Royal Bank of Canada v. A-1 Asphalt Maintenance Ltd.
COURT FILE NO.: CV-14-10784-00CL
DATE: 20180131
SUPERIOR COURT OF JUSTICE – ONTARIO
(Commercial List)
RE: ROYAL BANK OF CANADA, Applicant
AND:
A-1 ASPHALT MAINTENANCE LTD., Respondent
Application under subsection 47.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, and section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended
BEFORE: Conway J.
COUNSEL: Raymond M. Slattery, for BDO Canada Limited Sam Babe, for Royal Bank of Canada Matthew Lerner and Patrick Healy, for The Guarantee Company of North America Daniel Resnick and Jeffrey Long, for IUOE 793 and LIUNA 837 Josh Hunter, for the Attorney General of Ontario (intervener) Paul Cavalluzzo, for LIUNA Local 183
HEARD: January 30 and 31, 2018
REASONS FOR DECISION
(Handwritten endorsement delivered in court)
[1] This is a priority dispute between the creditors/employees of A-1 Asphalt Maintenance Ltd. ("A-1"), which filed an NOI and was ultimately deemed bankrupt in late 2014.
[2] The essential facts are these:
A-1 was an Ontario private company engaged, inter alia, in the paving business.
It filed an NOI in November 2014. KPMG was proposal trustee. It was then appointed as interim receiver and later as full receiver pursuant to orders of Justice Newbould in December 2014. Those orders required the Receiver to establish 2 accounts, a Paving Projects Account and a general post-receivership account. Receipts from A-1's primary 4 paving projects with the City of Hamilton and the Town of Halton Hills were to be deposited into the former, along with receipts from all other paving projects. The Newbould J. orders were, in my view, completely neutral – they did not create any rights nor did they take away any rights, as explicitly stated in the orders.
The Receiver received monies from the City of Hamilton and the Town of Halton Hills and deposited them in the Paving Projects Account.
A-1 never filed a proposal and was deemed bankrupt.
The Receiver has monies that it wishes to distribute. The priority dispute before me involves (a) RBC, A-1's secured creditor; (b) GCNA, the bond company that paid out 20 lien claims on the Four Projects and is subrogated to those rights under the Construction Lien Act R.S.O. 1990, c. C. 30 (CLA); and (c) the Unions whose members worked on the Four Projects. The issues before me are:
Whether the funds in the Paving Projects Account are CLA trust funds that are excluded from A-1's property on bankruptcy pursuant to s. 67(1)(a) of the Bankruptcy and Insolvency Act R.S.C. 1985, c. B-3, as amended (BIA). If they are excluded, GCNA asserts trust claims against those funds, although that triggers a dispute about the proper allocation of those funds as between GCNA and the Unions.
If there is no surviving CLA trust claim, what is to be distributed to the Unions pursuant to the BIA and GCNA as a secured creditor on a pro rata basis (this latter is in effect accepted as an alternative position between RBC and GCNA). These latter issues are not controversial.
[3] The threshold issue in this case is therefore whether the CLA trust survives bankruptcy. GCNA argues that the funds paid to the Receiver by the City/Town were trust funds pursuant to s. 8(1)(a) of the CLA and were to be held in trust for the subcontractors on the Four Projects (to which GCNA has subrogated rights). As such, the funds are to be excluded from the bankruptcy. GCNA further argues that any co-mingling of these funds with other monies in the Paving Projects Account would not have had the effect of destroying the trust, as the monies are sitting in the account, have not been converted and are identifiable and ascertainable according to the Receiver's "meticulous" accounts.
[4] The parties further argued at length the issue of whether the statutory trusts created by the province under the CLA are inapplicable in a bankruptcy governed by the federal BIA on the grounds of paramountcy. I do not consider it necessary to address this constitutional issue because in my view that has been squarely addressed in the SCC case of Henfrey (British Columbia v. Henfrey Samson Blair Ltd. 1989 CanLII 43 (SCC), [1989] 2 S.C.R. 24) and is subsumed in McLachlin J.'s (as she then was) conclusion that for a provincial statutory trust to survive bankruptcy it must constitute a trust at common law and meet the 3 certainties of intent, object and subject matter. She also held that the answer to that question will depend on the facts of the particular case. While both RBC and GCNA urge this court to make a general pronouncement on the survival of a s. 8 CLA trust on bankruptcy, I do not need to do so on the facts of this case to decide the priority issue.
[5] Under s. 81(3) of the BIA, the onus is on GCNA to establish its trust claim in the amounts in the Paving Projects Account. In my view, it has failed to do so.
[6] Essentially, GCNA argues that the trust created by s. 8(1)(a) of the CLA satisfies the requirements of a common law trust. It argues that once money was owed by the City/Town to A-1, there was a statutory intention that those funds be held in trust for A-1's subcontractors (to the extent of the amount owed to them) and that the subcontractors were the object of the trust. The real problem in this case, however, is with the certainty of subject matter. Apart from the "deeming" language of s. 8 of the CLA, the funds owed to A-1 by the City/Town are not necessarily identifiable, do not necessarily come from any particular fund or account and are simply payable by the City/Town from its own revenues or other sources.
[7] Likewise, once the monies are paid to A-1, there was no established means for it to hold these monies separate from other funds and maintain their character as trust funds. As noted above, the Newbould J. order was neutral in requiring the funds to be placed in the Paving Projects Account. This is not an issue of the Receiver co-mingling the funds with other funds –in my view the issue was whether the funds paid to the Receiver had sufficient certainty of subject matter that they could be regarded as common law trust funds in the first place.
[8] This was unlike the case of GMAC Commercial Credit Corp. Canada v. TCT Logistics Inc., (2005) 2005 CanLII 3584 (ON CA), 7 C.B.R. (5th) 202 in which Feldman J.A. found a surviving trust when the statute in question required funds to be placed in a segregated account. It was clear in that case that the court examined more than just the deemed trust language in the provincial statute and decided it based on the regulatory requirement that protected the character of the funds as trust funds. Feldman J.A. also squarely rejected the proposition that a computerized accounting system was sufficient to provide the certainty of subject matter required for a common law trust. I am bound by her decision and I do not consider it overruled on this point by Graphicshoppe Ltd. (Re) 2005 CanLII 45183 (ONCA).
[9] To be clear, I am not suggesting that the statutory trust created by the CLA can never be recognized as a true trust for purposes of s. 67 of the BIA. I find that on the facts of this case, I am not satisfied that when the City/Town paid funds to the Receiver they were properly characterized as common law trust funds such that the trust survives A-1's bankruptcy.
[10] I therefore do not propose to address the dispute GCNA raises with the Unions' entitlement to trust funds, as that only applies if I had concluded that these were trust funds.
[11] Accordingly, it is conceded by the Unions that in the absence of a valid trust claim, the Unions will get their claims under the BIA. It is also recognized that GCNA will receive a pro rata distribution as a secured creditor. The Receiver has prepared an accounting of distributions under this scenario.
[12] The Unions seek, on their cross motion, a lift of the stay imposed by Pattillo J. in his order of April 8, 2015, para. 9, to pursue recovery of WEPP amounts. The Receiver does not oppose. I agree that the stay may be lifted.
[13] Parties may prepare the forms of orders for my signature at a 9:30 to be scheduled through the CL office.
[14] If RBC/GCNA cannot resolve the issue of costs as between them, written submissions not exceeding 2 pages may be made by RBC within 21 days and responded to by GCNA (2 pages) within 14 days thereafter.
Conway J.
Date of Reasons: January 31, 2018
Date of Release: February 20, 2018```