Court File and Parties

COURT FILE NO.: CV-18-59 DATE: 2022/04/29

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Yanic Dufresne Excavation Inc., Plaintiff

– and –

Saint Joseph Developments Ltd., Vincent Martin Détillieux and Albert Plant, Defendants

COUNSEL: J.F. Lalonde and Patrick R. Simon, for the Plaintiff Christopher McLeod and Nigel McKechnie, for the Defendants

HEARD: February 17, 2022 and April 13, 2022 by Zoom at L’Orignal

DECISION ON COSTS

Introduction

[1] A motion was brought by the Plaintiff as to whether the debt in its favour survives the bankruptcy of Mr. Albert Plant. That motion was heard, and the decision was rendered on October 5, 2021 that the debt in favour of the Plaintiff did survive Mr. Plant’s bankruptcy in accordance with s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”).

[2] The issue now is whether the costs incurred to obtain that decision also survive the bankrupt’s discharge.

[3] Both parties agreed that the costs would be fixed at $50,000.

[4] Each party provided a copy of their draft order to the court for signature. The Plaintiff’s order sought that the costs were a debt that survived bankruptcy. The Defendants’ order was silent as to whether the costs were a debt that survived bankruptcy and that no determination of that issue should be made.

Plaintiff’s Position

[5] The Plaintiff argues that it assumed the costs would survive bankruptcy because those costs were incurred as a result of the proceeding that led to varying the decision of Kane J.

[6] The Plaintiff argues that since the debt fell within s. 178(1)(d) of the BIA and survives bankruptcy, the costs incurred to prove the debt that survived bankruptcy should also survive bankruptcy.

[7] The Plaintiff relies on the case of Northwestern Veterinary Professional Corporation v. Blakeman, 2018 ONSC 4624, 37 C.P.C. (8th) 410. In that case, the Plaintiff brought an action seeking damages for theft and misappropriation of funds against the Defendant, its former employee. The Defendant was found liable for theft and fraud, and the court ordered this debt to survive any subsequent order of discharge pursuant to s. 178(1)(d) of the BIA.

[8] There was no evidence regarding whether the Defendant, Mr. Blakeman, had made an assignment in bankruptcy as of the date of the trial: at para. 28. However, the court found the Defendant was operating in a fiduciary capacity, and it was in that fiduciary capacity that he became liable to the Plaintiff: at para. 39. Therefore, the requirement under s. 178(1)(d) of the BIA for a finding that a person is a fiduciary was satisfied, and an order that the debt would survive any future discharge the Defendant obtained from an assignment in bankruptcy was appropriate: at para. 40.

[9] As to the issue of costs, the court said at para. 43:

I find this award of costs is an intrinsic aspect and consequence of the judgment arising from Mr. Blakeman’s acts of misappropriation. I therefore find it will be a debt that will survive any future discharge Mr. Blakeman obtains from any assignment he may make in bankruptcy pursuant to s.178(1)(d) of the Act.

[10] Thus, the court awarded judgment that both the debt and the costs would survive bankruptcy.

[11] In Navrab Investments Inc. v. Vaidyan, 2012 ONSC 6844, the Defendant was a night manager of a store operated by the Plaintiff and admitted to theft. Although there was no evidence that the Defendant would become bankrupt, the Plaintiff sought, in part, a declaration that the judgment would survive the Defendant’s bankruptcy pursuant to s. 178(1)(d) of the BIA. The court found that the Defendant was employed in a position of trust over the entire operations of the store, which he breached for personal gain through the thefts he committed. Therefore, the court held that the Plaintiff was entitled to the declaration sought and that the judgment would survive the Defendant’s discharge from bankruptcy. Based on the facts of this case, Mr. Vaidyan had not declared bankruptcy at the time this decision was rendered.

[12] The Plaintiff argues that the costs are an intrinsic aspect and consequence of the judgment against Mr. Plant in relation to the declaration that the debt survives bankruptcy.

Defendants’ Position

[13] The Defendants argue that the costs were incurred after Mr. Plant filed for bankruptcy and therefore this it is new debt that was only incurred after his bankruptcy. Therefore, they argue that the costs portion in the action would be a post-bankruptcy debt and would not survive Mr. Plant’s first bankruptcy.

[14] They further argue that these costs are a separate debt and a separate liability from the debt surviving bankruptcy, and therefore such cost would not survive his first bankruptcy.

[15] They argue that the costs award does not fall within one of the exceptions under s. 178 of the BIA. They argue that the legislation does provide in certain cases for costs to survive bankruptcy. They rely on s. 178(1)(c) as the section dealing with costs surviving bankruptcy, which is matters in relation to support and affiliation orders in family matters. They argue that the wording of s. 178(1)(d) is not similar to the language in s. 178(1)(c) and therefore legal costs would not survive bankruptcy.

[16] They further argue that the BIA is remedial legislation and that it must be construed narrowly.

[17] Lastly, they argue that since Mr. Plant has been discharged, there is no ability to claim that the debt survives a future bankruptcy because it has not yet occurred.

[18] The Defendants rely on several cases.

[19] The first case is Sifton Credit Union Ltd. v. Barber (1986), 45 Man. R. (2d) 311. In that case, the Plaintiff commenced an action based on a security agreement. One month before trial, the Defendant made an assignment in bankruptcy and an order was granted joining the trustee as a party. At trial, the Plaintiff brought a motion to amend the statement of claim to request that the court find that a portion of the bankruptcy liability would survive bankruptcy. This was denied. The Court of Appeal allowed the Plaintiff’s appeal and there was an order for production and discovery. The Plaintiff was successful at the trial and one of the issues was whether a portion of the bankruptcy liability for costs should survive bankruptcy.

[20] The parties agreed that the trustee’s full liability for costs was $8,849.50, and that the estate was without funds. The court held that the trustee would be personally liable for costs if the action was not a proceeding in bankruptcy. The court noted that the mere existence of a bankruptcy trustee as a party does not convert an ordinary action to a proceeding in bankruptcy: at para. 15.

[21] Simonsen J. held that the issue of the Defendant’s surviving liability was a proceeding in bankruptcy that had substantially influenced the trial, and that the trustee should not be liable for costs arising out of the contest between the Plaintiff and Defendant precipitated by a claim under s. 148 of the BIA (now s. 178): at para. 21. The other aspects of the proceedings were not proceedings in bankruptcy, and the court fixed the trustee’s personal liability for those costs at $2,500.

[22] The Plaintiff sought an order that a portion of the Defendant’s liability for costs should survive bankruptcy, as a portion of the Defendant’s liability to the Plaintiff had survived bankruptcy. The court found that the claim for costs must fall within the scope of s. 148 of the BIA to survive bankruptcy. The court denied the order, finding that the request for costs had not been pleaded by the Plaintiffs, and otherwise did not fall within the scope of s. 148.

[23] The Defendants also rely on the case of Quan v. Bonnar, 2010 ONSC 89, in which the Plaintiff sought leave to amend its statement of claim to add a request for a declaration that any amount found due and owing by the Defendants to the Plaintiff was a debt that survived bankruptcy and would survive an order of discharge pursuant to s. 178 of the BIA.

[24] In that case, the Defendant had not declared bankruptcy. As a result, the court found that the request for the declaration sought was hypothetical, and therefore refused to grant the motion to amend at that time.

[25] The Defendants also relied on Matthews Equipment Limited v. Yalda Contracting Inc., 2021 ONSC 1823, 88 C.B.R. (6th) 142. In that case, the Defendants failed to pay an invoice for construction equipment they rented from the Plaintiff. The Plaintiff brought a motion seeking default judgment for breach of trust under the Construction Act, R.S.O 1990, c. C.30, and a declaration that the judgment would survive any claim for bankruptcy made by the Defendants pursuant to s. 178(1)(d) of the BIA. The court granted the Plaintiff default judgment but denied to order the relief under s. 178(1)(d) of the BIA.

[26] While the court found the Defendants breached their trust obligations under the Construction Act, there was insufficient evidence on the record to find that the breach of trust constituted fraud and misappropriation for the purposes of s. 178(1)(d) of the BIA. The court held this issue should be determined on a proper record if and when the issue arose during bankruptcy and enforcement proceedings: at para. 18. Therefore, it was not an appropriate case to make a declaratory order about how the judgment should be treated in the event of a Defendant’s bankruptcy.

[27] The court stated at para. 18:

While a declaratory order can be made to define the future rights of a party if some contingency arises, that power should be exercised carefully and sparingly. In my view, this is not an appropriate case to make a declaratory order about how this judgment should be treated if any of the defendants declare bankruptcy. The issue of whether the defendants’ breach of trust constitutes fraud or misappropriation for the purpose of s. 178(1)(d) of the Bankruptcy and Insolvency Act should be adjudicated on a proper record if and when the issue arises during bankruptcy or enforcement proceedings.

In the Matthews case, the Defendants had not declared bankruptcy.

[28] In the case of SE Canada Inc. v. Falcon Group Inc., 2016 ONSC 642, 42 C.B.R. (6th) 112, the Plaintiff was granted judgment against the Defendants and sought a declaration that the judgment shall survive an event of bankruptcy undertaken by a Defendant in accordance with s. 178(1) of the BIA. At the time of the Plaintiff’s request, no assignment in bankruptcy had been made. Corrick J. held that courts should not make declarations based on events that have not yet occurred since doing so requires the court to assume that the legal regime governing the situation today will be the same at some unknown future date when the event occurs: at para. 5. Therefore, the relief requested by the Plaintiff was not granted.

[29] The Defendants also relied on the Navrab case, as described above in paragraph 11.

Analysis

[30] The court has found that the underlying debt is a debt that survives bankruptcy pursuant to s. 178(1)(d) of the BIA.

[31] There is no issue as to the quantum of the costs as those have been agreed upon. The only issue is whether the costs survive the bankrupt’s discharge or whether they are considered a post-bankruptcy debt and do not survive the bankruptcy.

[32] The court notes that Mr. Plant and the trustee were discharged from his bankruptcy prior to the hearing of the motion. Therefore, there was no requirement to lift the stay of proceedings under s. 69.1 of the BIA as the stay was no longer in place.

[33] In much of the caselaw cited above, the debtor had not filed for bankruptcy and the court was not prepared to make a declaration that the debt survives bankruptcy in advance of a bankruptcy occurring. There is the one case of Navrab in which the court allowed a declaration that the debt survived bankruptcy even though the Defendant had not yet filed for bankruptcy.

[34] The present case is different from the cited cases in that Mr. Plant had filed for bankruptcy and the declaration that the debt survives bankruptcy was made after Mr. Plant had made an assignment in bankruptcy.

[35] The court has found that the debt itself survives bankruptcy and will survive bankruptcy even if he goes bankrupt the future.

[36] If the costs do not survive the first bankruptcy and if Mr. Plant were to become bankrupt again, those costs would be included in that subsequent bankruptcy and would not survive the subsequent bankruptcy.

[37] At the same time, if Mr. Plant were to go bankrupt subsequently, the Plaintiff’s debt itself, which the court declared would survive bankruptcy, would continue to survive any subsequent bankruptcy.

[38] The court does not see how it is equitable for the debt to survive bankruptcy, yet at the same time not allow the costs, which are an intrinsic aspect and consequence of the judgment, to survive a subsequent bankruptcy.

[39] The court exercises its discretion and does not follow the reasoning in the Sifton case. While s. 178(1)(d) does not specifically say that costs incurred to obtain the declaration survive bankruptcy, the reality is that those costs were incurred without which the debt would not have survived. The court follows the reasoning in the Northwestern case at para. 43 that the costs are an intrinsic aspect and consequence of the judgment granted.

[40] The court rejects the argument put forward by the Defendants that the costs are a post-bankruptcy debt that would be included in a subsequent bankruptcy because, as an intrinsic aspect and consequence of the judgment related to a debt that survived bankruptcy, such costs would also survive bankruptcy. Without those costs having been incurred to obtain a declaration, the Plaintiff’s original debt would not have survived bankruptcy. Therefore, the costs incurred to obtain the declaration should also survive bankruptcy. The court makes a finding to this effect.

[41] As to the argument that the costs were incurred after Mr. Plant was discharged, the court rejects that argument as well because, again, the costs are an intrinsic aspect and consequence of the judgment related to a debt that survives bankruptcy. Therefore, such costs should survive bankruptcy as well.

[42] In conclusion, the court finds that these costs relate to the debt that survived bankruptcy and those costs are an intrinsic aspect and consequence of the judgment granted by this court. Without the debt and the declaration that the debt survives bankruptcy, these costs would not have been incurred. Since the debt survives bankruptcy, the court finds that the costs incurred related to that debt also survive the bankruptcy.

[43] The court exercises its discretion and orders that there will be no costs of arguing the costs motion.

[44] Order accordingly.

Mr. Justice Stanley J. Kershman Released: April 29, 2022