COURT FILE NO.: 31-457579

ESTATE NO.: 31-457579

DATE: 20201203

SUPERIOR COURT OF JUSTICE – ONTARIO

– BANKRUPTCY AND INSOLVENCY

RE: IN THE MATTER OF the Bankruptcy of CHUL YUNG KIM

BEFORE: Hainey J.

COUNSEL: J. Ross Macfarlane, for Royal Bank of Canada

HEARD: December 1, 2020

ENDORSEMENT

Overview

[1] This is an appeal from the decision of Master Mills sitting as a Registrar in Bankruptcy dated October 8, 2020.

[2] Royal Bank of Canada (“RBC”) submitted a bill of costs to the trustee, msi Spergel Inc. (the “Trustee”) in the amount of $6,733.18 (the “Bill of Costs”), and asserted a preferred claim for these costs pursuant to ss. 70(2) and 136(1)(g) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 as am. (the “BIA”). The Bill of Costs was comprised of $6,000 in costs awarded to the Bank by Justice Henderson in his judgment against the bankrupt in a proceeding before bankruptcy, plus $733.18 claimed as execution costs for filing 3 writs of seizure and sale under Rule 60.19 of the Rules of Civil Procedure.

[3] Section 70 of the BIA provides as follows:

Precedence of bankruptcy orders and assignments

70 (1) Every bankruptcy order and every assignment made under this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, legal hypothecs of judgment creditors, executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or the creditor’s representative, and except the rights of a secured creditor.

Costs

(2) Despite subsection (1), one bill of costs of a barrister or solicitor or, in the Province of Quebec, an advocate, including the executing officer’s fees and land registration fees, shall be payable to the creditor who has first attached by way of garnishment or filed with the executing officer an attachment, execution or other process against the property of the bankrupt.

[4] Section 136.1 of the BIA sets out a series of preferred claims that are to be paid in descending order of priority, including subsection (g) which provides as follows:

Priority of claims

136 (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:

(g) the fees and costs referred to in subsection 70(2) but only to the extent of the realization from the property exigible thereunder; …

[5] The Trustee advised RBC that it required the Bill of costs to be taxed by the bankruptcy court, and sought the guidance of the Office of the Superintendent of Bankruptcy (“OSB”) on this point. The OSB expressed the view that the Bill of Costs needed to be taxed only to the extent of $733.18 and indicated that $6,000.00 did not need to be taxed because it has been ordered by a judge.

[6] RBC submitted the Bill of Costs, approved by the Trustee and the inspector in the estate, to the bankruptcy court in writing for taxation of the $733.18 amount. The Bill of Costs was entitled “Bill of Costs, s. 70(2), Royal Bank of Canada, a Creditor”.

[7] Master Mills issued an endorsement dated October 8, 2020, which stated as follows: “This is not an appropriate bill of costs and it is not properly subject to taxation. The cost order constitutes an unsecured claim in the bankruptcy estate. It is not an amount that ought to be paid from the bankruptcy estate in priority to other creditors. Taxation request denied.” The learned Master did not give further reasons.

[8] RBC submits that the Trustee should have reviewed the Bill of Costs and accepted it as a preferred claim under sections 70(2) and 136(1)(g) of the BIA. In Re Walker, 2010 BCSC 489, Justice Wong reviewed the jurisprudence concerning these sections, and stated at para. 13 that, “For the reasons that follow, I have concluded that s. 70(2) of the BIA grants a preference in favour of a litigant over the whole of the costs he or she is awarded in proceedings against a bankrupt prior to an assignment having been made, including appeals and execution proceedings connected with an original judgment. I have further determined that provided they have been awarded prior to an assignment in bankruptcy being made, these costs need not be taxed to fall within the scope of that provision.”

[9] The Trustee and the OSB did not take a position on this motion. I have concluded that the learned Master erred in determining that RBC’s Bill of Costs is an unsecured claim in the bankruptcy estate. I find that it is a proper claim within s. 70(2) of the BIA in the amount of $6,733.18. I am further satisfied that bills of costs under s. 70(2) of the BIA delivered to a trustee administering a bankruptcy estate should be reviewed by the trustee at first instance without requiring taxation, and the trustee should make the determination of whether the bills are properly a preferred claim under sections 70(2) and 136(1)(g) of the BIA. Such bills of costs do not require taxation by the bankruptcy court.

[10] For these reasons, I am satisfied that the order sought by RBC is appropriate, and I have signed the draft order presented to me. RBC has not sought costs, and no costs are awarded.

Hainey J.

Date: December 3, 2020