CITATION: Re Bambrick, 2015 ONSC 7488

COURT FILE NO.: 31-1069562

DATE: 20151202

SUPERIOR COURT OF JUSTICE - ONTARIO

IN BANKRUPTCY AND INSOLVENCY

RE: THE BANKRUPTCY OF JAMES NORMAN BAMBRICK OF THE TOWNSHIP OF UXBRIDGE IN THE PROVINCE OF ONTARIO

BEFORE: MESBUR J.

COUNSEL: Robert A. Klotz, for the creditor/appellant, Deborah Deshaies

Brandon Jaffe, for A. Farber & Partners Inc., Trustee of the Estate of James Norman Bambrick, a bankrupt, respondent

HEARD: November 26, 2015

E N D O R S E M E N T

The motion:

[1] This is an appeal from the bankruptcy Trustee’s disallowance of a proof of claim from Deborah Deshaies. Deborah Deshaies and the bankrupt are husband and wife. They began living together in October 1986, married on August 2, 1997, and separated in either the spring or fall of 2005. The bankrupt filed an assignment in bankruptcy in May 2008 during the course of acrimonious matrimonial litigation between him and the wife.

The background facts:

[2] In 2006 at some time after the separation, the wife commenced a family law proceeding. On May 15, 2008 the bankrupt, husband declared bankruptcy. On June 17, 2008 the wife filed a proof of claim in the bankruptcy for an unsecured claim of “$500,000 approx.” The Schedule attached in support of the proof of claim reads as follows:

I am the wife of the undischarged bankrupt in this matter. He and I are involved in protracted Family Law litigation. I have claimed for an equalization of net family property, and there is an existing Order requiring certain assets owned by us both jointly and separately to be preserved pending further Order of the Court.

It is clear that the bankrupt depleted our assets, and he may have failed to preserve assets that were required by the Court to be preserved. Accordingly, I intend to make a claim for all of the assets owned by the bankrupt as at the date of bankruptcy. Additionally, I have knowledge of assets that have not been disclosed by the bankrupt, as well as falsehoods contained in the Statement of Affairs.

I intend to appear at the First Meeting of Creditors, but wish to have it adjourned so that my solicitor, Howard E. Warren, who cannot attend on June 23, 2008, might be able to attend the next meeting, and be appointed as an inspector.

[3] On June 19 the Trustee returned the wife’s proof of claim to her lawyer, asking that the following corrections be made to the Proof of Claim:

The Schedule “A” attached to your Proof of Claim is insufficient. The Schedule “A” should be a statement of account or affidavit or solemn declaration specifying the vouchers or other evidence in support of the claim.

[4] In response, the wife sent an amended proof of claim. In it, she added a claim for $3,600 for which she claimed priority under s. 136 of the BIA. This time she attached an affidavit to support her claim. The affidavit attached a statement from the FRO showing arrears of support owing by the bankrupt.[^1] She alleged the bankrupt was in arrears of support payments to her.

[5] Secondly, she deposed:

As well, I have a claim against both our jointly owned assets, and assets owned by Mr. Bambrick solely, pursuant to an equalization of net family property claim, which I launched in the Superior Court of Justice at Newmarket.

[6] The wife attached what purported to be a true copy of her Application. The document attached is under Court File Number FC-06-124304-00, and is stated to be an “Amended Application”. It is unsigned by the Clerk of the court, and has no indication on it of when, or on what basis, it was amended, or indeed whether it was ever issued or served. The underlined, or amended portions, of the application, include claims for a divorce, spousal support child support and custody under the Divorce Act, spousal and child support and custody and ancillary relief under the Family Law Act or Children’s Law Reform Act, and equalization of net family property, exclusive possession of the matrimonial home and its contents, and freezing assets under the Family Law Act. Finally, she claims an accounting of the bankrupt`s business activities, and an advance on equalization or interim fees and disbursements.

[7] If this amended application (or indeed the initial application) had been issued by the court and served on the bankrupt, the wife would have been required to deliver a sworn financial statement under the Family Law Rules. Her husband would have been required to do the same. At no time since the date of bankruptcy has the wife ever provided the trustee with her own financial statement, the bankrupt’s sworn financial statement or her own net family property (NFP) statement, setting out her position on equalization. The wife never sought an order to lift the bankruptcy stay so that she could pursue an equalization claim and have it quantified by the court. This was so even though her matrimonial counsel was appointed an inspector of the bankrupt’s estate, and remained so for a period of about two years following the bankruptcy.

[8] The family law trial come on before Kaufman J in Newmarket on May 31 and June 1 of 2011. At this point, both the wife and the bankrupt appeared in person. Kaufman J delivered a lengthy written judgment on August 8, 2012. He described the issues between the parties as follows:

The issues … are custody, access, child support and contribution to section 7 expenses, spousal support, arrears of support and a request for a Restraining Order. The issue of equalization of net family property was not an issue reflected in the Application but it was clearly of the most concern for the Applicant including determining the extent of household contents and possessions removed by the Respondent. [emphasis added]

[9] From this statement I infer the “Amended” application the wife had attached to her amended Proof of Claim had never actually been issued by the court, and was not before the trial judge.

[10] The trial judge went on to note at paragraph 7 of his decision:

There is no specific claim regarding the equalization issue. Even if the Applicant had been allowed to amend at trial, she would have had no ability to pursue this relief in light of the Respondent’s assignment in bankruptcy that occurred after the separation in or about May 2008. As of trial, he remains an undischarged bankrupt. By virtue of the bankruptcy the property of the Respondent passes to his Trustee. The Trustee steps into the shoes of the bankrupt and is bound by court orders affecting the Respondent’s property made prior to the assignment. In this case the Applicant did not previously request leave of the Bankruptcy Court to pursue her equalization claim in this proceeding.

[11] From these statements I conclude the wife has never actually made a claim in any proceeding for equalization of net family property.

[12] The trial judge went on to find that the wife had not claimed a constructive trust or resulting trust in her pleadings either, and did not come to court prepared to establish ownership in any asset held in the bankrupt’s name. Importantly, the trial judge found at paragraph 24 of his reasons:

It would appear that even if the Applicant could proceed on the equalization claim that the Respondent would have a negative NFP which would deny the Applicant an equalization payment.

[13] The only NFP statement the wife has been able to produce in the course of the seven years since the bankruptcy is one dated June of 2007 prepared by the bankrupt. A copy of it is among the documents the Trustee has produced as being among the contents of its file. Whatever its deficiencies (for example, it does not include any premarital assets for either party, although clearly they owned a home and business at the date of marriage) it shows the wife owing the bankrupt an equalization payment, and not the other way around.

[14] It was only long after the trial judge released his decision that the trustee disallowed the wife’s claim. The trustee did so in April of 2013. The Notice of Disallowance gives the following reasons for the disallowance:

The Trustee is in receipt of information that no arrears for child and/or spousal support exists as at the date of bankruptcy. In addition, the Family Responsibility Office has withdrawn its claim in the amount of $3,600 filed on your behalf on October 10, 2008.

The Trustee has not received supporting documentation regarding your claim of $500,000.

[15] The wife launched her appeal from the Trustee’s disallowance in May of 2013, within the 30-day appeal period. She did nothing, however, to pursue her claims until the Trustee brought the matter back on before the court on a scheduling appointment last month. Not surprisingly, the Trustee would like to complete this estate.

The appeal:

[16] The wife’s counsel could not articulate whether this appeal should properly proceed as a hearing de novo, or by way of a strict appeal. The trustee’s position, relying on the Court of Appeal’s decision in Re Credifinance Securities Ltd.[^2] is that an appeal from a disallowance should proceed as a true appeal. There, the court cited with approval the decision of the Registrar in Re Charelstown Residential School[^3].

[17] In that case, the Registrar dealt with a motion to determine whether a creditor was entitled to a hearing de novo when appealing from a notice of disallowance. At paragraph 1 of her decision she determined that “appeals of this nature are generally to proceed as true appeals based on the materials relied on by the Trustee in the decision to disallow a claim. However, in this particular case, the appeal is to be a hearing de novo as to proceed otherwise would result in an injustice to the creditor.” In coming to this conclusion she said, at paragraph 18, “where an error has been committed by the Trustee or the interests of justice would only be served with an appeal de novo, it is open to the court to direct the appeal to proceed accordingly failing which, the appeal of a Notice of Disallowance ought to proceed based on the record before the Trustee.”

[18] From these statements I conclude the general rule is indeed to proceed by way of “true” appeal, on the basis of the materials the trustee relied on. The court retains discretion to conduct a new hearing if the Trustee committed an error or the interests of justice require it. The onus of establishing the latter would lie with the appellant creditor.

[19] On the record before me, I have not been provided with any evidence to suggest that the interests of justice would only be served by having a hearing de novo. The evidentiary record before me is large. It is the complete record the trustee had to decide whether to allow the wife’s proof of claim or not. It is sufficient for me to decide the appeal.

[20] The wife’s counsel takes the position that the trustee’s notice of disallowance simply suggests she has provided no documentation to support her claim. He reasons that since the wife had produced a great deal of documentation (albeit, not attached to her proof of claim) the notice of disallowance is clearly incorrect, and the claim should be allowed, or referred to the Registrar for a summary hearing to quantify the claim.

[21] I disagree. As I read the disallowance, the trustee is really saying the wife has failed to provide sufficient documentation to support/prove her claim. It is on this basis I will address the issue of whether the notice of disallowance should be set aside.

[22] The wife’s counsel goes further, and says that his client was suffering from a nervous breakdown at the time of the family law trial, and was without counsel at the time. While this may be so, she took no steps to appeal or set aside the judgment. It was delivered more than three years ago. This argument appears to be an impermissible oblique or collateral attack on Justice Kaufman’s findings.

[23] As I see it, this is, or should be a simple question of whether the Trustee was correct in disallowing the wife’s claim on the basis of the material she produced to support or prove it. In this regard, I note that the affidavit filed in support of the amended proof of claim was sworn by her then lawyer’s office. It was her lawyer who sent the amended proof of claim to the trustee. He was apparently her matrimonial counsel at the time, and presumably knew the kind of evidence required to quantify a claim for an equalization payment.

[24] The wife asserts she has produced mountains of additional material to the Trustee. The trustee has provided the court with all of it for this appeal. From what has been filed on this appeal, I can find nothing that would lead me to conclude there is sufficient evidence to support the wife’s claim she is owed an equalization payment of $500,000 from the bankrupt, or indeed any equalization payment at all. The trustee has produced all the documents in its file. The documents are in two briefs, and total well in excess of 200 pages. This material includes everything the trustee received from the wife. None of it is sufficient for the court (or indeed, the trustee) to calculate the respective NFP of each of the wife and the bankrupt, and to then determine if the bankrupt owed an equalization payment to the wife.

[25] To this date, the wife has still failed to produce the necessary evidence to allow anyone, whether the Trustee or the court, to determine whether or not the bankrupt ever owed her an equalization payment, even if she had actually claimed it.[^4]

[26] The wife sought to introduce a further affidavit on the eve of her cross-examination with further “supporting” evidence. The trustee vigorously opposed its introduction, saying the appeal should be decided on the basis of the evidence the trustee had in coming to the decision to disallow the claim. I agree. Even if I had decided to admit the affidavit (which I did review), nothing in it assists the wife in proving or even properly quantifying an equalization claim. In a nutshell, her position is and has been that the Trustee has made no good faith efforts to quantify her claim.

[27] This position, which her counsel reiterated in argument, reverses the onus. It is up to the creditor to produce the necessary evidence to support the claim. The wife has failed to do so at any time since the date of separation from the bankrupt, whether before or after the bankruptcy. She failed to assert an equalization claim. She failed to adduce evidence at trial regarding any entitlement, either to equalization or to a proprietary interest in any property. The only evidence before the trial judge led him to conclude there would be no equalization payment owing to the wife in any event.

[28] Nothing the wife has produced on this appeal has persuaded me otherwise. The Trustee was correct to disallow the wife’s claim.

Result:

[29] The appeal is dismissed. While I recognize the trustee has been put to expense in responding to the claim, and the estate has no funds, the wife is apparently in difficult financial circumstances, too. In the result, I exercise my discretion and decline to make any costs order against the wife.

MESBUR J.

Released: 20151202

[^1]: The FRO also filed a proof of claim for arrears of support owing to the wife. It later withdrew it. The current statement of arrears from the FRO shows a credit amount. From this I infer nothing is owing to the wife on account of support arrears, and likely was not owing at the date of bankruptcy, or has been since paid.

[^2]: 2011 ONCA 160

[^3]: 2010 ONSC 4099

[^4]: This of course raises the very real question of whether the wife would even be able to assert a claim now for equalization of net family property ten years after the date of separation. Although Mr. Klotz suggests that while the bankruptcy continues, the limitation period is tolled, the case law Mr. Jaffe has produced would seem to say the contrary. Either way, that is not an issue for the court to decide on this motion.