CITATION: Moroch v. Hucal, 2016 ONSC 6975

BARRIE COURT FILE NO.: 10-0749

DATE: 20161109

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GABRIEL MOROCH, Plaintiff

AND:

TARAS HUCAL and IRENE HUCAL, Defendants

AND:

SYLVIA HOLLOWAY, ROBERT LYON, EMIL MOROCH and BOB MOROCH, Third Parties

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL: A. Pantel, Agent for the Defendants

D. Harris-Lowe, for the Third Parties

HEARD: October 18, 2016

ENDORSEMENT

Nature of the Motion

[1] The third parties bring this motion for an order compelling one of the defendants to pay their costs of defending the third party claim. In this endorsement, that defendant is referred to as the “third party plaintiff” and the third parties are referred to as the defendants.

Issues

[2] The issue to be decided on this motion is whether a costs order is able to be made where:

(1) The third party plaintiffs made an assignment into bankruptcy during the course of the litigation, prior to judgment being given;

(2) Following discharge, the trustee in bankruptcy sold and assigned the third party claim to one of the third party plaintiffs;

(3) Thereafter, that third party plaintiff served and filed a Notice of Discontinuance in the third party action.

Analysis

[3] Both the third party plaintiff and the defendant agree that the action itself is not a provable claim in bankruptcy, by virtue of s. 121 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, and, therefore, neither are the costs. They differ on whether the claim for costs nonetheless survives the bankruptcy discharge. The rule set out in Re British Gold Fields of West Africa, [1899] 2 Ch. 7 (Eng.C.A.), as interpreted in Houlden and Morawetz, Bankruptcy And Insolvency Analysis, Chap. G§36, p. 14 is that where a defendant’s costs are concerned, if no judgment is given against him or her and no order is made for payment of costs until after he or she becomes bankrupt, costs are not a provable debt. In such case, there is no provable debt to which the costs are incident and there is no liability to pay by reason of any obligation incurred by the bankrupt before bankruptcy, nor are the costs a contingent liability to which the debtor can be said to be subject at the date of his or her bankruptcy.

[4] Although the defendants rely on Talwerdi v. Infonet Technology Corp, 2002 BCSC 322, that case is distinguished by the fact that the judgment was given prior to the date of bankruptcy, and the costs were therefore held to be a provable claim.

[5] Also distinguishable is the case of Chaloux v. Kingston Fairways Golf Course, 2004 CarswellOnt 361 (S.C.J), on which the defendants also rely. Costs were awarded after the bankrupt’s discharge for a personal injury action, which he had commenced prior to bankruptcy. The basis for ordering such costs was that the action never vested in the trustee. The same is not true for this action; it vested in the trustee and became part of the estate in bankruptcy pursuant to s. 71 of the Bankruptcy and Insolvency Act. The trustee in the case before the court in fact assigned the action to the third party plaintiff. The action did not vest in the trustee in Chaloux because it was a personal injury action. On the basis of Holley v. Gifford Smith Ltd, [1986] O.J. No.165 (Ont. C.A.) and Hollister, Re (1926), 30 O.W.N 328 (Ont.S.C.), the court concluded in Chaloux that the action had not become the property of the trustee.

[6] Counsel for the defendants argues that this court should find likewise because the defendants were seeking damages for liable and slander. Holley v. Gifford, at page 11, exempts claims for negligence or mental suffering arising from liable and slander. The argument of the defendants’ counsel fails because their claim in this case, in substance, was not framed as a damage claim arising out of the tort of infliction of mental suffering. Not all liable and slander actions can be equated with that tort; they are distinct claims, and liable and slander can be actionable without proof of damages. This is not to diminish the effect of the third party plaintiff’s spurious and hurtful litigation claims on the defendants, particularly Sylvia Holloway, but this court must acknowledge the policy rationale behind only allowing personal injury claims to move forward after bankruptcy.

[7] The assignment to the third party plaintiff does not change the character of the matter. There is no reason to depart from the established rule, as it would allow the defendants to ignore the bankruptcy proceeding and its intended effect. I take account of the proposition cited Mr. Morris’ factum, citing Thompson Kernaghan & Co., Re, 2003 CarswellOnt 1937 (S.C.J.), that trustees have a duty under the Bankruptcy and Insolvency Act to maximize the realization of assets of the estate to obtain a reasonable dividend for creditors. I also find sound the argument set out in the same factum that purchasers of claims from trustees would be hesitant and reluctant to purchase claims if not assured that such purchases are free of cost liability. The scheme of the Bankruptcy and Insolvency Act would be eroded if the value of assets sold or assigned by the trustee was attached by all liabilities to creditors, or potential creditors that existed prior to bankruptcy. In this case, given that no judgment had been rendered before bankruptcy, the costs sought to be recovered by the defendants did not even exist at the time of the assignment.

[8] In the result, the defendant’s motion for costs is dismissed. Counsel agreed that costs would be awarded to the successful party in the amount of $4,000.00. Accordingly, an order shall issue for the payment of costs in that amount by the defendants to the third party plaintiff for the motion.

HEALEY J.

Date: November 9, 2016