COURT FILE NO.: 33-2357945 DATE: 2022/02/23

ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY and INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF MICHEL A. TESSIER OF THE MUNICIPALITY OF LIMOGES IN THE PROVINCE OF ONTARIO

BEFORE: Justice Stanley J. Kershman

HEARD IN OTTAWA: November 24, 2021 by Zoom

APPEARANCE: Geoffrey Cullwick and Eric Dwyer, for the Trustee Bernier and Associates Inc. J. Alden Christian, for Sonya Tessier

DECISION on motion

Introduction

[1] This is a motion brought by Bernier and Associates Inc. (the “Trustee”) to enforce the settlement between Mr. Tessier’s (the “Bankrupt”) now former spouse and the Trustee regarding the proceeds of sale from the home, which she jointly owned with the Bankrupt, located at 908 Saint Pierre Road, Embrun, Ontario (the “Property”).

Factual Background

Bankruptcy

[2] Mr. Tessier filed for bankruptcy on March 22, 2018, and Bernier and Associates Inc. was appointed as the trustee.

[3] As part of the bankruptcy process, the Bankrupt completed a Statement of Affairs in which he swore that he was the one-half owner of the Property. The estimated value of the Property was $450,000. It indicated that there was a secured lien against the house of $325,000 and the estimated net realizable dollar value to the Estate was $40,000.

[4] The Trustee opposed the Bankrupt’s discharge on December 19, 2018 for a variety of reasons, including that the Bankrupt failed to attend a second counselling session, failed to remit monthly income statements, and failed to complete his monthly payment agreement.

[5] On June 21, 2019, the Bankrupt’s discharge was adjourned sine die.

[6] The Bankrupt completed his conditions and was granted a discharge on September 20, 2019.

[7] The Trustee prepared a Statement of Receipts and Disbursements that indicated the amounts received and proposed to be paid out by the Trustee. It specifically included a note at the end (“Note 1”) stating: “50% – 908, Saint Pierre Road, Embrun, Ontario – The co-owner of the Property refused to proceed with the sales and there is not enough money in the bankruptcy file to take legal procedures against the co-owner. Therefore, the Trustee registered his appointment on the title of the Property and maintain his interest on the equity for the benefit of the unsecured creditors.”

[8] On February 14, 2020, the Trustee was discharged in the Estate.

Property

[9] The Bankrupt and Ms. Tessier purchased the Property as joint tenants on or about February 21, 2012 from her parents.

[10] They separated on or around October 2016 and shared use of the Property on a weekly basis until or around November 2017, when Mr. Tessier left.

[11] Mr. Trudel, the Trustee representative, understood that Ms. Tessier was still living at the Property at the time of Mr. Tessier's bankruptcy. His evidence is that he attempted to contact her numerous times by phone, email, and letter, but Ms. Tessier did not respond or acknowledge any of the correspondence or calls.

[12] On March 27, 2018, approximately five days after the bankruptcy filing, Mr. Trudel wrote to Ms. Tessier to notify her of Mr. Tessier's bankruptcy and requesting cooperation to permit the Trustee to obtain an appraisal of the Property. He did not receive a response.

[13] On April 20, 2018, Mr. Trudel wrote to Ms. Tessier by registered mail advising her again that Mr. Tessier had filed for bankruptcy and that the Trustee intended to realize on Mr. Tessier’s assets for the benefit of his creditors, and requested that she permit the Trustee to have a professional appraise the Property. Again, Ms. Tessier did not respond to the registered letter. That letter was returned to the Trustee’s office.

[14] The Trustee hired Maz Karimjee of Royal LePage to appraise the Property. According to Mr. Trudel, Mr. Karimjee made numerous attempts to contact Ms. Tessier and to visit the Property, but Ms. Tessier refused and/or neglected to permit Mr. Karimjee to inspect or appraise the Property.

[15] As a result, the Trustee was unable to determine the Property’s fair market value.

[16] The Trustee stated that there were insufficient assets in the Estate to enable the Trustee to take the necessary legal steps to force the sale of the Property. To reserve the rights of the unsecured creditors, the Trustee registered a copy of its Application as Trustee in Bankruptcy on title to the Property on or about February 1, 2019 as instrument No. RC 130420. This registration took place approximately six months before Mr. Tessier obtained his discharge from bankruptcy on September 20, 2019.

[17] In the fall of 2020, Ms. Tessier contacted Mr. Trudel by conference call with her new common law husband and asked him to explain why the Trustee was registered on title. Mr. Trudel advised her that she was aware of the situation and that the Bankrupt’s discharge did not change these facts and suggested that if she genuinely did not understand why the Trustee was registered on title, that she should retain a lawyer of her choice prior to selling the Property.

[18] Notwithstanding that Ms. Tessier was aware of the Trustee's interest in the Property, she proceeded to take steps to sell the Property without notifying the Trustee.

[19] Ms. Tessier signed an Agreement of Purchase and Sale on or about March 6, 2021.

[20] On or about March 25, 2021, Mr. Trudel was contacted by Ms. Tessier's now former lawyer, Ms. Alexandra Nantel-Soucy, who was acting for Ms. Tessier in the sale of the Property. Ms. Nantel-Soucy informed Mr. Trudel that Ms. Tessier had entered into an Agreement of Purchase and Sale to sell the Property and was seeking the Trustee’s cooperation in completing the sale. Ms. Nantel-Soucy further advised Mr. Trudel that Ms. Tessier alleged she had no information or knowledge about the bankruptcy. Mr. Trudel said that this was clearly false based on his attempts to contact her, as previously described, and Ms. Tessier calling to ask why the Trustee was registered on title.

[21] A series of negotiations took place between the Trustee and Ms. Nantel-Soucy with respect to the equity in the Property and how the sale proceeds were to be divided.

[22] In the end, the matter was resolved by an offer put forward by Ms. Nantel-Soucy, as set out in a trust ledger prepared by her dated April 28, 2021, that was subsequently accepted by the Trustee. The trust ledger included a breakdown showing each party would receive $162,461.91 of the remaining equity.

[23] The Trustee signed the necessary documentation and the transaction closed on or about May 4, 2021. No monies were paid to the Trustee who followed up with Ms. Nantel-Soucy.

[24] On May 26, 2021, Ms. Nantel-Soucy advised the Trustee that she no longer represented Ms. Tessier and that Ms. Tessier’s new legal counsel would contact him. She further indicated that Ms. Tessier was now contesting the amount to be paid to the Estate.

[25] After May 26, 2021, the Trustee was advised that Ms. Tessier obtained an order from Desormeau J. in the Family Court in Cornwall on April 7, 2021 stating that she could, among other things, sell the property without Mr. Tessier’s consent and that the parties were divorced.

Applicable Sections of the Bankruptcy and Insolvency Act

[26] The following are the applicable sections of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”):

Disposal of unrealizable property

40 (1) Any property of a bankrupt that is listed in the statement of affairs referred to in paragraph 158(d) or otherwise disclosed to the trustee before the bankrupt’s discharge and that is found incapable of realization must be returned to the bankrupt before the trustee’s application for discharge, but if inspectors have been appointed, the trustee may do so only with their permission.

Final disposition of property

(2) Where a trustee is unable to dispose of any property as provided in this section, the court may make such order as it may consider necessary.

Application to court

41 (1) When a trustee has completed the duties required of him with respect to the administration of the property of a bankrupt, he shall apply to the court for a discharge.

When estate deemed fully administered

(4) When a trustee’s accounts have been approved by the inspectors and taxed by the court and all objections, applications, oppositions, motions and appeals have been settled or disposed of and all dividends have been paid, the estate is deemed to have been fully administered.

Trustee remains

(10) Notwithstanding his discharge, the trustee remains the trustee of the estate for the performance of such duties as may be incidental to the full administration of the estate.

Appointment of trustee by court to complete administration

(11) The court, on being satisfied that there are assets that have not been realized or distributed, may, on the application of any interested person, appoint a trustee to complete the administration of the estate of the bankrupt, and the trustee shall be governed by the provisions of this Act, in so far as they are applicable.

Issue #1 - Is the Trustee entitled to bring this motion without first seeking to be reappointed as Trustee?

Ms. Tessier’s Position

[27] Ms. Tessier argues that the Trustee has failed to seek the court’s permission to be reappointed as Trustee and therefore has no standing to bring the motion on behalf of the Estate. She relies on the case of Deloitte & Touche LLP v. Marino (2004), 72 O.R. (3d) 274, in which the Court of Appeal explains the proper steps a Trustee must take if the assets of the bankrupt remain unrealized. These steps are set out in paragraphs 20 and 21 of the decision.

The Trustee’s Position

[28] The Trustee argues that it had registered its interest on title prior to both it and the Bankrupt being discharged and that it was always the intention of the Estate to realize on the Bankrupt’s equity in the Property.

[29] The Trustee argues that the Statement of Receipts and Disbursements, which was filed with the court, indicates at Note 1 that the Trustee had registered its interest on the title to the Property for the benefit of the unsecured creditors and that the Trustee was unable to resolve the issue of its interest with the co-owner.

[30] The Trustee argues that pursuant to section 41(10) of the BIA, notwithstanding its discharge, the Trustee remains the Trustee of the Estate for the performance of such duties as may be incidental to the full administration of the Estate.

[31] The Trustee argues that all it was doing was seeking to realize its share of the equity in the Property for the creditors of the Estate. It argued that bringing the motion to enforce settlement was incidental to enforcing the settlement reached with the co-owner.

[32] The Trustee relies on the case of Roe McNeill & Company v. McNeill, 2011 BCSC 1156, 84 C.B.R. (5th) 139. In that case, the court noted, at para. 28, that in Re Shelson (2004), 70 O.R. (3d) 171, the Court of Appeal recognized that section 41(10) of the BIA could be used by a discharged trustee to realize on assets.

[33] In Roe McNeill & Company, the court stated at para. 29:

Following on the Shelson case it appears to me that if a trustee can realise on assets after his discharge, he can equally accept a compromise of a claim after his discharge. In the circumstances of this case, it would be unreasonable to expect the trustee to have delayed his discharge pending the outcome of the Boughton action. If the action were not settled it might have taken several more years to be tried and a possible appeal heard. I also do not think the statute contemplates the necessity of a trustee being appointed for a decision of this nature. I conclude that the decision is within the scope of s. 41(10).

[34] The Trustee also argues that no one took issue that the Trustee had authority to sign the closing documents, which it did.

[35] The Trustee argues that it made attempts to contact Ms. Tessier and no direct communication was achieved to resolve the issue of the Bankrupt’s equity in the Property.

[36] The Trustee argues that the court could now reappoint the Trustee to realize on the Estate at this time.

[37] The Trustee relies on the case of Re Collins (2009), 52 C.B.R. (5th) 105, at para. 22, in which the court reappointed the trustee to safeguard the estate and realize on the property.

Analysis

[38] As set out in Houlden and Morawetz, Bankruptcy and Insolvency Law of Canada, at p. 1-6.4: “[t]he BIA should be interpreted broadly in its entire context and harmoniously with the object and scheme of the Act; it is a commercial statute used by business people that should not be given an overly narrow or legalistic approach”: citing Port Alice Specialty Cellulose Inc. Estate (Trustee of) v. ConocoPhillips Co. (2005), 2005 BCCA 299, 11 C.B.R. (5th) 279.

[39] The BIA has several purposes. Included in those purposes is to provide “a regime whereby the creditors of a bankrupt will pursue their claims by collective action through the trustee so the assets of the bankrupt can be realized and distributed on an equitable basis subject to the priorities of preferred creditors and the rights of secured creditors”: Houlden and Morawetz, at p. 1-3, citing Dartmouth (City) v. Barclays Bank of Canada (1996), 1996 NSCA 119, 40 C.B.R. (3d) 1.

[40] A close reading of section 40(1) says that where property is found incapable of realization, it must be returned to the bankrupt.

[41] There is no evidence that the Bankrupt’s interest in the Property was found to be incapable of realization. The Property had equity, which was disclosed in the Statement of Affairs. The Statement of Receipts and Disbursements declared that the Trustee had registered on title but that no resolution relating to the equity was reached with Ms. Tessier.

[42] Therefore, the court finds that section 40(1) of the BIA does not apply to the circumstances of this case.

[43] The court has reviewed the Marino case and notes some key differences with the present case:

(1) In Marino, the trustee determined that the property did not have any value and therefore the trustee disclaimed any interest in the property. (2) The trustee did not register its interest on the title to the property. (3) The trustee advised the bankrupt that it would make no claim to the home. (4) The Marinos were discharged from bankruptcy and a trustee representative confirmed on a separate occasion that the trustee would make no claim to the home; and, (5) The Final Statement of Receipts and Disbursements stated that there was no equity in the home available to the creditors. The trustee stated that Mrs. Marino’s interest in the property was “incapable of realization” but it did not return her interest in the property to her.

[44] The court distinguishes the Marino case from the present case because in the present case, the Trustee was aware from the start that there was equity in the Property. The Trustee registered its interest on title and attempted to contact the co-owner. However, based on the facts of the case, there was never any meaningful discussion between the Trustee and Ms. Tessier. The Trustee had written to Ms. Tessier in March of 2018 to advise of the bankruptcy and that it wanted to resolve the Trustee’s interest in the Property. Ms. Tessier was fully aware in March 2018 that the Trustee was claiming an interest in the Property. The Trustee had already registered its interest in the Property in 2019. That registration is notice to the world that someone is claiming an interest in the Property. Ms. Tessier argues that she relied on a conversation with the first mortgagee who indicated that it had no knowledge of the Trustee having an interest in the Property and that only she and the Bankrupt had an interest in the Property.

[45] The court finds that what the mortgagee told Ms. Tessier is not determinative of what was registered on title. A review of the title clearly indicated that the Trustee was claiming an interest in the Property.

[46] Ms. Tessier also relied on the case of Re Lepage, 2016 ONCA 403, 36 C.B.R. (6th) 207. In that case, the bankrupt filed for bankruptcy in 2010. At that time, the trustee assessed the value of Mr. Lepage’s residence and found it to have a negative equity. Apparently, although the trustee made representations that it would disclaim its interest in the property, no action was taken. Mr. Lepage continued to live in the residence and pay the mortgage, property taxes, insurance, and maintenance costs.

[47] The Court of Appeal distinguished the Marino case because in Marino, the bankrupt made the mortgage and other payments after discharge, relying on the trustee’s representation that no claim would be made against her home. In Marino, as a discharged bankrupt, she was entitled to dispose of the property as she wished in accordance with the “fresh start philosophy”. In the Lepage case, Mr. Lepage was an undischarged bankrupt from a second time bankruptcy.

[48] The court notes that Ms. Tessier was not the bankrupt and finds that she would not fall under the “fresh start philosophy”, as argued by her counsel. The court finds that the “fresh start philosophy” only relates to people who have gone bankrupt. That would be Mr. Tessier, not Ms. Tessier.

[49] Furthermore, in this case, there was equity in the Property that was capable of realization and the Trustee was aware of it.

[50] Therefore, the court finds that the Lepage case does not apply.

[51] Furthermore, the court rejects the argument that the Trustee was “lying in the weeds” and trying to get a windfall.

[52] In the present case, the Property had equity at the date of the bankruptcy. This is not a case of the Property having no equity at the date of bankruptcy and then acquiring equity thereafter. In this case, the Statement of Affairs indicated that the Property had an equity of approximately $40,000. Therefore, the Trustee, the creditors, and the court knew that there was equity in the Property and that it was just a matter of realizing on it.

[53] The Trustee’s evidence is that there were not sufficient funds in the Estate to pursue partition and sale of the Property.

[54] The court realizes that the Trustee could have let the creditors take an action pursuant to section 38 of the BIA and that it did not do so. That does not mean that the Trustee did anything incorrect. The Trustee chose to register on title and wait until the matter resolved.

[55] As it turned out, the matter was not resolved prior to either the Bankrupt’s discharge or the Trustee’s discharge. The Trustee stated in Note 1 of the Statement of Receipts and Disbursements that were taxed before the court that it still retained an interest in the Property and that the Trustee was waiting to realize on the equity.

[56] Therefore, at the time of taxation, the court and the Trustee were aware that there was equity in the Property and that it was capable of realization.

[57] The court notes that the Trustee’s notice of motion includes a claim for relief as follows: “such other relief as the court deems just.”

[58] In the Collins case, an application was made by a couple to remove the Trustee’s interest registered on title to a property that they had purchased. In that case, the bankrupt made an assignment thereby vesting his 50% share of the property in the trustee and the trustee registered the assignment on title. The bankrupt received an absolute discharge and transferred his half to his brother. At the time, the trustee had not been discharged. The property was later transferred to the applicants. The applicants sought to remove the trustee’s interest from the title. The court refused the relief sought.

[59] The court stated at para. 22:

In any event, given that the Property is capable of some realization, and that the creditors are such as may still be located for distribution of any dividend, I find that a trustee needs to be appointed to safeguard this Estate, and to realize on the Property. This Court has, under s. 40(11) BIA, the authority to appoint a trustee, where it finds that there is, after discharge of the former Trustee, property capable of realization or distribution, on the application of any interested person. I find that the Application, containing, as it does, a basket clause seeking such further relief as this Court finds just, implicitly seeks such an appointment. Even if I am incorrect in that finding, I find that the words “on the application of any interested person” in s. 40(11) BIA are broad enough to include this Court’s own application, pursuant to its inherent right and duty to safeguard the integrity of the insolvency system, protect the rights of the creditors, and supervise it officers, including trustees in bankruptcy and the appointment of them to various proper duties.

[60] Based on the findings in this case, and notwithstanding that the Trustee has been discharged, the court finds that the Property was capable of realization and that the creditors would be entitled to the equity.

[61] The court finds that the Trustee should be reappointed to safeguard the interests of the unsecured creditors and realize on the Property. As set out in the Collins case, the court has authority under section 41(11) to appoint or reappoint the Trustee where there is Property capable of realization or distribution on the application of any interest person. The court finds that the Trustee is an interested person.

[62] Furthermore, following para. 22 of Collins and based on the wording of the Tessier Notice of Motion, the court finds that the words “such further and other relief as this Honourable Court may seem just” covers the reappointment of the Trustee based on the oral motion brought by the Trustee at the hearing of the motion.

[63] If the court is incorrect in this finding, following the decision in Collins at para. 22, the court finds that section 41(11) of the BIA is broad enough to include the court making its own application pursuant to its inherent right and duty to safeguard the integrity of the bankruptcy and insolvency system, to protect the rights of creditors, and supervise its officers, including trustees in bankruptcy and the appointment of them to various proper duties. The reappointment would be effected on a nunc pro tunc basis.

[64] Lastly, the court has the power pursuant to section 187(9) of the BIA to remedy any formal defect or irregularity unless the court is of the opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by the court.

[65] One of the purposes of the BIA is to ensure that creditors receive payment out of the Estate for which otherwise they would have suffered a loss.

[66] The total proven debts of the Estate are $324,483. The dividends paid to date are $0. With the equity from the Property, there will be funds to pay dividends to the creditors.

[67] The court realizes that no formal motion has been sought to reappoint the Trustee. The court has discretion with respect to reappointing the Trustee on a nunc pro tunc basis. The court exercises its discretion and reappoints the Trustee on a nunc pro tunc basis. The court finds that there would be no substantial injustice caused by this irregularity. The court finds that the Trustee’s omission to seek reappointment as Trustee in the Estate to complete the transaction and realize on the equity in the Property for the benefit of the creditors is an irregularity remedied by the reappointment of the Trustee nunc pro tunc pursuant to section 187(9) of the BIA.

[68] Therefore, the court reappoints Bernier & Associates Inc. as the Trustee in this Estate nunc pro tunc.

Issue #2 - Should the Court Enforce the Settlement Agreement or Should it use its Discretion to Not Enforce It

The Trustee’s Position

[69] The Trustee argues that while there is no specific section in the BIA dealing with enforcing settlements, section 3 states that the applicable rules of court in a given jurisdiction will govern. In this case, those rules are the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[70] According to rule 49.09 of the Rules of Civil Procedure, where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly.

[71] The Trustee submits that the caselaw in Ontario has established a two-part test for motions under rule 49.09:

(i) first, the moving party must establish there was a binding settlement agreement, meaning that the parties had a mutual intention to create a legally binding contract and that the parties did in fact reach an agreement on all the essential terms of the contract; and (ii) second, the onus then shifts to the respondent to establish a reason for the court to exercise its discretion not to enforce the binding settlement agreement: Lumsden et al. v. The Toronto Police Services Board et al., 2019 ONSC 5052, at paras. 17, 18, and 23.

[72] The Trustee argues that a binding settlement agreement does not turn on one party’s actual state of mind but is measured by an objective reading of the language chosen by the parties. Furthermore, there is no requirement for formal or executed minutes of settlement – an email chain can suffice: Lumsden, at paras. 18–19.

[73] The Trustee argues that Ms. Tessier was represented by her counsel, Ms. Nantel-Soucy, and the Trustee was represented by Mr. Trudel, a licensed insolvency administrator and officer of the court. The parties exchanged several emails over a period of time and were both clearly aware of the relevant facts and issues during the negotiation.

[74] Within that context, Ms. Nantel-Soucy made a clear and unambiguous offer to settle in writing without any qualifications, and Mr. Trudel accepted that offer in writing. At this point, the parties had agreed to all the terms of the settlement and were ad idem.

[75] The Trustee argues that the caselaw is clear that when the parties agree on all the essential terms of settlement and have a mutual intention to create a legally binding relationship, the contract is binding. In this case, the parties had clearly and unambiguously agreed to all the consideration flowing to or from either side and, in particular, the amount and timing of the payments.

[76] The Trustee relies on the case of Gelber v. Gelber, 2020 ONSC 1570, 56 E.T.R. (4th) 244, for the proposition that when parties agree to terms of settlement but then one party refuses to proceed with the settlement or sign corresponding minutes of settlement, the settlement should be enforced.

[77] In support of the enforcement of the settlement, the Trustee argues that it was Ms. Nantel-Soucy who made the offer that formed the basis for the settlement.

[78] The Trustee argues that once the court determines there is a binding settlement, in order to avoid judgment being granted, the respondent must demonstrate a compelling reason for the court to exercise its discretion to not enforce the settlement: Lumsden, at para. 23.

[79] The Trustee relies on the case of Srebot v. Srebot Farms Ltd., 2013 ONCA 84, at para. 6, stating that the caselaw is clear that a court should rarely exercise this discretion and reserve it for the clearest cases where compelling circumstances establish that enforcing the settlement is not in the interests of justice.

[80] The Trustee argues that while there are a number of factors the court may consider in this analysis, including but not limited to whether the offer was clear and unequivocal, whether there was mistake, and whether the settlement was reasonable, the overarching question is whether enforcing the settlement would create a real risk of a clear injustice: L-Jalco Holdings Inc. v. Lawrynowicz & Associates, 2018 ONSC 4002, at paras. 34, 38; Lumsden, at paras. 23–29.

[81] The Trustee relies on the case of Srajeldin v. Ramsumeer, 2015 ONSC 6697, when the Divisional Court held, at para. 21, that:

It is well established in the case law that a lawyer has ostensible authority to affect a binding settlement on behalf of his client. Unless the opposing side has knowledge of some limitation on the solicitor's retainer, any settlement made by a lawyer will be binding on the client, regardless of any dispute between the lawyer and his own client as to the scope lawyer’s instructions.

[82] Therefore, the Trustee argues that when Ms. Nantel-Soucy made the settlement offer to the Trustee, it was binding upon Ms. Tessier. As the court in Srajeldin further stated at para. 29: “lawyers and other professionals in the litigation process are entitled to rely on the word of another lawyer. They are not required to question the motives, nor the nature of the instructions or retainer, of the lawyer with whom they are dealing.”

[83] The Trustee argues that at all times, the parties were represented by duly appointed legal representatives. The offer was clear and unequivocal, there was no mistake made, and the settlement was reasonable in the circumstances. The settlement involved both parties compromising on their legal positions: Ms. Tessier agreed to the Trustee’s interest being valued as of closing, and the Trustee agreed to pay half the overdue municipal taxes and half the legal fees for the sale of the Property.

[84] Therefore, the Trustee submits that the settlement is binding and there are no compelling reasons for the court to exercise its discretion not to enforce the clear and unambiguous terms of settlement negotiated and agreed to by officers of the court acting without limitation.

Ms. Tessier’s Position

[85] Ms. Tessier argues that the court should exercise its discretion and not enforce the settlement agreement.

[86] Ms. Tessier argues that this is not a case in which a party simply changed its mind after reaching an agreement. This is a case in which a lawyer agreed to a deal without first obtaining instructions from her client.

[87] Ms. Tessier argues that her former counsel admitted to her that she agreed to enter the agreement without first obtaining her instructions. The Trustee was quickly informed of the error.

[88] Ms. Tessier argues that prior to entering the agreement, Ms. Nantel-Soucy requested caselaw from the Trustee that would substantiate the Trustee’s position, which was never provided.

[89] Ms. Tessier submits that Ms. Nantel-Soucy acting without explicit instructions from her client is more than a simple misapprehension of her instructions.

[90] She relies on the case of Vanderkop v. Manufacturers Life Insurance Co. (2005), 78 O.R. (3d) 276, in which the court explained, at para. 33, the circumstances surrounding settlement agreements warranting the court to take into account policy considerations when exercising its judicial discretion:

There are policy considerations which weigh in favour of declining judgment in certain circumstances. Agreements to settle litigation often occur in circumstances, such as on the eve of trial, when the parties are under time constraints and emotional and financial pressure. There is great potential for mistakes, misunderstanding and miscommunication. A judicial discretion avoids having to convert human error into a solicitor's negligence claim or imposing an unexpected burden or benefit on the parties. Further, in terms of scarce judicial resources, such a discretion can avoid duplicative proceedings.

[91] Ms. Tessier submits that para. 35 of the Vanderkop decision establishes certain equitable factors to be considered before determining whether making use of judicial discretion to not enforce a settlement is in the best interest of the parties and the judicial system. The factors are listed as follows:

(1) Was there any reason for the moving party to believe there was a mistake? (2) Did the pre-settlement positions of the parties remain essentially intact? (3) Would the moving party suffer prejudice beyond loss of the settlement? (4) What is the prejudice to the responding party if the settlement was enforced? (5) Are the circumstances sufficient and compelling to justify declining to grant judgment given the policies that favour encouraging settlement and holding parties to their bargains?

[92] Ms. Tessier submits that the potential prejudice to the Trustee and the creditors would be limited to the balance of the settlement amount entered by Ms. Nantel-Soucy and the amount the Trustee is entitled to per the BIA.

[93] Ms. Tessier relies on sections 40(1) and 40(2) to submit that the Trustee must determine whether a property is incapable of realization and should, as a matter of caution, take steps to investigate the property prior to the bankrupt’s discharge.

[94] Ms. Tessier argues that as per Mr. Trudel's affidavit, the Trustee made minimal efforts to release its interest in the Property because the Property was incapable of realization.

[95] Ms. Tessier submits that there is no concrete evidence that the Trustee knew of any equity in the Property and its approximate value. The court rejects this argument. The court finds that the Trustee was aware that there was equity in the Property.

[96] Ms. Tessier submits that the Trustees’ connections with a real estate brokerage would have made it easy for it to obtain copies of listings similar to the Property from 2018 during the Bankrupt’s bankruptcy and for the Trustee to determine the asking price for similar properties in 2018.

[97] Ms. Tessier argues that given the amount of the mortgage nearly three years later, it would appear evident that there was little, if any, equity in the Property during the bankruptcy and it is likely that it was on this basis that the Trustee declined to register notice on title in a timely fashion. Only in February of 2019, when it became evident that housing prices would begin to rise, did the Trustee register on title.

[98] As argued previously, Ms. Tessier relies on the Court of Appeal’s decision in Lepage, where in Mr. Lepage filed for bankruptcy in 2010. At that time, Mr. Lepage’s trustee assessed the value of Mr. Lepage’s residence and found it to have negative equity. Although the trustee made representations of disclaiming the property to Mr. Lepage, no action was taken. Mr. Lepage accepted the representations and continued to live in his residence, pay the mortgage, property taxes, insurance, and maintenance costs. As a second time bankrupt, the Court of Appeal determined that Mr. Lepage was therefore not entitled to be reimbursed for his reasonable living expenses from the increased equity in his house as the accrued equity belonged to the Estate for the benefit of Mr. Lepage's creditors pursuant to s. 67 of the BIA. In coming to that finding, the Court of Appeal held that the Marino case was distinguishable since the Bankrupt made mortgage and other payments after discharge relying on the trustee’s representation that no claim would be made against the home. As a discharged bankrupt, she was entitled to dispose of her property as she wished in accordance with the “fresh start philosophy” of the bankruptcy system. Mr. Lepage’s situation was different in that he was an undischarged bankrupt and remained subject to the rule that all after-acquired property vested in his trustee until his discharge.

[99] Ms. Tessier submits that the Trustee should have disposed of the Property quickly or disclaimed any interest in it. In other words, as in Marino, the Trustee cannot “lie in the weeds” and try for a windfall, which is what occurred in this case.

Analysis

[100] As previously stated, the BIA is to be interpreted broadly in its entire context and harmoniously with the scheme of the Act. One of the BIA’s purposes is to provide a regime whereby a bankrupt’s creditors pursue their claims by collective action through a trustee. This ensures the bankrupt’s assets can be realized and distributed on an equitable basis subject to the priority of preferred creditors and the rights of secured creditors.

[101] The court agrees with the Trustee that the BIA provides no specific section dealing with the enforcement of settlements. The court also agrees with the Trustee that section 3 of the BIA states that the applicable rules of court in any given jurisdiction will govern, which in this case is the Rules of Civil Procedure.

[102] Pursuant to rule 49.09, where a party to an accepted offer fails to comply with the terms of the offer to settle and the other party makes a motion to a judge for judgment in terms of the accepted offer, the judge may grant judgment accordingly.

[103] The court is satisfied that the two-part test is established for motions under this rule as set out in Lumsden, at paras. 17, 23.

[104] The court notes that there was no litigation involving these parties when they came to the settlement agreement as to the division of the equity. There was a deadline to ensure that the transaction closed on time, which it did.

[105] The vendors agreed by May 4, 2021 as to the division of the equity based on the terms put forward by Ms. Tessier’s counsel and accepted by the Trustee.

[106] Ms. Tessier argues that the court must look at the equitable factors before determining if making use of judicial discretion to not enforce a settlement is in the best interests of the parties and the judicial system.

[107] These factors are set out in the Vanderkop case at para. 35. Ms. Tessier focuses on three of the factors:

(a) Would the moving party suffer prejudice beyond the loss of the settlement? (b) What is the prejudice to the responding party if the settlement was enforced? (c) Are the circumstances sufficient and compelling to decline granting judgement given the policies that favour encouraging settlement and holding parties to their bargain.

Would the Moving Party Suffer Prejudice Beyond the Loss of the Settlement?

[108] Ms. Tessier argues that the potential prejudice to the Trustee and the creditors would be limited to the balance of the amount of the settlement entered by her lawyer and the amount the Trustee is entitled to under the BIA.

[109] She relies on sections 40(1) and (2) of the BIA to argue that the Trustee made minimal efforts to investigate the Property prior to the Bankrupt’s discharge. She argues that the Trustee only made minimal efforts to see if the Property was capable of realization.

[110] The court rejects this argument. The Trustee wrote to Ms. Tessier in March of 2018 and did not hear back. There is no evidence that the letter was returned. The Trustee also sent a second letter to Ms. Tessier by registered mail, which was returned unopened.

[111] The Trustee attempted to have the Property appraised by an appraiser who contacted Ms. Tessier. Ms. Tessier denies that this occurred. The best evidence on this issue is that of Mr. Trudel. The court accepts as evidence that the appraiser was retained and attempted to conduct the appraisal.

[112] Ms. Tessier argues that comparables could have been obtained to determine the value of the Property. The court finds that this is a rural property and that locating comparables without being able to view the Property, including the interior, is almost impossible. There is no expectation that an appraiser is to do the impossible.

[113] Further, the evidence is that Ms. Tessier and her common-law husband contacted the Trustee in the fall of 2020 to find out about the Trustee’s registration on title. According to Ms. Tessier, she was not able to speak with the Trustee because the Trustee indicated that it would only speak to her counsel.

[114] Even if the Trustee would only speak with her counsel, Ms. Tessier could have contacted her own counsel and asked that person to contact the Trustee. There is no evidence that she did so. There is no evidence that Ms. Tessier engaged counsel, except when she wanted to sell the Property, but not before.

[115] As stated previously, the argument raised by Ms. Tessier about the “fresh start philosophy”, as set out in the Marino case, does not apply in this case. The “fresh start philosophy” applies to a bankrupt or debtor under the BIA. It does not extend to a co-owner of property who is not bankrupt or a debtor under the BIA.

[116] Ms. Tessier argues that there is no concrete evidence that the Trustee knew of any equity in the Property and its approximate value. The court rejects this argument. The Statement of Affairs sworn by the Bankrupt indicated that there was, at that time, approximately $40,000 of equity in the Property. Therefore, the court finds the Trustee knew that there was equity in the Property.

[117] As stated previously, obtaining listings of similar properties would not be of any assistance, particularly since neither the Trustee nor the representative could gain access to the Property.

[118] As for the argument about the mortgage, originally Ms. Tessier claimed to have been paying the principal and interest on the mortgage. This turned out to be incorrect. In fact, Ms. Tessier was only paying interest on the mortgage.

[119] Ms. Tessier argues in February 2019, it became evident that real estate prices were rising and that is why the Trustee registered on title. There is no evidence before the court that housing prices were going to rise. In hindsight, housing prices did rise.

[120] Therefore, the court finds that the Trustee would suffer prejudice beyond the loss of the settlement.

What is the Prejudice to the Responding Party if the Agreement is Enforced?

[121] Ms. Tessier argues that because the Bankrupt was discharged by virtue of sections 40(2) and 67(1), the property should have been returned to the Bankrupt.

[122] The court rejects this argument. As previously stated, under section 40(1) the Trustee is to return any property that is found incapable of realization.

[123] That is not the case here. The Property was capable of realization, but not within the timeframe of the bankruptcy. As previously stated, the evidence on the Statement of Affairs was that there was equity in the Property. Further evidence was set out in Note 1 of the Statement of Receipts and Disbursements.

[124] The court distinguishes between property that is found incapable of realization and property that is found capable of realization, but which realization may not occur for a period of time. The court finds that this case falls into the latter category, i.e. that this Property was capable of realization but not until after the Trustee’s discharge. The court finds that the Trustee’s attempts to get Ms. Tessier to cooperate, notwithstanding her lack of cooperation, were appropriate under the circumstances.

[125] If Ms. Tessier had cooperated, this issue may never have arisen.

[126] Ms. Tessier argues that she is being prejudiced by the settlement agreement because she gave up her right to spousal support under the separation agreement because she was going to be able to obtain the equity in the Property.

[127] The court accepts that there was a separation agreement. The separation agreement was not provided as part of the evidence. What was provided was a copy of Desormeau J.’s court order dated April 7, 2014, which sets out the terms of the separation agreement but did not include the beginning portion of the separation agreement, which in the court’s view could have provided some key information.

[128] In any event, the court finds that the Bankrupt could not negotiate away a right that he did not have, which in this case was his interest in the Property. On title, the Bankrupt’s interest was registered in favour of the Trustee. The court would have thought that Ms. Tessier’s family law lawyer (a lawyer other than Ms. Nantel-Soucy) would have searched the title to the Property to see who was on title, and if there was a problem, would have resolved it prior to obtaining the court order. There is no evidence one way or the other about whether her family law lawyer researched the title or advised Ms. Tessier about this issue.

[129] The court finds that the title issue was not resolved prior to the separation agreement and Desormeau J.’s order being made.

[130] There is no evidence that Desormeau J. was advised that the Trustee had registered its interest on title. However, what is known is that Ms. Tessier knew that Mr. Tessier had gone bankrupt as far back as March of 2018.

[131] Ms. Tessier acknowledges at paragraph 22 of her own affidavit that on or about February 27, 2020 her real estate agent, Eric Longpre, said: “there appeared to be someone other than the Bankrupt and myself on title of the Property. He was the one who told me about the Trustee.”

[132] The court finds Ms. Tessier’s evidence to be contradictory. First, she says at paragraph 19 of her affidavit that the Bankrupt represented to her in the separation agreement that the Property could be sold without his consent. Then at paragraph 22, it says that she was aware of the Trustee being registered on title in February of 2020, as advised by the real estate agent.

[133] The court finds that Ms. Tessier knew about the Trustee’s registration on title by February 2020.

[134] The court finds that once Ms. Tessier knew of the bankruptcy and subsequent registration, it was up to her to investigate the status of the title to the Property and, if there were any issues, to deal with them. The court finds that she did not do that until she retained Ms. Nantel-Soucy to act for her on the sale of the Property. When Ms. Tessier listed the Property, she did not seek the Trustee’s signature to the Listing Agreement or the Agreement of Purchase and Sale. She did that on her own.

[135] According to the evidence, the Agreement of Purchase and Sale was signed by Ms. Tessier on March 25, 2021. She obtained the Desormeau J. court order on April 7, 2021. There is no evidence of when the separation agreement negotiations started or when it was signed.

[136] Ms. Nantel-Soucy was negotiating the resolution of the equity with the Trustee until April 28, 2021, which was after April 7, 2021. No evidence was provided by Ms. Tessier that Ms. Nantel-Soucy knew that Mr. Tessier had previously agreed to the sale without requiring his consent when she put forward her proposal to the Trustee, which was accepted by May 4, 2021.

[137] Based on this chronological history, the court finds that Ms. Tessier got consent from the Bankrupt before the transaction closed and then tried to backtrack after her lawyer settled the matter to say that she could sell the Property without her husband’s consent.

[138] As stated previously, the court found that Mr. Tessier could not give his consent to something that he no longer owned.

[139] The court finds that this attempt by Ms. Tessier to extricate herself from the settlement agreement fails.

[140] There may be an issue as between Ms. Tessier and Ms. Nantel-Soucy relating to accepting the settlement agreement with the Trustee. This issue is for another day and potentially involves other parties.

[141] Therefore, the court finds that Ms. Tessier is not prejudiced if the settlement agreement is enforced.

Are the Circumstances Sufficient and Compelling to Decline Granting Judgment Given the Policies that Favour Encouraging Settlement and Holding Parties to their Bargain?

[142] The court does not find the circumstances sufficient and compelling to justify declining to enforce the settlement. Policies exist to encourage settlement and hold the parties to their bargains.

[143] The court adopts the reasoning in Thompson v. Broeze, 2018 ONSC 4268, at para. 67, and finds this to be a case where the settlement agreement should not be set aside. Such an action is only to be considered in exceptional circumstances. The court finds that the circumstances of this case are not exceptional and therefore does not find that the court should exercise its discretion to set aside the settlement agreement.

[144] The Bankrupt’s creditors have suffered losses because of the bankruptcy. The sole asset that would have been available to pay a dividend to those creditors was the Bankrupt’s interest in the Property.

[145] Ms. Tessier now seeks to set aside the enforcement of the settlement. The benefits to be received by her would deplete the dividends to the creditors. The court finds that these are not compelling circumstances to establish that the enforcement of the settlement is not in the interests of justice. From the court’s perspective, the enforcement of the settlement agreement is just.

[146] Ms. Tessier argues that the Trustee had agreed to provide caselaw justifying its position to be entitled to one half of the equity and did not do so. The Trustee acknowledges that it did not provide the caselaw. The court notes that Ms. Nantel-Soucy did not pursue this issue with the Trustee. The court finds that the caselaw was not provided.

[147] Considering the facts of this case, the court does not find that the Trustee’s failure to provide the caselaw fatal to the Trustee’s position. It is a factor but only a minor one and not enough to persuade the court to set aside the settlement.

[148] Furthermore, Ms. Nantel-Soucy proposed the settlement and completed the transaction, notwithstanding that the caselaw was not provided.

[149] If Ms. Tessier felt that she had the right to be the sole owner of the Property, she could have brought a motion prior to listing and selling the Property or at least before choosing to claim that she was the owner of the property or, in the alternative, that Mr. Tessier owned half of the property and not the Trustee. There is no evidence that such a motion was brought.

[150] As to the argument that the Bankrupt’s creditors made renovations to the Property, which Ms. Tessier said either did not happen or if it did was set off by work done by the Bankrupt or not billed, the court finds that this is not relevant to the issue before the court.

[151] Ms. Tessier argues that the Trustee has not provided any evidence of its attempts to contact Ms. Tessier by mail or phone. The court rejects this argument and accepts Mr. Trudel’s argument that he attempted to call her and sent her two letters, one of which was returned.

[152] As to the argument that Ms. Nantel-Soucy stepped outside of her expertise in order to deal with the Trustee claiming a half equity in the Property, the court respectfully rejects that argument. If Ms. Nantel-Soucy felt she was out of her depth in this area, she could have obtained advice from counsel better versed in the area of bankruptcy and insolvency.

[153] Therefore, the court finds that there are not sufficient and compelling reasons to decline granting of the judgment based on the settlement agreement.

Conclusion

[154] Therefore, for the reasons set out above, the court orders:

(1) Bernier & Associates Inc. shall be reappointed as Trustee in the Estate nunc pro tunc to complete the sale of the Property and to receive the equity of $162,461.91; and (2) The settlement agreement reached between Ms. Nantel-Soucy on behalf of Ms. Tessier and the Trustee on behalf of the creditors for the equity in the Property shall be enforced.

Costs

[155] The parties shall have 14 days to resolve the issue of costs. If they are unable to do so, they shall obtain a date and time from the Trial Coordinator to argue the issue of costs. Each side will have 15 minutes to present their arguments. Cost outlines are to be delivered at least 10 days before the argument of costs.

[156] Order accordingly.

Justice Stanley J. Kershman Released: February 23, 2022