Court File and Parties

COURT FILE NO.: CV-19-2035 COURT FILE NO.: 35-2122786 DATE: 2021-06-15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Brian Wayne Flight c.o.b. as Heritage Painters & Services and Amber Nicole Flight, Plaintiffs AND: John Adamson, Defendant AND RE: In the Matter of the Bankruptcy of Brian Wayne Flight

BEFORE: Justice Tranquilli

COUNSEL: Tara Vasdani, for the Plaintiffs C. Haddon Murray, for the Defendant

HEARD: May 31, 2021

Endorsement

[1] The plaintiff Brian Flight is a four-time bankrupt over 13 years. He claims his financial ruin is the fault of the defendant John Adamson. Mr. Adamson was the trustee in bankruptcy for his estate throughout the bankruptcies.

[2] Mr. Flight and his spouse bring this claim personally against the trustee in bankruptcy in negligence, fraud, breach of fiduciary duty, unjust enrichment and conversion. The plaintiffs claim the defendant failed to detect and appropriately respond to fraudulent activities by the plaintiff’s bookkeeper. They seek damages in the range of $10 million.

[3] Mr. Flight brings this motion for direction as to whether he requires leave of this court to continue this action against the defendant pursuant to s. 215 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. The plaintiffs submit that leave is not required. In the alternative, they claim that leave should be given. The defendant submits that leave is required, and that leave should not be given as the claim is frivolous and vexatious and does not disclose a cause of action.

Background

[4] Mr. Flight is the sole proprietor of Heritage Painters & Services. He made four assignments in bankruptcy between 2004 and 2016. Adamson & Associates Inc. was appointed as the plaintiff’s licensed insolvency trustee on each occasion. The defendant John Adamson is a licensed insolvency trustee with Adamson & Associates Inc. and had carriage of each of the plaintiff’s bankruptcies.

[5] The plaintiff filed for his fourth bankruptcy in May 2016. In or about January 2018, the plaintiff claims he discovered that his former bookkeeper misappropriated approximately $206,000 from his sole proprietorship between 2006 and 2018.

[6] The relationship between the plaintiff and defendant soured after this alleged discovery. Their differences generally relate to particulars of the alleged fraud, the plaintiff’s disclosure of the fraud to the trustee, the impact of the fraud on the bankruptcies, and Mr. Flight’s discharge from his fourth bankruptcy.

[7] Their differences came forward to a discharge hearing in bankruptcy court in July 2019. In August 2019 the deputy registrar of the bankruptcy court suspended the plaintiff’s discharge for 12 months on conditions. The parties later disagreed as to whether the plaintiff satisfied the conditions necessary for his discharge. In September 2020, the plaintiff brought a motion before the bankruptcy court seeking an absolute discharge.

[8] However, in October 2020, the plaintiff then retained another licensed insolvency trustee and opted to file a consumer proposal just before the discharge hearing. The consumer proposal had the effect of annulling the bankruptcy. Mr. Flight then abandoned his motion seeking an absolute discharge.

The Proceeding

[9] In September 2019, the plaintiff issued a notice of action against the defendant in court file number CV-19-1884, seeking declaratory relief and damages against the defendant in connection with his administration of the bankrupt estate. The trustee advised that the plaintiff would require leave of the court pursuant to s. 215 of the BIA and that the issues were more properly addressed through an application to the court under s. 37 of the act.

[10] For reasons not explained on this motion, the plaintiffs then started this action against the defendant in October 2019 seeking substantially the same relief. In December 2020, the plaintiffs extensively amended the claim. The allegations in the amended statement of claim are contained within some 30 unnumbered pages and 210 paragraphs.

[11] The amended claim seeks a declaration the defendant engaged in misfeasance, negligence, fraud and breach of fiduciary duty in his personal capacity, and that the defendant was unjustly enriched.

[12] The claim alleges the theft caused the plaintiff’s repeated bankruptcies and that the defendant trustee ought to have detected this fraud in the administration of the four bankruptcies. The plaintiff maintains that the trustee then failed to take any meaningful action to address the alleged fraud and its impact on the fourth bankruptcy after its discovery. In particular, the plaintiff claims the trustee failed to diligently commence an action against the former bookkeeper, failed to investigate the fraud, failed to adjust the plaintiff’s surplus income, failed to recommend a consumer proposal in alternative to bankruptcy and failed to have the plaintiff promptly discharged from his fourth bankruptcy. The defendant’s alleged “grand failure to act” caused Mr. Flight damages of $10 million from loss of business, loss of profit, loss of income and pain and suffering. His spouse claims damages of $1 million for similar losses and $2 million pursuant to s. 61(1) of the Family Law Act, R.S.O. 1990, c. F.3. The plaintiffs also claim aggravated and punitive damages of $2 million.

Positions of the Parties

[13] The plaintiffs submit that leave is not required as their action is not captured by the BIA. The plaintiffs’ claims against the defendant are personal in negligence, misfeasance, fraud, conversion and breach of fiduciary duty. If leave is required, it ought to be granted as Mr. Flight has met his evidentiary burden to supply the necessary facts to support his alleged claims as is required: GMAC Commercial Credit Corp. – Canada v. T.C.T. Logistics Inc., 2006 SCC 35. Although he did not have capacity to start the claim at the time it was issued, he is no longer a bankrupt and leave can be granted nunc pro tunc.

[14] The defendant submits that leave to continue this action under s. 215 of the BIA is required as the plaintiffs’ complaints relate to his administration of the estate. Any complaints could have been addressed through that process, such as through s. 37 of the BIA. Leave ought not to be granted as the claim fails to disclose a cause of action in accordance with the requirements: GMAC, supra. The claim offends the rules of pleading and the allegations are frivolous and vexatious. Some allegations are barred by the trustee’s discharge in the three prior bankruptcies. Importantly, the core of the plaintiffs’ claim is a collateral attack on the deputy registrar’s bankruptcy decision of August 2019, which the plaintiff did not appeal. The facts ostensibly relied upon by the plaintiffs in support of their claims are also demonstrably false or inaccurate. As an officer of the court, the trustee could not owe the duties to the plaintiffs as alleged and there is no proximity between the trustee and plaintiffs on which to base a duty of care. Finally, Mr. Flight’s spouse has no standing to claim damages either personally or as a Family Law Act claimant.

Analysis

[15] The threshold issue is whether the plaintiffs required leave to commence this action. If it is determined that leave is required, the analysis then moves to whether the claim meets the test for leave as set out in GMAC, supra.

[16] Section 215 of the BIA provides as follows:

Except by leave of the court, no action lies against the Superintendent, an official receiver, an interim receiver or a trustee with respect to a report made under, or any action taken pursuant to, this Act.

[17] There is authority to support the plaintiffs’ position that leave is not required where the trustee is being sued in its personal capacity: Canadian Glacier Beverage Corp. v. Barnes & Kissack Inc., 1999 CanLII 6577 (BCSC), Re 298157 Alberta Ltd., 2005 ABQB 941, Environmental Metal Works Ltd. v. Murray, Faber & Associates, 2013 ABQB 479. More particularly, the Supreme Court of Canada held that the leave provision under the BIA is not to be interpreted as though it applied to any action arising out of the administration of the estate. That is not the way the section is worded. To allege that the trustee made an act of omission is not with respect to a report made under or any action taken pursuant to the BIA: Mercure v. Marquette & Fils, 1975 CanLII 195 (SCC), [1977] 1 S.C.R. 547 at 551-552.

[18] The plaintiffs allege causes of action against the trustee in his personal capacity in their amended statement of claim and affidavit materials for negligence, fraud, breach of fiduciary duty, unjust enrichment and conversion. I conclude that the plaintiffs do not require leave under s. 215 of the BIA to commence this action.

[19] I therefore will not consider whether the plaintiffs’ claims meet the test for leave as endorsed in GMAC, supra. This decision that leave is not required does not address the merits of the pleading or the causes of actions alleged. The defendant did not bring a cross motion on those issues. The issues raised by the defendant in this motion: the sufficiency of pleading, whether the claim discloses reasonable causes of action, are frivolous and vexatious, a collateral attack and the merits of the claim - are best left to be addressed on future motions as the defendant may see fit. I am not seized of this matter.

[20] I encourage the parties to resolve the issue of costs. If they are unable to resolve costs, the parties shall serve and file brief written submissions of no more than three pages in length, double-spaced and standard formatting. The plaintiffs shall serve and file their cost submissions by June 25, 2021. The defendant shall serve and file his cost submissions by July 6, 2021. No reply or supplementary submissions can be made without leave.

Tranquilli J.

Date: June 15, 2021