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Court File No.: 31-2213796 Date: 2020-03-11 Ontario Superior Court of Justice

Between: Dale Ottewell, Appellant – and – Christine Ann Davidson and Eleanor McKay, Respondents

Counsel: Sean Zeitz and Randy Schliemann, for the Appellant Brandon Jaffe, for the Respondents

Heard: January 17, 2020

Before: Dietrich J.

Overview

1The appellant Dale Ottewell appeals a decision of Master Jean, and a decision of Master Mills, each sitting as Registrar in Bankruptcy. The appellant is the former spouse of the respondent Christine Ann Davidson (the “Bankrupt”). The respondent Eleanor McKay is the Bankrupt’s mother.

2A unifying thread in the decision of each Master is an order made by Justice Vallee on April 20, 2017 (the “Vallee Order”). The Vallee Order was made, on consent, in a family law proceeding in this court between the appellant and the Bankrupt.

3The Bankrupt made an assignment in bankruptcy on February 2, 2017 and the Official Receiver appointed a trustee of her estate (the “Trustee”). The appellant is the largest creditor of Bankrupt’s estate, with an interest of nearly 92%.

4In the bankruptcy proceedings, the appellant claims that the Bankrupt did not include as one of her personal assets a residence at 17 Townley St., in the Town of Nottawa, in Simcoe County, Ontario (the “Property”). Ms. McKay is and has been the registered owner of the Property since 2009. The appellant seeks to prove that the Property is in fact beneficially owned by the Bankrupt. The Trustee has declined further investigation of the ownership of the Property and thus refused to include the Property as an asset of the Bankrupt’s estate.

5The Office of the Superintendent of Bankruptcy (“OSB”) concluded in its report that if it were proven that the Bankrupt owns the Property, the equity available to unsecured creditors would be $211,700. At the appellant’s request, and expense, the Trustee registered a caution on title to the Property on June 11, 2019.

6The appellant brought a motion pursuant to s. 38 of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (the “BIA”) for an order authorizing him, in place of the Trustee, to commence and prosecute proceedings in his own name, at his risk and expense, against the Bankrupt and Ms. McKay. In that proceeding, among other things, he would seek a declaration that the Bankrupt is the beneficial owner of the Property. Master Jean dismissed the appellant’s motion and he appeals this decision of Master Jean.

7As part of his attempt to prove beneficial ownership in the Property, the appellant also brought a motion pursuant to s. 163(2) of the BIA for an order to examine a number of witnesses under oath, including the Bankrupt, Ms. McKay and various others. Master Mills dismissed this motion. The appellant also appeals this decision of Master Mills.

8In dismissing each of the appellant’s motions, Master Jean and Master Mills, respectively, relied, in part, on the Vallee Order. The Vallee Order reflects the settlement agreement the spouses negotiated through counsel. Paragraph 13 of the Vallee Order reads: “The property located at 17 Townley Street shall not form part of Christine Ottewell’s property, assets or estate for any purpose.”

9The appellant asserts that each of Master Jean and Master Mills erred in her decision for a number of reasons including the reliance each placed on the Vallee Order.

10For the reasons that follow, I find that neither Master Jean nor Master Mills erred in their respective decisions. Accordingly, I would dismiss each of the appellant’s appeals.

Appellant’s Position on the Bankrupt

11The appellant’s submission is primarily focused on his allegation that the Bankrupt is the beneficial owner of the Property. He also asserts that she earns income that she does not disclose.

12The appellant submits that the Bankrupt provided a down payment of $45,000 for the Property but could not qualify for a mortgage. He submits that Ms. McKay purchased the Property, but she holds it in trust for the Bankrupt as beneficial owner.

13He further asserts that the Bankrupt earns income by renting the basement unit at the Property, as well as income from her cleaning service business. He alleges that the Bankrupt collects some of this income by directing her tenants and service recipients to deliver a cheque payable to “cash”, or to e-transfer cash, to a trusted friend, who then negotiates the cheque or receives the e-transfer and delivers cash to the Bankrupt.

14The appellant alleges that the Bankrupt does not disclose the rental or business income. He further alleges that the Bankrupt paid cash for all the renovations to the Property and that she pays for substantially all the expenses related to the Property.

15The appellant submits that the examination of the Bankrupt by the OSB was not satisfactory or sufficiently probative.

The Standard of Review

16An appeal from the decision of a master sitting as Registrar in Bankruptcy is allowed only where it is demonstrated that the Registrar erred in principle or in law, failed to consider a proper factor, or considered an improper factor, leading to a wrong conclusion. It is not the function of the reviewing judge to reweigh the evidence or allow the appeal simply because they would have exercised their discretion differently: Siler (Re), 2018 ABQB 465, [2018] 91 C.L.R. (4th) 347 (“Siler Appeal”) at paras. 9 and 55; Sally Creek Environs Corp, Re, 2010 ONCA 312, 261 O.A.C. 199 at para. 70, citing Impact Tool and Mould (Windsor) Inc. (Receiver of), 79 O.R. (3d) 241 (C.A.) at para. 48.

A. The Motion Pursuant to s. 38 of the BIA

17 Section 38(1) of the BIA provides as follows:

38 (1) Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.

18The appellant’s motion before Master Jean for an order under this section was to be heard on May 29, 2019. He did not serve, nor was he required to serve, the Bankrupt. Nonetheless, the Bankrupt appeared and brought the Vallee Order to Master Jean’s attention. The Bankrupt also alerted Master Jean to incidents of domestic violence allegedly visited on the Bankrupt by the appellant. Master Jean gave the Bankrupt standing. She also raised a number of issues and found that, at that time, the appellant had failed to demonstrate a prima facie case supported by evidence and not mere allegations. Master Jean adjourned the motion to permit it to be heard later on a complete record.

19The full motion was heard on June 7, 2019. The appellant had filed additional materials, including the Vallee Order. The Bankrupt had not filed any materials. Master Jean released her decision on September 16, 2019. She made these findings: a) the Vallee Order is plain and clear that the Property does not form part of the Bankrupt’s property for any purpose; and b) it would be inequitable to permit the appellant to pursue an interest in the Property when he consented to the Vallee Order. The Master declined to exercise her discretion to permit the appellant to do indirectly what he expressly agreed not to do.

The Appellant’s Position on the Appeal

20The appellant submits that Master Jean erred in permitting the Bankrupt to make submissions without having filed evidence on the motion. As part of those submissions, the Bankrupt disclosed the fact that the appellant pled guilty to domestic violence against her. The appellant asserts that Master Jean was influenced by this submission, which persuaded her that, because the appellant was a criminal, he may be abusing the BIA or perpetrating a fraud.

21The appellant asserts that Master Jean made errors in law in reaching all of her conclusions because, in essence, she concluded that the motion was an abuse of process, res judicata, and barred by issue estoppel because the Property ownership issue had already been decided in the Vallee Order.

22The appellant also submits that the Master erred in relying on the Vallee Order at both the May 29, 2019 hearing and the return of the motion on June 7, 2019 to support her position that the issue of the ownership of the Property had already been decided. The appellant asserts that the Vallee Order is not binding on the Trustee because it is an order in personam, and its effect is therefore binding only on the parties to it, i.e. the Bankrupt and the appellant, qua spouses. However, he asserts, it would not be binding on the appellant, qua trustee. In the latter case, he asserts, if he were permitted to proceed, he would be acting for the benefit of all creditors and not just himself.

23The appellant relies on Indcondo Building Corp. v. Sloan, 2012 ONCA 502, 352 D.L.R. (4th) 235 at para. 24, where the Court of Appeal for Ontario cited Shaw Estate (Trustee of) v. Nicol Island Development Inc., 2009 ONCA 276, 248 O.A.C. 35, at para. 72, in which Cronk J.A. described the effect of an action taken by creditors when the trustee refuses or fails to act: “A creditor obtaining a s. 38 order advances not his or her own cause of action but, rather, the trustee’s cause of action: Re Zammit (1998), 3 C.B.R. (4th) 193 (Ont. Gen. Div.) at para. 4.” This approach ensures that the bankrupt’s assets are preserved for the benefit of all creditors, in accordance with the intended purpose of s. 38(1) of the BIA.

24The appellant asserts that because he is a creditor of the Bankrupt; he requested the Trustee to initiate the proceeding; and the Trustee refused, he has met the test set out in s. 38. Therefore, he argues, it was incumbent on the Master to grant the order to permit him to proceed to determine whether the Property is in fact owned by the Bankrupt.

25For the reasons that follow, I find that the appellant has not met his burden to demonstrate that Master Jean erred in principle or in law, failed to consider a proper factor, or considered an improper factor, that led to a wrong conclusion.

Analysis

26The appellant is correct that to obtain an order that would allow him to proceed under s. 38 of the BIA, he must show that he is a creditor of the Bankrupt, that he asked the Trustee to initiate the proceeding, and that the Trustee refused. These facts are not disputed. However, the appellant must also show that there is threshold merit to the proposed proceeding (i.e. it is not obviously spurious): Siler Appeal at para. 35; Jolub Construction Ltd., Re, (1993) 21 C.B.R. (3d) 313 (Ont. Gen. Div. (In Bankruptcy)) at paras. 11-20; Smith v. Pricewaterhousecoopers Inc., 2013 ABCA 288, 245 A.R. 245 at paras. 16-23.

27To meet this relatively low threshold, an applicant must establish a prima facie case, supported by the evidence. Even if the threshold has been met, the court retains the discretion to decline or approve the institution of the proceeding with or without conditions: Jolub at paras. 14-15 and 24; Siler (Re), 2017 ABQB 534 at para. 44 (“Siler”); Siler Appeal at paras. 53-55.

28I reject the appellant’s submission that Master Jean was influenced by the submissions made by the Bankrupt relating to domestic abuse. In Master Jean’s endorsement following the May 29, 2019 hearing, the Master specifically states: “I explained that [this] matter raised was not relevant to the motion.” The matter referred to is the suggestion that the Bankrupt was a victim of spousal abuse and that the s. 38 motion was a continuation of the issues as between the spouses.

29I do not accept the appellant’s argument that Master Jean made errors in all her conclusions because, in essence, she concluded that the motion was an abuse of process, res judicata, and barred by issue estoppel. At the May 29, 2019 hearing, Master Jean raises a query as to whether issue estoppel and res judicata would apply. She draws no conclusion on the subject. Similarly, on process, she queries whether it would be an abuse of process to allow the appellant to proceed, under a s. 38 order, to reopen the issue of the ownership of the Property when it was he himself who agreed to compromise the issue.

30On the hearing of the full motion on June 7, 2017, Master Jean has the benefit of a more comprehensive record, including the Vallee Order. The Master reviewed the Vallee Order and concluded, based on the language of the Order, that it was “plain and clear – that the property does not form part of the bankrupt’s property for any purpose.”

31I disagree with the appellant’s argument that Master Jean did not have jurisdiction to review the Vallee Order and, in any event, improperly considered the Vallee Order. The appellant included the Order in his evidentiary record and it was relevant to the ownership of the Property. The onus is on the appellant to show that, notwithstanding the Vallee Order, he has a meritorious claim. His claim is based, in large measure, on a theory that the Property is owned by the Bankrupt. The Vallee Order, which was made in the context of a concurrent bankruptcy proceeding, clearly states that the Property does not form part of the Bankrupt’s estate “for any purpose.”

32Master Jean did not accept the appellant’s argument that the Vallee Order is an order in personam, and its effect is therefore binding only on the parties to it and not binding on the Trustee. She recognized that “the trustee is reposed in the right to assert an interest in the property”, and she found that “[i]t does not lie in the creditor’s mouth to argue that the trustee has rights to the property because the creditor himself … agreed to forego a claim to the property in the family proceedings.” Accordingly, she found that the appellant was attempting to do indirectly what he had expressly agreed not to do, that is, pursue the Property, largely for his own benefit. A fundamental distinction between the Indcondo case and the case at bar is that the appellant in the former case had obtained an order pursuant to s. 38(1) of the BIA. It was in the context of the creditor acting qua trustee that the Court of Appeal found that res judicata and issue estoppel did not apply, and that the creditor’s action did not amount to an abuse of process. By contrast, the issue before Master Jean was whether she would exercise her discretion to determine whether the appellant would be granted an order pursuant to s. 38(1).

33I find that Master Jean did not err in finding that the appellant failed to establish threshold merit to the proceeding in the face of the Vallee Order and that it would be inequitable to permit him to pursue an interest in the Property having consented to that Order. I also find that she did not err in declining to exercise her discretion to permit the appellant to step into the shoes of the Trustee to indirectly do what he had expressly agreed not to do. I find no error in principle or in law in her decision.

B. The Motion Pursuant to s. 163(2) of the BIA

34 Section 163(2) of the BIA provides as follows:

163 (2) On the application to the court by the Superintendent, any creditor or other interested person and on sufficient cause being shown, an order may be made for the examination under oath, before the registrar or other authorized person, of the trustee, the bankrupt, an inspector or a creditor, or any other person named in the order, for the purpose of investigating the administration of the estate of any bankrupt, and the court may further order any person liable to be so examined to produce any books, documents, correspondence or papers in the person’s possession or power relating in all or in part to the bankrupt, the trustee or any creditor, the costs of the examination and investigation to be in the discretion of the court.

35On the appellant’s motion, he sought to examine the Bankrupt, Ms. McKay and six other individuals, including the Bankrupt’s former boyfriends, regarding the Bankrupt’s interest in and dealings with the Property, and her income from her cleaning service business. Master Mills adjourned the motion to September 17, 2019 to permit the Bankrupt to retain and instruct counsel. The Bankrupt then filed responding materials before Master Mills, including the Vallee Order that the appellant had not filed.

36In her decision of September 17, 2019, Master Mills found that: a) based on the Vallee Order, the Property was not an asset of the Bankrupt’s estate and any inquiries or examinations respecting the Property would not shed light on or assist in the administration of the Bankrupt’s estate; and b) the evidence of the Bankrupt’s former boyfriends would be insufficiently probative to warrant compelling an examination of customers of the Bankrupt’s cleaning service business. Accordingly, she dismissed the motion.

The Appellant’s Position on the Appeal

37The appellant submits that the test for granting an order pursuant to s. 163(2) of the BIA sets a low bar. He relies on Re Merchant, 2018 NBQB 116, 61 C.B.R. (6th) 289 at para. 18 in support of his argument that he must “show sufficient cause to warrant an order … authorizing an examination of the bankrupt by someone other than the trustee.” He asserts that by adducing evidence disclosing that the Bankrupt has a beneficial interest in the Property, she receives rental income that has not been disclosed, and she is earning income through her cleaning service business that has not been disclosed, the appellant has met his onus to show something amiss with the administration of the estate.

38The appellant asserts that Master Mills made several errors in rejecting lines of inquiry, all of which depended upon the appellant’s submission that the Bankrupt is the owner of the Property.

Analysis

39To succeed on an application pursuant to s. 163(2), the applicant must have demonstrated something amiss with the estate or its administration; the party sought to be examined might reasonably be expected to shed some light on that which is amiss; and the appellant has provided evidence to demonstrate that the examination is neither frivolous nor oppressive, is for the general benefit of the creditors and involves the general administration of the Bankrupt’s estate: Re Merchant at paras. 17-18; Boozary Estate, Re, 18 C.B.R (5th) 205 (Ont. Sup. Ct.) at paras. 4 and 6.

40An order pursuant to s. 163(2) of the BIA is an interlocutory discretionary order that ought not be interfered with absent an error in principle or law: Black v. Ernst & Young Inc., 1997 NSCA 67, 47 C.B.R. (3d) 129 at paras. 33-34; Re Gervais, [1993] O.J. No. 1911 (Ont. Gen. Div. (In Bankruptcy)) at para. 22.

41The Court in Black, at paras. 38 and 41, held that errors of principle and law include failing to consider evidence filed in support of the motion, failing to identify the requirements of a s. 163(2) application and failing to identify the deficiencies in the application materials.

42Master Mills relied on the Vallee Order to find that the appellant had acknowledged that the Bankrupt is not the owner of the Property. She found that because the Property is owned by Ms. McKay, who would be entitled to the rental income generated from the Property, any examination or inquiries respecting the Property or the rental income would not shed light or assist in the administration of the Bankrupt’s estate.

43Independently of the Vallee Order, Master Mills also considered the evidence provided by the appellant, including the evidence of the Bankrupt’s ex-boyfriends, which she did not find to be sufficiently probative. Master Mills considered the Official Receiver’s Report from its examination of the Bankrupt. The Bankrupt’s evidence in this examination contradicts the allegations made by the appellant with respect to the income she earns from her cleaning services business and reports on her tax returns; the rent the Bankrupt pays to Ms. McKay to reside in the Property together with her children; the unsuitability of the basement of the Property for rental; and the temporary one-month use of the basement by a friend of the Bankrupt. Master Mills noted that the Official Receiver found no basis on which to take issue with the Bankrupt’s evidence.

44Having considered the evidence, Master Mills was not persuaded that the appellant met his onus. She found that the appellant provided mere allegations without evidence. She found that the examination of the proposed witnesses was, at its highest, a fishing expedition and not for the purposes of investigating the administration of the estate. Accordingly, she dismissed the motion.

45I find that Master Mills reviewed the evidence before her and she was not persuaded by it. There was sufficient evidence before Master Mills to allow her to conclude that the appellant had not met his onus to show that there is something amiss with the estate or its administration and that the parties sought to be examined might reasonably be able to shed some light on the concerns raised. It is not for the reviewing judge to reweigh the evidence. I find no error in principle or in law and I see no reason to interfere with the exercise of the Master’s discretion.

Disposition

46The appellant’s appeal to set aside the decision of Master Jean, dated September 16, 2019, is dismissed. The appellant’s appeal to set aside the decision of Master Mills, dated September 17, 2019, is also dismissed.

47The respondents shall be entitled to their costs of these appeals. Having heard their submissions on costs, I fix their costs at $6,675, inclusive of disbursements and HST, payable by the appellant.

Dietrich J.

Released: March 11, 2020

Overview

Appellant’s Position on the Bankrupt