar's rejection of the Appellant's submission regarding the likelihood of misuse of the Information. The Trustee also says that the Appellant's actions have significantly increased the legal and administrative costs of the bankruptcy and that such conduct, which is prejudicial to the creditors, should be sanctioned by a cost award.

[53] The Appellants say costs are discretionary and that the Registrar is entitled to deference unless he was clearly wrong. They say that, in this case, there was no error in principle, no taking into account of an improper factor, and no failure to take into account a proper factor. They also argue that the denial of the request for an oral examination of Violet, and the "order" to the Trustee not to disclose confidential information of OFL to the inspectors or creditors, represent significant limitations on the order sought by the Trustee that mean success was divided.

[54] Given the determination of the Trustee's appeal of the Order in respect of the examination of Violet, and the absence of any relief granted respecting, or on the basis of, the confidentiality concerns of the Appellants, the costs award cannot be justified on the basis that success was divided. Insofar as the costs award was based on the Appellants' willingness to make Elysia available for a s. 163 examination, the Registrar misapprehended the evidence. Because the Appellants were not prepared to make the Information available, any examination of Elysia would not have been meaningful and would not have been in compliance with the provisions of s. 163. In addition, the uncontradicted evidence of the Trustee was that the Appellants' willingness was subject to addressing the Appellants' "conflict of interest" concerns to their satisfaction. Given the Appellants’ position on disclosure and the fact that the Registrar did not grant any relief addressing such concerns, he could not reasonably consider that the Appellants had made Elysia available for examination in a meaningful manner. Further, as the Trustee argues, the Registrar failed to take into consideration his own finding that he did not accept the Appellants' conclusion as to the likelihood of misuse of information obtained.

[55] While an award of costs is discretionary, and the Registrar is given wide discretion to determine costs under s. 197(1) of the BIA, the presumptive rule remains that costs should follow the event.

[56] In the present circumstances, given the determinations in this Endorsement, including the specific determinations above in addressing this issue of costs, there was no basis upon which the Registrar could support the costs award that he made. On the other hand, the Trustee has not established any actions on the part of the Appellants that justify an award on a substantial indemnity basis.

[57] Accordingly, the Registrar's costs award should be set aside and costs granted in favour of the Trustee in respect of the proceedings before the Registrar on a partial indemnity scale. If the parties are unable to agree on the quantum of such costs, they should schedule a 9:30 am conference with the Court to establish a process for determination of such costs.

Conclusions

[58] Based on the foregoing, the Appellants’ appeal is denied and the Trustee’s cross-appeal is granted. If the parties are unable to agree on costs of this appeal and the cross-appeal, the process for determining such costs will also be addressed at a 9:30 am conference with the Court to be scheduled by counsel through the Commercial List Office.

Wilton-Siegel J.

Date: April 9, 2015