Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
IN THE MATTER OF THE BANRUPTCY OF SEWSAMNKAR BISHNU
RE: WASSERMAN ASSOCISATES INC. in its capacity as the Trustee in Bankruptcy of Sewsankar Bishnu, Applicant
AND:
SEWSANKAR BISHNU and SURUIPAUL BISHNU, Respondents
BEFORE: L.A. Pattillo J.
COUNSEL: Heath P.L. Whiteley, for the Applicant
Abba Chima, for the Respondent Sewsankar Bishnu
Jameel Madhany, for the Respondent Suruipaul Bishnu
HEARD: September 28, 2021
ENDORSEMENT
Introduction
1Wasserman Associates Inc. the Trustee of the Estate of the respondent Sewsankar Bishnu, a bankrupt (the “Bankrupt”), brings this motion seeking multiple orders in relation to the Bankrupt and his brother, the respondent Suruipaul Bishnu (“Paul”).
2The Bankrupt filed a voluntary assignment under the Bankruptcy and Insolvency Act (“BIA”) on August 20, 2003. The relief the Trustee seeks is in relation to an action commenced by it against the Bankrupt, Paul and others in December 2004 claiming conveyances of certain properties by the Bankrupt prior to the assignment should be set aside pursuant to s. 91 of the BIA as fraudulent conveyances (the “Action”). On this motion, the Trustee seeks orders:
a) Approving the activities of the Trustee as set out in Reports dated April 6, 2013 and April 14, 2021;
b) Granting leave to proceed with a notice of motion dated April 10, 2013;
c) Setting aside the order of Lax J. dated March 12, 2007;
d) If necessary, declaring the Notice of Discontinuance dated October 31, 2007, is of no force or effect;
e) Authorizing the Trustee to continue prosecuting the statement of claim in the Action;
f) Granting the Trustee leave to amend the statement of claim in the Action;
g) Setting a timetable for the conduct of the Action; and
h) Authorizing the Trustee to initiate proceedings in accordance with s. 205 of the BIA for the prosecution of the Bankrupt and Paul for offences under the BIA and/or the Criminal Code.
Background
3As indicated by the date of bankruptcy, the date of the commencement of the Action and the relief sought by the Trustee, there is a long history to this matter which needs to be reviewed before I can address the relief requested.
4At the first meeting of creditors of the Bankrupt, on August 31, 2004, the Trustee was authorized to obtain certificates of pending litigation (“CPL”) against certain properties, two of which were 89 Main Street (“89 Main”) and 5 Newlyn Crescent (“5 Newlyn”) in Brampton and commence an application for fraudulent conveyance against the Bankrupt and others (including Paul) relating to the properties, including 89 Main and 5 Newlyn.
5On November 26, 2004, the Trustee obtained an order from Pepall J. (as she then was) granting it leave to issue CPLs against 89 Main and 5 Newlyn; converting the Trustee’s fraudulent conveyance application to a trial of the issue; and setting a timetable for filing a statement of claim, delivery of defences, affidavits of documents, examinations for discovery, subsequent motions, if any, followed by a 9:30 am scheduling appointment (the “Pepall Order”).
6The CPLs were registered against 89 Main and 5 Newlyn on December 9, 2004 and on December 18, 2004, the Trustee issued the statement of claim in the Action (Court File 04-CL-5664) against the Bankrupt, Paul, Egbert Beckles (“Beckles”) and others in respect of 89 Main and 5 Newlyn.
789 Main was originally purchased by the Bankrupt and Danwantie Jagainarine (“DJ”), his then common law spouse, in April 1999. The Bankrupt subsequently transferred his interest to DJ in December 1999 for no consideration. In January 2002, DJ transferred a 60% interest to Paul and 40% to Gopaulram Tularam (Tularam), the Bankrupt’s brother-in-law. In August 2002, Tularam transferred his interest to Paul. The claim sought a declaration that the conveyance from the Bankrupt to DJ for no consideration and subsequently by DJ to Paul and Tularam were void pursuant to s. 91 of the BIA.
85 Newlyn was originally acquired by the Bankrupt, Paul, and his wife Nazlena Baksh. The Bankrupt subsequently transferred his interest to Paul in December 1999 who subsequently sold the property to Beckles in or around April 2004. The claim sought a declaration that the conveyance from the Bankrupt to Paul, allegedly for no consideration, was void pursuant to s. 91 of the BIA.
9Subsequently, statements of defence from all the defendants and affidavits of documents (not from the Bankrupt) were delivered in accordance with the Pepall Order, however, no discoveries were ever held.
10On November 7, 2005, pursuant to a settlement reached between the Trustee and Beckles, the Action was dismissed against Beckles pursuant to the order of Farley J.
11On March 12, 2007, on motion by Paul, Lax J. issued an order discharging the CPL on 89 Main and awarding costs of $2,500 against the Trustee (the “Lax Order”). No one appeared for the Trustee. The Trustee paid the costs ordered on June 18, 2007.
12The Trustee has produced as Exhibit 16 to its April 14, 2021 Report, a Notice of Discontinuance dated October 31, 2007, from the Trustee to Joseph Markin, Paul’s then counsel, “wholly” discontinuing the Action against Paul.
13The next event in the chronology occurred on October 25, 2011, when the Bankrupt brought a motion in Family Court in Brampton to vary the support provisions in the order of Brockenshire J. dated October 6, 1999 in favour of Dipikeben Makwana (“DM”), a former common law spouse of the Bankrupt with whom he’d had a child (the Family Proceeding). DM responded, in part, by seeking an order setting aside the conveyances of both 89 Main and 5 Newlyn as fraudulent on the basis that she was a creditor of the Bankrupt. The Family Proceeding was scheduled to be heard in Brampton on June 6, 2013.
14On April 24, 2013, on a motion brought by DM, Miller J. ordered that Paul be added as a party to the Family Proceeding in respect of the claims concerning 89 Main and 5 Newlyn. In her endorsement, Miller J. stated, in part:
I am satisfied, based on the evidence of the timing of the transfers together with the circumstances of those transfers, that there is an evidentiary basis upon which the trial court could find that an order could be made against Suruipaul Bishnu, in relation to the properties owned by him at 5 Newlyn Crescent and 89 Main Street South Brampton pursuant to Rule 7(5) of the Family Law Rules.
15At the same time, pursuant to the Trustee’s motion, Miller J. granted the Trustee intervenor status in the Family Proceeding and ordered that Paul was prohibited from dealing with 89 Main without the consent of the Trustee or further order of the court.
16Nothing happened in the Action until April 8, 2013, when the Trustee brought a motion seeking for directions and an order from the court permitting the Trustee to continue the Action. The notice of motion contained no request to set aside either the Lax Order or the October 31, 2007 Notice of Discontinuance. In the April 6, 2013 Report filed in support of the motion, the Trustee explained that the delay in proceeding with the Action was due to lack of Estate funds and the lawyer with carriage of the Action for the Trustee had left his firm.
17The motion came before Morawetz J. (as he then was) for scheduling. In an endorsement dated June 14, 2013, the learned judge stated the motion would not be scheduled (the “Morawetz Order”). Rather, a Case Conference was desirable given “the overall economic positions and interests of the parties.” He directed the parties to schedule a Case Conference before him to review their respective positions. He further stated:
It is noted that the Inspector from CRA has resigned. CRA is the largest creditors. The second largest creditors, the former common law spouse, is involved in family law proceedings with the Bankrupt and the Trustee has intervened. The two remaining unsecured creditors total approximately $10,000.00. Further explanation is required.
No motion to be brought in this matter without leave.
18The Family Proceeding was heard by Bielby J. (the “Motion Judge”) over 17 days beginning on May 12, 2014 and concluding on March 3, 2017. On August 23, 2017, the Motion Judge released lengthy reasons for judgment which dealt in part with the allegations of DM, supported by the Trustee, concerning the alleged fraudulent conveyances of 89 Main and 5 Newlyn by the Bankrupt (the “Bielby Judgment”).
19Although 5 Newlyn was before the court in the Family Proceeding, the Motion Judge noted that no relief was sought in respect of it because it had been sold at arms-length to an unrelated third party (Beckles).
20With respect to 89 Main, DM, supported by the Trustee, requested that the court void the transactions involving the Bankrupt and Paul and order that the property be vacated and sold. In dismissing the fraudulent conveyance claim, the Motion Judge held:
a) The Bankrupt’s conveyance of his interest in 89 Main to DJ in December 1999 was done to protect his interest from creditors (DM and CRA) and accordingly violated s. 2 of the Fraudulent Conveyances Act (FCA);
b) DJ’s subsequent conveyance of the property to Paul and Tularam in January 2002 was for good consideration. Paul subsequently bought out Tularam’s interest in the summer of 2002 and has resided at 89 Main since that time and has made all the mortgage payments. Further, Paul had no knowledge of fraudulent intent.
21The Bielby Judgment concerning fraudulent conveyance was appealed by DJ to the Court of Appeal. The Trustee again sought and was granted intervenor status. The appeal was heard on May 29, 2019. For reasons dated June 29, 2019, the Court dismissed the appeal (2019 ONCA 543).
22In its factum on the appeal, the Trustee sought, among other things, orders that the December 1999 transfers of 89 Main and 5 Newlyn by the Bankrupt were fraudulent conveyances, were therefore void against the Trustee and all subsequent transfers continue to be void against the Trustee.
23In dismissing the appeal in respect of fraudulent conveyance, the Court stated, with respect to 89 Main, at para. 23:
The appellant and the trustee may have a remedy against the proceeds of the earlier conveyance that was found to be fraudulent, but as the property has been transferred to a good faith purchaser for value, they have no remedy against the property or the transferee.
24The present motion was scheduled by Koehnen J. on March 15, 2021. It appears the Trustee failed to bring to the court’s attention the Morawetz Order of June 14, 2013 providing that no motion could be brought in the Action without leave. Nevertheless, I have treated the Trustee’s motion as requesting leave.
Discussion
25The main relief that the Trustee requests is authorization to continue with the Action. As part of dealing with that issue, I will first address some of the other relief requested which is directly related.
a) The Lax Order and the Notice of Discontinuance of the Action in favour of Paul
26In order to be able to continue the Action, in particular against Paul in respect of 89 Main, the Trustee seeks to set aside the Lax Order vacating the CPL on 89 Main and the October 31, 2007 Notice of Discontinuance of the Action in favour of Paul.
27In its April 21, 2021 Report, the Trustee takes the position that the CPL was obtained without proper service based on the affidavit of service of Paul’s motion record. That position is contradicted, however, by the Trustee’s own documents which make it clear it was served with the motion record and chose not to appear on the motion.
28The affidavit of service of the motion record states it was sent to the Trustee’s office at 5140 Yonge Street, Suite 606 by regular mail on February 16, 2007. It appears from a corporate search at the time that the Trustee’s office was at Suite 2250 at the same address. Nevertheless, the letter accompanying the motion record, dated February 12, 2007, from Joseph Markin, Paul’s counsel, is stamped “Received Feb 16, 2007” indicating the Trustee received the motion record. Further, in an email to the Trustee’s counsel on February 19, 2007, Mr. Wasserman states in the second paragraph: “However, the Trustee has now been served with a motion from Joseph Markin and the estate must respond and deal with the issue.” In the minutes of the Second Meeting of Inspectors in the Bankruptcy held on March 6, 2007, it notes the Trustee has received motion material from Mr. Markin requesting that the CPL be lifted and stating the estate has no choice but to respond in some manner.
29I don’t accept the Trustee’s position that there was not proper service of the motion record. Even if that was the case, however, it is clear from the Trustee’s own documents that it came to the Trustee’s attention well before the motion date. Further, the Trustee does not meet the requirements of rule 37.14 which requires that a motion to set aside an order made without notice must be brought forthwith after the order comes to the person’s attention. The Lax Order obviously came to the Trustee’s attention sometime prior to June 18, 2007, when it paid the costs ordered by it. Commencing the motion to set it aside the Order some 14 years after it comes to one’s attention, is the antithesis of forthwith.
30In the April 14, 2021 Report (para. 24), the Trustee states that the October 31, 2007 Notice of Discontinuance was produced by Paul in the Family Proceeding. It further states: “The Trustee had no knowledge of, nor even seen previously, the Notice of Discontinuance. Further the Trustee never authorized the preparation of the Notice of Discontinuance. The Trustee has not been able to locate a copy of the Notice of Discontinuance in the court file.”
31Once again, the Trustee’s statements are contradicted by its own documents. In a fax transmission to Mr. Markin on March 7, 2007, the Trustee states that he has received instructions at an inspectors’ meeting to consent to a discontinuance of the Action on the condition of no costs and the exchange of mutual releases. On July 9, 2007, Mr. Markin wrote to the Trustee seeking confirmation that the Trustee will consent to a dismissal of the Action against Paul without costs to avoid a summary judgment motion.
32On August 8, 2007, the Trustee sent a fax transmission to Mr. Markin and Mr. Wasserman wrote on the cover sheet: “Mr. Markin: I agree to a dismissal on consent without costs and mutual releases. Let me know.” On September 17, 2007, Mr. Markin sent a letter to the Trustee enclosing a mutual release and advising he would be forwarding Paul’s signed release shortly to be held in escrow pending receipt of the Trustee’s release.
33Finally, in a letter dated November 12, 2007, addressed to the court, Mr. Markin enclosed the Notice of Discontinuance. Mr. Wasserman is copied on that letter.
34I am satisfied from the above documents and particularly the August 8, 2007 fax sheet from the Trustee to Mr. Markin with Mr. Wasserman’s handwritten note agreeing to a dismissal of the Action on consent against Paul that the Trustee settled the Action against Paul in 2007 on the basis of a dismissal without costs and mutual releases.
35As noted, the above correspondence comes from the Trustee’s records. The Trustee submits it is incomplete. Unfortunately, Mr. Markin died in 2018 and Paul’s counsel has been unable to locate his files relating to the Action and Paul. Nevertheless, in my view, what has been produced is clear. Further, the Trustee has produced no documentary evidence to dispute it.
36For the above reasons, the Trustee’s requests for orders setting aside the Lax Order and the October 31, 2007 Notice of Discontinuance are denied.
b) Authorization to Proceed with the Action
37The Trustee seeks orders granting it leave to proceed with its notice of motion dated April 10, 2013; authorizing it to continue prosecuting the statement of claim in the Action; leave to amend the statement of claim; and a timetable to conduct the Action.
38Paul submits that the Action cannot be continued against him as it was settled with the Trustee and discontinued against him in 2007. I agree. Based on the above finding that the Trustee settled the Action against Paul in 2007, I would not grant the requested relief against Paul.
39In addition, both the Bankrupt and Paul submit that based on the findings in the Bielby Judgment, as confirmed by the Court of Appeal, the Trustee’s claims of fraudulent conveyance asserted in the Action are res judicata against them such that the Action cannot proceed.
40In response, the Trustee submits that the doctrine of res judicata does not apply as it was only an intervenor to the Family Proceeding and neither a party nor a privy. In the alternative, it relies on what it alleges is new evidence not before the Motion Judge which suggests the Bankrupt and Paul “perjured themselves” and misled the Motion Judge. It also attacks the Bankrupt’s credibility as found in prior judicial proceedings.
41The Trustee concedes that it cannot proceed against Paul in respect of 89 Main. It submits, however, that it can continue the Action against him in respect of 5 Newlyn. It submits that when Paul conveyed 5 Newlyn to Beckles, he received approximately $100,000 which monies should have been available to the Trustee. Further, the Bielby Judgment made no finding in respect of 5 Newlyn such that neither cause of action nor issue estoppel apply.
Res Judicata
42The purpose of the doctrine of res judicata is to promote judicial finality: Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460 at para. 20; Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141 at para.33. It comprises two branches: cause of action estoppel and issue estoppel.
43Cause of action estoppel applies in the following circumstances: there must be a final decision; the parties in the subsequent action were also parties to or privies of the parties to the final decision in the prior action; the cause of action in the prior action is not separate and distinct; and the basis of the cause of action in the subsequent action either must have been argued or could have been argued in the prior action if the party in question had exercised reasonable diligence: Danyluk at para. 25; The Catalyst Capital Group Inc. v. VimpelCom Ltd., 2019 ONCA 354 at paras. 54-58.
44Issue estoppel is narrower. It applies where the same question has been decided; the judicial decision which is said to create the estoppel is final; and the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised: Danyluk at para. 25.
45In Bank of Montreal v. Mitchell, 1997 CanLII 12306 (ON SC), [1997] OJ No. 602, 143 D.L.R. (4th) 697 (ON SC) at para 66, Farley J. defined privity of interest as follows:
For privy of interest to exist there must be a sufficient degree of connection or identification between the two parties for it to be just and common sense to hold that a court decision involving the party litigant that it should be binding in a subsequent proceeding upon the non-litigant party in the original proceeding, as discussed above, where that non-litigant party has sufficient interest in those proceedings to intervene but instead chooses to stand by and have the battle in which he has a practical and legal concern fought by someone else, it is appropriate to have the non-litigant abide by that previous decision.
46In this case, there is no issue the Bielby Judgment is final. At issue in the Family Proceeding was the claim for fraudulent conveyance in respect of both 89 Main and 5 Newlyn in December 1999 and subsequent conveyances. The Motion Judge dismissed the claim and that finding was upheld on appeal.
47The Trustee submits that the Bielby Judgment is not res judicata in respect of 5 Newlyn as no finding was made in respect of it. The claim against 5 Newlyn was before the court but not proceeded with by DM or the Trustee.
48Nor do I consider the statement at para. 23 of the Court of Appeal’s reasons that the Trustee “may” have a remedy against the proceeds of the “earlier conveyance” found to have been fraudulent to mean that the Trustee can proceed with such a claim in the Action. Neither the Action nor the issue of res judicata were before the Court. The cause of action is fraudulent conveyance. The remedy may be either against the property, the proceeds, or both. The fact that DM and the Trustee chose to seek a remedy against the properties and not the proceeds does not mean res judicata does not apply to the claim for fraudulent conveyance. The remedy of “proceeds” could have been sought by DM and the Trustee but wasn’t.
49As noted, the Trustee submits that it was not a party to the Bielby Judgment, only an intervenor such that res judicata does not apply. While called an intervenor, the Trustee actively participated in the Family Proceeding both at the hearing and on appeal in respect of the claims of fraudulent conveyance. It sought relief in its favour, produced substantive documents, was represented by counsel at both the hearing and on the appeal, called evidence and made submissions to the courts. In my view, given the nature of its involvement in the Family Proceedings in respect of the claims of fraudulent conveyance, it was in fact, if not in name, a party. In the alternative, even if not technically a party, given its involvement in the fraudulent conveyance issues, it was certainly a privy such that it is bound by the Bielby Judgment.
50For the above reasons, based on the Bielby Judgment dismissing the claim for fraudulent conveyance against both the Bankrupt and Paul, as upheld by the Court of Appeal, I find that the issues in the Action against both the Bankrupt and Paul concerning 89 Main and 5 Newlyn are res judicata and accordingly the Trustee cannot proceed with the Action against them.
Fresh Evidence
51The Trustee submits that the Action should be allowed to proceed against both the Bankrupt and Paul based on information it has obtained subsequently that calls into question their testimony before the Motion Judge.
52The Trustee states that, based on information filed by the Bankrupt in the Bankruptcy proceedings, it conducted further investigation (both before and after the Bielby Judgment) into the financial affairs of the Bankrupt which establish a scheme involving the Bankrupt, DJ and Paul to conceal the Bankrupt’s true interest in 89 Main and 5 Newlyn. As a result, the Trustee submits Paul was not a “purchaser in good faith and for valuable consideration” in respect of 89 Main (or 5 Newlyn) as found by the Motion Judge. The main evidence the Trustee relies on is a s. 163 examination of DJ (the Bankrupt’s former partner who was party to the December 1999 conveyances) which was conducted on November 3 and 17, 2017.
53In my view, the information which the Trustee now seeks to rely on is evidence that either was in the Trustee’s possession before the hearing of the Family Proceeding or could have been with reasonable diligence. Further, it was clearly available to the Trustee well before the appeal was heard and not brought to the Court’s attention.
54As noted, the Trustee mainly relies on the evidence of DJ obtained on the s. 163 exam held in November of 2017. DJ was always a person of interest given that she was party to the alleged fraudulent conveyances of both 89 Main and 5 Newlyn. The Trustee could have conducted a s. 163 exam of her in the 11 years that transpired before the hearing in the Family Proceeding but didn’t. She was on the witness list for the hearing and when not called by the Bankrupt or Paul, could have been called by the Trustee. She wasn’t. Further, the s. 163 exam relied upon by the Trustee was conducted after the Bielby Judgment but well before the appeal. If the evidence was so important as to negate the Motion Judge’s findings, it should have been put before the Court of Appeal by way of a motion for fresh evidence. In those circumstances, it cannot now be used to attack the findings in the Bielby Judgment in order to permit the Action to proceed.
55For the above reasons, the Trustee’s request for authorization to proceed with the Action, together with the ancillary relief in respect thereof, is denied.
Other Relief Requested
56The Trustee seeks authorization for it to initiate proceedings against both the Bankrupt and Paul for offences under the BIA and/or the Criminal Code. In all of the circumstances as set out herein and particularly given the time ts which has elapsed and the events which have occurred from the date of bankruptcy, I am not prepared to provide such authorization.
57Finally, the Trustee seeks an order approving the activities set out in its Reports of April 6, 2013 and April 14, 2021. Given my findings concerning the inaccurate factual statements in the Reports, I am not prepared to approve them. The Trustee is a court officer and has a duty to provide the court with accurate information. That has not happened here.
Conclusion
58For the above reasons, while I grant leave to the Trustee to bring its motion, the motion is dismissed in its entirety.
59Both the Bankrupt and Paul seek costs against the Trustee personally in respect of the motion. The Trustee submits that costs should be in the cause if it is successful and there should be no costs if the motion is dismissed.
60Trustees in bankruptcy may be liable for costs personally in respect of litigation in circumstances where it had no statutory duty to pursue the litigation, took an adversarial, non-neutral position, and knew or ought to have known that there will likely be insufficient assets in the estate to satisfy an award of costs in the event the trustee is unsuccessful in the litigation: Farm Mutual Financial Services Inc. (Re), 2010 ONSC 2184, per Morawetz J. (as he then was) at paras. 5,6 and 7.
61Those circumstances are all present in respect of the Trustee’s motion. The Trustee had no authority from the inspectors to bring the motion. In fact, the sole inspector had resigned prior to the Morawetz Order in June 2013. As was noted by the Trustee in its April 6, 2013 Report, the Estate had no money and the Trustee and its counsel were owed money in respect of their services. That situation had not changed when the Trustee brought its motion. The Trustee clearly knew when it brought the motion that there were no assets in the Estate to satisfy any cost award. Finally, the position of the Trustee on the motion was clearly not neutral. It was very much adversarial.
62In my view, given that I have dismissed the motion, it is not appropriate in the circumstances to order no costs. Rather, as the Bankrupt and Paul have been successful in the result, they are each entitled to their costs of the motion on a partial indemnity basis against both the Estate and the Trustee personally, jointly and severally.
63In support of its claim for costs, the Bankrupt has filed a Costs Outline claiming partial indemnity costs totaling $21,140.95 made up of fees of $19,990 and disbursements of $1,150.95.
64Paul’s Cost Outline seeks partial indemnity costs totaling $18,656.30 made up of fees of $18,520.70 and disbursements of $135.60.
65The Trustee has not filed a Costs Outline.
66While I consider the hourly rates claimed by both the Bankrupt and Paul to be reasonable, I have some concerns with the hours claimed. In particular, while both counsel claim a fee based on a full day’s appearance, the motion only took about 3 hours to argue. Further, based on the argument, it is clear in my view, that Paul’s counsel took the lion’s share of the argument in respect of res judicata which was the only issue the Bankrupt relied on.
67In all of the circumstances, therefore, I fix the partial indemnity costs of the motion payable jointly and severally by the Estate and the Trustee for the Bankrupt at $15,000 and for Paul at $18,000. In my view, those costs are fair and reasonable having regard to the issues raised and their complexity. Payable forthwith.
L.A. Pattillo J.
Released: October 15, 2021