CITATION: Bank of Montreal v. Kappeler, 2017 ONSC 6760
COURT FILE NO.: CV-13-10350-00CL
DATE OF HANDWRITTEN ENDORSEMENT: 20170919
DATE OF RELEASE: 20171115
SUPERIOR COURT OF JUSTICE – ONTARIO
(Commercial List)
RE: In the Matter of an Application pursuant to subsection 243(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended
And in the Matter of Section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended
BETWEEN: Bank of Montreal, Applicant
AND:
Kappeler Masonry Corporation, G.D.R. Inc. and CCP Management Solutions Inc., Respondents
BEFORE: Conway J.
COUNSEL: Sam Babe and Ian Aversa, for Bank of Montreal
Justin Heimpel, for Hargest Block Ltd. and Hargest Concrete Ltd.
David Ward, for Grant Thornton Limited, in its court-appointed capacity as Receiver for Kappeler Masonry Corporation, G.D.R. Inc. and CCP Management Solutions Inc.
HEARD: September 19, 2017
ENDORSEMENT
(Distribution Motion and Discharge Of Receiver
(Handwritten Reasons Delivered In Court)
[1] The Receiver of Kappeler (now bankrupt) seeks directions from this court approving distribution of the remaining funds to BMO, secured creditor of Kappeler. Hargest opposes the distribution of $147,119 to BMO. Kappeler was a masonry contractor. Hargest supplied block and concrete ready mix to Kappeler for various projects. Hargest claims that pursuant to the Construction Lien Ac, R.S.O. 1990, c. C.30 (“CLA”), funds collected by the Receiver were subject to a deemed trust in favour of Hargest as a subcontractor (s.8). Hargest argues that this is trust property that is excluded from the bankruptcy pursuant to s.67(1)(a) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (“BIA”). It relies on the trust provisions of the CLA and the fact that the Receiver is able to trace what materials were provided on what project and what revenues were derived from each project. Hargest argues, therefore, that even though all funds received by the Receiver were deposited into one account (pursuant to the Receivership Order) for all projects and all expenses paid from the account, this does not undermine the trust in favour of Hargest as these funds are identifiable and traceable.
[2] It was not contested by Hargest that the Supreme Court of Canada has established that provincial statutory deemed trusts cannot override the priorities set by federal bankruptcy legislation and that only trusts that can meet the definition of a trust under general trust principles can survive a bankruptcy: see British Columbia v. Henfrey Samson Blair Ltd., 1989 CanLII 43 (SCC), [1989] 2 S.C.R. 24. The issue, the, is whether the funds held by the Receiver can meet the three certainties of a trust: certainty of intent, object and subject matter.
[3] The difficulty in this case, as in Royal Bank v. Atlas Block, 2014 ONSC 3062, relying on GMAC Commercial Credit Corp. Canada v. TCT Logistics Inc. (2005), 2005 CanLII 3584 (ON CA), 7 C.B.R. (5th) 202, is with the certainty of subject matter. Neither the CLA nor the Receivership Order required any segregation of funds – as noted, all funds from all sources were put into the same Receiver account. I therefore cannot see how, in the absence of the deemed trust language of the CLA, the certainty of subject matter can be established to constitute a trust. The fact that the funds can be traced and identified is itself insufficient if the trust has not arisen in the first place.
[4] I therefore find that the funds claimed by Hargest are not trust funds within the meaning of s.67(1)(a) of the BIA. The Receiver is entitled to distribute them as property of the bankrupt estate to BMO.
[5] The remainder of the order sought by the Receiver is not opposed.
[6] Order to go as signed by me. Costs payable for this motion to BMO by Hargest on a party indemnity basis, in the amount of $10,000 all inclusive.
CONWAY J.
DATE OF HANDWRITTEN ENDORSEMENT: September 19, 2017
DATE OF RELEASE: November 15, 2017