CITATION: Atkinson v. Gentles, 2015 ONSC 242

COURT FILE NO.: 31-865402

DATE: 20150113

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Christia Atkinson, Applicant

AND:

Kenneth Oliver Gentles, Respondent

BEFORE: Penny J.

COUNSEL: Joseph Kary for the Applicant

Bruce Simpson for the Respondent

HEARD: January 8, 2015

ENDORSEMENT

Overview

[1] This is an appeal from a cost order made by Master D.E. Short on June 11, 2013 in which he awarded the bankrupt, Mr. Gentles, costs of certain motions fixed in the amount of $6,000 payable by the creditor, Ms. Atkinson.

Background

[2] There is a long history to these proceedings. Briefly, Ms. Atkinson and Mr. Gentles lived together in 2002. They bought lottery tickets together. In May 2002 they won $87,590 in the Super 7 lottery. Mr. Gentles did not share the winnings. They separated.

[3] Ms. Atkinson sued for her share. On May 17, 2005, Cameron J. found that Mr. Gentles held one half of the winning ticket in trust for Ms. Atkinson and awarded damages of half the winnings (the Judgment). Mr. Gentles filed a notice of appeal but it was never perfected.

[4] Mr. Gentles had a job earning from $80-$90,000. Ms. Atkinson garnished his wages. After a couple of payments were garnished, Mr. Gentles filed for bankruptcy in April 2006. All proceedings against him were stayed.

[5] Mr. Gentles applied for discharge in 2007. Ms. Atkinson opposed the discharge. Ultimately, on August 10, 2007, Mr. Gentles was ordered to pay $30,000 towards his debts as a condition of his discharge. He was required to make payments of $875 per month for seven months and $600 per month thereafter until the entire $30,000 plus interest had been paid to his estate. Ms. Atkinson was awarded costs of that proceeding of $1,000 from the first proceeds received under the Order.

[6] Mr. Gentles made no payments toward the $30,000 required for his discharge. In 2011, Mr. Gentles was still working but remained an undischarged bankrupt.

[7] Ms. Atkinson brought a motion to lift the stay. Part of the grounds for lifting the stay was that the Judgment represented a debt or liability arising out of misappropriation while acting in a fiduciary capacity, such that the claim would not be released on Mr. Gentles’ discharge from bankruptcy in any event.

[8] The motion was repeatedly adjourned. Ms. Atkinson’s affidavit, which is not contradicted, deposes that none of the adjournments were at her request.

[9] At some point – the record is unclear – Mr. Gentles finally paid the amount required for his discharge. An order granting his absolute discharge was made on May 7, 2013.

[10] The trustee had not yet been discharged. The trustee's motion for the taxation of his costs was adjourned from May 7, 2013 to June 11, 2013. Because the trustee had not yet been discharged, the stay of proceedings against Mr. Gentles was theoretically still in place (BIA s. 69.3 (1.1)). Ms. Atkinson's motion was still outstanding. That too was adjourned to June 11, 2013.

[11] The record is less than clear but on June 11, 2013 the trustee’s bill was taxed at $18,960.56. Presumably, the trustee was, at that time or at some point proximate to that time, discharged. One way or another, Ms. Atkinson's motion to lift the stay had become, or was about to become, moot because on discharge of the trustee (Mr. Gentles having already been discharged) the stay would come to an end by operation of law.

[12] In any event, Master Short made the following handwritten endorsement on June 11, 2013:

Bill taxed at $18,960.56.

Costs of these motions to Bankrupt due to offer to settle & other considerations fixed at $6000 all in

[13] The form of order was settled, after some dispute. It states:

This motion made by Christina Atkinson for a declaration pursuant to section 69.4 of the Bankruptcy and Insolvency Act that the stay of proceedings no longer operates in respect of her claim, was heard this day at 393 University Avenue, Toronto, Ontario.

On hearing the consent of counsel for the bankrupt to the grant of the requested declaration;

1. This court orders that the stay of proceedings be and the same is hereby lifted.

2. This court orders that the costs of these motions are payable to the Bankrupt/Defendant in the sum of $6,000.00.

[14] Ms. Atkinson appeals from this order. She argues that the Master erred by exercising his discretion on the basis of the wrong principles and made a palpable and overriding error in his apprehension of the evidence.

[15] Specifically, Ms. Atkinson argues that:

(a) in the circumstances of this case there was a duty to give reasons. The absence of any reasons was a fundamental error of law;

(b) Ms. Atkinson was, in the end, the successful party. The stay no longer operated to prevent her from attempting to realize on the Judgment.

(c) There was a fundamental misapprehension of the evidence in that:

(i) the offer to settle referred to by the Master could not possibly have had any probative value in the determination of costs;

(ii) the Master’s order appears to have awarded costs for more than one motion returnable on that day. The other motion was for approval of the trustee’s fees. The trustee sought no costs and Ms. Atkinson did not oppose the trustee’s request.

(iii) the “other considerations” referred to by the Master were not specified. There were, in fact, no other circumstances warranting an award of costs against Ms. Atkinson

The Test on Appeal

[16] It is well settled that the threshold for review of the decision of a Master by the Superior Court of Justice is:

(1) an error of law;

(2) exercise of discretion on the basis of wrong principles; or

(3) a palpable and overriding error in the apprehension of the evidence.

Wrong Principle

Whether the Judgment Survives Bankruptcy

[17] Mr. Simpson for the bankrupt argues that Ms. Atkinson’s notice of motion to lift the stay had two prongs:

(i) it sought a lifting of the stay; and

(ii) it sought some form of “declaration” that the Judgment survived bankruptcy under s. 178(1)(d) of the BIA.

[18] Mr. Simpson says that his main argument before the Master was that Mr. Gentles consented to the lifting of the state and that Ms. Atkinson “abandoned” her request for a determination of whether the Judgment survive bankruptcy. No mention is made of this argument in the Master’s endorsement although it could, perhaps, have fallen within the “other considerations” referred to.

[19] Mr. Gentles Bill of Costs obliquely alluded to this issue when it said, under the “importance” category, that “Mr. Gentles employment may be terminated if enforcement is affected without first establishing that the claim survives bankruptcy.”

[20] Of more concern is the fact that the Master’s endorsement does not mention the grant of a consent order at all. That only became an issue, apparently, on the settling of the order which took place much later.

[21] Assuming, however , that the Master relied on Mr. Simpson’s argument in his disposition of costs, it was, in my view, an error in principle. The ultimate issue of whether the Judgment survives bankruptcy was not before the court on that motion for at least two reasons.

[22] First, it is well settled that there is no requirement that the party seeking to lift the stay must establish a prima facie case on the merits. The test for lifting the stay is whether there are sound reasons consistent with the scheme of the BIA to relieve against the automatic stay. The merits are merely one consideration among many, Re Ma (2001), 2001 CanLII 24076 (ON CA), 24 C.B.R. (4th) 68 (Ont. C.A.).

[23] It is not the function of the court on the motion to lift the stay to inquire into the merits of the action sought to be continued but only whether the action is the kind of action that should be allowed to proceed, Re Cravit (1984), 54 C.B.R. (N.S.) 214 (Ont. S.C.).

[24] In this case, the Judgment, by its terms was capable of falling into the 178(1)(d) category of claims. For misappropriation to apply, the money must have belonged to another, the taking must have been a wrongful use of the money and the debtor must have been a fiduciary. This, prima facie, was the conclusion reached by Cameron J. in the Judgment.

[25] The fact that breach of fiduciary obligation alone is not sufficient (Simone v. Daley (1999), 1999 CanLII 3208 (ON CA), 170 D.L.R. (4th) 215 (Ont. C.A.)) to come within s. 178(1)(d) raises a potential issue for determination on the merits but that would not be a matter for the court to decide on the lift stay motion.

[26] Second, and perhaps more importantly, once the debtor paid the funds required for and obtained his absolute discharge on May 7, 2013 and once the trustee was discharged (apparently, on or shortly after June 11, 2013), the stay terminated as matter of law. There was, as of June 11, 2013, in substance no longer a need for the court to order the stay to be lifted. There was, by the same token, no longer a need for the court to determine whether the claim represented by the Judgment was the sort of claim for which the stay might be lifted.

[27] It is not correct to say, and there is absolutely no evidence to support the proposition that, Ms. Atkinson “abandoned” her position that the debt represented by the Judgment survived bankruptcy. That remains a live issue in the proceedings that will unfold now that the stay no longer exists. It would have been wrong in principle, therefore, to conclude that because Ms. Atkinson did not obtain an order declaring or finding that the Judgment survived bankruptcy, she might be liable for the costs of her motion.

Absence of Reasons

[28] Further, it is a fundamental principle that costs follow the event, i.e., the successful party is entitled to her costs. Here, the effect of the proceedings initiated by the creditor was that $30,000 was paid by the debtor for the benefit of the estate and the stay was lifted. Thus, the creditor, not the debtor, was prima facie the successful party.

[29] I recognize that the level of reasons in costs decisions generally fall well below that of other issues. However, awarding costs against Ms. Atkinson was a departure from the basic principles of the law of costs. An explanation of sufficient justification for such a dramatic step was required. None was offered. This too, in my view, was the exercise of discretion based on a wrong principle.

Palpable and Overriding Errors

(a) The Offer

[30] The Master referred in his endorsement to the debtor’s offer to settle in support of the cost award made against Ms. Atkinson.

[31] The offer to settle was made on December 2, 2011 and by its terms expired on January 23, 2012. This was almost a year and a half before the debtor eventually paid the required $30,000 to obtain his discharge and about the same amount of time before the stay motion was eventually resolved.

[32] While the debtor in his offer notionally proposed to consent to lift the stay, the offer would have required Ms. Atkinson to refrain from executing on the Judgment “prior to obtaining judicial determination that her claim... survives Mr. Gentles’ order of discharge.”

[33] Thus, the debtor’s settlement proposal took away with one hand what it purported to give with the other and placed an obstacle before Ms. Atkinson in proceeding with her enforcement of the Judgment – obtaining a prior judicial determination that her claim survived bankruptcy – that would not otherwise have existed.

[34] Finally, for the privilege of having the stay lifted on these dubious terms, the offer would have required Ms. Atkinson to pay all of the debtors “costs on a substantial indemnity basis from the date hereof.” This would appear to have required Ms. Atkinson to pay the debtor’s costs of her obtaining the prior judicial determination on whether the Judgment survived bankruptcy. The scope and amount of these costs was not specified.

[35] Even the most cursory examination of this offer discloses that acceptance of the offer would, in no circumstances, have left Ms. Atkinson in a better position than she was in as events actually unfolded. In the event, the stay was removed. While the issue of whether the Judgment survive bankruptcy will, no doubt, still have to be resolved, there is no obligation on the creditor to obtain leave, or any prior judicial determination, of this result. Rather, it is more in the nature of a defence available to the debtor to the creditor’s post-bankruptcy claim. In addition, the substantial indemnity costs claim submitted by the debtor was over $17,000. He received only about a third of that amount.

[36] In my view, the offer to settle was of no evidentiary value whatsoever for the purpose of any disposition of costs on June 11, 2013. Taking it into account disclosed a fundamental misapprehension of the evidence. The endorsement therefore, discloses a palpable and overriding error of fact.

(b) “These Motions”

[37] The Master’s endorsement makes reference to his award of costs of “these motions.”

[38] There were two motions before the court on June 11, 2013. Ms. Atkinson’s motion was not argued because there was a consent (apparently) and because, by virtue of the debtor’s and the trustee’s discharge, the stay would terminate in any event.

[39] The other motion, also not opposed, was for approval of the trustee’s fees. There is no possible basis on which the debtor’s costs, if any, of responding to the trustee’s unopposed motion for his costs could be visited on Ms. Atkinson.

[40] Mr. Simpson conceded this in oral argument. He referred to the Master’s reference to “these motions” as “unfortunate” and submitted that it was, in effect, a mistake.

[41] I am only able to assess what appears in the record and what the Master said in his endorsement. The Master appears to have thought that some of his award of $6,000 was in respect of the trustee’s motion. This was both an error in principle and a palpable and overriding error of fact.

(c) Other Circumstances

[42] The Master referred to “other circumstances” without explanation. We do not know what “other circumstances” informed his award. We do know that, it in his Bill of Costs, the debtor alleged that Ms. Atkinson “unnecessarily delayed the distribution of the estate assets which prevented the determination of the balance, if any, owing to her” and “unnecessarily depleted the estate assets by increasing the trustee’s fees.” There is no evidence to support either of these contentions. The uncontested evidence is that the multiple adjournments were not at Ms. Atkinson’s request. The evidence is that it was Ms. Atkinson’s objections to the debtor’s discharge that gave rise to the $30,000 condition for his discharge and that it was her motion to lift the stay which ultimately corralled the debtor into actually paying the money. Ms. Atkinson’s conduct, far from depleting the assets of the estate, was largely responsible for substantially enhancing them.

Conclusion

[43] For these reasons, I come respectfully to the conclusion that the Master’s award of costs of $6,000 payable by Ms. Atkinson to the debtor must be set aside. There shall be no costs of that motion.

Costs

[44] I neglected to require from counsel at the close of oral argument their position on the costs of this appeal. I encourage the parties to come to an agreement on costs. In the absence of an agreement, however, Ms. Atkinson may seek her costs by filing a brief written submission, not to exceed two typed, doublespaced pages, together with a Bill of Costs and any supporting material, within 10 days. The debtor may respond to any such request by filing a written submission, subject to the same page limit, within a further seven days.

Penny J.

Date: January 13, 2015