CANADIAN BANKRUPTCY REPORTS

CANADIANBANKRUPTCY

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100 C.B.R. (5th) iii

DIGESTS OF CASESBankruptcy and insolvency

Administration of estate — Trustees — Trustee’s account –––– Bankruptmade assignment in bankruptcy in September 2006 — In June 2012, trusteein bankruptcy presented statement of receipts and disbursements to court forapproval and sought increased remuneration — Trustee claimed fees inamount of $31,648 — Trustee’s remuneration allowed at $23,459, amountclaimed having been reduced by $8,189 — Claim for preparation for courtwas reduced by $1,200, as there was duplication of service — Claim forcourt attendance, including travel, was reduced by $5,275 — Absent someproof that trustee was engaged in work on bankrupt’s file during travel, itwas not appropriate to charge at full hourly rate — Amounts were allowedfor travel when trustee was not able to combine court attendances with otherclient work — Claim for meeting with client was reduced by $1,200 —Amount claimed in this respect represented 4.5 hours, which included traveltime, but travel time was disallowed and claim for half-hour meeting withclient at full rate was more reasonable — Item charged as $75 to courierdocuments was disallowed, as this was example of secretarial work beingcharged to estate when it should have been treated as part of trustee’s over-head — Entries for preparation and signing of affidavits of mailing, totalling$192.50, were disallowed, again as secretarial in nature and part of trustee’soverhead — Claim of $246.50 for commissioning documents was disal-lowed, as this too was properly considered part of overhead.Bennett, Re, 2013 CarswellOnt 3845 . . . . . . . . . . . . . . . . Ont. S.C.J. 67

Bankruptcy and insolvencyBankruptcy and insolvency jurisdiction — Jurisdiction of courts — Juris-diction of general courts –––– To approve settlement in class proceedings —Representative plaintiffs were some of stakeholders who claimed defendantforestry company and other defendants misstated its financial results, mis-represented its timber rights, overstated value of its assets and concealed ma-terial information about its business operations from investors, causing col-lapse of artificially inflated share price — Representative plaintiffs beganclass proceedings against forestry company, which was comprised of com-ponents related to shareholders and noteholders — Forestry company en-tered protection under Companies’ Creditors Arrangement Act — Settlementreached between representative plaintiffs and particular defendant — Repre-sentative plaintiffs brought motion for approval of settlement — Motiongranted — Proceedings were appropriate for approval of settlement, andcourt had jurisdiction in respect of both Companies’ Creditors Arrangement

CANADIAN BANKRUPTCY REPORTSiv 100 C.B.R. (5th)

Act and Class Proceeding Act — CCAA proceedings could not be ignoreddespite any ill-effect on opt-out rights in class proceedings — Claim fellwithin the Companies’ Creditors Arrangement Act, and could be subject ofsettlement and could include claims of all creditors in class — Until settle-ment was concluded and proceeds paid, there could be no distribution ofsettlement proceeds to parties entitled to receive them, and approval of re-lease in settlement was necessary to effect any distribution.Labourers’ Pension Fund of Central and Eastern Canada v. Sino-ForestCorp., 2013 CarswellOnt 3361 . . . . . . . . . . . . . . . . . . . . Ont. S.C.J. 30

Bankruptcy and insolvencyCompanies’ Creditors Arrangement Act — Arrangements — Approval bycourt — Miscellaneous –––– Debtor company applied for approval of claimsprocedure order to establish process for identification and determination ofclaims against it, except for debt claims of noteholders — Noteholders hadvarious concerns regarding draft order — Draft order approved with certainchanges — Noteholders should not have right to require their consent to anyclaim over $100,000 — There was sufficient protection in fact that monitorwas central to claims process and would review claims with management ofdebtor — Order to contain provision by which monitor would give notice tonoteholders and any other appropriate stakeholder before accepting anyclaim in excess of $2.5 million, and giving noteholder or other stakeholderreasonable time to apply to court regarding claim, failing which monitorwith consent of debtor could accept claim — Paragraphs 41, 42, and 43 con-tained substantive provisions regarding set-off and were inappropriate for in-clusion in claims procedure order — Draft order provided that debtor, withmonitor’s consent, could appoint claims officer — Appointment of claimsofficer requires court approval — Draft order should be amendedaccordingly.Crystallex International Corp., Re, 2012 CarswellOnt 15588 . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ont. S.C.J. 132

Bankruptcy and insolvencyDischarge of bankrupt — Conditional discharge — Tax obligations ––––76-year-old bankrupt made assignment on August 24, 2010 with one creditor(Canada Revenue Agency) with proven claim of $793,220.21 and realizedassets of $2,209.69 — Bankrupt’s tax debt arose following audit of her 1999and 2000 income tax returns for which losses were not properly deductiblefrom income, investments were non-qualified investments for trust governedby RRSP, and other losses and carrying charges were disallowed — Bank-rupt had present income of $1,400 monthly and exempt assets of $16,000

DIGESTS OF CASES100 C.B.R. (5th) v

from her bankruptcy, and she was dependent on her husband for many of herliving expenses — Bankrupt brought application for discharge from bank-ruptcy — Application granted — Bankrupt discharged upon payment intoher estate of $150,000 and filing of personal income tax returns and paymentof income taxes when due — At time tax debt was incurred, bankrupt wasemployed, had assets in excess of $850,000, no debts, and she lived with heremployed husband — At time of her bankruptcy, bankrupt’s RRSP assetswere worthless — Bankrupt knew of her income tax debt when she sold herinterest in matrimonial home to her husband in 2004 for $362,500 and shemade no effort to either pay her tax debt or appeal reassessment — Bankruptset in motion circumstances that lead to both reassessment of income tax dueand loss of her investments — Even assuming she had professional advicethat was faulty, she took first step — Bankrupt had advantage of minimalliving expenses thanks to her husband and she enjoyed enviable standard ofliving — Conditional order was required to bring home consequences ofnon-payment of income tax liabilities.Gelpke, Re, 2012 CarswellBC 3703 . . . . . . . . . . . . . . . . B.C. S.C. 146

Bankruptcy and insolvencyPractice and procedure in courts — Appeals — To Court of Appeal —Availability — Leave by judge –––– Respondent P Inc. owned and operatedhotel — Business development bank (applicant) was owed approx. $2.6 mil-lion by P Inc., and held first security for that indebtedness by way of mort-gage on hotel lands and general security agreements over land and chat-tels — Second mortgage was also in default, and second mortgagee wasowed approx. $4.2 million — Applicant brought successful application forappointment of receiver over assets of respondents — P Inc. and secondmortgagee brought motion for leave, if required, to appeal — Motion dis-missed — There was no automatic right to appeal from order appointing re-ceiver, and leave was required — Neither s. 193(a) nor (c) of Bankruptcyand Insolvency Act applied in circumstances — This was not appropriatecase in which to grant leave — P Inc. and second mortgagee raised numberof grounds relating to exercise of application judge’s discretion which wereentitled to deference and were purely factual and case specific and not ofgeneral significance — There were serious reservations about likelihood ofsuccess on appeal with respect to legal issue raised — Success on appealwould require creative interpretation of s. 22 of Mortgages Act, one thatwould potentially create element of uncertainty in field of mortgage enforce-ment — Serious reservations about merits, together with need for timely sale

CANADIAN BANKRUPTCY REPORTSvi 100 C.B.R. (5th)

process, led to conclusion that leave ought not be granted — As such, re-ceivership order was not to be stayed.Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013CarswellOnt 5026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ont. C.A. 91

Bankruptcy and insolvencyProperty of bankrupt — Registered retirement savings plan –––– Debtorfiled for bankruptcy — Trustee alleged debtor failed to deliver full balanceof funds in bank account at bankruptcy — Debtor deposited $15,000 intoRRSP within 12 months of bankruptcy, withdrawn in three monthly instal-ments of $5,000 — Debtor applied for discharge — Application granted,conditional on repayment of remaining balance of bank account — Trusteein bankruptcy opposed application — Debtor conceded condition appropri-ate with respect to payment of outstanding balance — Property that was nolonger in RRSP was not considered considered property of the bankrupt, asonly monies deposited in 12 month period and still in RRSP at date of bank-ruptcy lost protection granted to RRSPs.Miadovnik, Re, 2013 CarswellOnt 3302 . . . . . . . . . . . . . Ont. S.C.J. 80

Bankruptcy and insolvencyProposal — Approval by court — General principles –––– Where class pro-ceedings ongoing — Representative plaintiffs were some of stakeholderswho claimed defendant forestry company and other defendants misstated itsfinancial results, misrepresented its timber rights, overstated value of its as-sets and concealed material information about its business operations frominvestors, causing collapse of artificially inflated share price — Representa-tive plaintiffs began class proceedings against forestry company, which wascomprised of components related to shareholders and noteholders — For-estry company entered protection under Companies’ Creditors ArrangementAct — Settlement reached between representative plaintiffs and particulardefendant — Representative plaintiffs brought motion for approval of settle-ment — Motion granted — Claims in release were rationally related to pur-pose of the plan in Companies’ Creditors Arrangement Act and were neces-sary for it — Without approval of settlement, objectives of plan remainedunfulfilled due to practical inability to distribute settlement proceeds — De-fendant made significant monetary contribution to plan -- Plan benefitedclaimants in form of tangible distribution -- Release was fair and reasonableand not overly broad or offensive to public policy — Clear that claims as-serted against forestry company had to be addressed as part of restructuring— Unencumbered participation of forestry company’s subsidiaries is crucialto restructuring.

DIGESTS OF CASES100 C.B.R. (5th) vii

Labourers’ Pension Fund of Central and Eastern Canada v. Sino-ForestCorp., 2013 CarswellOnt 3361 . . . . . . . . . . . . . . . . . . . . Ont. S.C.J. 30

Bankruptcy and insolvencyReceivers — Powers, duties and liabilities –––– Costs — Divorce judgmentrequired respondent to pay applicant $4.4 million — Respondent assignedshares in company to applicant in partial satisfaction of judgment, but didnot pay anything else — Court appointed receiver-in-aid-of-execution —Receiver brought action against various parties to recover assets or entitle-ments which receiver contended were due and owing to respondent andwhich should be made available to applicant as judgment creditor — Re-ceiver was concerned that assets in estate would be insufficient to cover anyliability in costs to defendants in event they successfully defended recoveryaction — Receiver brought motion for costs immunity order — Motion dis-missed — Undertaking given by applicant more than likely would fall farshort of covering any potential cost exposure in recovery action — Receiverdid not make out case for cost immunity order — This was not exceptionalcase — There was no element of public interest, this being private disputebetween judgment creditor and judgment debtor — Impact of cost immunityaward on defendants would be significant — Costs would probably be sig-nificant, and to depart from “loser pays” costs principle would not be pru-dent — In absence of affidavit from applicant describing her financial situa-tion, it could not be concluded that, without cost immunity order in favour ofreceiver, applicant would not proceed with recovery action on her own —Without venturing definitive view on pleaded causes of action, claimspleaded by receiver appeared to be ones open to judgment creditor to ad-vance — It was not prudent to fashion principle that strong prima facie casesmay well be entitled to consideration for cost immunity orders.Haunert-Faga v. Faga, 2013 CarswellOnt 2947 . . . . . . . Ont. S.C.J. 52

Civil practice and procedureLimitation of actions — Real property — Charges upon land — Mort-gage — General principles –––– Mortgage was in default and mortgagee ob-tained order nisi — For 12 years no action was taken on foreclosure, al-though actions were taken involving collecting rent and organizing sale ofproperty — Mortgagee made demand for outstanding rents and mortgageamounts, which at time were in excess of $1,000,000 — Mortgagor’s appli-cation to discharge mortgage was granted — Trial judge found limitation pe-riod under Limitation Act, which ran from single late payment of mortgage,had expired — Mortgagee appealed — Appeal allowed — Limitation periodin Act was not applicable, as remedial steps taken to enforce in rem claim

CANADIAN BANKRUPTCY REPORTSviii 100 C.B.R. (5th)

following order nisi are not subject to new limitation period — As long asoriginating petition is commenced within six-year period, mortgagee’s causeof action remains extant, and Act has no further role in foreclosure proceed-ing — Proper remedy for mortgagor was to seek to set aside proceedings forwant of prosecution.Gooch v. E.M.F. Holdings Ltd., 2013 CarswellBC 793 . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.C. C.A. 111

Civil practice and procedureParties — Representative or class proceedings under class proceedingslegislation — Orders, awards and related procedures — Termination of pro-ceedings –––– Settlement — Representative plaintiffs were some of stake-holders who claimed defendant forestry company and other defendants mis-stated its financial results, misrepresented its timber rights, overstated valueof its assets and concealed material information about its business operationsfrom investors, causing collapse of artificially inflated share price — Repre-sentative plaintiffs began class proceedings against forestry company, whichwas comprised of components related to shareholders and noteholders —Forestry company entered protection under Companies’ Creditors Arrange-ment Act — Settlement reached between representative plaintiffs and partic-ular defendant — Representative plaintiffs brought motion for approval ofsettlement — Motion granted — Claims in release were rationally related topurpose of the plan in Companies’ Creditors Arrangement Act and were nec-essary for it — Without approval of settlement, objectives of plan remainedunfulfilled due to practical inability to distribute settlement proceeds — De-fendant made significant monetary contribution to plan -- Plan benefitedclaimants in form of tangible distribution -- Release was fair and reasonableand not overly broad or offensive to public policy — Clear that claims as-serted against forestry company had to be addressed as part of restructuring— Unencumbered participation of forestry company’s subsidiaries is crucialto restructuring.Labourers’ Pension Fund of Central and Eastern Canada v. Sino-ForestCorp., 2013 CarswellOnt 3361 . . . . . . . . . . . . . . . . . . . . Ont. S.C.J. 30

Civil practice and procedureSummary judgment — General principles –––– Defendant agreed to buydrilling rig from plaintiff — Rig was not delivered in timely manner, was notdelivered with certification necessary for operation, and did not meet safetyrequirements — Defendant claimed that it suffered financial loss from nothaving rig ready at time agreed upon — Defendant made partial paymentonly on amount demanded by plaintiff — Plaintiff brought action for recov-

DIGESTS OF CASES100 C.B.R. (5th) ix

ery under agreement — Plaintiff brought application for summary judgment— Application dismissed — Genuine issue for trial existed in that defendantmight have claim for set-off — Guarantee did not specifically disallowclaim for equitable set-off.Do All Metal Fabricating Ltd. v. Embury, 2013 CarswellAlta 310 . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alta. Q.B. 160

ContractsRemedies for breach — Damages — Leasing agreement –––– Plaintiffleased truck to defendants — Defendants defaulted and plaintiff seizedtruck — Truck was sold by bailiff for $49,372.96 — Defendants claimedthat fair market value of truck was about $70,000 — Plaintiff brought actionfor damages of $96,987.14 for breach of contract — Action allowed — De-fendants failed to establish that sale was improvident or that plaintiff wasnegligent — Defendants’ evidence consisted solely of belief as to what fairmarket value was — Plaintiff’s evidence detailed its dealings with bailiffand explained difficulty in selling repossessed vehicles — Plaintiff by termsof agreement was not required to consider defendants’ request to assign it tothird party.Arbutus Capital Vehicle Leasing Ltd. v. Hanif, 2013 CarswellBC 296. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.C. S.C. 119

Criminal lawCharter of Rights and Freedoms — Unreasonable search and seizure [s.8] — Reasonable expectation of privacy –––– Accused charged with, interalia, fraud — Accused C was arrested and detained at remand facility — Fa-cility communications area contained signage, pursuant to s. 14.4 of Correc-tions Act, advising inmates that telephone conversations would be monitoredand recorded — Certain private communications of C were recorded, and ac-cused brought application for order excluding impugned communications ashaving been obtained in violation of C’s right to be secure against unreason-able search or seizure — Application was dismissed — Supreme Court ofCanada subsequently released judgment in R. v. Tse, declaring specific in-terception authorization provision, s. 184.4 of Criminal Code, unconstitu-tional and of no force or effect — Accused brought application for reconsid-eration of judgment upon application, relying upon judgment in Tse —Reconsideration refused — Judgment in Tse could be properly distin-guished, as in that case parties to intercepted communication had muchhigher expectation of privacy — Inmates of remand centre, particularlygiven express signage to this effect, had very limited expectation of privacy,

CANADIAN BANKRUPTCY REPORTSx 100 C.B.R. (5th)

s. 14.4 Corrections Act and Regulations made thereunder were not unconsti-tutional and reconsideration was accordingly properly refused.R. v. Drader, 2012 CarswellAlta 1301 . . . . . . . . . . . . . . Alta. Q.B. 103

Debtors and creditorsReceivers — Actions by and against receiver — Practice and procedure —Costs –––– Divorce judgment required respondent to pay applicant $4.4 mil-lion — Respondent assigned shares in company to applicant in partial satis-faction of judgment, but did not pay anything else — Court appointed re-ceiver-in-aid-of-execution — Receiver brought action against various partiesto recover assets or entitlements which receiver contended were due and ow-ing to respondent and which should be made available to applicant as judg-ment creditor — Receiver was concerned that assets in estate would be in-sufficient to cover any liability in costs to defendants in event theysuccessfully defended recovery action — Receiver brought motion for costsimmunity order — Motion dismissed; costs totalling $5,500 awarded to de-fendants — Issue was narrow one — Defendants filed two brief but helpfulfactums — Defendants who filed materials were entitled to partial indemnitycosts — Factors taken into account included time spent, result achieved,complexity, and amount reasonable for unsuccessful party to pay incircumstances.Haunert-Faga v. Faga, 2013 CarswellOnt 2947 . . . . . . . Ont. S.C.J. 52

Debtors and creditorsReceivers — Conduct and liability of receiver — Liabilities –––– Costs —Divorce judgment required respondent to pay applicant $4.4 million — Re-spondent assigned shares in company to applicant in partial satisfaction ofjudgment, but did not pay anything else — Court appointed receiver-in-aid-of-execution — Receiver brought action against various parties to recoverassets or entitlements which receiver contended were due and owing to re-spondent and which should be made available to applicant as judgment cred-itor — Receiver was concerned that assets in estate would be insufficient tocover any liability in costs to defendants in event they successfully defendedrecovery action — Receiver brought motion for costs immunity order —Motion dismissed — Undertaking given by applicant more than likely wouldfall far short of covering any potential cost exposure in recovery action —Receiver did not make out case for cost immunity order — This was not ex-ceptional case — There was no element of public interest, this being privatedispute between judgment creditor and judgment debtor — Impact of costimmunity award on defendants would be significant — Costs would proba-bly be significant, and to depart from “loser pays” costs principle would not

DIGESTS OF CASES100 C.B.R. (5th) xi

be prudent — In absence of affidavit from applicant describing her financialsituation, it could not be concluded that, without cost immunity order in fa-vour of receiver, applicant would not proceed with recovery action on herown — Without venturing definitive view on pleaded causes of action,claims pleaded by receiver appeared to be ones open to judgment creditor toadvance — It was not prudent to fashion principle that strong prima faciecases may well be entitled to consideration for cost immunity orders.Haunert-Faga v. Faga, 2013 CarswellOnt 2947 . . . . . . . Ont. S.C.J. 52

Debtors and creditorsReceivers — General principles — Miscellaneous principles –––– Summon-ing receiver — Securities Commission alleged that deceased debtor and hiscompany were involved in Ponzi scheme — Securities commission sum-moned receiver of deceased’s company and estate to appear before it andprovide documentation related to investigation — Receiver brought motionto quash summons — Motion granted — Receiver cannot be compelled toproduce documents for proceeding outside of or unrelated to receivership —Notes of receiver were not shown to be likely relevant.Sbaraglia, Re, 2013 CarswellOnt 2914 . . . . Ont. Securities Comm. 126

EstoppelEstoppel in pais — Elements — Representation of existing fact not futureintention –––– Plaintiff loaned money to defendants — Loans were not re-paid — Plaintiff agreed to forgive loans upon transfer to it of assets includ-ing units in limited partnership to be created — Partnership was not cre-ated — Defendant alleged he was induced to enter settlement agreement bymisrepresentations by plaintiff’s solicitor that creation of partnership wasimminent — Plaintiff brought action in debt and applied for summary judg-ment — Application granted — Defence of estoppel was not made out asthere was no misrepresentation of existing fact — Solicitor did not representthat partnership would be established — Statement that partnership was inprocess of being established was true at time it was made — Defendant inany event did not rely on statement as he was independently aware of factsconcerning establishment of partnership.Vision West Development Ltd. v. McIvor Properties Ltd., 2013 Car-swellBC 279 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.C. S.C. 1

EstoppelEstoppel in pais — Promissory estoppel — Promise or intention to affect le-gal relationship –––– Plaintiff loaned money to defendants — Loans were notrepaid — Plaintiff agreed to forgive loans upon transfer to it of assets includ-ing units in limited partnership to be created — Partnership was not cre-

CANADIAN BANKRUPTCY REPORTSxii 100 C.B.R. (5th)

ated — Defendant alleged reliance on promises made by plaintiff both priorand subsequent to signing agreement — Plaintiff brought action in debt andapplied for summary judgment — Application granted — Defence of estop-pel was not made out — It would not be unfair or unjust to permit plaintiff toenforce its rights under agreement — At no time before signing of agree-ment did plaintiff make unequivocal promise that it would close without lim-ited partnership — Plaintiff was prepared to modify agreement after it wassigned to provide for partial closing before creation of partnership — Modi-fication was however never executed — Defendants did not prior to plain-tiff’s change of mind take any action to their detriment in reliance on pro-posed modification.Vision West Development Ltd. v. McIvor Properties Ltd., 2013 Car-swellBC 279 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.C. S.C. 1

Real propertyMortgages — Foreclosure — Entitlement to interim judgment — Ordernisi — Miscellaneous –––– Limitation period — Mortgage was in default andmortgagee obtained order nisi — For 12 years no action was taken on fore-closure, although actions were taken involving collecting rent and organizingsale of property — Mortgagee made demand for outstanding rents and mort-gage amounts, which at time were in excess of $1,000,000 — Mortgagor’sapplication to discharge mortgage was granted — Trial judge found limita-tion period under Limitation Act, which ran from single late payment ofmortgage, had expired — Mortgagee appealed — Appeal allowed — Limi-tation period in Act was not applicable, as remedial steps taken to enforce inrem claim following order nisi are not subject to new limitation period —As long as originating petition is commenced within six-year period, mort-gagee’s cause of action remains extant, and Act has no further role in fore-closure proceeding — Proper remedy for mortgagor was to seek to set asideproceedings for want of prosecution.Gooch v. E.M.F. Holdings Ltd., 2013 CarswellBC 793 . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.C. C.A. 111

Real propertyMortgages — Foreclosure — Practice and procedure — Judgment or or-der — Miscellaneous –––– In commercial foreclosure proceeding, order nisiwas pronounced in July 2008 when amount owing was $230,148.13 plus 14percent interest — On May 11, 2009, order was granted for conduct of saleof property but property did not sell — As of November 21, 2011, petitionersought judgment in amount of $477,613.64, including interest and appraisalfee of $2,100.00 — Petitioner’s application for personal judgment against re-

DIGESTS OF CASES100 C.B.R. (5th) xiii

spondents was granted in part, with , but petitioner was to have judgment asof May 26, 2009, including amount for appraisal — Petitioner applied to set-tle terms of order regarding protective disbursements and costs — Applica-tion granted — With regard to date of judgment against respondents, inten-tion was that judgment date should be date that order for conduct of sale wasmade and that was mistakenly referred to as May 26,2009 in many of materi-als in prior hearing — Correct date of judgment was actually May 11,2009 — Respondents also argued that appraisal fee should not be included inpersonal judgment as protective disbursement, but there was no jurisdictionto change order as court was functus officio on this issue — Argument withrespect to appraisal fee was rejected and respondent did not make any objec-tion at prior hearing to other protective disbursements — In any event, therewere sound policy arguments for permitting recovery of protective disburse-ments incurred after date of judgment as they preserved value of securitybenefiting both petitioner and respondents — Respondent’s calculation, ofamount of judgment as of May 11, 2009 as being $266,216.17 was correctand protective disbursements in amount of $77,391.12 would be included inpersonal judgment — As parties had divided success on both applications,they would bear their own costs.Morbank Financial Inc. v. Wong, 2012 CarswellBC 3743 . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B.C. S.C. 153

Real propertyMortgages — Sale — Judicial sale — Effect of conveyance — Rights andobligations of purchaser –––– Mortgagor owned commercial building withvarious tenants, and received $340,704.50 in security deposits that were sup-posed to be applied to tenants’ last two months’ rent if they complied withtheir leases — Mortgagor converted security deposits to its own use andwhen mortgagee foreclosed on building, security deposits were not recov-ered by receiver-manager appointed as part of foreclosure proceedings —Judicial sale of property to purchaser ensued, under offer to purchase withterm providing for assumption of all leases with tenants and with purchaseprice subject to “usual adjustments” — Purchaser unsuccessfully brought ap-plication for order directing adjustment to be made for security deposits —Purchaser’s appeal was initially allowed, but leave was granted to re-argueappeal de novo — Appeal dismissed — Purchaser was sophisticated com-mercial purchaser who knew or ought to have known that court owed it noduty in overseeing judicial sale of property, but did owe duties to mortgagorand mortgagee to optimize benefits of sale — There was no compelling evi-dence, and nothing in offer to purchase, as to what constituted “usual adjust-

CANADIAN BANKRUPTCY REPORTSxiv 100 C.B.R. (5th)

ments” — It was clear that when purchaser made offer to purchase, it knewor should have known that receiver-manager had not received deposits fromdefaulting mortgagor — Since purchaser expressly assumed all obligationspertaining to leases, including to apply deposits to future rent, it was incum-bent on purchaser to expressly and clearly specify in offer that there shouldbe adjustment for deposits — While mortgagee could not rely on doctrine ofcontra as third party to offer presented to court, purchaser bore risk of itsown drafting as it failed to use clear wording to obtain specific adjustment.Equitable Trust Co. v. Lougheed Block Inc., 2012 CarswellAlta 1497. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alta. C.A. 138

SecuritiesCommissions and exchanges — Investigations –––– Summoning re-ceiver — Securities Commission alleged that deceased debtor and his com-pany were involved in Ponzi scheme — Securities commission summonedreceiver of deceased’s company and estate to appear before it and providedocumentation related to investigation — Receiver brought motion to quashsummons — Motion granted — Receiver cannot be compelled to producedocuments for proceeding outside of or unrelated to receivership — Notes ofreceiver were not shown to be likely relevant.Sbaraglia, Re, 2013 CarswellOnt 2914 . . . . Ont. Securities Comm. 126

CANADIANBANKRUPTCY

REPORTSFifth Series/Cinquieme serie

Recueil de jurisprudence canadienneen droit de la faillite

[Indexed as: Vision West Development Ltd. v. McIvorProperties Ltd.]

Vision West Development Ltd. Plaintiff and McIvor PropertiesLtd. and Cameron McIvor Defendants

British Columbia Supreme Court

Docket: Vancouver S111709

2013 BCSC 171

Pearlman J.

Heard: January 14, 15, 18, 2013

Judgment: February 5, 2013

Estoppel –––– Estoppel in pais — Elements — Representation of existingfact not future intention –––– Plaintiff loaned money to defendants — Loanswere not repaid — Plaintiff agreed to forgive loans upon transfer to it of assetsincluding units in limited partnership to be created — Partnership was not cre-ated — Defendant alleged he was induced to enter settlement agreement by mis-representations by plaintiff’s solicitor that creation of partnership was immi-nent — Plaintiff brought action in debt and applied for summary judgment —Application granted — Defence of estoppel was not made out as there was nomisrepresentation of existing fact — Solicitor did not represent that partnershipwould be established — Statement that partnership was in process of being es-tablished was true at time it was made — Defendant in any event did not rely onstatement as he was independently aware of facts concerning establishment ofpartnership.

Estoppel –––– Estoppel in pais — Promissory estoppel — Promise or inten-tion to affect legal relationship –––– Plaintiff loaned money to defendants —Loans were not repaid — Plaintiff agreed to forgive loans upon transfer to it ofassets including units in limited partnership to be created — Partnership was notcreated — Defendant alleged reliance on promises made by plaintiff both priorand subsequent to signing agreement — Plaintiff brought action in debt and ap-

CANADIAN BANKRUPTCY REPORTS 100 C.B.R. (5th)2

plied for summary judgment — Application granted — Defence of estoppel wasnot made out — It would not be unfair or unjust to permit plaintiff to enforce itsrights under agreement — At no time before signing of agreement did plaintiffmake unequivocal promise that it would close without limited partnership —Plaintiff was prepared to modify agreement after it was signed to provide forpartial closing before creation of partnership — Modification was howevernever executed — Defendants did not prior to plaintiff’s change of mind takeany action to their detriment in reliance on proposed modification.

Cases considered by Pearlman J.:

Bank of Montreal v. Glendale (Atlantic) Ltd. (1977), 1 B.L.R. 279, 76 D.L.R.(3d) 303, 1977 CarswellNS 12, 20 N.S.R. (2d) 216, 27 A.P.R. 216 (N.S.C.A.) — referred to

Hansen v. British Columbia (Minister of Transportation & Highways) (2000),34 R.P.R. (3d) 123, 2000 BCCA 338, 2000 CarswellBC 1179, 139 B.C.A.C.147, 227 W.A.C. 147, 70 L.C.R. 1, 186 D.L.R. (4th) 685, 76 B.C.L.R. (3d)241, [2000] B.C.J. No. 1112 (B.C. C.A.) — followed

Koenne, Re (2010), 69 C.B.R. (5th) 294, 2010 ONCA 524, 2010 CarswellOnt5388 (Ont. C.A.) — referred to

Manitoba Pool Elevators v. Gorrell (1998), [1998] 6 W.W.R. 596, 1998 Car-swellMan 92, 127 Man. R. (2d) 4, [1998] M.J. No. 92 (Man. Q.B.) — re-ferred to

Vision West Development Ltd. v. McIvor Properties Ltd. (2012), 2012 Car-swellBC 465, 2012 BCSC 302 (B.C. S.C.) — followed

Rules considered:

Supreme Court Civil Rules, B.C. Reg. 168/2009R. 9-7 — pursuant to

APPLICATION by plaintiff for summary judgment in action for repayment ofloans.

Stephen R. Ross for PlaintiffChristopher M. Dafoe for Defendants

Pearlman J.:

Introduction1 This is a second application of the plaintiff Vision West Development

Ltd. (“Vision West”) for summary judgment pursuant to Rule 9-7 againstthe defendants McIvor Properties Ltd. (“MPL”) and Cameron McIvor onthree loans which it advanced in 2005, 2006 and 2007 in the total amount

Vision West Development Ltd. v. McIvor Properties Ltd. Pearlman J. 3

of $1,437,683.87, plus interest on that amount from and after March 9,2011 at the rate of 10% per annum.

2 Vision West also claims for a declaration that MPL is in breach of theGeneral Security Agreement dated March 30, 2007 (the “GSA”) grantedto it by MPL.

3 The defendant Cameron McIvor is the president and sole shareholderof MPL.

4 The defendants admit that Vision West advanced the loans in theamounts claimed, and that they have not repaid the loans either in wholeor in part.

5 The issue arising on this application is whether the plaintiff is entitledto rely upon the terms of a settlement agreement made in writing be-tween the parties on or about March 12, 2010, under which the fullamount the plaintiff claims is now due and owing, or whether VisionWest is estopped from enforcing its strict legal rights by representationsor promises it allegedly made to the defendants before and after the sign-ing of the settlement agreement.

Background

The Dispute6 The dispute between the parties concerns a settlement agreement

dated for reference November 9, 2009 but not signed until March 2010,made between MPL and Mr. McIvor as debtors and Vision West as cred-itor. By Recital A to the settlement agreement, both MPL and Mr. Mc-Ivor acknowledged in writing their indebtedness to the plaintiff for thetotal amount of the loans. The parties also agreed that in full and finalsettlement of the debt the defendants would transfer certain assets to Vi-sion West, including units to be created in a limited partnership known asthe Ravens Crest Developments Limited Partnership, a real estate devel-opment project located near Pemberton, British Columbia.

7 Vision West agreed that upon transfer of the assets, including the lim-ited partnership units, it would release the defendants from the debt andsecurity it held for the debt.

8 Article 4.1 of the settlement agreement provided that the closing datewould be the date the Ravens Crest Developments Limited Partnershipunits were received by Intuitive Management Ltd., a company controlledby Mr. McIvor, or any other date as agreed in writing between the de-fendants and the plaintiff.


9 The Ravens Crest Developments Limited Partnership was never cre-ated, the units were never transferred and the parties never agreed on analternate closing date.

10 The defendants contend that MPL borrowed the funds in issue fromVision West because its president, Mr. Tim Regan insisted that MPL ac-quire the shares of a troublesome shareholder in Terrane ConstructionLtd. (“Terrane”), a company in which corporations controlled by Mr. Re-gan and Mr. McIvor each held shares.

11 Terrane is an excavation, landscaping and sand and gravel contractingcompany that operates in Pemberton, British Columbia. When Terranewas incorporated, Mr. Regan, Mr. McIvor and a third person, Mr. CaseyJackson, each controlled one-third of the common shares in Terranethrough their respective corporations. In April, 2006 there were fourshareholders in Terrane:

a) Coastal Mountain Log Work Ltd. (“Coastal”)

b) 657914 B.C. Ltd. (“657914”)

c) Lillooet River Developments Ltd. (“Lillooet”)

d) 661318 B.C. Ltd. (“661318”).12 Mr. McIvor was the principal of Coastal, which became MPL by

amalgamation in June 2004. Mr. Reagan was the principal of 657914,Mr. Casey Jackson was the principal of 661318 and Ms. Magaly Bi-anchini was the principal of Lillooet.

13 In April 2006, Coastal and Lillooet each held 50 common shares inTerrane, while 657914 and 661318 each held 100 common shares. InOctober 2006, MPL agreed to purchase Lillooet’s 50 shares in Terrane.

14 Mr. Regan denies that he insisted that MPL acquire Lillooet’s shares.He says that MPL borrowed funds from Vision West in order to purchasesufficient shares to restore its shareholding in Terrane to the same num-ber of shares as were held by each of the corporations controlled by Mr.Regan and Mr. Jackson.

The First Summary Trial Application and its Aftermath15 On the plaintiff’s original summary trial application, Mr. McIvor and

Mr. Regan both recalled that the settlement agreement was signed on No-vember 9, 2009. As a result of the subsequent examinations for discover-ies, and some further document production, the parties now agree, and Ifind, that the settlement agreement was not signed until March 2010.


16 The estoppel defence advanced by the defendants on the first sum-mary trial application was that following the signing of the settlementagreement in November 2009, Mr. Regan, on behalf of Vision West,made representations by conduct that the agreement would be modifiedto permit its closing without the transfer of the Ravens Crest Develop-ments Limited Partnership units. That defence is summarized in my Rea-sons for Judgment, indexed as Vision West Development Ltd. v. McIvorProperties Ltd., 2012 BCSC 302 (B.C. S.C.), at paras. 17-18:

[17] The defendants contend that following the execution of the Set-tlement Agreement, it became apparent to the parties that the creationof the Ravens Crest Development Limited Partnership might takelonger than expected, and that that the plaintiff and the defendantsentered into discussions about amending the Settlement Agreementto provide for closing before delivery of the Ravens Crest LimitedPartnership units. Those discussions continued until August 2010.There was no agreement to amend the Settlement Agreement. Thedefendants say that between November 2009 and August 2010, whilediscussions were underway to modify the Settlement Agreement, Mr.Regan and Mr. Jackson excluded them from the management of Ter-rane. MPL and Mr. McIvor say they accepted their exclusion, andchose not to invoke the shareholder’s oppression remedies availableunder s. 227 of the Business Corporations Act, S.B.C. 2002, c. 57,because Mr. Regan had represented to them by his conduct that theSettlement Agreement would be amended to remove the requirementfor delivery of the Limited Partnership units at closing. The defend-ants say that in reliance upon Mr. Regan’s representations, they an-ticipated that the Settlement Agreement would close without thetransfer of the Limited Partnership units, and their involvement withTerrane would come to an end.

[18] The defendants argue that Vision is estopped by the conduct ofMr. Regan from insisting on strict compliance with the terms of theSettlement Agreement, and from treating their failure to deliver theRavens Crest Development Limited Partnership units as a breach ofthe Settlement Agreement.

17 At paras. 45 and 46 of those Reasons for Judgment, I found that:

(a) the closing of the settlement agreement was contingentupon the creation of the Ravens Crest Developments Lim-ited Partnership;

(b) any prospect for creation of the limited partnership came toan end when the mortgagee foreclosed against the RavensCrest property;


(c) it was the common intention of the parties that the defend-ants would only be relieved of their obligation to repay thedebt upon performance of all of their obligations under thesettlement agreement, including the transfer of the RavensCrest Limited Partnership units;

(d) the non-occurrence of the contingency did not release thedefendants from an implied obligation to repay the debtwithin a reasonable time; and

(e) here, where the loan was repayable on demand and theplaintiff had demanded repayment before commencing thisaction in March 2011, the reasonable time for repaymenthad expired.

18 At para. 47, I found that under the terms of the settlement agreement,the defendants’ failure to transfer the limited partnership units consti-tuted a default for which the full amount of the debt was due and payableby the defendants to the plaintiff. I also found, at para. 109, that VisionWest had perfected and registered the GSA in compliance with the termsof a Commitment Letter of November 14, 2006 and granted the plaintiffa declaration that the security interest contained in the GSA constitutes avalid and enforceable security interest that has attached to the collateral.

19 However, in light of conflicts in the affidavit evidence relating to thedefendants’ estoppel defence, I determined that cross-examination wasrequired to assist the court in finding all of the facts necessary to decidethat issue, and that it would be unjust to resolve the estoppel issue bysummary trial before discoveries had been conducted. I also concludedthat determination of the plaintiff’s application for a further declarationthat MPL has made default under and is in breach of the GSA had toawait resolution of the estoppel issue. Accordingly, I dismissed the plain-tiff’s original application for judgment for the amount claimed againstthe defendants, with liberty to reapply following the conduct of examina-tions for discovery.

20 The parties have now conducted those discoveries and have filed ad-ditional affidavit evidence relating to the estoppel defence.

21 As I discuss in more detail below, the focus of the estoppel defencehas now shifted. The defendants allege they were induced to enter intothe settlement agreement in March 2010 by untrue representations madeby Vision West’s solicitor and Mr. Regan between late February andearly March that the creation of the Ravens Crest Developments LimitedPartnership was imminent. The defendants say they relied to their detri-


ment on those representations, and that it would be unfair and unjust topermit Vision West to rely upon its strict legal rights under the settlementagreement.

Relevant Terms of the Settlement Agreement22 Before turning to the estoppel defence, I set out here the relevant pro-

visions of the settlement agreement.23 By Recital A to the settlement agreement, MPL and Mr. McIvor ac-

knowledged in writing their indebtedness to the plaintiff for the totalamount of the loans.

24 Other terms of the settlement agreement relevant to this applicationare as follows:

ASSETS OF DEBTORS

1.1 The Debtors hereby agree that in full and final settlement of theDebt due to the Creditor from the Debtors or either of them to trans-fer or cause to be transferred to the Creditor or as it directs on theterms and conditions hereinafter set for the assets (herein collectivelycalled the “Assets”) described in clause 1.2 of this Agreement.

1.2 The Assets to be transferred to the Creditor or as it directs consistof the following Assets:

(a) 1000 Class A Common shares issued by Steel Dust Develop-ments Ltd. and all shareholders’ loans and other interests reg-istered in the name of McIvor;

(b) 100 Class A Shares issued by Terrane Construction Ltd. andregistered in the name of MPL;

(c) the shareholder’s loan made to Terrane Construction Ltd. byMPL of approximately $808,000 and all other rights and in-terests of the Debtors in Terrane Construction Ltd.;

(d) 12 Class B Units and 12 Class C Units to be received by Intu-itive Management Ltd. (Inc # BC0856568) upon creation ofthe Ravens Crest Developments Limited Partnership in re-spect of contributions of cash and/or property in the form ofcertain beneficial interests in the lands described in the Octo-ber 13, 2009 draft amended and restated Limited PartnershipAgreement.

. . .

3.1 The Debtors jointly and severally covenant and agree that:

. . .


(h) they will immediately remedy any defect in title or defaultunder the terms of this Agreement, failing which the Debtshall immediately become due and payable by the Debtorsand each of them to the Creditor, whether such defect or de-fault occurs before or after the Closing Date.

3.2 On the completion of the transfer of the Assets to the Creditor,and if the Debtors have duly and completely performed their respec-tive obligations under this Agreement and the representations andwarranties of the Debtors are true on the Closing Date, the Creditorwill:

(a) transfer or cause to be transferred to the Debtors or either ofthem the shares and shareholder’s loans of the Creditor and ofCasey Jackson and 661318 B.C. Ltd. in 487363 B.C. Ltd.;

(b) cause Terrane Construction Ltd. to forgive its loan to 487363B.C. Ltd.;

. . .

(d) release the Debtors from their respective obligations underthe Debt in accordance with the terms of this Agreement andrelease the security for such Debt.

ARTICLE 4.

CLOSING DATE AND CLOSING DOCUMENTS

4.1 The Closing Date shall be the date that the 12 Class B Units and12 Class C Units to be received by Intuitive Management Ltd. (Inc #0856568) upon creation of the Ravens Crest Developments LimitedPartnership as described in clause 1.2(d) are issued or any other dateas is agreed in writing by the Debtors and Creditor.

. . .

5.4 Amendment. This Agreement may be altered or amended only byan agreement in writing signed by the parties hereto.

Issue25 The issue to be decided on this application is whether the defendants

have established either an estoppel by representation or a promissory es-toppel that precludes the plaintiff from relying upon it strict legal rightsunder the settlement agreement and provides a valid defence to the plain-tiff’s claim for judgment for the loan amount.


Discussion and Analysis

MPL’s and McIvor’s Estoppel Defence26 The defendants say that Ms. Norah Hall, the solicitor for Vision

West, and Mr. Regan made representations to them between February24, 2010 and March 1, 2010 that the creation of the Ravens Crest Devel-opments Limited Partnership was imminent, and that they relied uponthose representations to their detriment when they entered into the settle-ment agreement on or about March 9, 2010. Mr. McIvor, who had onlypersonally guaranteed repayment of the first of the three loans made byVision West to MPL, says he suffered a substantial detriment becauseupon execution of the settlement agreement he assumed an obligation torepay the full amount loaned by the plaintiff to MPL.

27 The defendants also contend that in August and September 2010 theplaintiff represented or promised that it would enter into a modificationagreement that would permit the closing of the settlement without thecreation or transfer of the Ravens Crest limited partnership units. Mr.McIvor and MPL submit that it would be unfair and unjust to permitVision West to resile from its promise to close the settlement before thecreation of the Ravens Crest Developments Limited Partnership.

28 The defendants submit that the events relevant to their estoppel de-fence span five distinct periods between late 2005 and September, 2010.

29 The first period was from late 2005 to early 2007. During this time,the plaintiff advanced the three loans at issue in this action. Only the firstloan, in the amount of $159,500 was guaranteed by Mr. McIvor. VisionWest made the second and third loans, in the principal amounts of$250,000 and $524,044.60 respectively, to enable MPL to repurchase theshares in Terrane sold to the troublesome shareholder. The defendantsmaintain that MPL repurchased the shares in Terrane at Mr. Regan’s in-sistence, and that the circumstances in which Vision West loaned themonies it now seeks to recover are a factor the court should take intoaccount in weighing the equities and determining whether it would beunfair or unjust to permit the plaintiff to rely upon its strict legal rightsunder the settlement agreement.

30 The second period identified by the defendants is September 2008.The defendants say that at that time Mr. Regan and Mr. Jackson removedMr. McIvor from the management of Terrane’s day-to-day business, andthe parties began to negotiate the settlement agreement. Mr. Regan andMr. McIvor signed a one-page handwritten document in September


2008. According to Mr. McIvor, this document set out the “basic terms”for settlement by which Vision West would release the defendants fromtheir debt in return for McIvor’s shares and shareholder’s loans in Ter-rane, and his 3% interest and two single family building lots in the Ra-vens Crest development in Pemberton, which was then planned as a jointventure project.

31 The third period ran from September 2008 to March 2010. Duringthat time, the plaintiff and the defendants were engaged in the negotia-tion of the settlement agreement. The defendants say that the partiesreached an impasse on the question of whether the Ravens Crest assetswere to be transferred as interests in the joint venture or as units in alimited partnership. According to the defendants, during this period Mr.Regan and Mr. Jackson excluded Mr. McIvor from the management ofTerrane, withheld from him information respecting the company’s affairsand treated him, and MPL, in an oppressive manner.

32 The fourth period identified by the defendants is from late Februaryto early March 2010. The defendants say that at this time the parties re-solved their impasse respecting the transfer of the Ravens Crest assets.They signed the settlement agreement, which provided for closing thesettlement upon creation of the Ravens Crest Developments LimitedPartnership units. The defendants say they executed the settlement agree-ment in reliance upon representations of the plaintiff and its solicitor thatcreation of the limited partnership was imminent and that the settlementagreement should be signed so that the settlement could be promptly im-plemented. Upon implementation of the settlement, including the crea-tion and transfer of the limited partnership units, Mr. McIvor and MPLwould be released from their debt obligations to Vision West.

33 Finally, the defendants submit that during the summer of 2010 after itbecame apparent that the creation of the Ravens Crest DevelopmentsLimited Partnership was not imminent, the parties entered into discus-sions respecting a modification agreement. Mr. McIvor and MPL allegethe plaintiff made representations or promises that it would modify thesettlement agreement to permit a closing without the limited partnershipunits, and then resiled from those representations in late September,2010.


Estoppel — Applicable Legal Principles34 I reproduce here the summary of the applicable legal principles set

out in my earlier Reasons in Vision West Development Ltd. v. McIvorProperties Ltd. at paras. 62 through 65:

[62] A convenient statement of the doctrine of estoppel is found inCanadian Encyclopedic Digest, 4th ed. vol. 25 (Toronto: ThompsonReuters, 2009) at 87, para. 9:

When one party has, by words or conduct, made to theother a representation that was intended to affect the legalrelations between them and be acted on accordingly, then,once the other party has taken him or her at word and ac-ted on it to his or her detriment, the party who made therepresentation may not revert to the previous legal rela-tions as if no such representation had been made, but mustaccept the legal relations subject to the qualification thathe or she has introduced, despite the absence of consider-ation. The party to whom the representation was madecannot be said to rely on the statement if knowing it to befalse; he or she must reasonably believe it to be true. Fur-thermore, the statement must be clear and unqualified andthe relationship between the parties must also be such thatthe imputed truth of the statement is a necessary step inthe constitution of the action.

[63] For an estoppel by conduct, the requirements are:

1. a representation either by words said or an act done with theintention that it be acted upon by the party claiming estoppel;

2. the representation must be such as to induce the other party tobelieve in a non-existing state of facts; and

3. the party acts upon the representation to his or her detriment.

Whether the conduct in question is sufficient to constitute an estoppelis a question of fact for each case: O’Brian Financial Corp. v. Welch(1991), 62 B.C.L.R. (2d) 314 (C.A.).

[64] The difference between an estoppel by conduct and promissoryestoppel is that for the purposes of promissory estoppel, the represen-tation or conduct relied upon need not be a representation of presentfact: Engineered Homes Ltd. v. Mason et al., [1983] 1 S.C.R. 641 at646-647.

[65] There must be a clear and unequivocal representation intendedby the maker to affect legal relations between the parties. For bothestoppel by conduct and promissory estoppel, the underlying princi-ple is that it would be unfair or unjust to allow the maker of the rep-


resentation to resile from his words or conduct and to enforce strictlegal rights: Litwin Construction (1973) Ltd. v. Pan (1988), 29B.C.L.R. (2d) 88 (C.A.) at paras. 27-30.

35 In Hansen v. British Columbia (Minister of Transportation & High-ways), 2000 BCCA 338 (B.C. C.A.) at para. 10, the court stated the lawgoverning promissory estoppel as follows:

The law applicable to this situation, in terms of estoppel, was dis-cussed by the Supreme Court of Canada in Maracle v. Travellers In-demnity Co. of Canada (1991), 2 S.C.R. 50. In that case Mr. JusticeSopinka summarized the principles of promissory estoppel in theseterms (at p.57):

The principles of promissory estoppel are well settled.The party relying on the doctrine must establish that theother party has, by words or conduct, made a promise orassurance which was intended to affect their legal rela-tionship and to be acted on. Furthermore, the representeemust establish that, in reliance on the representation, heacted on it or in some way changed his position. In JohnBurrows Ltd. v. Subsurface Surveys Ltd., [1968] S.C.R.607, Ritchie, J. stated, at p.615:

It seems clear to me that this type of equitabledefence cannot be invoked unless there issome evidence that one of the parties enteredinto a course of negotiation which had the ef-fect of leading the other to suppose that thestrict rights under the contract would not beenforced, and I think that this implies thatthere must be evidence from which it can beinferred that the first party intended that the le-gal relations created by the contract would bealtered as a result of the negotiations. This pas-sage was cited with approval by McIntyre J. inEngineered Homes Ltd. v. Mason, [1983] 1S.C.R. 641, at p.647. McIntyre J. stated thatthe promise must be unambiguous but couldbe inferred from circumstances


Findings of Fact and Application of Legal Principles

2006 to September 200836 I begin with the defendants’ submission that between 2006 and 2007

they borrowed funds from Vision West to enable MPL to repurchase Lil-looet’s shares in Terrane at the insistence of Mr. Regan.

37 On his discovery, Mr. Regan gave evidence, and I find that he re-garded Lillooet’s representative as a liability and wanted him removedfrom any involvement with Terrane. However, as Mr. McIvor acknowl-edged in his affidavit sworn August 22, 2011, all three of the originalshareholders in Terrane, including Mr. McIvor, had decided that theycould not longer work with Lillooet. Mr. Regan, Mr. McIvor and Mr.Jackson all shared the view that it was in their interest, and Terrane’s, tobuy out Lillooet, and thereby remove its representative from any role inthe company’s operations.

38 On June 22, 2006 Mr. Regan e-mailed an “action plan” to Mr. McIvorby which Mr. Regan would buy out Lillooet. Mr. Regan’s action planalso provided for Mr. McIvor’s shares to go into default under the Ter-rane shareholders’ agreement. If Mr. McIvor failed to buy them backwithin a year his shares would go to Mr. Regan. Further, if Mr. McIvordecided to leave Terrane, Mr. Regan would also acquire his shares.

39 Mr. Regan’s action plan was never implemented. On August 31, 2006Mr. McIvor proposed that Mr. Regan loan MPL the funds required topurchase Lillooet’s shares in Terrane. Mr. McIvor and Mr. Regan agreedthat Vision West would loan MPL the funds it needed to purchase Lil-looet’s shares in Terrane.

40 On his May 18, 2012 examination for discovery, Mr. McIvor testifiedthat when he agreed to borrow the funds from Vision West, the prospectsfor Terrane were “looking good”; although at the time he was unaware ofthe losses Terrane would incur on its contract for the Whistler OlympicsAthletes’ Village. Mr. McIvor swore that when he made his decision tobuy back the 50 shares in Terrane held by Lillooet he had no reason tobelieve that Terrane’s value and prospects for making money were notgood.

41 I find that Mr. McIvor made a business decision, based on his ownassessment of Terrane’s financial prospects, to borrow the funds fromVision West required to finance MPL’s purchase of the 50 shares in Ter-rane held by Lillooet. The defendants agreed to borrow the funds becauseMr. McIvor expected to profit by the acquisition of the Terrane shares.


The plaintiff did not compel Mr. McIvor to borrow the funds, or incurthe debts which are the subject of this application.

42 Between 2006 and September 2008 Mr. McIvor managed the opera-tions of Terrane, served as its chief financial officer and comptroller andprepared financial projections for its projects.

43 After MPL had purchased Lillooet’s shares in Terrane and Mr. Mc-Ivor and MPL executed the loan commitment letter of November 14,2006 with Vision West, Terrane suffered substantial financial losses.

44 During the period between 2006 and September 2008 Mr. Regan,through Vision West, funded the operations of Terrane. He did so with-out any financial contribution from Mr. McIvor or Mr. Jackson.

45 At para. 103 of my earlier Reasons for Judgment I found that byMarch 30, 2007 Terrane was indebted to Vision West in the amount of$1.5 million and that by September 25, 2007 the amount owed by Ter-rane to the plaintiff had increased to $2,551,000. As a result of Terranehaving exhausted its line of credit, Vision West advanced $1,000,000 tosupport Terrane’s failing operations during 2007.

46 At para. 108, I also found that by March 30, 2007 Terrane had in-curred operating losses of at least $1.5 million and that those losses con-tinued to increase through the rest of that year. According to theunaudited financial statement for Terrane for the year ended February 28,2008, Terrane recorded an operating loss of $2,559,714 and a deficit of$2,823,459.

47 By August 2008 Mr. Regan and Mr. Jackson took control of the man-agement of Terrane from Mr. McIvor because Terrane was in seriousfinancial difficulty.

48 In September 2008 Mr. McIvor was prepared to leave Terrane, pro-vided he could negotiate an agreement with the plaintiff whereby thedebts he had incurred, including the debt owing to Vision West forMPL’s purchase of the shares in Terrane formerly held by Lillooet, wereforgiven. Although he remained a director, and through MPL a share-holder in Terrane, Mr. McIvor withdrew from any active role in the man-agement of that company. On his discovery, Mr. McIvor deposed thatafter September 2008, while he wished to be informed about decisionsmaterially affecting Terrane, he had no interest in participating in thosedecisions.

49 In or about September 2008, Mr. McIvor entered into a consultingcontract with Young Development Corporation, the largest investor in


the Ravens Crest project, to assist in obtaining development approvals, arezoning and boundary extension. During September 2008, Mr. McIvorand Mr. Regan began to negotiate the settlement agreement.

September 2008 Memorandum50 In September 2008, following their first negotiation, Mr. McIvor and

Mr. Regan signed the one-page handwritten September 2008 memoran-dum. Aside from the signatures, that document contained only the fol-lowing text:

3% to lots 2 single family lots In consideration for Terrane sharetransfer.

51 On his examination for discovery, Mr. McIvor suggested that theSeptember 2008 memorandum was a binding agreement by which heagreed to transfer his shares and shareholder’s loans in Terrane to VisionWest together with his 3% interest and two lots in the Ravens Crest pro-ject in exchange for the release of the defendants’ debt to the plaintiff.

52 I find that the parties did not conclude a binding settlement agreementin September 2008. As Mr. McIvor stated on his examination for discov-ery, the September 2008 memorandum does not “clearly define any-thing”. Vision West and MPL are not identified as parties; the assets tobe transferred are not clearly identified; the memorandum makes no pro-vision for the release of Mr. McIvor and MPL from their debt to VisionWest.

September 2008 to March 2010: Negotiation and Signing of SettlementAgreement

53 The September 2008 memorandum marked the starting point for set-tlement negotiations between the parties that continued until March2010. During those negotiations, Mr. McIvor’s preferred position wasthat his interest in the Ravens Crest development be transferred as aninterest in the existing Ravens Crest joint venture project. Mr. McIvorwanted to avoid the uncertainty and risk of having to wait until the lim-ited partnership was created before he and MPL would be released fromtheir debt obligations.

54 For his part, Mr. Regan, on advice from his solicitor, Norah Hall, in-sisted that the settlement agreement only close upon creation of the Ra-vens Crest Developments Limited Partnership and that Vision West re-ceive units in the limited partnership as part of the consideration for itsforgiveness of the defendants’ debt. Terrane’s losses and its outstanding


indebtedness were such that Mr. Regan saw no value in the shares heldby MPL. Mr. Regan thought the transfer of the Ravens Crest limitedpartnership units was the only consideration of real value that VisionWest would receive from Mr. McIvor and MPL in exchange for releasingthem from their debts.

55 Mr. Regan also understood that the parties to the joint venture hadfinancial obligations that would not exist in the limited partnership. Mr.Regan was not prepared to increase Vision West’s liabilities by taking anassignment or receiving the transfer of an interest in the Ravens Crestjoint venture. He was also concerned that he would incur personal liabil-ity to HSBC Bank of Canada for loans made by the bank to the RavensCrest joint venture. The bank would not have released Mr. Regan fromhis personal liability for those loans until the creation of the limitedpartnership.

56 I find that at no time before the signing of the settlement agreement inMarch 2010 did the plaintiff make a clear and unequivocal representationto the defendants that Vision West would close the settlement before thecreation of the limited partnership units. To the contrary, the plaintiffinsisted upon the creation of the Ravens Crest Developments LimitedPartnership as a condition for closing. From mid-September 2009 at thevery latest Mr. McIvor understood this to be the plaintiff’s position, al-though from time to time he endeavoured to persuade the plaintiff toagree to close the settlement without the limited partnership units.

57 On September 14, 2009 Mr. McIvor sent an e-mail to Mr. Regan stat-ing:

It’s time to get our deal finished. We have agreed to the terms almostone year ago. The Ravens Crest LP document is complete and rollseveryone’s position forward. ...

Are you comfortable with the documents?

Can we arrange a signing date?

58 Mr. Regan responded on the same date: I do not yet have the final document on the LP [limited Partnership].As I have said for months my lawyers cannot move forward withoutthis. ... Once we have the LP we can move forward and create a deal.

59 On December 15, 2009 Mr. Ian Davis, the solicitor representing thedefendants in the settlement agreement negotiations, told Ms. Norah Hallthat Mr. McIvor was fine with closing the settlement on the date that thelimited partnership was finalized.


60 On December 17, 2009 Mr. Davis wrote to Ms. Hall setting out hisunderstandings from Mr. McIvor that first, the creation of the limitedpartnership was going to take a while, and second, that Mr. Regan wasprepared to proceed with the settlement on the basis that he would re-ceive a transfer of the appropriate joint venture interest directly from theprincipals of the Ravens Crest project.

61 On December 18, 2009 Ms. Hall responded to Mr. Davis as follows: You have asked whether the settlement agreement could be closedwith the limited partnership portion of the transaction to completelater but since the only benefit (if any) to Vision West in providingthis very generous forgiveness of debt is the limited partnershipunits, the settlement will not complete unless the units are issued toVision West and therefore Vision West will not agree to a partialclosing.

62 On December 21, 2009 Mr. Davis replied. He stated the defendantshad not lobbied for a partial closing and enclosed a revised draft settle-ment agreement providing for closing on either the joint venture interestor upon issuance of the limited partnership units.

63 The plaintiff continued to insist upon closing the settlement upon cre-ation of the Ravens Crest limited partnership units.

64 On February 24, 2010 Ms. Hall sent the following e-mail to Mr. Da-vis:

It has been some time since we last communicated regarding the set-tlement agreement between McIvor Properties, Cam McIvor and Vi-sion West Development. I have been advised by the solicitors whodrafted the Ravens Crest limited partnership documents that they arebeing signed and it appears that the partnership will soon beestablished.

Therefore the settlement agreement is attached for signature by yourclients and return. It provides for the transfer of the limited partner-ship interests of your clients, and not the joint venture interests and isotherwise on the terms of the draft last forwarded.

65 On February 26, 2010 Mr. Regan wrote directly to Mr. McIvor toenquire about “a schedule for signing off on the deal”. Mr. Regan madeno representation concerning the creation of the limited partnership inthis e-mail. After eighteen months of discussions, Mr. Regan simplywanted to have the settlement agreement signed, and the matterconcluded.


66 On March 1, 2010 Ms. Hall followed up with Mr. Davis: Ian, could you please advise when Mr. McIvor will be signing theattached document? Since the limited partnership is in the process ofbeing established (I am advised that documents are being circulatedand returned to Lawson Lundell), Tim would like to have the settle-ment with Mr. McIvor and his company signed so that the closingmay occur shortly after the limited partnership is established.

67 On March 2 and 3, 2010 Mr. McIvor wrote to Mr. Regan to proposethat the draft settlement agreement be amended to permit the closing ofthe settlement before the creation of the Ravens Crest limited partner-ship; to eliminate his obligation to repay personal debt of $8,000 to Ter-rane; and to provide for the transfer to him of one of Terrane’s projects.Mr. McIvor attempted to enhance his bargaining position by pointing outthat he remained the president of Terrane and that the pending sale byTerrane of a quarry required his consent.

68 On March 3, 2010 Mr. Regan replied to Mr. McIvor: I am absolutely dumbstruck. I will not deal with you any further onthis. I will have Norah present the numbers to Ian. You can elect tohonor your deal or I will call the loans.

69 Through the intercession of Mr. Jackson, Mr. McIvor and Mr. Reganmet on March 4, 2010 to discuss the settlement agreement. Mr. Regandid not agree to close the settlement before the creation of the RavensCrest Developments Limited Partnership.

70 Finally, later on March 4, 2010 Ms. Hall wrote to Mr. Davis empha-sizing that her client had not agreed to accept an assignment of the jointventure interest.

71 Vision West agreed to amend the settlement agreement respectingMr. McIvor’s personal debt but refused to make any change to the provi-sions for creation and transfer of the Ravens Crest Developments Lim-ited Partnership units.

72 On March 9, 2010 Mr. McIvor signed the settlement agreement aftertaking advice from his solicitor. Mr. Regan signed the settlement agree-ment for Vision West on March 12, 2010. During the negotiation of theterms of the settlement agreement, and particularly during the periodfrom September 2009 through March 9, 2010 the defendants had the ben-efit of legal advice and representation from Mr. Davis.

73 The settlement agreement was the product of a protracted negotiationbetween two experienced businessmen who were each seeking to con-clude an agreement on the terms most favourable to them. At no time


before the signing of the settlement agreement did Vision West make anyclear and unequivocal representation or promise that it would close thesettlement without the limited partnership. Accordingly, I find there wasno reliance by Mr. McIvor on any such representation before he signedthe settlement agreement on May 9, 2010.

February 24, 2010 to March 1, 2010: Representations that Creation ofLimited Partnership was Imminent

74 I turn now to consider whether the defendants were induced to signthe settlement agreement in March 2010 by an untrue representation orpromise by Ms. Norah Hall or Mr. Regan that the creation of the RavensCrest Developments Limited Partnership was imminent. Mr. McIvor hasdeposed that when he signed the settlement agreement one of the thingshe relied on was Ms. Hall’s statement that the Ravens Crest Develop-ments Limited Partnership was in the process of being created and thatits creation was imminent. Mr. McIvor went on to explain that while hestill had some reservations, he felt he could rely upon Ms. Hall’s state-ments because Mr. Regan was involved in the creation of the limitedpartnership and Ms. Hall had said that she was in contact with LawsonLundell, the law firm responsible for creating the limited partnership.

75 The statements of Ms. Hall are contained in her e-mails of February24 and March 1, 2010, which I have set out above at paras. 64 and 66 ofthese Reasons.

76 The defendants say that Ms. Hall’s e-mails of February 24, 2010 andMarch 1, 2010 constitute a representation that the creation of the RavensCrest limited partnership was imminent and with it, the closing of thesettlement agreement and the release of Mr. McIvor and MPL from thedebt owed to Vision West.

77 The defendants did not raise the allegation that they signed the settle-ment agreement in reliance upon misrepresentations by Ms. Hall con-cerning the creation of the Ravens Crest limited partnership until theyfiled their Further Amended Response on December 21, 2012.

78 Mr. McIvor maintains that after his final, unsuccessful attempt to ne-gotiate better terms with Vision West between March 2 and March 4,2010, he signed the settlement agreement in reliance, in part, on Ms.Hall’s representations.


79 By her e-mail to Mr. Davis of February 24, 2010, Ms. Norah Hallrepresented that:

I have been advised by the solicitors who drafted the Ravens Crestlimited partnership documents that they are being signed and it ap-pears that the partnership will soon be established.

80 In her follow-up e-mail of March 1, 2010 to Mr. Davis, Ms. Hall saidthat the limited partnership “is in the process of being established (I amadvised that documents are being circulated and returned to Lawson Lun-dell)” and that Mr. Regan wanted to have the settlement with the defend-ants signed “so that the closing may occur shortly after the limited part-nership is established.”

81 Ms. Hall did not represent or promise that the limited partnershipwould be established. There is no evidence to suggest that Ms. Hall’sstatement that she had been advised by the solicitors who drafted the Ra-vens Crest limited partnership documents that they were being signedand that it appeared that the partnership would soon be established wasuntrue at the time it was made. To the contrary, Lawson Lundell wasthen circulating the Ravens Crest limited partnership documents for sig-nature. Had those documents been signed by all of the Ravens Crest in-vestors the limited partnership would have been created. The RavensCrest limited partnership documents had been circulated to Mr. Davis byLawson Lundell for signature by various investors in the Ravens Crestproject. I find that Ms. Hall’s statement that the limited partnership wasin the process of being established was true at the time she made it.

82 Later, in or about September of 2010, when the developer of the Ra-vens Crest limited partnership was unable to obtain financing on theterms it sought from Ravens Crest’s lender, it withdrew from the project,and the limited partnership was never established.

83 In order to found an estoppel by representation there must be a repre-sentation of fact that is false: Bruce MacDougall Estoppel, (Markham,LexisNexus, 2012) at para. 4.49 citing Koenne, Re, 2010 ONCA 524(Ont. C.A.). Professor MacDougall goes on to explain, at para. 4.70, thathowever the representation is made, it must be untrue. The time for test-ing the truth of the representation is the time it was made: Bank ofMontreal v. Glendale (Atlantic) Ltd. (1977), 76 D.L.R. (3d) 303 (N.S.C.A.).

84 Ms. Hall’s statements were not false or untrue when she made them.85 Ms. Hall’s purpose in sending the e-mails of February 24 and March

1, 2010 was to encourage the defendants to sign the settlement agreement


at that time. In order to do so, she passed on to the defendants’ solicitorinformation she had received from the lawyers responsible for the crea-tion of the limited partnership that was true at the time she communi-cated that information. I find there was no untrue representation by Ms.Hall that would found an estoppel.

86 While that finding is sufficient to dispose of this ground, the defend-ants must also establish that they relied, at least in part, on Ms. Hall’srepresentation and were induced by it to enter into the settlement agree-ment. On his examination for discovery of December 28, 2012 Mr. Mc-Ivor made the following admissions:

(a) After Mr. McIvor left Terrane in or about September 2008, heentered into a consulting agreement with Young Development to as-sist in development approvals, rezoning, and a the boundary exten-sion for the Ravens Crest project.

[Questions 14-16]

(b) Young Development took control of the Ravens Crest project inSeptember or October 2008.

[Question 13]

(c) Mr. McIvor spoke on occasion with Jim Young, one of the princi-pals of Young Development, and on a regular basis with his sonBrian Young, another of the principals of Young Development.

[Questions 32-33]

(d) In the months leading up to the signing of the settlement agree-ment on March 9, 2010 Mr. McIvor was aware that Young Develop-ment was trying to get the Ravens Crest limited partnership docu-ments prepared by the solicitors, Lawson Lundell, and signed by theRavens Crest investors.

[Questions 50-53]

(e) Mr. McIvor’s lawyer, Ian Davis, was also involved in the processof getting the limited partnership documents signed by investors andLawson Lundell sent documents to Mr. Davis’s office to have themsigned by Ravens Crest investors.

[Questions 62-64]

(f) Mr. McIvor received an e-mail from Jim Young dated January 28,2010 stating that Lawson Lundell was sending out the limited part-nership documents for signature by everyone that week. At that pointMr. McIvor was working under a consulting agreement for YoungDevelopment.

[Question 76-78]


(g) Mr. McIvor was aware that Lawson Lundell was sending out lim-ited partnership documents for signature before Norah Hall said any-thing to him about what she understood was happening.

[Questions 83, 84]

(h) Mr. Davis incorporated most of the companies for the joint ven-ture parties. Lawson Lundell sent the limited partnership documentsto Mr. Davis and asked him to get the investors to sign them. Mr.Davis subsequently asked Mr. McIvor to get the minority joint ven-ture partners to sign the limited partnership documents.

[Questions 85, 86]

(i) Between January 28, 2010 and March 2010 Mr. McIvor believeshe did ask Jim Young about the status of the creation of the limitedpartnership and that Mr. Young said they were getting close to get-ting the documents prepared.

[Questions 99, 100]

87 Although Mr. McIvor says he relied upon representations containedin Ms. Hall’s e-mails of February 24 and March 1, 2010 when he signedthe settlement agreement, I find it more consistent with the preponder-ance of the probabilities and the situation as it then existed that he wasnot induced by Ms. Hall’s e-mails to execute the settlement documentsand did not rely upon her representations in doing so. Mr. McIvor waswell aware before Ms. Hall sent her e-mail of the efforts of Young De-velopment to establish the limited partnership, and that Lawson Lundellwas circulating documents for signature at that time. After Ms. Hall senther e-mails of February 24 and March 1, 2010 to the defendants’ solici-tor, Mr. McIvor made one final attempt to amend the draft settlementagreement to provide for a closing on the joint venture. When that at-tempt failed, Mr. McIvor, with knowledge from his own sources that thecreation of the limited partnership then appeared imminent, and advicefrom Mr. Davis, made his own decision to sign the settlement agreement.

88 In the absence of both an untrue representation that induced the de-fendants to sign the settlement agreement and reliance by the defendantson the representations made by Ms. Hall in her e-mails of February 24and March 1, 2010, the defendants have failed to establish that VisionWest is estopped from relying upon its rights under the settlement agree-ment by anything Ms. Hall said in her two e-mails.


March 9, 2010 to September 28, 201089 Between March 9 and September 28, 2010 did the plaintiff make any

representation or promise that precludes it from relying upon the terms ofthe settlement agreement?

90 Mr. Regan denied that he had any discussions with Mr. McIvor re-specting modification of the settlement agreement. Mr. McIvor said hebelieved there were phone conversations with Mr. Regan between Marchand late July 2010 respecting modification of the settlement agreement.However Mr. McIvor was unable to recall any specifics or locate anynotes of any discussion he had with Mr. Regan after March 9, 2010. Thisevidence falls far short of establishing that Mr. Regan made any clearand unequivocal representation to Mr. McIvor that Vision West wouldnot rely on its strict legal rights under the settlement agreement afterMarch 9, 2010.

91 However, the solicitors for the parties continued to communicate witheach other after the signing of the settlement agreement.

92 From March 12, 2010, when Vision West executed the settlementagreement, until June 14, 2010, the solicitors for the parties exchangeddrafts of closing documents and worked toward closing the settlement.

93 As a result of delay in the creation of the Ravens Crest DevelopmentsLimited Partnership, on July 27, 2010 Ms. Hall contacted the defendants’solicitors regarding the possibility of a partial closing and transfer of as-sets to be followed by the transfer of the limited partnership units whenthey were issued.

94 Ms. Hall prepared a draft modification agreement that provided for apartial closing before the creation of the limited partnership and sent thatdraft to Mr. Davis who proposed amendments to the draft modificationagreement. Between August 18 and September 1, 2010 the solicitors ex-changed drafts of a modification agreement.

95 I find that in August and early September 2010, Mr. Regan, due to thecontinuing delay in the creation of the Ravens Crest Developments Lim-ited Partnership, was prepared to modify the settlement agreement toprovide for a partial closing before the creation and transfer of the lim-ited partnership units. The draft modification agreements prepared byMs. Hall in August of 2010 provided for the defendants to transfer theassets other than the limited partnership units on the date the modifica-tion agreement was signed by the parties, and for the transfer of the lim-


ited partnership units on the dates those units were issued, or any otherdate agreed in writing by the defendants and the plaintiff.

96 The defendants rely upon Mr. Regan’s discovery evidence in supportof their submission that he agreed to a modification of the settlementagreement to permit closing without the limited partnership. On his dis-covery of May 17, 2012 Mr. Regan gave the following evidence at ques-tions 384 and 385:

Q Okay. Now, before — before the break, you testified that youwanted the LP. You always wanted the LP. You never wa-vered from the LP. Do you recall?

A Well — no, I don’t think I quite said that. I said when we exe-cuted the deal, it was in March. So two months from now. Itwas with — or three months from now. It — it was with therequirement being the LP had to be in place.

Q Okay.

A And then I relaxed that requirement because a whole bunch ofwork was done. I relaxed that requirement, I believe, in Au-gust of 2010.

97 Later, at questions 520 to 521 of his discovery, Mr. Regan testifiedthat before he learned of the Ravens Crest limited partnership was notgoing to be created, “I agreed to go forward with a modified agreement Ithink in September.”

98 Vision West, through its solicitor, put forward a proposal for a modi-fication agreement on August 18, 2010 and a revised proposal on August30, 2010.

99 On September 1, 2010, Mr. Davis responded to Ms. Hall. The defend-ants’ solicitor proposed one revision to the terms on which the interest inRavens Crest would be held in trust pending creation of the limited part-nership, and some minor amendments to Ms. Hall’s draft.

100 Over the next four weeks, there was no response from Vision West,and no follow-up by the defendants of their solicitor.

101 On his discovery, Mr. Regan confirmed that he did not object to anyof the revisions proposed by Mr. Davis. However, the parties never exe-cuted the modification agreement.

102 During September 2010, Mr. Regan learned that the developer of Ra-vens Crest, Young Development Corporation, had encountered difficul-ties in arranging loan financing, and intended to withdraw from the Ra-vens Crest project. After Mr. Regan learned that the Ravens Crest project


would not be proceeding and the limited partnership would not be cre-ated, Ms. Hall e-mailed Mr. Davis on September 28, 2010 as follows:

I have not responded to your last message regarding the settlementbetween Vision West as creditor and Mr. McIvor and McIvor Proper-ties as debtors because information with respect to the Ravens Crestproject has been obtained which indicates that there is no benefit toVision West in proceeding with the settlement.

103 Ms. Hall invited Mr. McIvor to make a proposal for retirement of theoutstanding debts. Discussions between solicitors for the parties concern-ing modification of the settlement agreement terminated.

104 The plaintiff submits that it made no promise and gave no assuranceintended to affect its legal relations and to be acted upon by the defend-ants. Vision West argues that no estoppel can arise where it merely madea proposal for modification of the settlement agreement that was neveraccepted by the defendant.

105 I find that Vision West intended that the legal relations created by thesettlement agreement would be altered if its proposal was accepted and amodification agreement was signed by the parties. However, when Mr.Regan learned later in September that the principal backer of the RavensCrest project was withdrawing its financial support from the develop-ment, he was no longer prepared to modify the settlement agreement.

106 Under Article 5.4, the settlement agreement could only be altered oramended by an agreement in writing signed by the parties.

107 A term stipulating that a contract may only be amended in writing isnot an absolute bar to a defence of estoppel. In each case, the court mustconsider the provisions of the particular agreement in the entire contextof the facts in order to determine whether it would be unjust or unfair topermit a party to enforce its strict legal rights: Manitoba Pool Elevatorsv. Gorrell, [1998] 6 W.W.R. 596 (Man. Q.B.) at paras. 21-24. Here, so-phisticated parties with the benefit of legal representation entered into acommercial agreement which by clear and unambiguous language pro-vided that it could only be altered or amended by written agreementsigned by the parties. I have found that the defendants were not inducedto enter into the settlement agreement by any untrue representation bythe plaintiff or its solicitor. The defendants altered their legal positionwhen they entered into the settlement agreement, but did not do so as theresult of detrimental reliance on any false or misleading representationby the plaintiff or its solicitor. The defendants have not shown that be-tween July 27, 2010, when Ms. Hall first raised the possibility of modify-


ing the settlement agreement to permit a partial closing before creation ofthe limited partnership, and September 28, 2010, they took any action totheir detriment, or changed their position for the worse in response to theplaintiff’s proposals for modification of the settlement agreement.

108 Although Mr. Regan was prepared to assume the risk that the RavensCrest limited partnership, once formed, might not prove financially suc-cessful, he was not prepared to assume the risk that the limited partner-ship would never be established. The only assets to be transferred to Vi-sion West under the settlement agreement of any potential value were theunits to be created in the Ravens Crest limited partnership.

109 Mr. Regan learned in September 2010 that there were problems withthe financing for Ravens Crest and that the project was not going for-ward. He concluded that there was no benefit to Vision West if it couldnot acquire the limited partnership units. The plaintiff’s proposal formodification of the settlement agreement had not been accepted by thedefendants as presented by Ms. Hall and no modification agreement hadbeen signed by the parties. In all of the circumstances, the defendantshave not shown that it would be unjust or unfair to permit the plaintiff toenforce its strict rights under the settlement agreement.

Defendants’ Allegation that Mr. McIvor’s Signature was Forged toTerrane Documents

110 Before concluding these reasons I will address the defendants’ allega-tion that Mr. McIvor’s signature was forged by someone at Terrane. Thismatter was first raised by Mr. McIvor on his discovery in May 2012, andwas also the subject of affidavits filed by the parties on this application.Accordingly, I will deal with it, although the defendants did not pleadany allegation of forgery in their Further Amended Response.

111 Mr. McIvor claims that after Mr. Regan and Mr. Jackson removedhim from the day-to-day management of Terrane in September 2008, de-spite the fact he remained a director and shareholder they excluded himfrom the affairs of Terrane throughout the time the plaintiff and the de-fendants were negotiating the settlement agreement. Mr. Jackson has de-posed that because Terrane’s cheques required two signatures, when Mr.Regan was not available he would take Terrane cheques to Mr. McIvor’soffice where Mr. McIvor would sign them. Mr. Jackson has also swornthat in January 2010 he dropped off at Mr. McIvor’s office two consentunanimous resolutions of the shareholders of Terrane effective January20, 2009 and January 20, 2010, and that when he did not receive them


back he took further copies of those resolutions to Mr. McIvor’s office,where Mr. McIvor signed them in his presence.

112 At paragraph 6 of this third affidavit Mr. McIvor said that he did notrecall Mr. Jackson bringing any Terrane documents to him for hissignature.

113 The defendants have filed an affidavit of Phoebe Dorgelo, a book-keeper employed by Terrane from 2009 to 2011. Ms. Dorgelo has swornthat office staff at Terrane signed Mr. McIvor’s signature on documents“as required” and would also sign for other principals. Ms. Dorgelo saidthat Mr. Jackson usually required another Terrane employee to sign Mr.McIvor’s signature, but that Mr. Jackson also did it himself. Accordingto Ms. Dorgelo the documents on which Mr. Jackson and the other Ter-rane employee signed Mr. McIvor’s signature related to equipment loansand resolutions.

114 Mr. Jackson denies that he required any member of Terrane’s officestaff to sign Mr. McIvor’s signature on any document and denies that hedid so. Mr. Jackson says if he needed Mr. McIvor’s signature he wouldask him for it. Mr. McIvor’s office and Terrane’s office were locatedwithin walking distance of each other in the same industrial park inPemberton. Mr. Jackson attached to his affidavit copies of documentsrelating to an equipment loan made by G. E. Capital to Terrane that Mr.McIvor signed at his request in December 2009, and returned to him byemail.

115 At his discovery of May 18, 2012 Mr. McIvor questioned the authen-ticity of his signature on the unanimous consent shareholders resolutionof January 20, 2009, but had some recollection of possibly executing theconsent unanimous shareholders resolution of January 20, 2010.

116 The defendants delivered an expert report from Mr. Dan Purdy, a fo-rensic documents examiner who examined the signatures on the 2009and 2010 resolutions. The examiner was provided with copies of knownspecimen signatures of Mr. McIvor. However, the plaintiff was unable tolocate and produce the original of the 2009 resolution. In the result, theexaminer’s report was inconclusive. Although the examiner thought thesignature on the 2009 resolution contained elements that aroused suspi-cion concerning its authenticity he was unable to either identify or elimi-nate Mr. McIvor as the signatory to the January 2009 resolution. Mr.Purdy found some evidence that suggested Mr. McIvor could have writ-ten the questioned signature on the 2010 resolution.


117 Mr. Regan has deposed that he did not work at the Terrane office,was only there infrequently, and did not attend to Terrane’s day-to-daybusiness. Mr. Regan has also sworn that he never authorized anyone tosign Mr. McIvor’s signature on any documents, that he was not aware ofanyone at Terrane doing so, and that he never signed anyone else’ssignature.

118 None of the affiants on this issue, Mr. McIvor, Ms. Dorgelo or Mr.Jackson, has implicated Mr. Regan in the alleged forgery of Mr. Mc-Ivor’s signature. I accept Mr. Regan’s unchallenged evidence, and findthat he never authorized anyone to sign Mr. McIvor’s signature on anydocument, did not do so himself, and had no knowledge of anyone elsedoing so.

119 Furthermore, the defendants, who bear the onus of proof on this issue,have failed to establish on a balance of probabilities that Mr. McIvor’ssignature was forged by anyone at Terrane on either of the consent reso-lutions, the only two documents specifically identified by the defendantsas possible forgeries.

120 In the absence of any evidence implicating Mr. Regan in the allegedforgery of Mr. McIvor’s signature on the 2009 resolution, or any otherTerrane document, the defendants’ assertion of forgery is not relevant totheir estoppel defence, which is founded on allegations of misrepresenta-tion by Mr. Regan and Vision West.

Conclusion121 The defendants have not shown that the plaintiff made any represen-

tation or promise giving rise to an estoppel that would preclude VisionWest from relying upon its strict legal rights under the settlementagreement.

122 Accordingly, the plaintiff is entitled to judgment against the defend-ants McIvor Properties Ltd. and Cameron McIvor in the amount of$1,437,683.87, together with interest on that amount from and afterMarch 9, 2011 at the rate of 10% per annum.

123 The plaintiff is also entitled to a declaration that McIvor PropertiesLtd. has made default under and is in breach of the GSA.

Costs124 The plaintiff is entitled to its costs. Vision West has claimed for the

costs of this application on a solicitor/client basis pursuant to paragraph7.1(f) of the GSA. The parties have not made submissions on whether


Vision West should have its costs as solicitor and client costs. They maydo so by submissions in writing through the Registry.

Application granted.


[Indexed as: Labourers’ Pension Fund of Central andEastern Canada v. Sino-Forest Corp.]

In the Matter of the Companies’ Creditors Arrangement Act,R.S.C. 1985, c. C-36, as Amended

In the Matter of a Plan of Compromise or Arrangement ofSino-Forest Corporation, Applicant

The Trustees of the Labourers’ Pension Fund of Central andEastern Canada, The Trustees of the International Union ofOperating Engineers Local 793 Pension Plan for OperatingEngineers in Ontario, Sjunde Ap-Fonden, David Grant and

Robert Wong, Plaintiffs and Sino-Forest Corporation, Ernst &Young LLP, BDO Limited (Formerly Known as BDO McCabe

Lo Limited), Allen T.Y. Chan, W. Judson Martin, Kai KitPoon, David J. Horsley, William E. Ardell, James P. Bowland,James M.E. Hyde, Edmund Mak, Simon Murray, Peter Wang,Garry J. West, Poyry (Beijing) Consulting Company Limited,

Credit Suisse Securities (Canada) In., TD Securities Inc.,Dundee Securities Corporation, RBC Dominion Securities Inc.,Scotia Capital Inc., CIBC World Markets Inc., Merrill LunchCanada Inc., Canaccord Financial Ltd., Maison Placements

Canada Inc., Credit Suisse Securities (USA) LLC and MerrillLynch, Pierce, Fenner & Smith Incorporated (Successor byMerger to Banc of America Securities LLC), Defendants

Ontario Superior Court of Justice [Commercial List]

Docket: CV-12-9667-00CL, CV-11-431153-00CP

2013 ONSC 1078

Morawetz J.

Heard: February 4, 2013

Judgment: March 20, 2013

Bankruptcy and insolvency –––– Bankruptcy and insolvency jurisdiction —Jurisdiction of courts — Jurisdiction of general courts –––– To approve set-tlement in class proceedings — Representative plaintiffs were some of stake-holders who claimed defendant forestry company and other defendants mis-stated its financial results, misrepresented its timber rights, overstated value ofits assets and concealed material information about its business operations frominvestors, causing collapse of artificially inflated share price — Representative

Labourers’ Pension Fund v. Sino-Forest Corp 31

plaintiffs began class proceedings against forestry company, which was com-prised of components related to shareholders and noteholders — Forestry com-pany entered protection under Companies’ Creditors Arrangement Act — Settle-ment reached between representative plaintiffs and particular defendant —Representative plaintiffs brought motion for approval of settlement — Motiongranted — Proceedings were appropriate for approval of settlement, and courthad jurisdiction in respect of both Companies’ Creditors Arrangement Act andClass Proceeding Act — CCAA proceedings could not be ignored despite anyill-effect on opt-out rights in class proceedings — Claim fell within the Compa-nies’ Creditors Arrangement Act, and could be subject of settlement and couldinclude claims of all creditors in class — Until settlement was concluded andproceeds paid, there could be no distribution of settlement proceeds to partiesentitled to receive them, and approval of release in settlement was necessary toeffect any distribution.

Bankruptcy and insolvency –––– Proposal — Approval by court — Generalprinciples –––– Where class proceedings ongoing — Representative plaintiffswere some of stakeholders who claimed defendant forestry company and otherdefendants misstated its financial results, misrepresented its timber rights, over-stated value of its assets and concealed material information about its businessoperations from investors, causing collapse of artificially inflated share price —Representative plaintiffs began class proceedings against forestry company,which was comprised of components related to shareholders and noteholders —Forestry company entered protection under Companies’ Creditors ArrangementAct — Settlement reached between representative plaintiffs and particular de-fendant — Representative plaintiffs brought motion for approval of settle-ment — Motion granted — Claims in release were rationally related to purposeof the plan in Companies’ Creditors Arrangement Act and were necessary forit — Without approval of settlement, objectives of plan remained unfulfilled dueto practical inability to distribute settlement proceeds — Defendant made sig-nificant monetary contribution to plan -- Plan benefited claimants in form oftangible distribution -- Release was fair and reasonable and not overly broad oroffensive to public policy — Clear that claims asserted against forestry companyhad to be addressed as part of restructuring — Unencumbered participation offorestry company’s subsidiaries is crucial to restructuring.

Civil practice and procedure –––– Parties — Representative or class pro-ceedings under class proceedings legislation — Orders, awards and relatedprocedures — Termination of proceedings –––– Settlement — Representativeplaintiffs were some of stakeholders who claimed defendant forestry companyand other defendants misstated its financial results, misrepresented its timberrights, overstated value of its assets and concealed material information about itsbusiness operations from investors, causing collapse of artificially inflated shareprice — Representative plaintiffs began class proceedings against forestry com-


pany, which was comprised of components related to shareholders and notehold-ers — Forestry company entered protection under Companies’ Creditors Ar-rangement Act — Settlement reached between representative plaintiffs andparticular defendant — Representative plaintiffs brought motion for approval ofsettlement — Motion granted — Claims in release were rationally related to pur-pose of the plan in Companies’ Creditors Arrangement Act and were necessaryfor it — Without approval of settlement, objectives of plan remained unfulfilleddue to practical inability to distribute settlement proceeds — Defendant madesignificant monetary contribution to plan -- Plan benefited claimants in form oftangible distribution -- Release was fair and reasonable and not overly broad oroffensive to public policy — Clear that claims asserted against forestry companyhad to be addressed as part of restructuring — Unencumbered participation offorestry company’s subsidiaries is crucial to restructuring.

Cases considered by Morawetz J.:

Allen-Vanguard Corp., Re (2011), 2011 ONSC 5017, 2011 CarswellOnt 8984,81 C.B.R. (5th) 270 (Ont. S.C.J. [Commercial List]) — referred to

ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp. (2008),2008 ONCA 587, 2008 CarswellOnt 4811, (sub nom. Metcalfe & MansfieldAlternative Investments II Corp., Re) 240 O.A.C. 245, (sub nom. Metcalfe &Mansfield Alternative Investments II Corp., Re) 296 D.L.R. (4th) 135, (subnom. Metcalfe & Mansfield Alternative Investments II Corp., Re) 92 O.R.(3d) 513, 45 C.B.R. (5th) 163, 47 B.L.R. (4th) 123, [2008] O.J. No. 3164(Ont. C.A.) — considered

Canadian Red Cross Society / Societe Canadienne de la Croix-Rouge, Re(1998), 1998 CarswellOnt 3346, 5 C.B.R. (4th) 299, 72 O.T.C. 99, [1998]O.J. No. 3306 (Ont. Gen. Div. [Commercial List]) — referred to

Durling v. Sunrise Propane Energy Group Inc. (2011), 2011 ONSC 266, 2011CarswellOnt 77, 10 C.P.C. (7th) 188 (Ont. S.C.J.) — referred to

Eidoo v. Infineon Technologies AG (2012), 2012 CarswellOnt 16498, 2012ONSC 7299 (Ont. S.C.J.) — referred to

Fischer v. IG Investment Management Ltd. (2012), 2012 ONCA 47, 2012 Cars-wellOnt 635, 287 O.A.C. 148, 109 O.R. (3d) 498, 346 D.L.R. (4th) 598, 15C.P.C. (7th) 81, [2012] O.J. No. 343 (Ont. C.A.) — referred to

Grace Canada Inc., Re (2008), 50 C.B.R. (5th) 25, 2008 CarswellOnt 6284,[2008] O.J. No. 4208 (Ont. S.C.J. [Commercial List]) — referred to

Mangan v. Inco Ltd. (1998), 1998 CarswellOnt 801, 16 C.P.C. (4th) 165, 38O.R. (3d) 703, 27 C.E.L.R. (N.S.) 141 (Ont. Gen. Div.) — referred to

Muscletech Research & Development Inc., Re (2007), 30 C.B.R. (5th) 59, 2007CarswellOnt 1029, [2007] O.J. No. 695 (Ont. S.C.J. [Commercial List]) —referred to

Nortel Networks Corp., Re (2010), 63 C.B.R. (5th) 44, 81 C.C.P.B. 56, 2010CarswellOnt 1754, 2010 ONSC 1708 (Ont. S.C.J. [Commercial List]) —considered

Labourers’ Pension Fund v. Sino-Forest Corp 33

Osmun v. Cadbury Adams Canada Inc. (2009), 85 C.P.C. (6th) 148, 2009 Cars-wellOnt 8132, [2009] O.J. No. 5566 (Ont. S.C.J.) — referred to

Robertson v. ProQuest Information & Learning Co. (2011), 2011 ONSC 1647,2011 CarswellOnt 1770, [2011] O.J. No. 1160 (Ont. S.C.J. [CommercialList]) — followed

Sammi Atlas Inc., Re (1998), 1998 CarswellOnt 1145, 3 C.B.R. (4th) 171,[1998] O.J. No. 1089 (Ont. Gen. Div. [Commercial List]) — referred to

Sino-Forest Corp., Re (2012), 2012 ONSC 4377, 2012 CarswellOnt 9430, 92C.B.R. (5th) 99 (Ont. S.C.J. [Commercial List]) — referred to

Sino-Forest Corp., Re (2012), 2012 ONCA 816, 2012 CarswellOnt 14701 (Ont.C.A.) — referred to

Ted Leroy Trucking Ltd., Re (2010), (sub nom. Century Services Inc. v. Canada(A.G.)) [2010] 3 S.C.R. 379, [2010] G.S.T.C. 186, 12 B.C.L.R. (5th) 1, (subnom. Century Services Inc. v. A.G. of Canada) 2011 G.T.C. 2006 (Eng.),(sub nom. Century Services Inc. v. A.G. of Canada) 2011 D.T.C. 5006(Eng.), (sub nom. Leroy (Ted) Trucking Ltd., Re) 503 W.A.C. 1, (sub nom.Leroy (Ted) Trucking Ltd., Re) 296 B.C.A.C. 1, 2010 SCC 60, 2010 Car-swellBC 3419, 2010 CarswellBC 3420, 409 N.R. 201, (sub nom. Ted LeRoyTrucking Ltd., Re) 326 D.L.R. (4th) 577, 72 C.B.R. (5th) 170, [2011] 2W.W.R. 383 (S.C.C.) — considered

Statutes considered:

Class Proceedings Act, 1992, S.O. 1992, c. 6Generally — referred tos. 9 — referred to

Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36Generally — referred tos. 2(1) “equity claim” — considered

MOTION by representative plaintiffs for approval of settlement in classproceeding.

Kenneth Rosenberg, Max Starnino, A. Dimitri Lascaris, Daniel Bach, CharlesM. Wright, Jonathan Ptak, for Ad Hoc Committee of Purchasers includingthe Class Action Plaintiffs

Peter Griffin, Peter Osborne, Shara Roy, for Ernst & Young LLP, John Pirie andDavid Gadsden, for Poyry (Beijing) Consulting Company Ltd.

Robert W. Staley for Sino-Forest CorporationWon J. Kim, Michael C. Spencer, Megan B. McPhee for Objectors, Invesco

Canada Ltd., Northwest & Ethical Investments LP and Comite Syndical Na-tional de Retraite Batirente Inc.

John Fabello Rebecca Wise, for UnderwritersKen Dekker, Peter Greene for BDO LimitedEmily Cole, Joseph Marin for Allen Chan


James Doris for U.S. Class ActionBrandon Barnes for Kai Kit PoonRobert Chadwick, Brendan O’Neill for Ad Hoc Committee of NoteholdersDerrick Tay, Cliff Prophet for Monitor, FTI Consulting Canada Inc.Simon Bieber for David HorsleyJames Grout for Ontario Securities CommissionMiles D. O’Reilly, Q.C. for Junior Objectors, Daniel Lam and Senthilvel

Kanagaratnam

Morawetz J.:

Introduction1 The Ad Hoc Committee of Purchasers of the Applicant’s Securities

(the “Ad Hoc Securities Purchasers’ Committee” or the “Applicant”), in-cluding the representative plaintiffs in the Ontario class action (collec-tively, the “Ontario Plaintiffs”), bring this motion for approval of a set-tlement and release of claims against Ernst & Young LLP [the “Ernst &Young Settlement”, the “Ernst & Young Release”, the “Ernst & YoungClaims” and “Ernst & Young”, as further defined in the Plan of Compro-mise and Reorganization of Sino-Forest Corporation (“SFC”) dated De-cember 3, 2012 (the “Plan”)].

2 Approval of the Ernst & Young Settlement is opposed by InvescoCanada Limited (“Invesco”), Northwest and Ethical Investments L.P.(“Northwest”), Comite Syndical National de Retraite Batirente Inc. (“Ba-tirente”), Matrix Asset Management Inc. (“Matrix”), Gestion Ferique andMontrusco Bolton Investments Inc. (“Montrusco”) (collectively, the“Objectors”). The Objectors particularly oppose the no-opt-out and fullthird-party release features of the Ernst & Young Settlement. The Objec-tors also oppose the motion for a representation order sought by the On-tario Plaintiffs, and move instead for appointment of the Objectors to re-present the interests of all objectors to the Ernst & Young Settlement.

3 For the following reasons, I have determined that the Ernst & YoungSettlement, together with the Ernst & Young Release, should beapproved.

Facts

Class Action Proceedings4 SFC is an integrated forest plantation operator and forest productions

company, with most of its assets and the majority of its business opera-tions located in the southern and eastern regions of the People’s Republic

Labourers’ Pension Fund v. Sino-Forest Corp Morawetz J. 35

of China. SFC’s registered office is in Toronto, and its principal businessoffice is in Hong Kong.

5 SFC’s shares were publicly traded over the Toronto Stock Exchange.During the period from March 19, 2007 through June 2, 2011, SFC madethree prospectus offerings of common shares. SFC also issued and hadvarious notes (debt instruments) outstanding, which were offered to in-vestors, by way of offering memoranda, between March 19, 2007 andJune 2, 2011.

6 All of SFC’s debt or equity public offerings have been underwritten.A total of 11 firms (the “Underwriters”) acted as SFC’s underwriters, andare named as defendants in the Ontario class action.

7 Since 2000, SFC has had two auditors: Ernst & Young, who acted asauditor from 2000 to 2004 and 2007 to 2012, and BDO Limited(“BDO”), who acted as auditor from 2005 to 2006. Ernst & Young andBDO are named as defendants in the Ontario class action.

8 Following a June 2, 2011 report issued by short-seller Muddy WatersLLC (“Muddy Waters”), SFC, and others, became embroiled in investi-gations and regulatory proceedings (with the Ontario Securities Commis-sion (the “OSC”), the Hong Kong Securities and Futures Commissionand the Royal Canadian Mounted Police) for allegedly engaging in a“complex fraudulent scheme”. SFC concurrently became embroiled inmultiple class action proceedings across Canada, including Ontario, Que-bec and Saskatchewan (collectively, the “Canadian Actions”), and inNew York (collectively with the Canadian Actions, the “Class ActionProceedings”), facing allegations that SFC, and others, misstated its fi-nancial results, misrepresented its timber rights, overstated the value ofits assets and concealed material information about its business opera-tions from investors, causing the collapse of an artificially inflated shareprice.

9 The Canadian Actions are comprised of two components: first, thereis a shareholder claim, brought on behalf of SFC’s current and formershareholders, seeking damages in the amount of $6.5 billion for generaldamages, $174.8 million in connection with a prospectus issued in June2007, $330 million in relation to a prospectus issued in June 2009, and$319.2 million in relation to a prospectus issued in December 2009; andsecond, there is a noteholder claim, brought on behalf of former holdersof SFC’s notes (the “Noteholders”), in the amount of approximately $1.8billion. The noteholder claim asserts, among other things, damages forloss of value in the notes.


10 Two other class proceedings relating to SFC were subsequently com-menced in Ontario: Smith et al. v. Sino-Forest Corporation et al., whichcommenced on June 8, 2011; and Northwest and Ethical InvestmentsL.P. et al. v. Sino-Forest Corporation et al., which commenced on Sep-tember 26, 2011.

11 In December 2011, there was a motion to determine which of thethree actions in Ontario should be permitted to proceed and which shouldbe stayed (the “Carriage Motion”). On January 6, 2012, Perell J. grantedcarriage to the Ontario Plaintiffs, appointed Siskinds LLP and KoskieMinsky LLP to prosecute the Ontario class action, and stayed the otherclass proceedings.

CCAA Proceedings12 SFC obtained an initial order under the Companies’ Creditors Ar-

rangement Act, R.S.C. 1985, c. C-36 (“CCAA”) on March 30, 2012 (the“Initial Order”), pursuant to which a stay of proceedings was granted inrespect of SFC and certain of its subsidiaries. Pursuant to an order onMay 8, 2012, the stay was extended to all defendants in the class actions,including Ernst & Young. Due to the stay, the certification and leavemotions have yet to be heard.

13 Throughout the CCAA proceedings, SFC asserted that there could beno effective restructuring of SFC’s business, and separation from the Ca-nadian parent, if the claims asserted against SFC’s subsidiaries arisingout of, or connected to, claims against SFC remained outstanding.

14 In addition, SFC and FTI Consulting Canada Inc. (the “Monitor”)continually advised that timing and delay were critical elements thatwould impact on maximization of the value of SFC’s assets and stake-holder recovery.

15 On May 14, 2012, an order (the “Claims Procedure Order”) was is-sued that approved a claims process developed by SFC, in consultationwith the Monitor. In order to identify the nature and extent of the claimsasserted against SFC’s subsidiaries, the Claims Procedure Order requiredany claimant that had or intended to assert a right or claim against one ormore of the subsidiaries, relating to a purported claim made against SFC,to so indicate on their proof of claim.

16 The Ad Hoc Securities Purchasers’ Committee filed a proof of claim(encapsulating the approximately $7.3 billion shareholder claim and $1.8billion noteholder claim) in the CCAA proceedings on behalf of all puta-tive class members in the Ontario class action. The plaintiffs in the New


York class action filed a proof of claim, but did not specify quantum ofdamages. Ernst & Young filed a proof of claim for damages and indem-nification. The plaintiffs in the Saskatchewan class action did not file aproof of claim. A few shareholders filed proofs of claim separately. Noproof of claim was filed by Kim Orr Barristers P.C. (“Kim Orr”), whorepresent the Objectors.

17 Prior to the commencement of the CCAA proceedings, the plaintiffsin the Canadian Actions settled with Poyry (Beijing) Consulting Com-pany Limited (“Poyry”) (the “Poyry Settlement”), a forestry valuator thatprovided services to SFC. The class was defined as all persons and enti-ties who acquired SFC’s securities in Canada between March 19, 2007 toJune 2, 2011, and all Canadian residents who acquired SFC securitiesoutside of Canada during that same period (the “Poyry SettlementClass”).

18 The notice of hearing to approve the Poyry Settlement advised thePoyry Settlement Class that they may object to the proposed settlement.No objections were filed.

19 Perell J. and Emond J. approved the settlement and certified thePoyry Settlement Class for settlement purposes. January 15, 2013 wasfixed as the date by which members of the Poyry Settlement Class, whowished to opt-out of either of the Canadian Actions, would have to filean opt-out form for the claims administrator, and they approved the formby which the right to optout was required to be exercised.

20 Notice of the certification and settlement was given in accordancewith the certification orders of Perell J. and Emond J. The notice of certi-fication states, in part, that:

IF YOU CHOOSE TO OPT OUT OF THE CLASS, YOU WILL BEOPTING OUT OF THE ENTIRE PROCEEDING. THIS MEANSTHAT YOU WILL BE UNABLE TO PARTICIPATE IN ANY FU-TURE SETTLEMENT OR JUDGMENT REACHED WITH ORAGAINST THE REMAINING DEFENDANTS.

21 The opt-out made no provision for an opt-out on a conditional basis.22 On June 26, 2012, SFC brought a motion for an order directing that

claims against SFC that arose in connection with the ownership,purchase or sale of an equity interest in SFC, and related indemnityclaims, were “equity claims” as defined in section 2 of the CCAA, in-cluding the claims by or on behalf of shareholders asserted in the ClassAction Proceedings. The equity claims motion did not purport to deal


with the component of the Class Action Proceedings relating to SFC’snotes.

23 In reasons released July 27, 2012 [Sino-Forest Corp., Re, 2012ONSC 4377 (Ont. S.C.J. [Commercial List])], I granted the relief soughtby SFC (the “Equity Claims Decision”), finding that “the claims ad-vanced in the shareholder claims are clearly equity claims”. The Ad HocSecurities Purchasers’ Committee did not oppose the motion, and no is-sue was taken by any party with the court’s determination that the share-holder claims against SFC were “equity claims”. The Equity Claims De-cision was subsequently affirmed by the Court of Appeal for Ontario onNovember 23, 2012 [Sino-Forest Corp., Re, 2012 ONCA 816 (Ont.C.A.)].

Ernst & Young Settlement24 The Ernst & Young Settlement, and third party releases, was not

mentioned in the early versions of the Plan. The initial creditors’ meetingand vote on the Plan was scheduled to occur on November 29, 2012;when the Plan was amended on November 28, 2012, the creditors’ meet-ing was adjourned to November 30, 2012.

25 On November 29, 2012, Ernst & Young’s counsel and class counselconcluded the proposed Ernst & Young Settlement. The creditors’ meet-ing was again adjourned, to December 3, 2012; on that date, a new Planrevision was released and the Ernst & Young Settlement was publiclyannounced. The Plan revision featured a new Article 11, reflecting the“framework” for the proposed Ernst & Young Settlement and for third-party releases for named third-party defendants as identified at that timeas the Underwriters or in the future.

26 On December 3, 2012, a large majority of creditors approved thePlan. The Objectors note, however, that proxy materials were distributedweeks earlier and proxies were required to be submitted three days priorto the meeting and it is evident that creditors submitting proxies only hada pre-Article 11 version of the Plan. Further, no equity claimants, such asthe Objectors, were entitled to vote on the Plan. On December 6, 2012,the Plan was further amended, adding Ernst & Young and BDO toSchedule A, thereby defining them as named third-party defendants.

27 Ultimately, the Ernst & Young Settlement provided for the paymentby Ernst & Young of $117 million as a settlement fund, being the fullmonetary contribution by Ernst & Young to settle the Ernst & YoungClaims; however, it remains subject to court approval in Ontario, and


recognition in Quebec and the United States, and conditional, pursuant toArticle 11.1 of the Plan, upon the following steps:

(a) the granting of the sanction order sanctioning the Plan in-cluding the terms of the Ernst & Young Settlement and theErnst & Young Release (which preclude any right to contri-bution or indemnity against Ernst & Young);

(b) the issuance of the Settlement Trust Order;

(c) the issuance of any other orders necessary to give effect tothe Ernst & Young Settlement and the Ernst & Young Re-lease, including the Chapter 15 Recognition Order;

(d) the fulfillment of all conditions precedent in the Ernst &Young Settlement; and

(e) all orders being final orders not subject to further appeal orchallenge.

28 On December 6, 2012, Kim Orr filed a notice of appearance in theCCAA proceedings on behalf of three Objectors: Invesco, Northwest andBatirente. These Objectors opposed the sanctioning of the Plan, insofaras it included Article 11, during the Plan sanction hearing on December7, 2012.

29 At the Plan sanction hearing, SFC’s counsel made it clear that thePlan itself did not embody the Ernst & Young Settlement, and that theparties’ request that the Plan be sanctioned did not also cover approval ofthe Ernst & Young Settlement. Moreover, according to the Plan and min-utes of settlement, the Ernst & Young Settlement would not be consum-mated (i.e. money paid and releases effective) unless and until severalconditions had been satisfied in the future.

30 The Plan was sanctioned on December 10, 2012 with Article 11. TheObjectors take the position that the Funds’ opposition was dismissed aspremature and on the basis that nothing in the sanction order affectedtheir rights.

31 On December 13, 2012, the court directed that its hearing on theErnst & Young Settlement would take place on January 4, 2013, underboth the CCAA and the Class Proceedings Act, 1992, S.O. 1992, c. 6(“CPA”). Subsequently, the hearing was adjourned to February 4, 2013.

32 On January 15, 2013, the last day of the opt-out period established byorders of Perell J. and Emond J., six institutional investors represented byKim Orr filed opt-out forms. These institutional investors are Northwestand Batirente, who were two of the three institutions represented by Kim


Orr in the Carriage Motion, as well as Invesco, Matrix, Montrusco andGestion Ferique (all of which are members of the Poyry SettlementClass).

33 According to the opt-out forms, the Objectors held approximately1.6% of SFC shares outstanding on June 30, 2011 (the day the MuddyWaters report was released). By way of contrast, Davis Selected Advi-sors and Paulson and Co., two of many institutional investors who sup-port the Ernst & Young Settlement, controlled more than 25% of SFC’sshares at this time. In addition, the total number of outstanding objectorsconstitutes approximately 0.24% of the 34,177 SFC beneficial sharehold-ers as of April 29, 2011.

Law and Analysis

Court’s Jurisdiction to Grant Requested Approval34 The Claims Procedure Order of May 14, 2012, at paragraph 17, pro-

vides that any person that does not file a proof of claim in accordancewith the order is barred from making or enforcing such claim as againstany other person who could claim contribution or indemnity from theApplicant. This includes claims by the Objectors against Ernst & Youngfor which Ernst & Young could claim indemnity from SFC.

35 The Claims Procedure Order also provides that the Ontario Plaintiffsare authorized to file one proof of claim in respect of the substance of thematters set out in the Ontario class action, and that the Quebec Plaintiffsare similarly authorized to file one proof of claim in respect of the sub-stance of the matters set out in the Quebec class action. The Objectorsdid not object to, or oppose, the Claims Procedure Order, either when itwas sought or at any time thereafter. The Objectors did not file an inde-pendent proof of claim and, accordingly, the Canadian Claimants wereauthorized to and did file a proof of claim in the representative capacityin respect of the Objectors’ claims.

36 The Ernst & Young Settlement is part of a CCAA plan process.Claims, including contingent claims, are regularly compromised and set-tled within CCAA proceedings. This includes outstanding litigationclaims against the debtor and third parties. Such compromises fully andfinally dispose of such claims, and it follows that there are no continuingprocedural or other rights in such proceedings. Simply put, there are no“opt-outs” in the CCAA.


37 It is well established that class proceedings can be settled in a CCAAproceeding. See Robertson v. ProQuest Information & Learning Co.,2011 ONSC 1647 (Ont. S.C.J. [Commercial List]) [Robertson].

38 As noted by Pepall J. (as she then was) in Robertson, para. 8: When dealing with the consensual resolution of a CCAA claim filedin a claims process that arises out of ongoing litigation, typically nocourt approval is required. In contrast, class proceedings settlementsmust be approved by the court. The notice and process for dissemina-tion of the settlement agreement must also be approved by the court.

39 In this case, the notice and process for dissemination have beenapproved.

40 The Objectors take the position that approval of the Ernst & YoungSettlement would render their opt-out rights illusory; the inherent flawwith this argument is that it is not possible to ignore the CCAAproceedings.

41 In this case, claims arising out of the class proceedings are claims inthe CCAA process. CCAA claims can be, by definition, subject to com-promise. The Claims Procedure Order establishes that claims as againstErnst & Young fall within the CCAA proceedings. Thus, these claimscan also be the subject of settlement and, if settled, the claims of all cred-itors in the class can also be settled.

42 In my view, these proceedings are the appropriate time and place toconsider approval of the Ernst & Young Settlement. This court has thejurisdiction in respect of both the CCAA and the CPA.

Should the Court Exercise Its Discretion to Approve the Settlement43 Having established the jurisdictional basis to consider the motion, the

central inquiry is whether the court should exercise its discretion to ap-prove the Ernst & Young Settlement.

CCAA Interpretation44 The CCAA is a “flexible statute”, and the court has “jurisdiction to

approve major transactions, including settlement agreements, during thestay period defined in the Initial Order”. The CCAA affords courts broadjurisdiction to make orders and “fill in the gaps in legislation so as togive effect to the objects of the CCAA.” [Nortel Networks Corp., Re,2010 ONSC 1708 (Ont. S.C.J. [Commercial List]), paras. 66-70 (“ReNortel”)); Canadian Red Cross Society / Societe Canadienne de la


Croix-Rouge, Re (1998), 5 C.B.R. (4th) 299, 72 O.T.C. 99 (Ont. Gen.Div. [Commercial List]), para. 43]

45 Further, as the Supreme Court of Canada explained in Ted LeroyTrucking Ltd., Re, 2010 SCC 60 (S.C.C.), para. 58:

CCAA decisions are often based on discretionary grants of jurisdic-tion. The incremental exercise of judicial discretion in commercialcourts under conditions one practitioner aptly described as “the hot-house of real time litigation” has been the primary method by whichthe CCAA has been adapted and has evolved to meet contemporarybusiness and social needs (internal citations omitted). ...When largecompanies encounter difficulty, reorganizations become increasinglycomplex. CCAA courts have been called upon to innovate accord-ingly in exercising their jurisdiction beyond merely staying proceed-ings against the Debtor to allow breathing room for reorganization.They have been asked to sanction measures for which there is noexplicit authority in the CCAA.

46 It is also established that third-party releases are not an uncommonfeature of complex restructurings under the CCAA [ATB Financial v.Metcalfe & Mansfield Alternative Investments II Corp., 2008 ONCA 587(Ont. C.A.) (“ATB Financial”); Nortel Networks Corp., Re, supra; Rob-ertson, supra; Muscletech Research & Development Inc., Re (2007), 30C.B.R. (5th) 59, 156 A.C.W.S. (3d) 22 (Ont. S.C.J. [Commercial List])(“Muscle Tech”); Grace Canada Inc., Re (2008), 50 C.B.R. (5th) 25(Ont. S.C.J. [Commercial List]); Allen-Vanguard Corp., Re, 2011 ONSC5017 (Ont. S.C.J. [Commercial List])].

47 The Court of Appeal for Ontario has specifically confirmed that athird-party release is justified where the release forms part of a compre-hensive compromise. As Blair J. A. stated in ATB Financial, supra:

69. In keeping with this scheme and purpose, I do not suggest thatany and all releases between creditors of the debtor company seekingto restructure and third parties may be made the subject of a compro-mise or arrangement between the debtor and its creditors. Nor do Ithink the fact that the releases may be “necessary” in the sense thatthe third parties or the debtor may refuse to proceed without them, ofitself, advances the argument in favour of finding jurisdiction (al-though it may well be relevant in terms of the fairness and reasona-bleness analysis).

70. The release of the claim in question must be justified as part ofthe compromise or arrangement between the debtor and its creditors.In short, there must be a reasonable connection between the thirdparty claim being compromised in the plan and the restructuring


achieved by the plan to warrant inclusion of the third party release inthe plan ...

71. In the course of his reasons, the application judge made the fol-lowing findings, all of which are amply supported on the record:

a) The parties to be released are necessary and essential to therestructuring of the debtor;

b) The claims to be released are rationally related to the purposeof the Plan and necessary for it;

c) The Plan cannot succeed without the releases;

d) The parties who are to have claims against them released arecontributing in a tangible and realistic way to the Plan; and

e) The Plan will benefit not only the debtor companies but credi-tor Noteholders generally.

72. Here, then — as was the case in T&N — there is a close connec-tion between the claims being released and the restructuring propo-sal. The tort claims arise out of the sale and distribution of the ABCPNotes and their collapse in value, just as do the contractual claims ofthe creditors against the debtor companies. The purpose of the re-structuring is to stabilize and shore up the value of those notes in thelong run. The third parties being released are making separate contri-butions to enable those results to materialize. Those contributions areidentified earlier, at para. 31 of these reasons. The application judgefound that the claims being released are not independent of or unre-lated to the claims that the Noteholders have against the debtor com-panies; they are closely connected to the value of the ABCP Notesand are required for the Plan to succeed ...

73. I am satisfied that the wording of the CCAA — construed in lightof the purpose, objects and scheme of the Act and in accordance withthe modern principles of statutory interpretation — supports thecourt’s jurisdiction and authority to sanction the Plan proposed here,including the contested third-party releases contained in it.

. . .

78. ... I believe the open-ended CCAA permits third-party releasesthat are reasonably related to the restructuring at issue because theyare encompassed in the comprehensive terms “compromise” and “ar-rangement” and because of the double-voting majority and courtsanctioning statutory mechanism that makes them binding on unwill-ing creditors.

. . .


113. At para. 71 above I recited a number of factual findings the ap-plication judge made in concluding that approval of the Plan waswithin his jurisdiction under the CCAA and that it was fair and rea-sonable. For convenience, I reiterate them here — with two addi-tional findings — because they provide an important foundation forhis analysis concerning the fairness and reasonableness of the Plan.The application judge found that:

a) The parties to be released are necessary and essential to therestructuring of the debtor;

b) The claims to be released are rationally related to the purposeof the Plan and necessary for it;

c) The Plan cannot succeed without the releases;

d) The parties who are to have claims against them released arecontributing in a tangible and realistic way to the Plan;

e) The Plan will benefit not only the debtor companies but credi-tor Noteholders generally;

f) The voting creditors who have approved the Plan did so withknowledge of the nature and effect of the releases; and that,

g) The releases are fair and reasonable and not overly broad oroffensive to public policy.

48 Furthermore, in ATB Financial, supra, para. 111, the Court of Appealconfirmed that parties are entitled to settle allegations of fraud and toinclude releases of such claims as part of the settlement. It was noted that“there is no legal impediment to granting the release of an antecedentclaim in fraud, provided the claim is in the contemplation of the partiesto the release at the time it is given”.

Relevant CCAA Factors49 In assessing a settlement within the CCAA context, the court looks at

the following three factors, as articulated in Robertson, supra:

(a) whether the settlement is fair and reasonable;

(b) whether it provides substantial benefits to other stakehold-ers; and

(c) whether it is consistent with the purpose and spirit of theCCAA.

50 Where a settlement also provides for a release, such as here, courtsassess whether there is “a reasonable connection between the third partyclaim being compromised in the plan and the restructuring achieved bythe plan to warrant inclusion of the third party release in the plan”. Ap-


plying this “nexus test” requires consideration of the following factors:[ATB Financial, supra, para. 70]

(a) Are the claims to be released rationally related to the pur-pose of the plan?

(b) Are the claims to be released necessary for the plan ofarrangement?

(c) Are the parties who have claims released against them con-tributing in a tangible and realistic way? and

(d) Will the plan benefit the debtor and the creditors generally?

Counsel Submissions51 The Objectors argue that the proposed Ernst & Young Release is not

integral or necessary to the success of Sino-Forest’s restructuring plan,and, therefore, the standards for granting thirdparty releases in the CCAAare not satisfied. No one has asserted that the parties require the Ernst &Young Settlement or Ernst & Young Release to allow the Plan to goforward; in fact, the Plan has been implemented prior to consideration ofthis issue. Further, the Objectors contend that the $117 million settlementpayment is not essential, or even related, to the restructuring, and that itis concerning, and telling, that varying the end of the Ernst & YoungSettlement and Ernst & Young Release to accommodate opt-outs wouldextinguish the settlement.

52 The Objectors also argue that the Ernst & Young Settlement shouldnot be approved because it would vitiate opt-out rights of class members,as conferred as follows in section 9 of the CPA: “Any member of a classinvolved in a class proceeding may opt-out of the proceeding in the man-ner and within the time specified in the certification order.” This right isa fundamental element of procedural fairness in the Ontario class actionregime [Fischer v. IG Investment Management Ltd., 2012 ONCA 47(Ont. C.A.), para. 69], and is not a mere technicality or illusory. It hasbeen described as absolute [Durling v. Sunrise Propane Energy GroupInc., 2011 ONSC 266 (Ont. S.C.J.)]. The opt-out period allows personsto pursue their self-interest and to preserve their rights to pursue indivi-dual actions [Mangan v. Inco Ltd. (1998), 16 C.P.C. (4th) 165, 38 O.R.(3d) 703 (Ont. Gen. Div.)].

53 Based on the foregoing, the Objectors submit that a proposed classaction settlement with Ernst & Young should be approved solely underthe CPA, as the Poyry Settlement was, and not through misuse of a third-


party release procedure under the CCAA. Further, since the minutes ofsettlement make it clear that Ernst & Young retains discretion not to ac-cept or recognize normal opt-outs if the CPA procedures are invoked, theErnst & Young Settlement should not be approved in this respect either.

54 Multiple parties made submissions favouring the Ernst & Young Set-tlement (with the accompanying Ernst & Young Release), arguing that itis fair and reasonable in the circumstances, benefits the CCAA stake-holders (as evidenced by the broad-based support for the Plan and thismotion) and rationally connected to the Plan.

55 Ontario Plaintiffs’ counsel submits that the form of the bar order isfair and properly balances the competing interests of class members,Ernst & Young and the non-settling defendants as:

(a) class members are not releasing their claims to a greaterextent than necessary;

(b) Ernst & Young is ensured that its obligations in connectionto the Settlement will conclude its liability in the classproceedings;

(c) the non-settling defendants will not have to pay more fol-lowing a judgment than they would be required to pay ifErnst & Young remained as a defendant in the action; and

(d) the non-settling defendants are granted broad rights of dis-covery and an appropriate credit in the ongoing litigation, ifit is ultimately determined by the court that there is a rightof contribution and indemnity between the co-defendants.

56 SFC argues that Ernst & Young’s support has simplified and acceler-ated the Plan process, including reducing the expense and managementtime otherwise to be incurred in litigating claims, and was a catalyst toencouraging many parties, including the Underwriters and BDO, to with-draw their objections to the Plan. Further, the result is precisely the typeof compromise that the CCAA is designed to promote; namely, Ernst &Young has provided a tangible and significant contribution to the Plan(notwithstanding any pitfalls in the litigation claims against Ernst &Young) that has enabled SFC to emerge as Newco/NewcoII in a timelyway and with potential viability.

57 Ernst & Young’s counsel submits that the Ernst & Young Settlement,as a whole, including the Ernst & Young Release, must be approved orrejected; the court cannot modify the terms of a proposed settlement.Further, in deciding whether to reject a settlement, the court should con-


sider whether doing so would put the settlement in “jeopardy of beingunravelled”. In this case, counsel submits there is no obligation on theparties to resume discussions and it could be that the parties have reachedtheir limits in negotiations and will backtrack from their positions orabandon the effort.

Analysis and Conclusions58 The Ernst & Young Release forms part of the Ernst & Young Settle-

ment. In considering whether the Ernst & Young Settlement is fair andreasonable and ought to be approved, it is necessary to consider whetherthe Ernst & Young Release can be justified as part of the Ernst & YoungSettlement. See ATB Financial, supra, para. 70, as quoted above.

59 In considering the appropriateness of including the Ernst & YoungRelease, I have taken into account the following.

60 Firstly, although the Plan has been sanctioned and implemented, asignificant aspect of the Plan is a distribution to SFC’s creditors. Thesignificant and, in fact, only monetary contribution that can be directlyidentified, at this time, is the $117 million from the Ernst & Young Set-tlement. Simply put, until such time as the Ernst & Young Settlement hasbeen concluded and the settlement proceeds paid, there can be no distri-bution of the settlement proceeds to parties entitled to receive them. Itseems to me that in order to effect any distribution, the Ernst & YoungRelease has to be approved as part of the Ernst & Young Settlement.

61 Secondly, it is apparent that the claims to be released against Ernst &Young are rationally related to the purpose of the Plan and necessary forit. SFC put forward the Plan. As I outlined in the Equity Claims Deci-sion, the claims of Ernst & Young as against SFC are intertwined to theextent that they cannot be separated. Similarly, the claims of the Objec-tors as against Ernst & Young are, in my view, intertwined and related tothe claims against SFC and to the purpose of the Plan.

62 Thirdly, although the Plan can, on its face, succeed, as evidenced byits implementation, the reality is that without the approval of the Ernst &Young Settlement, the objectives of the Plan remain unfulfilled due tothe practical inability to distribute the settlement proceeds. Further, in theevent that the Ernst & Young Release is not approved and the litigationcontinues, it becomes circular in nature as the position of Ernst & Young,as detailed in the Equity Claims Decision, involves Ernst & Youngbringing an equity claim for contribution and indemnity as against SFC.


63 Fourthly, it is clear that Ernst & Young is contributing in a tangibleway to the Plan, by its significant contribution of $117 million.

64 Fifthly, the Plan benefits the claimants in the form of a tangible distri-bution. Blair J.A., at paragraph 113 of ATB Financial, supra, referencedtwo further facts as found by the application judge in that case; namely,the voting creditors who approved the Plan did so with the knowledge ofthe nature and effect of the releases. That situation is also present in thiscase.

65 Finally, the application judge in ATB Financial, supra, held that thereleases were fair and reasonable and not overly broad or offensive topublic policy. In this case, having considered the alternatives of lengthyand uncertain litigation, and the full knowledge of the Canadian plain-tiffs, I conclude that the Ernst & Young Release is fair and reasonableand not overly broad or offensive to public policy.

66 In my view, the Ernst & Young Settlement is fair and reasonable,provides substantial benefits to relevant stakeholders, and is consistentwith the purpose and spirit of the CCAA. In addition, in my view, thefactors associated with the ATB Financial nexus test favour approvingthe Ernst & Young Release.

67 In Nortel Networks Corp., Re, supra, para. 81, I noted that the re-leases benefited creditors generally because they “reduced the risk of liti-gation, protected Nortel against potential contribution claims and indem-nity claims and reduced the risk of delay caused by potentially complexlitigation and associated depletion of assets to fund potentially significantlitigation costs”. In this case, there is a connection between the release ofclaims against Ernst & Young and a distribution to creditors. The plain-tiffs in the litigation are shareholders and Noteholders of SFC. Theseplaintiffs have claims to assert against SFC that are being directly satis-fied, in part, with the payment of $117 million by Ernst & Young.

68 In my view, it is clear that the claims Ernst & Young asserted againstSFC, and SFC’s subsidiaries, had to be addressed as part of the restruc-turing. The interrelationship between the various entities is furtherdemonstrated by Ernst & Young’s submission that the release of claimsby Ernst & Young has allowed SFC and the SFC subsidiaries to contrib-ute their assets to the restructuring, unencumbered by claims totallingbillions of dollars. As SFC is a holding company with no material assetsof its own, the unencumbered participation of the SFC subsidiaries iscrucial to the restructuring.


69 At the outset and during the CCAA proceedings, the Applicant andMonitor specifically and consistently identified timing and delay as criti-cal elements that would impact on maximization of the value and preser-vation of SFC’s assets.

70 Counsel submits that the claims against Ernst & Young and the in-demnity claims asserted by Ernst & Young would, absent the Ernst &Young Settlement, have to be finally determined before the CCAAclaims could be quantified. As such, these steps had the potential to sig-nificantly delay the CCAA proceedings. Where the claims being releasedmay take years to resolve, are risky, expensive or otherwise uncertain ofsuccess, the benefit that accrues to creditors in having them settled mustbe considered. See Nortel Networks Corp., Re, supra, paras. 73 and 81;and Muscletech, supra, paras. 19-21.

71 Implicit in my findings is rejection of the Objectors’ arguments ques-tioning the validity of the Ernst & Young Settlement and Ernst & YoungRelease. The relevant consideration is whether a proposed settlement andthird-party release sufficiently benefits all stakeholders to justify courtapproval. I reject the position that the $117 million settlement payment isnot essential, or even related, to the restructuring; it represents, at thispoint in time, the only real monetary consideration available to stake-holders. The potential to vary the Ernst & Young Settlement and Ernst &Young Release to accommodate opt-outs is futile, as the court is beingasked to approve the Ernst & Young Settlement and Ernst & Young Re-lease as proposed.

72 I do not accept that the class action settlement should be approvedsolely under the CPA. The reality facing the parties is that SFC is insol-vent; it is under CCAA protection, and stakeholder claims are to be con-sidered in the context of the CCAA regime. The Objectors’ claim againstErnst & Young cannot be considered in isolation from the CCAA pro-ceedings. The claims against Ernst & Young are interrelated with claimsas against SFC, as is made clear in the Equity Claims Decision andClaims Procedure Order.

73 Even if one assumes that the opt-out argument of the Objectors canbe sustained, and optout rights fully provided, to what does that lead?The Objectors are left with a claim against Ernst & Young, which it thenhas to put forward in the CCAA proceedings. Without taking into ac-count any argument that the claim against Ernst & Young may be af-fected by the claims bar date, the claim is still capable of being addressed


under the Claims Procedure Order. In this way, it is again subject to theCCAA fairness and reasonable test as set out in ATB Financial, supra.

74 Moreover, CCAA proceedings take into account a class of creditorsor stakeholders who possess the same legal interests. In this respect, theObjectors have the same legal interests as the Ontario Plaintiffs. Ulti-mately, this requires consideration of the totality of the class. In this case,it is clear that the parties supporting the Ernst & Young Settlement arevastly superior to the Objectors, both in number and dollar value.

75 Although the right to opt-out of a class action is a fundamental ele-ment of procedural fairness in the Ontario class action regime, this argu-ment cannot be taken in isolation. It must be considered in the context ofthe CCAA.

76 The Objectors are, in fact, part of the group that will benefit from theErnst & Young Settlement as they specifically seek to reserve their rightsto “opt-in” and share in the spoils.

77 It is also clear that the jurisprudence does not permit a dissentingstakeholder to opt-out of a restructuring. [Sammi Atlas Inc., Re (1998), 3C.B.R. (4th) 171 (Ont. Gen. Div. [Commercial List])).] If that were pos-sible, no creditor would take part in any CCAA compromise where theywere to receive less than the debt owed to them. There is no right to opt-out of any CCAA process, and the statute contemplates that a minority ofcreditors are bound by the plan which a majority have approved and thecourt has determined to be fair and reasonable.

78 SFC is insolvent and all stakeholders, including the Objectors, willreceive less than what they are owed. By virtue of deciding, on their ownvolition, not to participate in the CCAA process, the Objectors relin-quished their right to file a claim and take steps, in a timely way, toassert their rights to vote in the CCAA proceeding.

79 Further, even if the Objectors had filed a claim and voted, their mini-mal 1.6% stake in SFC’s outstanding shares when the Muddy Watersreport was released makes it highly unlikely that they could have alteredthe outcome.

80 Finally, although the Objectors demand a right to conditionally opt-out of a settlement, that right does not exist under the CPA or CCAA. Byvirtue of the certification order, class members had the ability to opt-outof the class action. The Objectors did not opt-out in the true sense; theypurported to create a conditional opt-out. Under the CPA, the right toopt-out is “in the manner and within the time specified in the certification


order”. There is no provision for a conditional opt-out in the CPA, andOntario’s single opt-out regime causes “no prejudice...to putative classmembers”. [CPA, section 9; Osmun v. Cadbury Adams Canada Inc.(2009), 85 C.P.C. (6th) 148 (Ont. S.C.J.), paras. 43-46; and Eidoo v.Infineon Technologies AG, 2012 ONSC 7299 (Ont. S.C.J.).]

Miscellaneous81 For greater certainty, it is my understanding that the issues raised by

Mr. O’Reilly have been clarified such that the effect of this endorsementis that the Junior Objectors will be included with the same status as theOntario Plaintiffs.

Disposition82 In the result, for the foregoing reasons, the motion is granted. A dec-

laration shall issue to the effect that the Ernst & Young Settlement is fairand reasonable in all the circumstances. The Ernst & Young Settlement,together with the Ernst & Young Release, is approved and an order shallissue substantially in the form requested. The motion of the Objectors isdismissed.

Motion granted.


[Indexed as: Haunert-Faga v. Faga]

Christine Marie Haunert-Faga Applicant and Stephen LeonardoGlen Faga Respondent


Docket: CV-10-9014-CL

2013 ONSC 1581

D.M. Brown J.

Heard: March 8, 2013


Debtors and creditors –––– Receivers — Conduct and liability of receiver —Liabilities –––– Costs — Divorce judgment required respondent to pay applicant$4.4 million — Respondent assigned shares in company to applicant in partialsatisfaction of judgment, but did not pay anything else — Court appointed re-ceiver-in-aid-of-execution — Receiver brought action against various parties torecover assets or entitlements which receiver contended were due and owing torespondent and which should be made available to applicant as judgment credi-tor — Receiver was concerned that assets in estate would be insufficient tocover any liability in costs to defendants in event they successfully defendedrecovery action — Receiver brought motion for costs immunity order — Motiondismissed — Undertaking given by applicant more than likely would fall farshort of covering any potential cost exposure in recovery action — Receiver didnot make out case for cost immunity order — This was not exceptional case —There was no element of public interest, this being private dispute between judg-ment creditor and judgment debtor — Impact of cost immunity award on de-fendants would be significant — Costs would probably be significant, and to de-part from “loser pays” costs principle would not be prudent — In absence ofaffidavit from applicant describing her financial situation, it could not be con-cluded that, without cost immunity order in favour of receiver, applicant wouldnot proceed with recovery action on her own — Without venturing definitiveview on pleaded causes of action, claims pleaded by receiver appeared to beones open to judgment creditor to advance — It was not prudent to fashion prin-ciple that strong prima facie cases may well be entitled to consideration for costimmunity orders.

Debtors and creditors –––– Receivers — Actions by and against receiver —Practice and procedure — Costs –––– Divorce judgment required respondentto pay applicant $4.4 million — Respondent assigned shares in company to ap-plicant in partial satisfaction of judgment, but did not pay anything else — Courtappointed receiver-in-aid-of-execution — Receiver brought action against vari-

Haunert-Faga v. Faga 53

ous parties to recover assets or entitlements which receiver contended were dueand owing to respondent and which should be made available to applicant asjudgment creditor — Receiver was concerned that assets in estate would be in-sufficient to cover any liability in costs to defendants in event they successfullydefended recovery action — Receiver brought motion for costs immunity or-der — Motion dismissed; costs totalling $5,500 awarded to defendants — Issuewas narrow one — Defendants filed two brief but helpful factums — Defend-ants who filed materials were entitled to partial indemnity costs — Factors takeninto account included time spent, result achieved, complexity, and amount rea-sonable for unsuccessful party to pay in circumstances.

Bankruptcy and insolvency –––– Receivers — Powers, duties and liabili-ties –––– Costs — Divorce judgment required respondent to pay applicant $4.4million — Respondent assigned shares in company to applicant in partial satis-faction of judgment, but did not pay anything else — Court appointed receiver-in-aid-of-execution — Receiver brought action against various parties to recoverassets or entitlements which receiver contended were due and owing to respon-dent and which should be made available to applicant as judgment creditor —Receiver was concerned that assets in estate would be insufficient to cover anyliability in costs to defendants in event they successfully defended recovery ac-tion — Receiver brought motion for costs immunity order — Motion dis-missed — Undertaking given by applicant more than likely would fall far shortof covering any potential cost exposure in recovery action — Receiver did notmake out case for cost immunity order — This was not exceptional case —There was no element of public interest, this being private dispute between judg-ment creditor and judgment debtor — Impact of cost immunity award on de-fendants would be significant — Costs would probably be significant, and to de-part from “loser pays” costs principle would not be prudent — In absence ofaffidavit from applicant describing her financial situation, it could not be con-cluded that, without cost immunity order in favour of receiver, applicant wouldnot proceed with recovery action on her own — Without venturing definitiveview on pleaded causes of action, claims pleaded by receiver appeared to beones open to judgment creditor to advance — It was not prudent to fashion prin-ciple that strong prima facie cases may well be entitled to consideration for costimmunity orders.

Cases considered by D.M. Brown J.:

Boucher v. Public Accountants Council (Ontario) (2004), 48 C.P.C. (5th) 56,2004 CarswellOnt 2521, 188 O.A.C. 201, 71 O.R. (3d) 291, [2004] O.J. No.2634 (Ont. C.A.) — referred to

Canadian Imperial Bank of Commerce v. 437544 Ontario Inc. (1995), 1995CarswellOnt 1218, 43 C.P.C. (3d) 216, 86 O.A.C. 241 (Ont. C.A. [In Cham-bers]) — referred to


Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 99 O.R. (3d) 55, 2009CarswellOnt 5241, 77 C.P.C. (6th) 80, [2009] O.J. No. 3680 (Ont. S.C.J.) —referred to

Davies v. Clarington (Municipality) (2009), (sub nom. Davies v. Clarington(Municipality)) 312 D.L.R. (4th) 278, 100 O.R. (3d) 66, 2009 ONCA 722,2009 CarswellOnt 6185, 77 C.P.C. (6th) 1, 254 O.A.C. 356, [2009] O.J. No.4236 (Ont. C.A.) — referred to

Farlow v. Hospital for Sick Children (2009), 100 O.R. (3d) 213, 83 C.P.C. (6th)290, 2009 CarswellOnt 7124, [2009] O.J. No. 4847 (Ont. S.C.J.) —followed

Livent Inc. (Receiver of) v. Deloitte & Touche (2010), 2010 CarswellOnt 2855,2010 ONSC 2267, [2010] O.J. No. 1919 (Ont. Master) — considered

Solarc Construction Ltd., Re (2009), 50 C.B.R. (5th) 62, 2009 CarswellOnt 392(Ont. S.C.J.) — considered

Thorne v. Canadian Steering Wheel Co. (1922), 52 O.L.R. 460, [1923] 4 D.L.R.1127, 1922 CarswellOnt 21, 2 C.B.R. 455, [1922] O.J. No. 164 (Ont.S.C.) — referred to

Thorne Riddell Inc. v. Sinclair (1983), 49 C.B.R. (N.S.) 196, 1983 CarswellOnt242 (Ont. S.C.) — referred to

Touche Ross Ltd. v. Weldwood of Canada Sales Ltd. (1984), 49 C.B.R. (N.S.)284, 1984 CarswellOnt 121, [1984] O.J. No. 1047 (Ont. S.C.) — considered

Weig v. Weig (2012), 2012 ONSC 7262, 2012 CarswellOnt 16525 (Ont. S.C.J.[Commercial List]) — considered


Courts of Justice Act, R.S.O. 1990, c. C.43s. 131 — considered

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194R. 1.04(1) — referred toR. 56 — consideredR. 56.01(1)(e) — consideredR. 57 — considered

MOTION by receiver-in-aid-of-execution for cost immunity order.

C. Reed for ReceiverR. Rueter for Receiver in the Recovery ActionM. Neirinck for Defendants in the Recovery Action, Giluiana Caprara in her

personal capacity and in her capacity as Estate Trustee without a Will of theEstate of Bruno Caprara, deceased, Marco Caprara, Christian Caprara, FagaGroup Construction Limited

M. Marrie for Defendant in the Recovery Action, Presta Caparrotta LLP

Haunert-Faga v. Faga D.M. Brown J. 55

J. Long for Defendant in the Recovery Action, Domenico Faga

D.M. Brown J.:

I. Motion by a receiver-in-aid-of-execution for a cost immunity order1 Christine Marie Haunert-Faga and Stephen Leonardo Glen Faga were

husband and wife. In 2007 they divorced. The May 9, 2007 DivorceJudgment which Christine obtained against Stephen required him to payher $4.4 million, of which $1.3 million covered child support for theirthree young children. Stephen assigned his shares in Delzap ConstructionLtd. to Christine in partial satisfaction of the Judgment. He has not paidanything else.

2 Christine’s difficulties in enforcing the Judgment against Stephen ledto this Court appointing a receiver-in-aid-of-execution on December 8,2010. The Receiver, A. Farber & Partners Inc., collected some assets, butto date Christine has only received an interim distribution of $50,000.00.

3 On October 5, 2012, the Receiver commenced an action against anumber of Stephen’s relatives, his girlfriend and an accounting firmseeking to recover certain assets or entitlements which the Receiver con-tends are due and owing to Stephen and which should be made availableto Christine as his judgment creditor (the “Recovery Action”). Althoughthe Statement of Claim was served, no further steps have ensued becausethe Receiver is concerned that the assets in the estate would be insuffi-cient to cover any liability in costs to the defendants in the event theysuccessfully defended the Recovery Action.

4 The Receiver does not want to expose its personal assets to a possiblecost award, so the Receiver has brought this motion seeking an order“that the Receiver shall not have any personal liability for any costsawarded to the defendants” in the Recovery Action. The defendants inthe Recovery Action opposed the order sought.

5 For the reasons set out below, I dismiss the Receiver’s motion.

II. Background evidence6 Pursuant to the Appointment Order the Receiver retained Froese Fo-

rensic Partners Ltd. to assist in the investigation into Stephen’s assets,including the potential relationship between those assets and the con-struction businesses run by other members of the Faga family. Accordingto the Receiver, prior to 2003 Stephen indirectly owned a 50% interest inFaga Group Ltd. (“Faga Group”) with his brother-in-law, Bruno Caprara,


the husband of his sister, Giuliana. Bruno is deceased. Based on the in-vestigation conducted by Froese, the Receiver asserted that:

(i) In 2003 or 2004, around the time Christine and Stephenseparated, the assets of Faga Group were transferred toFaga Group Construction Limited (“Faga Construction”), acompany owned either by Giuliana or Bruno, and that Giu-liana holds 50% of the shares of Faga Construction in trustfor Stephen;

(ii) Stephen has drawn funds out of Faga Construction, al-though as Christine’s judgment debtor he has maintainedthat he owns nothing, earns nothing, and cannot pay theJudgment;

(iii) Payments diverted through various Faga businesses were“laundered through the accounting firm Presta CaparrottaLLP”. The Receiver alleges that between 2003 to 2006Faga Construction paid that accounting firm over $3 mil-lion, yet did not render an equivalent amount of profes-sional services;

(iv) Stephen’s father, Domenico Faga, opened several bank ac-counts into which Stephen transferred his personal assetsand over which Domenico gave his son a power of attor-ney; and,

(v) Some of the funds from Domenico’s accounts were trans-ferred into accounts of a girlfriend of Stephen, Ms.Rhodena Macdonald.

Details of the results of the forensic investigation were set out in the Re-ceiver’s Second Report.

7 The Receiver retained independent counsel, the Rueter Scargall Ben-nett LLP firm, to draft and commence a claim against the Faga familymembers and companies, as well as Ms. Macdonald and Presta Capar-rotta, to recover monies which it claims belong to Stephen and which areexigible for execution. The RSB firm has agreed to act on a quasi-contin-gency basis and the Receiver has agreed that the firm will enjoy a firstcharge over all proceeds of such litigation. RSB issued the Statement ofClaim in the Recovery Action on October 5, 2012; it seeks to recover$4.8 million. The plaintiff is A. Farber & Partners Inc. in its capacity asCourt Appointed Receiver of Stephen Leonardo Glen Faga. No defenceshave been filed pending the outcome of this motion.


8 According to the Receiver’s Statement of Receipts & Disbursementsfor the period up to September 30, 2012, receipts amounted to $2.007million, expenses (including counsel fees to March 29, 2012) totaled$133,502, with net receipts of $1.87 million. A disbursement of $50,000was made to Christine in May, 2012. However, professional fees not yetapproved or paid amount to $1.8 million: Receiver, $340,000; Froese Fo-rensic, $500,000; and two law firms, $960,000. If those amounts are ap-proved, the Receiver reported that “the Receivership estate will have ap-proximately $121,000 available to pay fees and costs incurred afterAugust 31, 2012”.

9 Given that state of affairs for the estate, the Receiver reported: [I]t is very likely that in the event, no matter how remote, that theRecovery Action is not successful and costs are awarded to the de-fendants, there will be no net assets available in the Receivership es-tate to respond to those cost claims.

The Receiver is not prepared to assume personal liability for thecosts of the Recovery Action. The Receiver will not personally bene-fit from the Recovery Action. If the Court does not grant an Orderthat the Receiver has no personal liability for the costs of the Recov-ery Action, then the Receiver will discontinue that action and the Re-ceivership estate will be deprived of any benefit of the claims ad-vanced in that action.

10 Christine filed an undertaking with the Court in the following form: I, Christine Marie Haunert-Faga, undertake to the Court to abide byany Order of the Court awarding costs to the Defendants in [the Re-covery Action] which the Court, in its discretion, orders me to paypersonally.

11 The defendants in the Recovery Action opposed the order sought bythe Receiver, taking the position that the Recovery Action should be sub-ject to the usual “loser pays” cost rule.

III. Analysis

A. The general principles12 Receivers, and trustees in bankruptcy, possess powers to litigate but,

in the usual course of affairs, they do not labour under duties to litigate.Paragraph 4 of the Appointment Order provided that the Receiver wasempowered and authorized to do certain things, “where the Receiverconsiders it necessary or desirable”, including “to initiate, prosecute andcontinue the prosecution of any and all court proceedings...with respect


to the Debtor, the Property or the Receiver...” So, the Receiver is author-ized to bring the Recovery Action, but it was not obligated to initiate thataction.

13 The general rule is that a receiver or trustee litigates at its peril ifthere is no source of indemnity available to it, with the two standardsources of indemnity residing in the assets of the estate or a contract ofindemnity from one or more creditors.1 As put by this Court in the 1984case of Touche Ross Ltd. v. Weldwood of Canada Sales Ltd.:

The cases are old but they are legion in support of the general rule. Itmatters not that it appeared eminently desirable to the trustee tolaunch the actions.2

14 The policy reason for the general rule was explained in the ToucheRoss case:

There are two conflicting policies, one of protecting successful de-fendants from unwarranted charges just as they would be protectedwhen a creditor sued personally, and the other policy of encouragingdiligence and fearlessness in trustees in their administration of bank-rupt estates. The former is stronger and should prevail if only be-cause the trustee has every means at his disposal to protect his posi-tion either by resorting to the assets when they prove sufficient or tothe interested creditors wherever they display a sufficient interest inthe litigation...3

15 The discipline imposed by a “loser pays” costs rule applies equally todecisions to commence proceedings by a receiver or trustee. As Middle-ton J. put the matter in Thorne v. Canadian Steering Wheel Co.:

I cannot conceive that the action would ever have been brought orpressed if the plaintiff had any idea of his personal liability, and thisbeing now established, it will serve as a warning to trustees in bank-ruptcy that litigation ought not to be indulged in upon the theory thatthere is not a personal liability. It is not the intention of The Bank-

1Touche Ross Ltd. v. Weldwood of Canada Sales Ltd. (1984), 49 C.B.R. (N.S.)284 (Ont. S.C.). See also: Thorne Riddell Inc. v. Sinclair (1983), 49 C.B.R.(N.S.) 196 (Ont. S.C.), para. 27; Canadian Imperial Bank of Commerce v.437544 Ontario Inc. (1995), 43 C.P.C. (3d) 216 (Ont. C.A. [In Chambers]),para. 14;2Touche Ross, supra., para. 73Ibid., para. 10.


ruptcy Act that the creditors should have the right to sue without in-curring the ordinary risk of costs if unsuccessful.4

16 In Livent Inc. (Receiver of) v. Deloitte & Touche, Master Short re-ferred to more recent re-affirmations of the general rule:

In a number of instances Canadian courts in the last thirty years haveconsistently rejected the proposition that simply because the entitypursuing the litigation is a Receiver or Trustee, that Receiver or Trus-tee need not bear the economic consequences of its decisions. As re-cently stated by the Alberta Court of Queen’s Bench, in imposingliability for costs on the unsuccessful Receiver Manager and Trustee,PricewaterhouseCoopers, at the end of a proceeding:

“It would be unjust for Crossing to be successful in thelitigation and then be denied the fruits thereof because theReceiver Manager and Trustee pursued litigation withoutassuming liability to pay the costs. Such would be a one-way risk.” [Crossing Co. v. Banister Pipelines Inc.,[2004] A.J. No. 81 (Alta. Q.B.)]

The Court went on to elaborate as to why a “one-way risk”, favour-ing the Trustee or Receiver Manager, cannot be supported:

It is my view that Receiver/Managers, Trustees, ought notto be allowed to pursue litigation with immunity againstpersonal liability for costs. Where there is no statutoryduty to pursue the litigation and where the Re-ceiver/Manager, Trustee knows or ought to know therewill likely be insufficient assets in the estate to satisfy anyaward of costs, if unsuccessful, he should be held person-ally liable for costs (citations omitted) I also find it imma-terial whether the trustee is an unsuccessful defendant oran unsuccessful plaintiff. However, it is notable that Re-ceiver/Managers, Trustees are entitled to indemnity out ofthe bankrupt estate provided there was no misconduct ontheir behalf...5

17 Of course, to every general rule, exceptions exist. The case of SolarcConstruction Ltd., Re was one such exception.6 In that case, pending thehearing of its appeal from a bankruptcy order, the bankrupt sought courtapproval of a settlement with the petitioning creditors. The trustee op-

4(1922), [1923] 4 D.L.R. 1127 (Ont. S.C.), para. 10.52010 ONSC 2267 (Ont. Master), paras. 89 and 90.6(2009), 50 C.B.R. (5th) 62 (Ont. S.C.J.)


posed, concerned that the settlement constituted a preference, and itpressed the bankrupt for a proper statement of affairs listing all creditors.The bankrupt refused. Eventually, the bankrupt abandoned its appeal,rendering its motion to approve the settlement moot, and the trusteemoved to recover its costs from the solicitors for the petitioning creditorsand the bankrupt. The court denied that motion, at which point those so-licitors sought their costs personally from the trustee. The court refused,citing exceptional circumstances:

In my view, and I so find, the matter at hand is an exceptional situa-tion where I should exercise my discretion not to award costs againstthe Trustee personally. As I have said above, the Trustee acted con-scientiously and in good faith at all times in meeting its obligationsand fulfilling its duties under the BIA and as an officer of the Court.There was certainly no negligence on its part. The Trustee was cor-rect and proper in the essential position it took, namely, that the inter-ests of all creditors must be protected. The Trustee was acting in theperceived best interests of the bankruptcy estate at all times, includ-ing in bringing its motion to save the estate the expense incurred as aresult of the costs associated with the unsuccessful settlement ap-proval motion on the part of the Bankrupt.7

Of course, that cost order was made at the end of one stage in a proceed-ing when the Court was able to assess the reasonableness and merits ofthe trustee’s conduct.

18 The Receiver was not able to point to any case where a court hadgranted a cost immunity order in favour of a trustee or a receiver at thecommencement of a piece of litigation. The Receiver acknowledged thatit was making a novel request.

B. Reasons advanced to depart from the general rule19 The Receiver advanced two reasons why in this case it should be

granted an advance cost immunity order: (i) the undertaking as to costsby Christine provides the defendants with adequate protection on costs;and, (ii) unless a cost immunity order is granted, a meritorious claim maynot proceed, which would constitute a denial of access to justice.

7Ibid., para. 39.


B.1 The undertaking given by Christine20 As the case law discloses, the standard sources of indemnity available

to a receiver in respect of its exposure in a lawsuit are the assets of theestate or a contract of indemnity from a creditor. In the present case theReceiver considers the assets of the estate to be insufficient. In its ThirdReport the Receiver did not comment on the adequacy of Christine’s un-dertaking, but in oral submissions Mr. Reed advised that the Receiverwas not prepared to accept an indemnity from Christine, the judgmentcreditor.

21 If the Receiver is not prepared to accept an indemnity from Christinefor its potential costs exposure in the Recovery Action, one must askwhat weight the Court can place on her undertaking? Mr. Rueter, ascounsel for the Receiver in the Recovery Action, submitted that the evi-dence before the Court showed that Christine possessed significant as-sets. One of the defendants in the Recovery Action, Giuliana Caprara,deposed that Christine had “more than sufficient resources to secure theReceiver’s costs concerns regarding the [Recovery Action]”, and shelisted assets owned by Christine which she valued at over $2 million. Mr.Froese, in a responding affidavit, cautioned that Ms. Caprara’s state-ments “do not take into consideration debts and/or mortgages securedagainst the above assets or the professional and other costs of realizingon the assets”. Mr. Froese filed a chart which disclosed the net amountsreceived by Christine over the last 9 years from the matrimonial litiga-tion and subsequent enforcement efforts; the net cash flow totaled$565,153.00, or an average of $62,795 each year.

22 What the record does not contain is an affidavit from Christine depos-ing to her net worth and identifying her assets. In the absence of suchevidence, it is not possible to conduct an independent assessment of theweight of her undertaking. At the end of the day, all I am left with is theReceiver’s unwillingness to proceed with the Recovery Action on the ba-sis of an indemnity from Christine. If the Receiver, as an officer of thisCourt, is not prepared to accept Christine’s indemnity, then I see no rea-son why the Court should accept Christine’s undertaking as adequate se-curity for the potential costs of the Recovery Action. The Statement ofClaim pleads numerous and contentious allegations against Faga familymembers, Stephen’s girlfriend and the accounting firm. The Receiver’sThird Report disclosed that the costs to date of investigating the claimhave been significant. From that I infer that the Recovery Action will bea costly piece of litigation and, if the action does not succeed, very sig-


nificant costs will have been incurred by the various defendant groups. Inthose circumstances, I conclude that the undertaking given by Christinemore than likely would fall far short of covering any potential cost expo-sure in the Recovery Action.

B.3 Access to justice Inability of the Receiver to proceed23 The Receiver, and the Receiver’s Recovery Action counsel, then ar-

gued that to deny the Receiver a cost immunity order would mean thatthe Recovery Action would not proceed and, in addition, some of thecauses of action pleaded by the Receiver are ones which would not beopen to Christine to assert in the event it fell to her to bring a recoveryaction in her own name. Such a result, they submitted, would work agreat unfairness in the circumstances of this case, given Stephen’s un-willingness to satisfy the Judgment — which included an obligation tosupport his children — and would amount to a denial of access to justice.

24 On the general issue of access to justice, the Receiver relied heavilyon the decision of Herman J. in Farlow v. Hospital for Sick Children8 Inthat case the plaintiff commenced a smalls claim court medical malprac-tice action. The defendants sought to transfer the action to the SuperiorCourt of Justice and to exempt it from the simplified procedure process.The plaintiff sought either an interim costs order or an immunity fromfuture costs order. Herman J. granted the defendants’ transfer motion.When she turned to consider the plaintiff’s request for a cost immunityorder, Herman J. extensively canvassed the jurisprudence and practice inother Canadian jurisdictions, as well as the practice in the United King-dom where a limited form of cost immunity order is known. Herman J.offered the following review of the applicable principles:

The first proposition is that the granting of a costs immunity award isexceptional. The fact that I was not referred to any Ontario case inwhich it has been awarded is testament to this proposition.

Other factors that may be taken into account include: whether theapplicant’s financial circumstances are such that the applicant wouldprobably not proceed absent such an order; the extent to which thepublic has an interest in the issues being litigated; and the potentialimpact of such an award on the other parties.

A costs immunity order raises the risk that the party that has beenimmunized from a costs order may fail to be accountable for the time

8(2009), 100 O.R. (3d) 213 (Ont. S.C.J.)


and money expended on the case. However, this risk could be ad-dressed by requiring that the litigant relinquish some control over thelitigation process, as was proposed in the Little Sisters case.9

Applying those principles to the facts of the Farlow case, Herman J. de-clined to grant a cost immunity order.

25 Adopting and applying the Farlow analysis to the present case, theReceiver has not made out a case for a cost immunity order. First, this isnot an exceptional case. Receivers often must consider whether theyshould commence proceedings to recover property for an estate, therebyimproving the recovery for creditors of an estate. That is especially truein the case of receivers-in-aid-of-execution which are often appointed incircumstances where the judgment debtor has involved his or her assetsin a web of corporations or other vehicles. As part of the usual assess-ment about whether to proceed with an action, a receiver must determineif the potential recovery sufficiently outweighs the financial risks ofbringing the litigation. If it does not, then the litigation does not proceed.That is the ordinary type of business decision which a receiver mustmake.

26 Second, there is no element of public interest in the present case. Thedispute is a private one, between a judgment creditor and judgmentdebtor. Although a significant portion of the Judgment concerns childand spousal support orders made against Stephen, the Ontario Legislaturestill requires, in large part, that support order judgment creditors workwithin the general law of execution on judgments. Whether a changeshould be made to that policy choice is for the Legislature, not the courts,to make.

27 Third, the impact of a cost immunity award on the defendants wouldbe significant. As I have already mentioned, the Recovery Action, aspleaded in the Statement of Claim, most probably will generate signifi-cant legal costs. Regardless of what the merits of any defences may be,to free this complex piece of litigation from the discipline of the “loserpays” cost principle, would not be prudent; indeed, in my view, it wouldbe fool-hardy to do so.

28 Finally, in the absence of an affidavit from Christine describing herfinancial situation, I simply am not prepared to conclude that without a

9Ibid., paras. 94 to 96.


cost immunity order in favour of the Receiver that she would not proceedwith the Recovery Action on her own.

29 That leaves two issues. First, although the Receiver made no mentionof this in its Third Report, nor Mr. Reed in his Factum, at the hearingcounsel for the Receiver in the Recovery Action submitted that certaincauses of action pleaded in that proceeding could only be brought in thename of the Receiver, and it would not be open to Christine to assertsuch causes of action in her name as a judgment creditor of Stephen evenif she wished to do so. No written argument or authorities were placedbefore me on this issue.

30 Receivers-in-aid-of-execution are appointed where a judgment credi-tor encounters difficulty in her execution efforts. In Weig v. Weig Iwrote:

Ontario jurisprudence recognizes that a receiver may be appointed toenforce an order for the payment of money where special circum-stances exist which would render the normal methods of executionineffective or impractical or where certain property of the debtormight not be exigible for execution.10

Given that purpose of a receiver-in-aid-of-execution, I have difficulty un-derstanding the Receiver’s argument that it would enjoy remedies, orcauses of action, not available to the judgment creditor whose rights thereceiver was appointed to assist.

31 Moreover, I have reviewed the Statement of Claim in the RecoveryAction. Many of the pleaded claims concern Faga Construction. They allturn on one of two cardinal claims — the 2003 transfer of the assets andundertaking of the Faga Group to Faga Construction was a fraudulentconveyance, or Stephen is the beneficial owner of 50% of the shares ofFaga Construction. The Statement of Claim sets out several claimsagainst Bruno and Giuliana which, as I read them, contend that as theregistered owners of Faga Construction they breached the November 12,2003 non-dissipation order made by Rogers J. in the matrimonial litiga-tion, they improperly diverted monies to their own use thereby reducingthe value of Stephen’s alleged shares in Faga Construction and, as well,they stand accountable for income attaching to Stephen’s alleged owner-ship interest in Faga Construction. The Statement of Claim also alleges

102012 ONSC 7262 (Ont. S.C.J. [Commercial List]), para. 18. The Receiver didnot argue that some of Stephen’s assets might not be exigible for execution.


that funds in accounts in the name of Domenico Faga and Rhodena Mac-donald belonged to Stephen, both individuals also breached the non-dis-sipation order and, as well, that what are alleged to be Stephen’s fundswere improperly received and appropriated by the accounting firm. Afew other claims are made, but the major ones rest on the allegation thatStephen beneficially owns 50% of the shares of Faga Construction.Without venturing a definitive view on the pleaded causes of action, atfirst blush (and that is all the materials enable me to do at this stage) theclaims pleaded by the Receiver would appear to be ones open to a judg-ment creditor to advance.

32 Finally, the Receiver submitted that its claim was prima facie merito-rious, a factor which should weigh heavily in favour of granting a costimmunity order. In support of that submission the Receiver relied on thejurisprudence developed under Rule 56, the security for costs rule. Undera Rule 56 analysis the merits of a claim may arise either when a movingparty alleges that the action is frivolous or vexatious within the meaningof Rule 56.01(1)(e), or as a factor in considering whether it is “just” tomake the order.11 I find that jurisprudence to be of little assistance on thepresent motion because it is rules-based jurisprudence — i.e. a legislativedecision has been made to create a framework in which pre-trial costsecurity claims may be advanced. No similar rule covers claims for costimmunity orders.

33 While Herman J. summarized the state of the jurisprudence concern-ing cost immunity orders made pursuant to the Court’s general cost-mak-ing power under section 131 of the Courts of Justice Act, and while Ihave taken the position in other cases that judges enjoy broad powers tocontrol the court’s process, I do not consider it prudent to fashion a prin-ciple that strong prima facie cases may well be entitled to considerationfor cost immunity orders. The floodgates would burst, and a new speciesof process-related motion would swim on to this court’s already over-crowded motions list. If the discipline of the “loser pays” cost principleshould be removed from some cases as a matter of larger public policy,then due consideration to the implications of such an approach should begiven through a broad-based consultation process. That falls within theprovince of the Legislature. The incremental development of the com-

11Cigar500.com Inc. v. Ashton Distributors Inc. (2009), 99 O.R. (3d) 55 (Ont.S.C.J.), para. 34 et seq.


mon law does not strike me as the appropriate tool by which to assess theimplications of such a change to our costs regime.

IV. Conclusion34 For these reasons I dismiss the Receiver’s motion for a cost immunity

order.35 At the end of the hearing I called for cost submissions under the two

scenarios of motion succeeds/motion fails. If the motion was granted, theReceiver was seeking partial indemnity costs of $20,000. If the motionfailed, the Giuliana Caprara defendants sought $20,000 in costs, Domen-ico Faga sought $3,361, and Presta Caparrrotta LLP sought $5,700.

36 The issue on this motion was a narrow one. Giuliana Caprara filedtwo brief affidavits; the other defendants filed none. The two factumsfiled by the defendants were brief but, I might say, most helpful. Nocross-examinations took palce. The motion took less than an hour to ar-gue. The submissions of counsel for Domenico Faga amounted to “metoo” submissions.

37 In my view, the defendants who filed materials are entitled to partialindemnity costs.

38 I have taken into account the factors enumerated under Rule 57, in-cluding the time spent, the result achieved, and the complexity of thematter, as well as the application of the principle of proportionality: Rule1.04(1). In addition, I have considered the principles set forth by theCourt of Appeal in Boucher v. Public Accountants Council (Ontario)(2004), 71 O.R. (3d) 291 (Ont. C.A.) and Davies v. Clarington (Munici-pality) (2009), 100 O.R. (3d) 66 (Ont. C.A.), specifically that the overallobjective of fixing costs is to fix an amount that is fair and reasonable foran unsuccessful party to pay in the particular circumstances, rather thanan amount fixed by actual costs incurred by the successful litigant.

39 I conclude that an award of costs in the amount of $3,500 to the Giu-liana Caprara defendants and an award of costs of $2,000 to PrestaCaparrotta LLP would be reasonable in the circumstances, and I orderthe Receiver to pay those amounts within 30 days.

Motion dismissed.

Bennett, Re 67

[Indexed as: Bennett, Re]

In the Matter of the Bankruptcy of Erick Michael Bennett

Ontario Superior Court of Justice

Docket: Thunder Bay BK-07-79

2013 ONSC 1433

H.M. Pierce R.S.J.

Heard: January 30, 2013


Bankruptcy and insolvency –––– Administration of estate — Trustees —Trustee’s account –––– Bankrupt made assignment in bankruptcy in September2006 — In June 2012, trustee in bankruptcy presented statement of receipts anddisbursements to court for approval and sought increased remuneration — Trus-tee claimed fees in amount of $31,648 — Trustee’s remuneration allowed at$23,459, amount claimed having been reduced by $8,189 — Claim for prepara-tion for court was reduced by $1,200, as there was duplication of service —Claim for court attendance, including travel, was reduced by $5,275 — Absentsome proof that trustee was engaged in work on bankrupt’s file during travel, itwas not appropriate to charge at full hourly rate — Amounts were allowed fortravel when trustee was not able to combine court attendances with other clientwork — Claim for meeting with client was reduced by $1,200 — Amountclaimed in this respect represented 4.5 hours, which included travel time, buttravel time was disallowed and claim for half-hour meeting with client at fullrate was more reasonable — Item charged as $75 to courier documents was dis-allowed, as this was example of secretarial work being charged to estate when itshould have been treated as part of trustee’s overhead — Entries for preparationand signing of affidavits of mailing, totalling $192.50, were disallowed, again assecretarial in nature and part of trustee’s overhead — Claim of $246.50 for com-missioning documents was disallowed, as this too was properly considered partof overhead.

Cases considered by H.M. Pierce R.S.J.:

Confederation Financial Services (Canada) Ltd. v. Confederation TreasuryServices Ltd. (2003), 2003 CarswellOnt 1104, 40 C.B.R. (4th) 10, [2003]O.J. No. 1259 (Ont. S.C.J.) — considered

Deloitte & Touche Inc., Re (1998), 46 B.C.L.R. (3d) 55, 1 C.B.R. (4th) 15, 1998CarswellBC 11, [1998] B.C.J. No. 6 (B.C. S.C.) — referred to

Fabre, Re (1989), 73 C.B.R. (N.S.) 300, 1989 CarswellOnt 158 (Ont. S.C.) —referred to


Hess, Re (1977), 23 C.B.R. (N.S.) 215, 1977 CarswellOnt 68, [1977] O.J. No.1642 (Ont. S.C.) — considered

Kresz, Re (2007), 2007 MBQB 67, 2007 CarswellMan 108, 31 C.B.R. (5th) 248,213 Man. R. (2d) 186 (Man. Q.B.) — considered

Murkl, Re (1976), 23 C.B.R. (N.S.) 71, 1976 CarswellOnt 100 (Ont. S.C.) —referred to

Roy, Re (1963), 1963 CarswellQue 37, 4 C.B.R. (N.S.) 275 (Que. S.C.) — re-ferred to

Unified Technologies Inc., Re (1995), 32 C.B.R. (3d) 182, 1995 CarswellOnt369, [1995] O.J. No. 4550 (Ont. Bktcy.) — referred to

256864 Sales Ltd., Re (1975), 20 C.B.R. (N.S.) 267, 1975 CarswellOnt 98 (Ont.Bktcy.) — referred to


Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3s. 6(3) — referred tos. 39(1) — considereds. 39(2) — considereds. 39(3) — considereds. 39(5) — considereds. 82 — considereds. 135 — considered

CLAIM by trustee in bankruptcy for fees.

Counsel — not provided

H.M. Pierce R.S.J.:

Introduction1 The bankrupt made an assignment in bankruptcy on September 20,

2006. On June 5, 2012, the trustee in bankruptcy presented her statementof receipts and disbursements to the court for approval and sought in-creased remuneration. There is no issue with respect to fees paid to theofficial receiver or inspector, on account of federal or provincial taxes orfor counseling.

2 The bankruptcy is not yet finalized.3 The trustee claims fees in the amount of $31,648. The receipts real-

ized for the estate are $87,844.92, which includes proceeds from a law-suit in the amount of $2,625.54. The bankrupt’s preferred creditors real-ized $24,393.45. His unsecured creditors received $27,111.25 fromproven claims of $237,246.96, for a final dividend of 11.43%.

Bennett, Re H.M. Pierce R.S.J. 69

4 The trustee advises that because this estate began as a summary ad-ministration estate, there was no inspector initially when the trustee didmuch of the administration. She submits that because of the bankrupt’slack of cooperation and deception, the case became an ordinary adminis-tration, with some complexity. She states that additional assets, revenue,and reviewable transactions were discovered as the administration pro-ceeded. These were largely identified by Canada Revenue Agency, a ma-jor creditor.

5 An inspector who is associated with the Canada Revenue Agency wassubsequently appointed. The trustee reports that upon being providedwith the her billing and her statements of receipts and disbursements, theinspector approved the accounts. The inspector was paid his fees in ac-cordance with the tariff in Rule 135 of the Bankruptcy and InsolvencyAct, R.S.C., 1985, c. B-3.

6 The trustee submits that the file has been worked on continuously forsix years, with attendances at seven court hearings, as well as two taxa-tion hearings for which no time was charged. She also submits that han-dling the trust account monthly took time.

7 When this matter came before the court, a hearing was ordered topermit the trustee to justify her fees. In particular, the court sought sub-missions on the following:

1. claims by support staff for bank deposits, posting, accountreconciliation and affidavits of mailing;

2. claims by all levels of staff for commissioning documents;

3. meetings with the debtor exceeding one hour;

4. preparation for and appearances at court;

5. preparation, review and signing trustee’s reports;

6. posting and reconciling accounts;

7. monthly bank account reconciliations;

8. file reviews;

9. to courier documents;

10. mailing notices of creditors’ meetings;

11. posting dividend cheques; and

12. communication with RCMP.8 The trustee was also asked to comment on inspectors’ reviews of

fees, if any, and any professional tariff for fees. The trustee filed detailed


dockets in support of her fee. Subsequently, she filed detailed writtensubmissions, and made further submissions orally upon the hearing ofthis matter.

Principles for the Assessment of Trustees’ Accounts9 Much of the case law involving assessment of bankruptcy trustee’s

accounts originates with the bankruptcy registrars.10 Section 39 of the Bankruptcy and Insolvency Act deals with remuner-

ation of the Trustee. It provides:

(1) The remuneration of the trustee shall be such as is voted tothe trustee by ordinary resolution at any meeting ofcreditors.

(2) Where the remuneration of the trustee has not been fixedunder subsection (1), the trustee may insert his final state-ment and retain as his remuneration, subject to increase orreduction as hereinafter provided, a sum not exceedingseven and one-half per cent of the amount remaining out ofthe realization of the property of the debtor after the claimsof the secured creditors have been paid or satisfied.

(3) Where the business of the debtor has been carried on by thetrustee or under his supervision, he may be allowed suchspecial remuneration for such services as the creditors orthe inspectors may by resolution authorize, and, in the caseof a proposal, such special remuneration as may be agreedto by the debtor, or in the absence of an agreement with thedebtor such amount as may be approved by the court.

(4) . . .

(5) On application by the trustee, a creditor or the debtor andon notice to such parties as the court may direct, the courtmay make an order increasing or reducing theremuneration.

11 The decision of the Ontario High Court in Hess, Re, [1977] O.J. No.1642 (Ont. S.C.) is the starting point in jurisprudence relating to remu-neration of trustees. The case was heard as an appeal by the trustee fromthe decision of the Registrar reducing the trustee’s final remuneration. Itwas held that It is the trustee’s obligation to gather in and maximize theassets of a bankrupt’s estate, including assets that may be hidden, and toadminister the estate in furtherance of the objectives the bankruptcy leg-


islation for the benefit of the creditors: paras.17 — 18. At paras. 10 —16, Mr. Justice Henry set out the following five principles for assessmentof trustee’s accounts:

(1) whether there is opposition or not, the trustee is entitled to beheard before a decision is made adverse to his claim. Whether ornot he is heard orally, he is entitled to know what case he has tomeet and be given an opportunity to explain any matters that thecourt does not accept. Where there is no adversary, the court mustcommunicate to trustee the points that are causing concern.

(2) The court should direct its mind to the object of the taxation. In abankruptcy matter, these objects... are:

a) to allow the trustee a fair compensation for his services;

b) to prevent unjustifiable payments for fees to the detrimentof the estate and the creditors;

c) to encourage, rather than discourage, efficient, conscien-tious administration of the bankrupt estate for the benefit ofthe creditors and, so far as the public is concerned, in theinterests of the proper carrying-out of the principles andobjectives of the Bankruptcy Act. Creditors and the publicare entitled to the best services from professional trusteesand must expect to pay for them;

(3) ...the views of the creditors or the inspectors should be given con-siderable weight as they are in a strong position to judge whetherthe work done and the results achieved merit the compensationclaimed. As well, where the inspectors are creditors, their interestsare most directly affected by the trustee’s fees claimed and so itcan be expected that they will not approve the trustee’s accountslightly;

(4) The following items should, prima facie, be disallowed:

a) services not authorized by law;

b) irresponsible decisions producing no positive result;

c) conduct contrary to the instructions of the creditors or in-spectors, or the court;

d) attempts to take advantage of the estate by performing un-productive or unnecessary services not authorized by theinspectors;

e) over-charging for routine services;


f) charging for services not clearly performed;

g) charging at an excessive rate for professional services;

h) errors of judgment, not based on the consent of theinspectors;

i) any matter not required by law to be done that adverselyaffects the interests of the creditors and not approved by thecreditors or the inspectors.

These principles are not exhaustive.12 Mr. Justice Henry concluded that the trustee should, absent compel-

ling reasons to the contrary, be able charge for time spent administeringthe estate at the “going or reasonable rate of remuneration,” and for get-ting a positive result: para. 15.

13 The basic rule for calculating the amount payable to the trustee is thathe should receive 7.5% of the amount remaining in the estate after theclaims of the secured creditors have been paid. The superintendent’s ap-proval of a trustee’s final statement of receipts and disbursements is notbinding on the court’s review of the trustee’s remuneration: Roy, Re(1963), 4 C.B.R. (N.S.) 275 (Que. S.C.)

14 However, the court may order that the statutory compensation be in-creased or reduced. Generally, the Ontario courts have approved remu-neration well over the 7.5% threshold unless the estate is simple and eas-ily administered: Fabre, Re (1989), 73 C.B.R. (N.S.) 300 (Ont. S.C.).There is general recognition that the statutory rate for remuneration oftrustees, 7.5% of assets distributable to creditors after secured creditorshave been paid, is inadequate given the increased complexity in adminis-tration of estates and the statutory and quasi-statutory responsibilitiesplaced on trustees. This rate was legislated in 1950: UnifiedTechnologies Inc., Re, [1995] O.J. No. 4550 (Ont. Bktcy.) at para. 12.

15 In Deloitte & Touche Inc., Re, [1998] B.C.J. No. 6 (B.C. S.C.), theDistrict Registrar in Bankruptcy considered whether the trustee should beentitled to increased compensation above the statutory rate in the face ofopposition by one inspector. The Registrar held that the burden was onthe trustee to prove that the expenses incurred resulted from sound judg-ment and were reasonably necessary for to satisfy the trustee’s duties:paras. 27 — 28. At para. 29, the Registrar set out the parameters for fix-ing the trustee’s remuneration:

In fixing the trustee’s remuneration, the Court should have regard tosuch matters as the work done by the trustee; the responsibility im-


posed on the trustee; the time spent in doing the work; the reasona-bleness of the time expended; the necessity of doing the work, andthe results obtained.

16 In Confederation Financial Services (Canada) Ltd. v. ConfederationTreasury Services Ltd., [2003] O.J. No. 1259 (Ont. S.C.J.), Mr. JusticeFarley considered the amount of compensation that should be paid to atrustee in bankruptcy in a successful case. In that case, he awarded apremium, based on an excellent result. In doing, so, he drew an analogyto factors to be considered for solicitors’ rates: legal complexity, respon-sibility assumed; monetary value at issue; importance of the matter; thedegree of skill and competence needed; and the results achieved: paras.24 — 26.

17 However, in considering professional billing practices, he adopted avalue-based approach for fixing compensation based on the worth of theservices provided. He decried the “mindless multiplication of an hourlyrate times docketed hours”: para. 26.

18 At para. 27, he observed: A system which involves a rigid or almost rigid adherence to thedocketed hours and hourly rates will in my view tend towards ineffi-ciency and unfortunately an inflation in accounts. To my mind, theend test should be: What is this case (or element in the proceeding)worth?

19 This value based approach was also adopted by the court in Kresz,Re, 2007 MBQB 67, 213 Man. R. (2d) 186 (Man. Q.B.), where the courtreduced the fee, finding that it was too high in relation to the results ob-tained and could not be justified by the benefit to the estate and the credi-tors. The trustee’s fees in that case were reduced by 50%.

20 The authorities confirm that the work done by a trustee’s secretariesand clerical staff is part of her overhead and cannot be claimed as addi-tional remuneration: 256864 Sales Ltd., Re (1975), 20 C.B.R. (N.S.) 267(Ont. Bktcy.); Murkl, Re (1976), 23 C.B.R. (N.S.) 71 (Ont. S.C.).

Discussion21 Ms. Hooley, the trustee, filed a summary of hours claimed for the

persons working on the file. She identified the persons involved, de-scribed their work, and their hourly rates as follows:

(1) Leigh C. Taylor, trustee in bankruptcy, was licenced as atrustee in 1979. He is responsible for the overall adminis-tration of the estate, supervision of staff, initial interviews


with the bankrupt, determining the direction of the adminis-tration of the estate, and final reviews. Hourly rate: $350.

(2) Bonnie Hooley, trustee in bankruptcy, was licenced as atrustee in 1999. She has overall responsibility for estatesunder her control, statutory duties, and supervision of thetasks that are delegated. Hourly rate: $300.

(3) Jillian Taylor-Mancusi, trustee in bankruptcy, licenced as atrustee in 2007. She has overall responsibility for the es-tates under her control, statutory duties, and supervision ofthe tasks that are delegated. Hourly rate: $250.

(4) Karen Mearon has been involved in bankruptcy administra-tion since 1993. She is responsible for the general adminis-tration of bankruptcy files, counselling, various phases ofinitial assessments, creditors’ meetings, and administrationof bankruptcy estates and proposals. Hourly rate: $200.

(5) Sel Mancusi prepares income tax returns. Hourly rate:$100.

(6) Support staff and bankruptcy technicians are charged at va-rious rates depending upon their level of experience andtraining.

22 The minimal chargeable unit of time is .1 hour. The breakdown oftime charged to the file is as follows:

Bankruptcy technicians $ 7.50Tax $ 150.00Banking $ 1,404.00Support staff $ 498.00Bonnie Hooley $ 20,340.00Leigh Taylor $ 1,750.00Jillian Taylor-Mancusi $ 125.00Estate Managers 1 $ 740.00Estate Managers 2 $ 6,633.50

Total time charged $ 31,648.00

23 I accept the trustee’s submission that the failure of the bankrupt todisclose assets prolonged the matter and increased the costs. Fortunately,a major creditor was able to alert the trustee to assets that were not dis-closed. I also accept that time spent reviewing this matter with the


RCMP was an unfortunate but necessary cost. Nevertheless, there areitems charged to the estate that warrant comment.

Preparation for Court24 The trustees have billed a total of $8,350 for preparation for and at-

tendance at court.25 Ms. Hooley’s submission to the court about this item says, in part:

Preparation for court hearing includes statutory requirements as wellas practical requirements. Largest amount of time charged to this sec-tion. Time charged in this section includes:

• Correspondence with bankrupt before and after hearings

• Correspondence with creditors and OSB before and afterhearings

• Gathering information required for hearings

• Investigating information required for hearings

• Bankruptcy Act requirements for hearings

• Court requirements for hearings

26 All of Ms. Hooley’s 5 dockets marked “court preparation” are onehour in length. She docketed additional time for memos to the file, meet-ings with the bankrupt, telephone calls and correspondence to bankruptrelated to the court proceedings (both before and after court), correspon-dence to and from the Canada Revenue Agency or other solicitors, re-view and execution of a s. 82 report, preparation of affidavits for court,review and approval of court orders and related attendances. These areall separately docketed and are in addition to the court preparation timebilled. Thus, they are not encompassed in the catch-all of “courtpreparation.”

27 The uniformity of the time docketed for court preparation suggeststhat a flat rate was charged regardless of the time spent. As items referredto in support of her claim for court preparation appear to be separatelydocketed, I conclude that the claim for court preparation is a duplicationof service. The time allocated to court preparation, 4 hours × $300 perhour =$1,200, is therefore disallowed.

Attendance at Court and Travel28 The bankruptcy trustee, L.C. Taylor & Co. Ltd., is based in Winni-

peg. There are no resident trustees in the L.C. Taylor satellite office inKenora, Ontario, just support staff. Ms. Hooley advised that where ap-


pointments for other bankruptcy clients could be arranged in Kenora tocoincide with the court dates, the trustee claimed one hour to attend courtrather than 5 hours otherwise claimed, which includes travel.

29 Of the accounts tendered, Ms. Hooley charged four attendances atcourt with travel ($1,500 per trip) and two other attendances at court at$300 per hour. In addition, Mr. Taylor charged for one court attendance,which includes 5 hours for court preparation, travel and attendance atcourt. At an hourly rate of $350, his total claim is $1,750.

30 Ms. Hooley also uniformly docketed 5 hours for attendance at courtwhere she travelled from her office in Winnipeg to the court in Kenora,attended court, and returned. The travel time is charged at the same rateas the court appearance: $300 per hour. The uniformity of the docketingsuggests that a flat rate has also been applied to the time for attendance atcourt, regardless of the actual time spent. There is no indication whetherthe trustee appeared at court on other matters on the days for which timeis billed to this estate, as would often be the case. I take judicial notice ofthe fact that bankruptcy court at Kenora seldom lasts longer than onehour for all matters, generally with 5 — 6 cases and more than onetrustee.

31 I conclude that one-half hour should be allowed for the court attend-ance itself as the Kenora Bankruptcy Court docket usually involves sev-eral cases with more than one trustee.

32 In Mark Orkin,The Law of Costs,2nd ed. (Toronto: Canada LawBook), the authorstates that in solicitor and client assessments, solicitorswho travel on behalf of a client are not entitled to charge their full hourlyrate unless they can demonstrate that they worked on the client’s filewhile travelling. The full hourly rate is warranted when a solicitor’s pro-fessional skill and ability is engaged, which is not the case with travel.Solicitors’ rates for travel were typically reduced on assessment to be-tween one-third and two-thirds their full hourly rate: para.311.1 (5).

33 The same reasoning applies to the trustee’s travel, which, absentsome proof that the trustee was engaged in work on the bankrupt’s fileduring travel, should not be charged at the full hourly rate. In this case, Iallow travel at $100 per hour.

34 I conclude that 2 hours each way should be allowed for travel fromWinnipeg to Kenora when the trustee was not able to combine court at-tendances with other work: i.e. 4 hours per trip × $100 = $400. The trus-tee should make every effort to combine court appearances with otherclient work at the Kenora office in order to minimize costs to the estate.


35 Therefore, Ms. Hooley is allowed $550 for travel to and attendance atcourt × 4 trips or $2,200. Where travel to attend court was not charged,Ms. Hooley is allowed $150 to attend court × 2 = $300.

36 Mr. Taylor is allowed travel of 4 hours at $100 per hour plus one-halfhour in court at $175 for a total of $575. The total claim allowed fortravel and court attendances by both trustees is $3,075.

Meeting with Debtor Exceeding One Hour37 On September 20, 2006, the trustee docketed 4.5 hours for meeting

with the debtor and signing documents. The rate charged was $300 perhour for a total claim of $1,350. In her written submission, Ms. Hooleyexplained that the time allocated to this item included travelling fromWinnipeg to Kenora and return to meet with the client.

38 There is no indication that this meeting was scheduled on a day whenthe trustee was available to other clients so that travel could be appor-tioned among several files. There is no evidence that this first appoint-ment with the bankrupt was in any way urgent. It would be reasonablefor the trustee to book a batch of appointments at the satellite office onthe same day in order to maximize efficiency and minimize costs to theestate.

39 In my view, considering that a return trip between Winnipeg and Ke-nora will take 4 hours, a half-hour’s meeting with the client is more rea-sonable, billed at the trustee’s full rate. I therefore allow $150 for thetrustee’s initial meeting with the bankrupt. The claim for travel isdisallowed.

Charges Attributable to Overhead40 As the authorities indicate, charges for secretarial and clerical ser-

vices are part of the trustee’s overhead and not chargeable separately.The case law is to the same effect with solicitor’s billings. The solicitor’shourly rate is understood to pay for the wages of secretarial and clericalstaff, whose time cannot be separately billed. At para.311.12 in The Lawof Costs, someservices which constitute a solicitor’s overhead are listed:

• clerical work done by a law student or law clerk;

• word processing;

• filing court documents;

• the administrative portion of a solicitor’s time recorded for billing;the cost of secretarial work;


• opening and operating a trust account and making deposits afterhours on a client’ behalf.

41 There are instances in this account where the trustee has charged cler-ical work that should be part of overhead. For example,there is one entryof 0.5 hours to courier documents at a rate of $150 per hour. The trus-tee’s explanation of this entry states:

After a couple of adjourned hearings the bankrupt hired a solicitor torepresent him at his discharge hearing. The solicitor contacted us andrequested copies of a great deal of information in the file. The .5charged to “courier documents” was the time for an estate managerto pull a number of documents from the file, photocopy, prepare acover letter and courier the package to his solicitor.

42 In my view, this is a classic example of secretarial work beingcharged to the estate when it should have been treated as part of the trus-tee’s overhead. That is not to say that the trustee is not entitled to over-head. Overhead is a component of the trustee’s fee. It cannot be paid bycharging for services that everyone in the office might perform. The itemcharged as $75 to courier documents is disallowed.

43 Another example arises from the preparation and signing affidavits ofmailing, which are charged to the estate at $40 - $175 per hour for a totalclaim of $192.50. While the amount charged is not large, the function ofpreparing a standard affidavit of service and swearing it is not a skilledfunction that requires professional skill or training; rather, it is secretarialin nature and is part of the trustee’s overhead. The various entries forpreparation and signing of affidavits of mailing totalling $192.50 aredisallowed.

44 The trustee was asked to comment on charges for commissioningdocuments. She stated:

As per Rule 6 (3) of the Bankruptcy and Insolvency Act (BIA), everynotice or other document that the trustee gives or sends shall result inthe trustee preparing an affidavit which includes statutory declarationand solemn affirmation that the document was sent. Our office en-sured that the commission of the affidavits was delegated to staffwith the lowest billing rates. The total affidavits needed [sic] to becommissioned was 17. The total time charged commissioning 17 af-fidavits was $246.50.

45 This claim is an adjunct to the previous claim for preparation andsigning affidavits of mailing. Despite the trustee’s submission that thecommissioning of documents was delegated to staff with the lowest


hourly rates, a review of the dockets shows that hourly rates for commis-sioning documents varied widely from $40 to a high of $300, for totalfees of $246.50.

46 It is true that the cumulative claim for commissioning documents isnot very great. However, when viewed together with the simple secreta-rial function of swearing that a document was mailed, the collective costbegins to look like a profit centre for the trustee at the expense of theestate. In my view, these functions, generally, should be considered partof overhead. Accordingly, this claim is also disallowed.

Conclusion47 The trustee’s account is reduced by the following amounts:

1. preparation for court $ 1,200.002. attend court (including travel) $ 5,275.003. meet with client $ 1,200.004. courier documents $ 75.005. affidavits of mailing $ 192.506. commissioning documents $ 246.50

Total reduction $ 8,189.00

48 The trustee’s remuneration is allowed at $31,648.00 - $8,189.00 =$23,459 plus GST. The remaining disbursements are allowed as claimed.

Order accordingly.


[Indexed as: Miadovnik, Re]

In Bankruptcy and Insolvency

In the Matter of the Bankruptcy of Sheldon Miadovnik, of theCity of Toronto, in the Province of Ontario

Ontario Superior Court of Justice

Docket: Toronto 31-1200520

Reg. D.E. Short

Heard: March 20, 2013


Bankruptcy and insolvency –––– Property of bankrupt — Registered retire-ment savings plan –––– Debtor filed for bankruptcy — Trustee alleged debtorfailed to deliver full balance of funds in bank account at bankruptcy — Debtordeposited $15,000 into RRSP within 12 months of bankruptcy, withdrawn inthree monthly instalments of $5,000 — Debtor applied for discharge — Appli-cation granted, conditional on repayment of remaining balance of bank ac-count — Trustee in bankruptcy opposed application — Debtor conceded condi-tion appropriate with respect to payment of outstanding balance — Property thatwas no longer in RRSP was not considered considered property of the bankrupt,as only monies deposited in 12 month period and still in RRSP at date of bank-ruptcy lost protection granted to RRSPs.


Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3Generally — referred toPt. IV — referred tos. 67 — considereds. 67(1)(a) — considereds. 67(1)(b) — considereds. 67(1)(b.3) [en. 2005, c. 47, s. 57(1)] — considereds. 69.3 [en. 1992, c. 27, s. 36(1)] — considered

APPLICATION by debtor for discharge from bankruptcy.

Harold Brief for TrusteeRobert Klotz for Bankrupt

Miadovnik, Re Master D.E. Short 81

Master D.E. Short:

I. Contested Discharge: Section 172.11 Sheldon Miadovnik, (the “Bankrupt”), having filed for bankruptcy on

May 1, 2009, makes application for his discharge from bankruptcy pur-suant to the provisions of the Bankruptcy and Insolvency Act, R.S.C.1985, c. B-3 (“BIA”).

2 Originally his former spouse opposed his discharge, but that opposi-tion was withdrawn in April of 2011.

3 His trustee in bankruptcy however has continued its opposition to hisdischarge. At the hearing before me, that opposition was based on twofactors.

4 The first was that the bankrupt failed to deliver to the Trustee, the fullamount of $9,400, being the balance of funds in a TD Canada Trust bankaccount at the date of bankruptcy. A portion of that amount had beenrepaid prior to the hearing before me and there is no dispute from thebankrupt or his counsel that a condition with respect to the payment tothe trustee of the outstanding balance of those funds is appropriate at thistime.

5 The remaining dispute relates to the bankrupt’s Registered Retire-ment Savings Plan.

6 The bankrupt has the distinction of having two written decisions re-lating to his RRSP. Registrar Nettie addressed claims by the spouse to aportion of the RRSP in a decision made in 2011. I now come to address-ing the proper disposition of a portion of the funds still remaining in theBankrupt’s RRSP.

II. RRSP Treatment under BIA7 The trustee’s supplementary report sets out the grounds of his opposi-

tion in these terms: On the Bankrupt’s Statement of Affairs he disclosed contributing$15,000 to his RRSP within 12 months of the date of bankruptcy.

Contributions made to an RRSP within 12 months of filing an assign-ment are not exempt property pursuant to section 67 (1)(b.3) of theBankruptcy and Insolvency Act.


8 Part IV of the BIA deals with “Property of the Bankrupt”. The opera-tive provisions in section 67 that I am required to consider today (withmy emphasis) read as follows:

67. (1) The property of a bankrupt divisible among his creditorsshall not comprise

(a) property held by the bankrupt in trust for any other person;

(b) any property that as against the bankrupt is exempt from exe-cution or seizure under any laws applicable in the provincewithin which the property is situated and within which thebankrupt resides;

... or

(b.3) without restricting the generality of paragraph (b), property in aregistered retirement savings plan or a registered retirement in-come fund, as those expressions are defined in the Income Tax Act,or in any prescribed plan, other than property contributed to anysuch plan or fund in the 12 months before the date ofbankruptcy.

9 As noted above, the bankrupt filed for bankruptcy on May 1, 2009.His RRSP statements for the period ending May 31, 2009 reflected amarket value of $115,896.56 in the account. As described below, an Or-der was made in the family law proceeding freezing the account and, inthe interim, it would appear that the market value of the shares that werein the account has declined.

10 At the hearing before me the trustee was prepared to consent to anorder that, as of that date, the bankrupt could proceed to administer theremaining RRSP account but not withdraw any monies from it, pending afinal determination on the issue presently before me.

III. History of Withdrawals11 In his May, 2010 reasons in Re Miadovnik, 69 C.B.R. (5th) 31, 85

R.F.L. (6th) 182; 2010 CarswellOnt 3516, Registrar Nettie set out someof the history relating to this RRSP:

4 Both parties agree that the Bankrupt, prior to his assignment, hadbeen withdrawing cash from his RRSP, which asset is a significantpart of the Wife’s equalization claim against the Bankrupt in FamilyCourt. The Wife ascribes to those withdrawals a characterization ofwaste, excess and an attempt to deplete assets available to satisfy herequalization claim. The Bankrupt alleges that he has had to dip intothe RRSP to survive. While the Wife remains fully employed as aschool teacher, the Bankrupt works as a salesman in the automotive


industry, and indicates that his income has fallen dramatically in thelast couple of years.

5 The Wife learned, in April, 2009, from the disclosure mandated inthe Family Court, that the Bankrupt had been making significantwithdrawals in 2007 and 2008 from his RRSP. This prompted her, onApril 8, 2009, to appear through counsel before Perkins J, at New-market, for an emergency Order freezing the Bankrupt’s RRSP. TheOrder was granted, and the motion brought back on for argument, onnotice, before Rowsell J on April 22, 2009.

6 Both the Bankrupt and the Wife, and their respective counsel, ap-peared before Mr. Justice Rowsell who made an Order (the “RowsellOrder”) that: “The [Bankrupt] is restrained from depleting his RRSPassets including his RRSP account at [TD Waterhouse], pending fur-ther order of this Court.” [footnotes omitted throughout]

12 Subsequently, as a result of a settlement in the matrimonial case aportion of the bankrupt’s RRSP was “rolled over” to his spouse.

13 But now comes before me is the question of the appropriate treatmentof the $15,000 that was paid into the RRSP at the end of February 2009.This was just before the contribution deadline for the 2008 taxation year.

14 At first blush based up on the provisions of section 67 quoted abovethis would seem to be a simple determination as the language of the sec-tion seems to be clear.

15 Mr. Klotz on behalf of the bankrupt argues otherwise and raises diffi-cult issues having regard to the full factual picture in this case.

IV. The Attempted Annulment16 The substantive motion brought on the wife’s behalf before Registrar

Nettie was for either an annulment of the May 1, 2009 assignment inbankruptcy or in the alternative an order lifting the stay imposed by sec-tion 69.3 of the BIA.

17 Registrar Nettie’s reasons continue with a description of the eventsclosely following the April 22 hearing before Justice Rowsell:

7 In the endorsement of even date, His Honour indicates that theWife has the right to move summarily for judgment on the outstand-ing issues.

8 Two days later, on April 24, 2009, counsel for the Wife wrote tothe Bankrupt’s matrimonial counsel and advised that her client wouldbe proceeding summarily.


9 One week after that, on May 1, 2009, the Bankrupt made his as-signment in bankruptcy in favour of the Trustee. One of the effects ofthat assignment was to trigger the stay under s. 69.3 BIA.

10 Another effect of the assignment was to vest in the Trustee all ofthe Bankrupt’s interest in his assets, including his interest in theRRSP.

11 Of note in this regard is that both the Bankrupt’s Statement ofAffairs (“SOA”) and the Trustee’s s. 170 BIA report disclose theRRSP as being comprised of two components. That is to say thatthere is shown the amount of the RRSP which is exempt fromdivision amongst the creditors, and the amount of the RRSPwhich is not so exempt. This is as pursuant to s. 67(1) (b.3) BIA.The respective values ascribed to those two components of the RRSPare that $102,000.00 is claimed as exempt while $15,000.00 is indi-cated to not be exempt, as having been the amount of contribu-tions to the RRSP in the 12 months preceding the assignment inbankruptcy. [my emphasis]

18 Registrar Nettie went on to consider in detail whether or not he hadjurisdiction to address the claim for an annulment and concluded as fol-lows:

34 It should go without saying that the remaining ground, whetherthe assignment itself is an abuse of process by the Bankrupt is a con-sideration of process and by definition one of procedure.

35 For these reasons, I find that all of the considerations required tobe canvassed on a motion to annul under s. 181 BIA are ones of prac-tice and procedure in the Bankruptcy Court, and not ones of substan-tive rights. I find that a Registrar has originating jurisdiction to hearsuch a motion under s. 192(1) (k) BIA.

19 Having determined that he had jurisdiction Registrar Nettie thenturned his mind to the question of whether or not to grant an annulment.He opened his consideration with the following assessment of the evi-dence before him:

36 The test, from Wale, is set out above. On the facts, I find no evi-dence that the Bankrupt is not insolvent. He declared debts of$259,101.00 to four creditors, including the Wife. The Wife’s debt isonly 1/3 of his total debts. The Bankrupt’s evidence is that he has hadto encroach on his RRSP to make ends meet financially, and thatwhen he was faced with the Rowsell Order, effectively4 ending hisrecourse to this asset to pay his debts, he was hopelessly insolvent. Ifind that to be the case, and do not find him to have made the assign-ment, per se, for any fraudulent purposes. In coming to this conclu-


sion, while I have been guided by my finding that he was hopelesslyinsolvent (and that Wale does concur that assignment to defeat credi-tors is not necessarily invalid), I have also considered the timelineleading up to the assignment. That said, I still conclude that theBankrupt was simply overcome by his hopeless insolvency, andmade the assignment.

37 Certainly, the Bankruptcy Court would be hard pressed to criticizea hopeless insolvent for making an assignment, and turning over hisassets, and surplus income, to a trustee for proper division amongstcreditors in accordance with the scheme of the BIA. Far too manydebtors wait too long, only to find themselves later criticised by trust-ees, creditors and the Court for doing so. Continuing to trade wheninsolvent is a fact under s. 173 BIA precluding an absolute discharge.

20 For the purposes of these reasons, I have omitted portions of the anal-ysis made by my predecessor. However, because of certain apparentholding made by him in the course of coming to his conclusion that thebankruptcy ought not to be annulled, I have set out the followingparagraphs (my emphasis):

41 However, I am mindful that the Rowsell Order was made pursuantto the Family Law Act, R.S.O. 1990, c. F.3 (“FLA”) and the FamilyRules. Thus, I find myself agreeing with Mr. Klotz that Neustaedterand Ali are informative. Those cases indicate that a bankruptcy as-signment is not a disposition of a matrimonial property such as torequire spousal consent under our present FLA. If such an assign-ment is not a disposition for the purposes of the FLA, then I am hardpressed to conclude that it is a disposition (and by extension a deple-tion) for the purposes of an Order made under that Act and the rulesof the Family Court charged with interpreting and applying that Act.

42 In coming to this conclusion, I have also considered the issue inBlaxland as to whether or not the bankruptcy assignment causes theWife to be any worse off.

43 At first blush, it would appear that if a $117,000.00 RRSP is or-dered to be not depleted so that it stands available for the FamilyCourt to attach any equalization claim of the Wife’s to, then an actwhich effects a transfer of interest such that $15,000.00 becomesavailable for not only the Wife but the approximately$160,000.00 in other creditors as well, would cause the Wife to beworse off by approximately 2/3 of the $15,000.00.

44 That conclusion would be wrong. In fact, the Wife’s position isbettered by the assignment.


45 As the law in Ontario now stands, while the assignment underthe BIA operates to make $15,000.00 available to the unsecuredcreditors, it exempts $102,000.00 from those creditors. Withoutthe assignment, the RRSP could have been seized by any judgmentcreditor, and distributed under the provincial Executions Act, in itsentirety. The Bankrupt had been ordered not to deplete it. It had notbeen frozen, or ordered paid in to the credit of the proceedings. Sincecase law under s. 69.4 BIA allows for an Order lifting the stay, anddeclaring that the Wife’s claim against the exempt assets in the bank-ruptcy may continue, without regard to any subsequent discharge ofthe Bankrupt, in the circumstances, the Wife’s position is bettered asshe can claim against the exempt $102,000.00 portion of the RRSP,while the other creditors cannot.

21 Registrar Nettie, however, did determine to lift the stay that wouldotherwise impact upon the matrimonial matter and that ultimately led tothe resolution of the wife’s claim to part of the RRSP funds.

V. The Missing Withdrawal Evidence before Registrar Nettie22 Against this background I come to the evidence that was presented

before me. I am satisfied that evidence of the specific payment timinginformation with respect to the $15,000 contribution made regarding the2008 tax year at the end of February 2009 and the subsequent withdraw-als do not appear to have been presented before Registrar Nettie.

23 Clearly the highlighted comments in the extract from his reasons aredirected to the “usual” situation. I find the additional evidence makes thisrather, an unusual situation.

24 The evidence before me is clear that, that in the 12 months prior todeclaring bankruptcy the bankrupt had been taking out about $5000 permonth from his RRSP, as described by Registrar Nettie above, in para-graph 36 of his reasons.

25 The most common amount of withdrawal was $4476.38 together withapproximately 10% on account of required tax payable on the total with-drawal, which amounted to $497.37.

26 All those withdrawals were subject to taxation. Many of those with-drawals were subject to taxation as part of the filing of the 2008 incometax return. The key issue before me flows from the sum of $15,000 con-tributed on February 24, 2009.

27 By making that contribution the bankrupt was entitled to a $15,000credit on his income tax return for 2008. However on March 10, 2009 he


withdrew $4500 plus applicable tax. On both March 26 and April 2, heagain withdrew $4476.38, together with the applicable withholdingamounts being remitted to the taxing authorities.

28 As a consequence, prior to his May 1, 2009 filing for bankruptcy, MrMiadovnik contributed $15,000 to his RRSP and then withdrew approxi-mately $15,000, in three tranches, within the next month or so.

29 The Bankrupt’s counsel therefore argues that it is inappropriate forthe trustee to claim that $15,000 of the RRSP is available to the othercreditors as the money was not in the RRSP as at the date of bankruptcy.

30 A related problem that I have to face is whether or not the concept of“First In, First Out” or “Last In, First Out” is more appropriate in deter-mining how to address the flow of these funds.

31 Put another way, were the funds withdrawn shortly before the bank-ruptcy, to be treated as funds deposited outside the statutory twelvemonth period, or within it?

32 As well I am mindful that the trustee is seeking to recover $9800which was the amount apparently in the bankrupt bank account as of thedate of bankruptcy.

33 I have based my decision on a less complex theoretical example. As-sume a lump sum of $15,000 is put into a new RRSP and then $15,000 iswithdrawn from the RRSP the next week with the effect of postponingthe taxation of the sum of $15,000 for a further year. The $15000 re-mains in the individual’s bank account at the date he subsequently filesfor bankruptcy. Is it fair or appropriate that the sum of $15,000 ought tobe paid to the trustee over and above the cash that was in the bankaccount?

34 In my view, such a conclusion is clearly unfair. I do not feel con-strained by Registrar Nettie’s reasons wherein he referred to the $15,000funds being “available to the creditors”.

35 On my reading of his reasons I do not conclude that he has alreadydecided this issue as between these two parties. The right to the $15,000was not before him specifically and as a consequence I regard any appar-ent conclusions by him on this issue as obiter dicta.

VI. Conclusion36 In coming to my conclusion, I have considered the argument of Mr.

Klotz that the terms of subsection 67 (1) (b.3) ought to be interpreted asmeaning that the property of a bankrupt divisible among his creditors


should be interpreted as meaning property that was still in the bankrupt’spossession as of the date of bankruptcy and still in his RRSP.

37 In my view it makes no sense for property that is no longer in theRRSP to be considered “property of the bankrupt” and that the only rea-sonable interpretation of subsection (b.3) is that the phrase “property in aregistered retirement savings plan” must relate to property that still has tobe in that registered retirement savings plan so as to give meaning to theword “in”.

38 Is the phrase “other than property contributed to any such plan orfund in the 12 months prior to before the date of bankruptcy” sufficientto permit tracing of funds removed after they were deposited in the 12months prior to the date of bankruptcy after the funds have subsequentlybeen withdrawn?

39 Taking a somewhat easier case, assume $15,000 was put into a brand-new RRSP on February 28 and then withdrawn on March 7 so as to ob-tain a one-year deferral on the taxation on $15,000 of otherwise taxableincome. If the bankrupt were then to file for bankruptcy on May 1, whenhe had an “empty” RRSP, would the monies that were no longer in theRRSP still constitute “property in a registered savings plan”?

40 Is the protection granted to older contributions to an RRSP only to beextended to any monies still in the RRSP?

41 I conclude that only monies deposited in the twelve month period andstill in it at the date of bankruptcy lose the protection granted generally toRRSPs.

42 Considering the policy reasons for this protection as discussed byRegistrar Nettie provide a receipt useful reflection. It seems to me thatwe want to encourage people to put money into savings accounts fortheir retirement. To the extent the provincial legislation protects suchmonies, creditors ought to be taken as recognizing that RRSP funds willbe perhaps inaccessible in the event of a default on other loans.

43 Conversely, we ought not to allow a debtor who is about to go intobankruptcy to use up large amounts of RRSP eligibility in order to de-prive creditors of assets that would otherwise be available to satisfy theirclaims rather than allowing those funds to be protected within the RRSPring-fence.

44 Moreover, it seems unfair in the above scenario for the bankrupt to beliable for the $15,000 removed prior to bankruptcy and, as well, as ar-


gued by the trustee in this case, for the monies held outside the RRSP ina bank account.

45 If the bankrupt had simply removed the money from the RRSP andput it in his bank account, the result of the trustee’s position before mewould be that the Bankrupt would be required to make a payment of$30,000 which surely is not the intent of this provision of the BIA.

46 Once again examining the applicable BIA provision I conclude thatthe section establishes a precondition of an availability of recent RRSPcontributions. That is that the funds still be in the registered plan. Myreading of the intent of the provision is thus:

The property of a bankrupt divisible among his creditors shall notcomprise

(b.3) without restricting the generality of paragraph (b),property in a registered retirement savings plan or aregistered retirement income fund, as those expressionsare defined in the Income Tax Act, or in any prescribedplan, other than property [still in the plan] contributedto any such plan or fund in the 12 months before the dateof bankruptcy,

47 However, this does not resolve all the issues before me. Were thefunds withdrawn “old” or “new” money?

48 No cases were cited to be on the appropriate resolution of this issue.49 Given the history of withdrawals and the obvious tax planning ele-

ment involved, it is my view that LIFO should apply and the funds re-moved, thus be regarded as withdrawals of the most recent contributions.

50 Otherwise, I was tempted to reflect the proportion of the total RRSPfunds on deposit that the $15,000 constituted and to then require thatportion to be paid to the trustee. Upon reflection, even that alternative,did not seem to be justified in this case.

VII. Disposition51 In accordance with his consent, the bankrupt is granted a discharge

from bankruptcy, conditional upon the balance of the $9,400 sum, stilloutstanding being paid to the trustee.

52 Upon that payment being made, the Trustee shall release and returncontrol of the RRSP account to Mr. Miadovnik.


VIII. Costs.53 This is a case where the issue appears not to have been addressed in

earlier cases involving other parties. Here the comments in the decisionof Registrar Nettie with respect to this specific RRSP would almost re-quire the trustee to assert the argument made before me.

54 My determination on the source of the funds withdrawn gives a bene-fit to the bankrupt on what I regarded as a “close call”. Given that find-ing, and the apparent novelty of this issue, I make no order as to costs.


Bus. Develop. Bank of Can. v. Pine Tree Resort 91

[Indexed as: Business Development Bank of Canada v. PineTree Resorts Inc.]

Business Development Bank of Canada Applicant (Respondent)and Pine Tree Resorts Inc. and 1212360 Ontario Limited

Respondents (Appellants)

Ontario Court of Appeal [In Chambers]

Docket: CA M42401, M42383, M42395 (C56856)

2013 ONCA 282

R.A. Blair J.A., In Chambers

Heard: April 22, 2013

Judgment: April 29, 2013

Bankruptcy and insolvency –––– Practice and procedure in courts — Ap-peals — To Court of Appeal — Availability — Leave by judge –––– Respon-dent P Inc. owned and operated hotel — Business development bank (applicant)was owed approx. $2.6 million by P Inc., and held first security for that indebt-edness by way of mortgage on hotel lands and general security agreements overland and chattels — Second mortgage was also in default, and second mortgageewas owed approx. $4.2 million — Applicant brought successful application forappointment of receiver over assets of respondents — P Inc. and second mortga-gee brought motion for leave, if required, to appeal — Motion dismissed —There was no automatic right to appeal from order appointing receiver, andleave was required — Neither s. 193(a) nor (c) of Bankruptcy and InsolvencyAct applied in circumstances — This was not appropriate case in which to grantleave — P Inc. and second mortgagee raised number of grounds relating to exer-cise of application judge’s discretion which were entitled to deference and werepurely factual and case specific and not of general significance — There wereserious reservations about likelihood of success on appeal with respect to legalissue raised — Success on appeal would require creative interpretation of s. 22of Mortgages Act, one that would potentially create element of uncertainty infield of mortgage enforcement — Serious reservations about merits, togetherwith need for timely sale process, led to conclusion that leave ought not begranted — As such, receivership order was not to be stayed.

Cases considered by R.A. Blair J.A., In Chambers:

Alternative Fuel Systems Inc. v. Edo (Canada) Ltd. (Trustee of) (1997), 48C.B.R. (3d) 171, (sub nom. Edo (Canada) Ltd. (Bankrupt), Re) 206 A.R.295, 1997 CarswellAlta 737, (sub nom. Edo (Canada) Ltd. (Bankrupt), Re)


156 W.A.C. 295, [1997] A.J. No. 869 (Alta. C.A. [In Chambers]) — re-ferred to

Baker, Re (1995), 1995 CarswellOnt 58, 31 C.B.R. (3d) 184, (sub nom. Baker(Bankrupt), Re) 83 O.A.C. 351, 22 O.R. (3d) 376 (Ont. C.A. [In Cham-bers]) — considered

Blue Range Resource Corp., Re (1999), 244 A.R. 103, 209 W.A.C. 103, 1999CarswellAlta 809, 12 C.B.R. (4th) 186, 1999 ABCA 255, [1999] A.J. No.975 (Alta. C.A.) — referred to

Country Style Food Services Inc., Re (2002), 158 O.A.C. 30, 2002 CarswellOnt1038, [2002] O.J. No. 1377 (Ont. C.A. [In Chambers]) — referred to

Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), [1938] O.W.N. 241, 1938CarswellOnt 74, 19 C.B.R. 240, [1938] 3 D.L.R. 751 (Ont. C.A.) — re-ferred to

Dominion Foundry Co., Re (1965), 1965 CarswellMan 7, 8 C.B.R. (N.S.) 74, 51W.W.R. 679, 52 D.L.R. (2d) 79, [1965] M.J. No. 49 (Man. C.A.) —considered

Fiber Connections Inc. v. SVCM Capital Ltd. (2005), 2005 CarswellOnt 1834,10 C.B.R. (5th) 201, 198 O.A.C. 27, [2005] O.J. No. 1845 (Ont. C.A. [InChambers]) — considered

GMAC Commercial Credit Corp. - Canada v. TCT Logistics Inc. (2003), 2003CarswellOnt 6652, [2003] O.J. No. 5761 (Ont. C.A. [In Chambers]) —considered

Leard, Re (1994), 25 C.B.R. (3d) 210, 114 D.L.R. (4th) 135, (sub nom. Leard(Bankrupt), Re) 71 O.A.C. 56, 1994 CarswellOnt 274 (Ont. C.A.) — re-ferred to

Power Consolidated (China) Pulp Inc. v. British Columbia ResourcesInvestment Corp. (1988), 19 C.P.C. (3d) 396, 1988 CarswellBC 615, [1988]B.C.J. No. 1403 (B.C. C.A.) — followed

R.J. Nicol Homes Ltd. (Trustee of) v. Nicol (1995), 30 C.B.R. (3d) 90, 77 O.A.C.395, 1995 CarswellOnt 42, [1995] O.J. No. 48 (Ont. C.A.) — followed

Ravelston Corp., Re (2005), 24 C.B.R. (5th) 256, 2005 CarswellOnt 9058,[2005] O.J. No. 5351 (Ont. C.A.) — referred to

Theodore Daniels Ltd. v. Income Trust Co. (1982), 135 D.L.R. (3d) 76, 25R.P.R. 97, 1982 CarswellOnt 659, 37 O.R. (2d) 316 (Ont. C.A.) — referredto


Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3Generally — referred tos. 193 — considereds. 193(a) — considereds. 193(c) — considereds. 193(e) — considered

Bus. Develop. Bank of Can. v. Pine Tree Resort 93

Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36Generally — referred to

Mortgages Act, R.S.O. 1990, c. M.40s. 22 — considereds. 22(1) — considered

Words and phrases considered:

future rights

The portions of s. 193 of the BIA [Bankruptcy and Insolvency Act, R.S.C. 1985,c. B-3] relied upon by [the second mortgagee and one of the respondents] are thefollowing:

Unless otherwise expressly provided, an appeal lies to the Court ofAppeal from any order or decision of a judge of the court in the fol-lowing cases:

(a) if the point at issue involves future rights;

. . .

(c) if the property involved in the appeal exceeds in valueten thousand dollars;

. . .

(e) in any other case by leave of a judge of the Court ofAppeal.

. . . . .

“Future rights” are future legal rights, not procedural rights or commercial ad-vantages or disadvantages that may accrue from the order challenged on appeal.They do not include rights that presently exist but that may be exercised in thefuture: see Ravelston Corp., Re, [2005] O.J. No. 5351 (Ont. C.A.), at para. 17.See also Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), 19 C.B.R. 240(Ont. C.A.); Dominion Foundry Co., Re (1965), 52 D.L.R. (2d) 79 (Man. C.A.);and Fiber Connections Inc. v. SVCM Capital Ltd. (2005), 10 C.B.R. (5th) 201(Ont. C.A. [In Chambers]).

MOTION for leave to appeal from granting of receivership order.

Milton A. Davis for Appellants, Pine Tree Resorts Inc., 1212360 OntarioLimited

David Preger for Appellant, Romspen Investment CorporationHarvey Chaiton for Respondent, Business Development Bank of Canada


R.A. Blair J.A., In Chambers:

Overview1 On April 2, 2013, Justice Mesbur granted the application of Business

Development Bank of Canada (“BDC”) for the appointment of a receiverover the assets of the respondents, Pine Tree Resorts Inc. and 1212360Ontario Limited (together, “Pine Tree”). Pine Tree owns and operates theDelawana Inn in Honey Harbour, Ontario.

2 Pine Tree and the second mortgagee, Romspen Investment Corpora-tion (“Romspen”), seek to appeal from Mesbur J.’s order. At the heart ofthis motion is whether the order should be stayed pending the appeal ifthere is an appeal. Collateral issues include whether the appeal is as ofright under s. 193 of the Bankruptcy Act, R.S.C. 1985, c. B-3 (“BIA”). Ifthe answer to that question is yes, should the automatic stay be lifted? Ifleave to appeal is required, should it be granted and, if so, should theorder be stayed pending the disposition of the appeal?

3 For the reasons that follow, I conclude that the appeal is not as ofright, that leave to appeal is required and that in the circumstances hereleave ought not to be granted. It is therefore unnecessary to deal with thespecific question of whether a stay should be ordered pending appeal.

Background and Facts4 BDC is owed approximately $2.6 million by Pine Tree and holds first

security for that indebtedness by way of a mortgage on the Delawana Innlands and, additionally, by way of general security agreements coveringboth land and chattels. Romspen is the second mortgagee. Its mortgage,too, is in default. Romspen is owed approximately $4.3 million.

5 The Inn has been in financial difficulties for several years and finally,after a number of negotiated extensions and forbearances, BDC de-manded payment under both the mortgage and the general securityagreements.

6 Under its security documents, BDC is contractually entitled to the ap-pointment of a receiver. Instead of appointing a private receiver, how-ever, BDC chose to apply for a court-appointed receiver. Romspen choseto initiate power of sale proceedings but, at the time the order was made,was not in a position to proceed with the sale because three days re-mained under the period prescribed in the Notice of Power of Sale forredemption.

Bus. Develop. Bank of Can. v. Pine Tree Resort R.A. Blair J.A., In Chambers 95

7 Pine Tree and Romspen opposed BDC’s application. That said, allparties agree the property must be sold immediately. Pine Tree does nothave the financial ability to keep the Inn operating. In essence, the dis-pute is over which secured creditor will have control over the sale of theproperty and which plan for sale will be implemented.

8 Pine Tree supports Romspen’s plan because it involves re-openingthe Inn for the upcoming summer season and attempting to sell the pro-perty on a going concern basis. BDC rejects this option as unrealisticbecause it views the Inn’s operations as being an irretrievably losingproposition.

9 Romspen argued before the application judge — and argues here aswell — that it was entitled to exercise its rights as a subsequent mortga-gee under s. 22 of the Mortgages Act, R.S.O. 1990, c. M.40, to putBDC’s mortgage in good standing and take over the sale of the property.It proposes to put the mortgage in good standing by paying all arrears ofprincipal and interest, together with all of BDC’s costs, expenses, andoutstanding realty taxes. However, it does not propose to repay approxi-mately $250,000 in HST arrears. Those arrears constitute a default underthe BDC security documents.

10 In seeking to appeal the order, Romspen and Pine Tree assert a num-ber of grounds relating to the exercise of the application judge’s discre-tion in granting the receivership order, but the centre piece of their legalargument on appeal concerns the exercise of a subsequent mortgagee’srights under s. 22 of the Mortgages Act. They submit that the arrears ofHST do not jeopardize BDC’s security in any way because they are asubsequent encumbrance, and therefore it is not necessary for them tocomply with that covenant in order to be able to take advantage of asubsequent mortgagee’s rights under s. 22. Whether that view is correctis the question of law they wish to have determined on appeal.

11 On behalf of BDC, Mr. Chaiton submits that there is nothing in s. 22that permits a subsequent mortgagee to exercise its s. 22 rights unless itbrings the prior mortgage into good standing, which involves both pay-ing the amount due under the mortgage and — where there are unper-formed covenants — performing those covenants as well.

Is Leave to Appeal Necessary?12 In my view, there is no automatic right to appeal from an order ap-

pointing a receiver: see Century Services Inc. v. Brooklin Concrete Prod-ucts Inc. (11 March 2005), Court File No. M32275 (Ont. C.A., in Cham-


bers), Catzman J.A.; Alternative Fuel Systems Inc. v. Edo (Canada) Ltd.(Trustee of) (1997), 206 A.R. 295 (Alta. C.A. [In Chambers]).

13 The portions of s. 193 of the BIA relied upon by Romspen and PineTree are the following:

Unless otherwise expressly provided, an appeal lies to the Court ofAppeal from any order or decision of a judge of the court in the fol-lowing cases:

(a) if the point at issue involves future rights;

. . .

(c) if the property involved in the appeal exceeds in valueten thousand dollars;

. . .

(e) in any other case by leave of a judge of the Court ofAppeal.

14 Neither (a) nor (c) applies in these circumstances, in my view. I willaddress whether leave to appeal should be granted later in these reasons.

15 “Future rights” are future legal rights, not procedural rights or com-mercial advantages or disadvantages that may accrue from the orderchallenged on appeal. They do not include rights that presently exist butthat may be exercised in the future: see Ravelston Corp., Re, [2005] O.J.No. 5351 (Ont. C.A.), at para. 17. See also Ditchburn Boats & Aircraft(1936) Ltd., Re (1938), 19 C.B.R. 240 (Ont. C.A.); Dominion FoundryCo., Re (1965), 52 D.L.R. (2d) 79 (Man. C.A.); and Fiber ConnectionsInc. v. SVCM Capital Ltd. (2005), 10 C.B.R. (5th) 201 (Ont. C.A. [InChambers]).

16 Here, Romspen’s legal rights are its right to exercise its power of saleremedy and its right to put the first mortgage in good standing under s.22 of the Mortgages Act. The first crystallized on the default under theRomspen mortgage, the second on the default under the BDC mortgage.Both rights were therefore triggered before the order of Mesbur J. Theywere at best rights presently existing but exercisable in the future.

17 Nor do I accept the argument that the property in the appeal exceedsin value $10,000 for purposes of s. 193(c). As noted by the ManitobaCourt of Appeal in Dominion Foundry Co., Re, at para. 7, to allow anappeal as of right in these circumstances would require doing so in al-most every case because very few bankruptcy cases would go to appealwhere the value of the bankrupt’s property did not exceed that amount.More importantly, though, an order appointing a receiver does not bring


into play the value of the property; it simply appoints an officer of thecourt to preserve and monetize those assets, subject to court approval.

18 In my view, leave to appeal is required in the circumstances of thiscase.

Should Leave to Appeal Be Granted?

The Test19 In Fiber Connections Inc., Armstrong J.A. (in Chambers) reviewed

extensively the jurisprudence surrounding the test to be applied for grant-ing leave to appeal under s. 193(e). As he noted at para. 15, there is someconfusion as to what that test is. Two articulations of the test haveemerged, and each has its support in the case law.

20 One formulation is that set out by McLachlin J.A. (as she then was) inPower Consolidated (China) Pulp Inc. v. British Columbia ResourcesInvestment Corp. (1988), 19 C.P.C. (3d) 396 (B.C. C.A.). It asks the fol-lowing questions:

(i) Is the point appealed of significance to the practice as awhole?

(ii) Is the point raised of significance in the action itself?

(iii) Is the appeal prima facie meritorious?

(iv) Will the appeal unduly hinder the progress of the action?21 These are the criteria generally applied when considering whether to

grant leave to appeal from orders made in restructuring proceedingsunder the Companies’ Creditors Arrangement Act R.S.C. 1985, c. C-36(“CCAA”), although their application has not been confined to thosetypes of cases.

22 A second approach to the test was adopted by Goodman J.A. in R.J.Nicol Homes Ltd. (Trustee of) v. Nicol, [1995] O.J. No. 48 (Ont. C.A.), atpara. 6. Through this lens, the court is to determine whether the decisionfrom which leave to appeal is sought (a) appears to be contrary to law;(b) amounts to an abuse of judicial power; or (c) involves an obviouserror, causing prejudice for which there is no remedy.

23 Ontario decisions have traditionally leaned toward the R.J. Nicol fac-tors when determining whether to grant leave to appeal under s. 193(e) ofthe BIA: see, in addition to R.J. Nicol Homes Ltd. (Trustee of), forexample, Leard, Re (1994), 114 D.L.R. (4th) 135 (Ont. C.A.); and Cen-tury Services Inc.


24 This view has evolved in recent years, however, and three decisionsin particular have added nuances to the R.J. Nicol Homes Ltd. (Trusteeof) approach by considering such factors as whether there is an arguablecase for appeal and whether the issues sought to be raised are significantto the bankruptcy practice in general and ought to be addressed by thisCourt: see Fiber Connections Inc., at paras. 16-20; GMAC CommercialCredit Corp. - Canada v. TCT Logistics Inc., [2003] O.J. No. 5761 (Ont.C.A. [In Chambers]); and Baker, Re (1995), 22 O.R. (3d) 376 (Ont. C.A.[In Chambers]). These factors echo the criteria set out in PowerConsolidated (China) Pulp Inc..

25 In Baker, Re, Osborne J.A. acknowledged the two alternative ap-proaches to determining whether leave to appeal should be granted. Heconcluded at p. 381 that the R.J. Nicol Homes Ltd. (Trustee of) criteriawere “generally relevant” but observed that all factors need not be givenequal weight in every case. For that particular case, he emphasized thefactor that the issue sought to be appealed was “a matter of considerablegeneral importance in bankruptcy practice”. In TCT Logistics Inc., atpara. 9, Feldman J.A. listed all of the R.J. Nicol Homes Ltd. (Trustee of)and the Power Consolidated (China) Pulp Inc. criteria — without appar-ently distinguishing between them — as matters to be taken into account.She granted leave holding that the issues in that case were significant tothe commercial practice regulating bankruptcy and receivership andought to be considered by this court.

26 Finally, in Fiber Connections Inc., Armstrong J.A. reviewed all of theforegoing authorities and, at para. 20, granted leave to appeal because hewas satisfied in that case that there were arguable grounds of appeal (al-though it was not necessary for him to determine whether the appealwould succeed) and because the issues raised were significant to bank-ruptcy practice and ought to be considered by this Court.

27 I take from this brief review of the jurisprudence that, while judges ofthis Court have tended to favour the R.J. Nicol Homes Ltd. (Trustee of)test in the past, there has been a movement towards a more expansiveand flexible approach more recently — one that incorporates the PowerConsolidated (China) Pulp Inc. notions of overall importance to thepractice area in question or the administration of justice as well as someconsideration of the merits.

28 That being the case, it is perhaps time to attempt to clarify the “confu-sion” that arises from the co-existence of the two streams of criteria inthe jurisprudence. I would adopt the following approach.


29 Beginning with the overriding proposition that the exercise of grant-ing leave to appeal under s. 193(e) is discretionary and must be exercisedin a flexible and contextual way, the following are the prevailing consid-erations in my view. The court will look to whether the proposed appeal,

a) raises an issue that is of general importance to the practice inbankruptcy/insolvency matters or to the administration of justiceas a whole, and is one that this Court should therefore considerand address;

b) is prima facie meritorious, and

c) would unduly hinder the progress of the bankruptcy/insolvencyproceedings.

30 It is apparent these considerations bear close resemblance to thePower Consolidated (China) Pulp Inc. factors. One is missing: the ques-tion whether the point raised is of significance to the action itself. Iwould not rule out the application of that consideration altogether. It maybe, for example, that in some circumstances the parties will need to havean issue determined on appeal as a step toward dealing with other aspectsof the bankruptcy/insolvency proceeding. However, it seems to me thatthis particular consideration is likely to be of lesser assistance in theleave to appeal context because most proposed appeals to this Court raiseissues that are important to the action itself, or at least to one of the par-ties in the action, and if that consideration were to prevail there would bean appeal in almost every case.

31 I have not referred specifically to the three R.J. Nicol Homes Ltd.(Trustee of) criteria in the factors mentioned above. That is because thosefactors are caught by the “prima facie meritorious” criterion in one wayor another. A proposed appeal in which the judgment or order under at-tack (a) appears to be contrary to law, (b) amounts to an abuse of judicialpower, or (c) involves an obvious error causing prejudice for which thereis no remedy, will be a proposed appeal that is prima facie meritorious. Irecognize that the Power Consolidated (China) Pulp Inc. “prima faciemeritorious” criterion is different than the “arguable point” notion re-ferred to by Osborne J.A. in Baker, Re and by Armstrong J.A. in FiberConnections Inc.. In my view, however, the somewhat higher standard ofa prima facie meritorious case on appeal is more in keeping with theincorporation of the R.J. Nicol Homes Ltd. (Trustee of) factors into thetest.


32 As I have explained above, however, the jurisprudence has evolved toa point where the test for leave to appeal is not simply merit-based. Itrequires a consideration of all of the factors outlined above.

33 The Power Consolidated (China) Pulp Inc. criteria are the criteria ap-plied by this Court in determining whether leave to appeal should begranted in restructuring cases under the CCAA: see Country Style FoodServices Inc., Re, [2002] O.J. No. 1377 (Ont. C.A. [In Chambers]), Feld-man J.A., at para 15; and Blue Range Resource Corp., Re (1999), 244A.R. 103 (Alta. C.A.). The criteria I propose are quite similar. There issomething to be said for having similar tests for leave to appeal in bothCCAA and BIA insolvency proceedings. Proposed appeals in each areaoften arise from discretionary decisions made by judges attuned to theparticular dynamics of the proceeding. Those decisions are entitled toconsiderable deference. In addition, both types of appeal often involvecircumstances where delays inherent in appellate review can have an ad-verse effect on those proceedings.

Application of the Test in the Circumstances34 I am not prepared to grant leave to appeal on the basis of the forego-

ing criteria in the circumstances of this case.35 First, Romspen and Pine Tree raise a number of grounds relating to

the exercise of the application judge’s discretion. These include her con-sideration and treatment of: the relative expenses involved in BDC’s andRomspen’s plans for the sale of the property; the impact of shuttingdown the Inn on employees and others and upon the potential sale pros-pects of the property; and her concern for “the usual unsecured credi-tors”. These discretionary considerations are all entitled to great defer-ence and, in any event, are purely factual and case specific, and do notgive rise to any matters of general significance to the practice in bank-ruptcy/insolvency matters or to the administration of justice as a whole.

36 I would not grant leave to appeal on those grounds.37 The legal issue raised by Romspen is this: did the application judge

err by relying on a covenant default that could not prejudice BDC orerode its firstranking security as the basis for her conclusion that Rom-spen had not complied with the requirements for the exercise of a subse-quent mortgagee’s rights under s. 22 of the Mortgages Act? The basis forthat submission is the argument that the outstanding HST arrears — al-though a default in the observance of a covenant under the BDC mort-gage — could not in any circumstances constitute a claim that would


have priority over BDC’s security, and therefore Romspen, as a subse-quent mortgagee, is not required to cure the default by performing thatcovenant in order to be able to exercise its s. 22 rights.

38 I have serious reservations about the likelihood of success of this sub-mission on appeal.

39 Romspen relies upon the jurisprudence of this Court establishing thata mortgagor — and therefore, a subsequent mortgagee — is entitled as ofright, upon tendering the arrears or performing the covenant in default, tobe relieved of the consequence of default: see Theodore Daniels Ltd. v.Income Trust Co. (1982), 37 O.R. (2d) 316 (Ont. C.A.). The problem isthat Romspen has not offered to put the BDC mortgage in good standing,but has only offered to do so partially. It proposes to leave unperformed a$250,000 covenant — payment of the outstanding HST arrears.

40 For Romspen to succeed on appeal would require a very creative in-terpretation of s. 22 of the Mortgages Act1, and one that would poten-tially create an undesirable element of uncertainty in the field of mort-gage enforcement, because no one would know which covenants couldbe left unperformed and which could not, without litigating the issue ineach case.

1Section 22(1) provides:

Despite any agreement to the contrary, where default has occurred inmaking any payment of principal or interest due under a mortgage orin the observance of any covenant in a mortgage and under the termsof the mortgage, by reason of such default, the whole principal andinterest secured thereby has become due and payable,

(a) at any time before sale under the mortgage: or

(b) before the commencement of an action for the enforcement ofthe rights of the mortgagee or of any person claiming throughor under the mortgagee,

the mortgagor may perform such covenant or pay the amount dueunder the mortgage, exclusive of the money not payable by reasonmerely of lapse of time, and pay any expenses necessarily incurredby the mortgagee, and thereupon the mortgagor is relieved from theconsequences of such default.

[Emphasis added]

It is not disputed that a subsequent mortgagee is a “mortgagor” for purposes ofthis provision.


41 I am not persuaded that the s. 22 point crosses the prima facie merito-rious threshold. In any event, given my serious reservations about themerits, that factor together with the need for a timely sale process leadsme to conclude that leave to appeal ought not to be granted.

42 Interfering with the timeliness of that process could potentially im-pact on the success of the sale. All parties agree the property must besold. They only differ over who will conduct the sale and how it will bedone. The application judge considered the alternative plans at length,and her decision to accept the BDC plan was not dependent on her rejec-tion of Romspen’s s. 22 argument.

43 There is some need for the sale to proceed expeditiously. The exper-ienced application judge chose between BDC’s and Romspen’s two pro-posals and favoured that of BDC. Any further delay resulting from anappeal could well impact the potential sale, since the Inn is a seasonalbusiness that only operates in the warm months of the year and thosewarm months are fast approaching.

44 For the foregoing reasons, I decline to grant leave to appeal.

Disposition45 There is no appeal as of right from the receivership order granted by

Mesbur J. under s. 193 of the BIA. Leave to appeal is required, but Rom-spen and Pine Tree have not met the test for leave to be granted in thesecircumstances. The motions of Romspen and Pine Tree are therefore dis-missed. It follows that the receivership order is not stayed and thatBDC’s motion, to the extent it is necessary to deal with it, is successful.

46 No order as to costs is required, since I am advised that BDC is enti-tled to add the costs of this proceeding to its debt under the mortgage.

Motion dismissed.

R. v. Drader 103

[Indexed as: R. v. Drader]

Her Majesty the Queen Respondent and Adam Neil Drader,Andrew Martinus Drader and Robert Archie Cormier

Applicants/Accused

Alberta Court of Queen’s Bench

Docket: Edmonton 110234887Q2

2012 ABQB 469

Eric F. Macklin J.

Heard: July 16, 2012

Judgment: July 19, 2012*

Criminal law –––– Charter of Rights and Freedoms — Unreasonable searchand seizure [s. 8] — Reasonable expectation of privacy –––– Accused chargedwith, inter alia, fraud — Accused C was arrested and detained at remand facil-ity — Facility communications area contained signage, pursuant to s. 14.4 ofCorrections Act, advising inmates that telephone conversations would be moni-tored and recorded — Certain private communications of C were recorded, andaccused brought application for order excluding impugned communications ashaving been obtained in violation of C’s right to be secure against unreasonablesearch or seizure — Application was dismissed — Supreme Court of Canadasubsequently released judgment in R. v. Tse, declaring specific interception au-thorization provision, s. 184.4 of Criminal Code, unconstitutional and of noforce or effect — Accused brought application for reconsideration of judgmentupon application, relying upon judgment in Tse — Reconsideration refused —Judgment in Tse could be properly distinguished, as in that case parties to inter-cepted communication had much higher expectation of privacy — Inmates ofremand centre, particularly given express signage to this effect, had very limitedexpectation of privacy, s. 14.4 Corrections Act and Regulations made thereunderwere not unconstitutional and reconsideration was accordingly properly refused.

Cases considered by Eric F. Macklin J.:

Canada (Director of Investigation & Research, Combines Investigation Branch)v. Southam Inc. (1984), (sub nom. Hunter v. Southam Inc.) 11 D.L.R. (4th)641, 33 Alta. L.R. (2d) 193, (sub nom. Hunter v. Southam Inc.) 55 A.R. 291,27 B.L.R. 297, 41 C.R. (3d) 97, 84 D.T.C. 6467, (sub nom. Hunter v.

*A corrigendum issued by the court on September 4, 2012 has been incorporatedherein.


Southam Inc.) 14 C.C.C. (3d) 97, (sub nom. Director of Investigations &Research Combines Investigation Branch v. Southam Inc.) [1984] 6 W.W.R.577, 1984 CarswellAlta 121, 1984 CarswellAlta 415, (sub nom. Hunter v.Southam Inc.) [1984] 2 S.C.R. 145, (sub nom. Hunter v. Southam Inc.) 55N.R. 241, (sub nom. Hunter v. Southam Inc.) 2 C.P.R. (3d) 1, (sub nom.Hunter v. Southam Inc.) 9 C.R.R. 355, 48 N.R. 320, [1984] S.C.J. No. 36(S.C.C.) — considered

R. v. Oakes (1986), [1986] 1 S.C.R. 103, 26 D.L.R. (4th) 200, 65 N.R. 87, 14O.A.C. 335, 24 C.C.C. (3d) 321, 50 C.R. (3d) 1, 19 C.R.R. 308, 53 O.R. (2d)719, 1986 CarswellOnt 95, 1986 CarswellOnt 1001, [1986] S.C.J. No. 7,EYB 1986-67556 (S.C.C.) — followed

R. v. Tse (2012), 91 C.R. (6th) 223, 280 C.C.C. (3d) 423, 2012 SCC 16, 2012CarswellBC 985, 2012 CarswellBC 986, 429 N.R. 109, 344 D.L.R. (4th)599, [2012] S.C.J. No. 16 (S.C.C.) — followed


Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982,being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11

Generally — referred tos. 8 — considered

Corrections Act, R.S.A. 2000, c. C-29s. 14.4 [en. 2003, c. 17, s. 4] — considereds. 14.4(2) [en. 2003, c. 17, s. 4] — considered

Criminal Code, R.S.C. 1985, c. C-46Pt. VI — referred tos. 183 “private communication” — referred tos. 184.4 [en. 1993, c. 40, s. 4] — considered

Regulations considered:

Corrections Act, R.S.A. 2000, c. C-29Correctional Institution Regulation, Alta. Reg. 205/2001

Generally — referred tos. 31 — considereds. 31(3) — considereds. 31.2(2) [en. Alta. Reg. 61/2010] — considereds. 31.5 [en. Alta. Reg. 61/2010] — considered

APPLICATION by accused for reconsideration of judgment reported at R. v.Drader (2012), 90 C.B.R. (5th) 171, 2012 CarswellAlta 431, 2012 ABQB 168,62 Alta. L.R. (5th) 1 (Alta. Q.B.), dismissing accused’s application for orderexcluding intercepted private communication evidence as having been obtainedin violation of accused’s right be secure against unreasonable search or seizure.

Erika Bottcher, Robert Normey for Respondent, Crown

R. v. Drader Eric F. Macklin J. 105

Philip Lister, Q.C. for Applicant, Robert CormierKathryn A. Quinlan for Applicant, Adam DraderArnold E.F. Piragoff, Q.C. for Applicant, Andrew Drader

Eric F. Macklin J.:

I. Introduction1 On March 9, 2012, I issued Reasons for Judgment at [R. v. Drader]

2012 ABQB 168 (Alta. Q.B.) (Drader #1), following a voir dire, al-lowing the admission into evidence of certain recorded and monitoredcommunications of Robert Cormier while he was an inmate at theEdmonton Remand Centre (ERC).

2 On April 13, 2012, the Supreme Court of Canada issued a decision inthe case of R. v. Tse, 2012 SCC 16 (S.C.C.). On June 14, 2012, Mr.Cormier applied to reopen the voir dire in order to argue that the Judg-ment in Tse compels me to reverse my earlier decision. I allowed him toargue the issue. Written submissions were provided by counsel, followedby oral argument on July 16, 2012.

II. Positions of Cormier and the Crown3 Cormier argues that the decision in Tse applies beyond the facts of

that case. He submits that it leads to the conclusion that s. 14.4 of theCorrections Act, RSA 2000, c C-29 and the relevant provisions in theCorrectional Institutional Regulation, AR 205/200 are unconstitutional.

4 The Crown responds that Tse does not affect my earlier decision. TheCrown emphasizes that the legislation at issue in Tse allowed the unau-thorized interception of private communications between ordinary citi-zens who have a high expectation of privacy. In contrast, the legislationat issue in the case at bar allows the interception of communications byan inmate who has only a minimal expectation of privacy. Further, thoseinmates receive ample prior notice that such communications are subjectto recording and monitoring.

III. R v Tse5 The Court in Tse considered whether s. 184.4 of the Criminal Code

breached s. 8 of the Charter. That provision allows a peace officer tointercept a private communication where:

(a) the peace officer believes on reasonable grounds that theurgency of the situation is such that an authorization could


not, with reasonable diligence, be obtained under any otherprovision under that Part of the Code;

(b) the peace officer believes on reasonable grounds that suchan interception is immediately necessary to prevent an un-lawful act that would cause serious harm to any person orto property; and

(c) either the originator of the private communication or theperson intended by the originator to receive it is the personwho would perform the act that is likely to cause the harmor is the victim, or intended victim, of the harm.

6 Section 8 of the Charter provides that everyone has the right to besecure against unreasonable search or seizure.

7 The Supreme Court emphasized at para 61 that s. 184.4 is an emer-gency provision which obviates the need for a peace officer to obtainprior judicial authorization in circumstances of dire emergency. How-ever, it still requires the police to make efforts, quickly where possible,to obtain a judicial authorization. The Court concluded:

94 Section 184.4 is an emergency provision. It allows for extrememeasures in extreme circumstances. It recognizes that on occasion,the privacy interests of some may have to yield temporarily for thegreater good of society — here, the protection of lives and propertyfrom harm that is both serious and imminent. Parliament has in-cluded stringent conditions to ensure that the provision is only usedin exigent circumstances. In our view, these conditions effect an ap-propriate balance between an individual’s reasonable expectation ofprivacy and society’s interest in preventing serious harm. ...

95 In its present form however, s. 184.4 contains no accountabilitymeasures. That, in our view, is fatal and constitutes a breach of s. 8of the Charter.

8 In short, the Court held that to the extent that s. 184.4 allowed for theinterception of private communications without the consent of parties orjudicial pre-authorization, it did not offend the Charter. However, itbreached s. 8 as there was no requirement for post-interception notice,and failed in this regard to meet the proportionality analysis in R. v.Oakes, [1986] 1 S.C.R. 103 (S.C.C.).

IV. Applicability of Tse to the Case at Bar9 In the case at bar, advance notice is given to each inmate of the re-

cording and possible monitoring of their telephone calls. Each one is


asked to sign a form on admission to the ERC indicating that all tele-phone communication is subject to monitoring and recording unless priv-ileged. Signs are posted prominently in the intake area and above eachset of unit telephones indicating that telephone communications are sub-ject to monitoring and may be recorded unless privileged. Every tele-phone call between an inmate and another party has a pre-recorded mes-sage played before the conversation starts indicating that the call issubject to recording and monitoring unless privileged. Finally, the inmatemanual available to each inmate indicates that all telephone calls are sub-ject to recording and monitoring unless privileged and further, that alltelephone communication is recorded (Drader #1 at para 49).

10 I concluded in Drader #1 that ERC inmates have a very limited ex-pectation of privacy in their telephone communications. Their informa-tional privacy concerns arise in the ERC, a place which is governed by astatutory regime requiring the director to address, among other things,matters of security, inmate control, and the care, custody, treatment, andtraining of inmates. This regime permits the director to monitor inmatecommunication where the director believes on reasonable grounds thatthe communication will contain evidence not only of a crime, but also ofany act that would jeopardize, or the monitoring of which is otherwisenecessary for, the security of the institution or the safety of any persons(Drader #1 at para 56).

11 It is noteworthy that s. 184.4 of the Criminal Code is contained inPart VI - Invasion of Privacy. Private communication is defined in s. 183under Part VI as one “that is made under circumstances in which it isreasonable for the originator to expect that it will not be intercepted byany person other than the person intended by the originator to receive it...” The private communications intercepted by the police in Tse occurredbetween an alleged kidnapping victim and his daughter. The parties tothe intercepted communications were private citizens who clearly had avery high expectation of privacy in relation to their private communica-tions. Such private citizens are not aware of any risk that their calls aresubject to being recorded or monitored.

12 One of the parties to the intercepted communications in the case atbar was the accused Cormier, an inmate at the ERC who was forewarnedand who had a very limited expectation of privacy in his telephone com-munications. As mentioned above, notice of the recording and possiblemonitoring of inmate telephone calls is provided to each inmate as wellas to the person with whom they communicate before the calls are re-


corded or monitored. A private citizen normally has no expectation thatsomeone will surreptitiously listen to, record or monitor their telephonecalls. The advance notices to the inmates and those speaking with themdo, or should, result in the contrary expectation. That is, the former has areasonable expectation of privacy in his or her private communicationswhereas the latter have, at best, a very reduced expectation of privacy.

13 I conclude that the privacy interests at stake for inmates’ communica-tions at the ERC are not “important privacy interests” as contemplatThetelephone communications by Cormier were not made in circumstancesin which it was reasonable for him to expect that they would not be inter-cepted by a person other than the intended recipient. On the contrary,they were made in circumstances in which it was reasonable for him toexpect that they would be recorded, and that they very well may be lis-tened to by persons other than the intended recipients. Indeed, as refer-enced in para 61 of Drader #1, Cormier’s response to a question from anunidentified speaker as to whether it was good to communicate over thetelephone was that he was confident that the authorities had more impor-tant things to do than worry about him. This exchange exhibits a clearunderstanding by both Cormier and the recipient of the risk that the callswere being recorded and may be monitored.

14 The Court in Tse held that an accountability mechanism was neces-sary to protect the important privacy interests at stake in that case. Itcited Canada (Director of Investigation & Research, CombinesInvestigation Branch) v. Southam Inc., [1984] 2 S.C.R. 145 (S.C.C.), at166 for the proposition that a provision authorizing an unreviewablepower is inconsistent with s. 8 of the Charter, noting that accountabilityis largely achieved under Part VI of the Code by means of after-the-factnotice and reporting. The Court opined that in cases where prior authori-zation is not essential to a reasonable search, additional safeguards maybe necessary in order to help ensure that the extraordinary power is notbeing abused, explaining:

85 ...Unless a criminal prosecution results, the targets of the wiretap-ping may never learn of the interceptions and will be unable to chal-lenge police use of this power. There is no other measure in the Codeto ensure specific oversight of the use of s. 184.4. For s. 8 purposes,bearing in mind that s. 184.4 allows for the highly intrusive intercep-tion of private communications without prior judicial authorization,we see that as a fatal defect...

15 It is important to note that communication systems at the ERC areestablished under s. 31 of the Correctional Institutional Regulation for


the express dual purposes of providing inmates with reasonable access tocommunication systems, and ensuring the security of the institution andthe protection of the public. The Director is authorized under s. 31(3) tosuspend inmate access to any inmate communication system if, in theDirector’s opinion, the system is being misused or abused, or the suspen-sion is necessary to maintain the security of the institution. Under s. 31.5,an inmate communication must not be monitored except on reasonablegrounds described in s. 14.4(2) of the Act, and where the inmate has firstbeen given reasonable notice that the communication may be monitored.

16 Therefore, unlike private telephones and cell phones, inmates’ use ofthe ERC communications system is, from the outset, limited and condi-tional. They and those with whom they communicate are neverthelessprovided with ample notice that their communications may be monitored.In my view, the transparency which the Supreme Court sought to ensurein Tse through after-the-fact notice is achieved in this regime throughalternate means.

17 Cormier also argues that the system for excluding privileged callsfrom being recorded or monitored is flawed. He submits that the systemonly prevents the recording of calls to the office number of a lawyer, andonly for the lawyers who belong to the Criminal Trial Lawyers Associa-tion (CTLA). He points out that lawyers often have home and cell phonenumbers from which they may communicate with their ERC clients, andsome lawyers do not belong to the CTLA.

18 First, it bears noting that Terry Garnett, Executive Director of the Al-berta Centre Operations Branch, testified that they had “a list of phonenumbers for all the lawyers and all the other agencies, and those numbersare blocked” from being recorded. When an inmate calls any of thosenumbers, no recording is made. If a blocked call is inadvertently re-corded, it must not be monitored and must be destroyed immediately (asrequired by s. 31.2(2) of the Correctional Institutional Regulation). Thelawyer can also provide the ERC with all of the numbers that he or sheuses in communicating with inmates. This further ensures that privilegedcommunications will not be inadvertently recorded or monitored.

19 Second, it must be emphasized again that each and every telephonecall originated by an inmate at the ERC to a number that is not blockedfrom being recorded is prefaced by a recorded voice indicating that thecall is subject to recording and monitoring. Both parties to the call hearthis recording. If the inmate calls an unblocked number for a lawyer,both the inmate and the lawyer will be alerted to the recording and possi-


bility of monitoring. The client owns the privilege and he or she can ei-ther hang up and place another call or continue the call. It is his or herchoice after both the originator and the recipient have heard therecording.

20 In my view, the controls relating to privileged calls are not flawed soas to render the recording and monitoring of inmate communicationsunconstitutional.

V. Conclusion21 The Supreme Court in Tse emphasized the necessity of an effective

accountability mechanism where a private citizen’s high expectation ofprivacy has been compromised by police exercising extraordinary pow-ers of unauthorized interception of private communications under s.184.4 of the Criminal Code.

22 The absence of after-the-fact notice, such as that contemplated in Tse,is not fatal to the constitutionality of s. 14.4 of the Corrections Act andthe Correctional Institutional Regulation. Inmates’ use of the ERC com-munications system is limited and conditional. The inmates in questionhave only a minimal expectation of privacy and they, as well as thosewith whom they communicate, know the calls are subject to recordingand monitoring.

23 The application to reverse Drader #1 in light of Tse is dismissed.

Reconsideration refused.

Gooch v. E.M.F. Holdings Ltd. 111

[Indexed as: Gooch v. E.M.F. Holdings Ltd.]

Gordon Frederick William Gooch and Barbara Lynn RichardsonAppellants (Petitioners) and E.M.F. Holdings Ltd., Francisco

Manuel Martin Pereira and Citizens Bank of CanadaRespondents (Respondents)

British Columbia Court of Appeal

Docket: Vancouver CA039824

2013 BCCA 148

Finch C.J.B.C., Neilson, Harris JJ.A.

Heard: December 11, 2012

Judgment: April 2, 2013

Civil practice and procedure –––– Limitation of actions — Real property —Charges upon land — Mortgage — General principles –––– Mortgage was indefault and mortgagee obtained order nisi — For 12 years no action was takenon foreclosure, although actions were taken involving collecting rent and or-ganizing sale of property — Mortgagee made demand for outstanding rents andmortgage amounts, which at time were in excess of $1,000,000 — Mortgagor’sapplication to discharge mortgage was granted — Trial judge found limitationperiod under Limitation Act, which ran from single late payment of mortgage,had expired — Mortgagee appealed — Appeal allowed — Limitation period inAct was not applicable, as remedial steps taken to enforce in rem claim follow-ing order nisi are not subject to new limitation period — As long as originatingpetition is commenced within six-year period, mortgagee’s cause of action re-mains extant, and Act has no further role in foreclosure proceeding — Properremedy for mortgagor was to seek to set aside proceedings for want ofprosecution.

Real property –––– Mortgages — Foreclosure — Entitlement to interimjudgment — Order nisi — Miscellaneous –––– Limitation period — Mortgagewas in default and mortgagee obtained order nisi — For 12 years no action wastaken on foreclosure, although actions were taken involving collecting rent andorganizing sale of property — Mortgagee made demand for outstanding rentsand mortgage amounts, which at time were in excess of $1,000,000 — Mortga-gor’s application to discharge mortgage was granted — Trial judge found limita-tion period under Limitation Act, which ran from single late payment of mort-gage, had expired — Mortgagee appealed — Appeal allowed — Limitationperiod in Act was not applicable, as remedial steps taken to enforce in rem claimfollowing order nisi are not subject to new limitation period — As long asoriginating petition is commenced within six-year period, mortgagee’s cause of


action remains extant, and Act has no further role in foreclosure proceeding —Proper remedy for mortgagor was to seek to set aside proceedings for want ofprosecution.

Cases considered by Neilson J.A.:

Courtenay Savings Credit Union v. Harle (1987), 13 B.C.L.R. (2d) 357, 1987CarswellBC 127, 39 D.L.R. (4th) 1, [1987] 5 W.W.R. 529 (B.C. C.A.) —referred to

HSBC Bank Canada v. Ba-Oose Inc. (2011), 2011 BCCA 511, 2011 Car-swellBC 3373, 26 B.C.L.R. (5th) 209, (sub nom. Ba-Oose Inc. v. HSBCBank Canada) 314 B.C.A.C. 119, (sub nom. Ba-Oose Inc. v. HSBC BankCanada) 534 W.A.C. 119 (B.C. C.A.) — referred to

PMC Builders & Developers Ltd. v. Country West Construction Ltd. (2009),2009 CarswellBC 3193, 2009 BCCA 535, 87 C.L.R. (3d) 229, 79 C.P.C.(6th) 205, 60 C.B.R. (5th) 65, (sub nom. 0690860 Manitoba Ltd. v. CountryWest Construction Ltd.) 280 B.C.A.C. 26, (sub nom. 0690860 Manitoba Ltd.v. Country West Construction Ltd.) 474 W.A.C. 26, 100 B.C.L.R. (4th) 252,[2009] B.C.J. No. 2350 (B.C. C.A.) — referred to

Prince George (City) v. Columbus Hotel Co. (1991) Ltd. (2011), 2011 BCCA218, 2011 CarswellBC 1057, 17 B.C.L.R. (5th) 149, 82 M.P.L.R. (4th) 186,304 B.C.A.C. 272, 513 W.A.C. 272 (B.C. C.A.) — referred to

Singh (Banns) v. Bank of Montreal (1979), (sub nom. Bank of Montreal v.Singh) 18 B.C.L.R. 149, 15 C.P.C. 89, 109 D.L.R. (3d) 117, 1979 Car-swellBC 448, [1980] 3 W.W.R. 403, [1979] B.C.J. No. 839 (B.C. C.A.) —referred to

Young v. Verigin (2007), 2007 CarswellBC 2711, 2007 BCCA 551, 48 C.P.C.(6th) 8, 72 B.C.L.R. (4th) 332, 412 W.A.C. 145, 248 B.C.A.C. 145, 289D.L.R. (4th) 368 (B.C. C.A.) — referred to


Court Order Enforcement Act, R.S.B.C. 1996, c. 78Generally — referred to

Law and Equity Act, R.S.B.C. 1996, c. 253s. 15(a) — considered

Limitation Act, R.S.B.C. 1996, c. 266Generally — referred tos. 3(3)(f) — considereds. 3(6)(a) — considered

Rules considered:

Rules of Court, 1990, B.C. Reg. 221/90R. 50(7) — considered

Supreme Court Civil Rules, B.C. Reg. 168/2009R. 21-7(7) — considered

Gooch v. E.M.F. Holdings Ltd. Neilson J.A. 113

R. 22-4(5) — referred to

APPEAL by mortgagee from judgment granting application by mortgagor todischarge mortgage in foreclosure proceedings.

G. Morrison, P. Schmidt for AppellantM. Morgan, L. Bevan for Respondent

Neilson J.A.:

1 The appellants Gordon Frederick William Gooch and Barbara LynnRichardson appeal the order of a chambers judge, imposed on March 2,2012, that discharged mortgages and other charges they held against astrata property unit owned by the respondent Francisco Manuel MartinPereira. The chambers judge found the appellants’ cause of action hadbeen extinguished by the expiry of the applicable limitation period: 2012BCSC 507.

2 The issue on appeal is what, if any, restrictions are imposed by theLimitation Act, R.S.B.C. 1996, c. 266 (the “Act”), in foreclosure proceed-ings after an order nisi has been granted. The respondents E.M.F. Hold-ings Ltd. (“E.M.F.”) and Citizens Bank of Canada did not participate inthe appeal.

Background3 In 1997, in the course of constructing a strata property development

in Coquitlam, E.M.F. granted two inter alia mortgages and assignmentsof rent to the appellants. The mortgages had no personal covenants.

4 In September 1997, E.M.F. defaulted on the mortgages. The appel-lants commenced foreclosure proceedings the following month.

5 On February 25, 1998, Mr. Pereira purchased Lot 7 in the develop-ment from E.M.F., apparently to settle a debt E.M.F. owed him. Hebought the unit subject to the appellants’ charges and with knowledge ofthe foreclosure proceedings, on the understanding E.M.F. was to pay offthat part of the mortgage registered against Lot 7. When E.M.F. failed todo so, Mr. Pereira filed a certificate of pending litigation and was addedas a respondent to the petition for foreclosure.

6 On March 3, 1998, the appellants obtained an order nisi over Lots 2and 7 in the development, with a six-month redemption period. The orderstated the amounts due and owing under the two mortgages were


$212,219.45 and $212,631.83, with interest accruing at the rate of14.25% per annum.

7 For the next 12 years the appellants took no further action in the fore-closure proceedings. Nor did Mr. Pereira make any payments toward themortgages or assignments of rent registered against Lot 7, apart from onepayment in late 1998.

8 The parties did, however, have continuing dealings with respect toLots 2 and 7 during that period. In 1998, Mr. Pereira, with the appellants’acquiescence, obtained an order for conduct of sale for Lot 2, and at-tempted to market it with a view to obtaining funds to pay down themortgages. The parties collaborated to collect a small amount of rent onLot 2, which was applied to the charges. They also jointly defended anaction brought by the respondent, Citizens Bank of Canada, whichsought to resurrect mortgages the Bank had held previously against Lots2 and 7. The parties reached an agreement that the appellants would notforeclose against Lot 7 until that litigation was concluded. It settled in2009.

9 On September 1, 2010, the appellants sent Mr. Pereira a demand forpayment of the amounts outstanding under the mortgages and assign-ments of rent registered against Lot 7, which by then were in the range of$1,000,000. On December 7, 2010, they obtained an order for conduct ofsale of Lot 7. On December 10, 2010, Mr. Pereira had the order set asidebecause he had been misinformed about the hearing date.

10 On February 24, 2012, Mr. Pereira applied before the chambers judgeto discharge the appellants’ charges against Lot 7 because the limitationperiod governing further steps in the foreclosure proceeding had expired.The appellants defended the application on the basis that Mr. Pereira’sactions since the order nisi constituted confirmation of their cause of ac-tion against him and had thereby postponed the limitation period, permit-ting them to now realize on their security despite their delay in doing so.

The Reasons for Judgment of the Chambers Judge11 The reasons for judgment of the chambers judge suggest that at the

hearing before him the appellants did not question whether the Act ap-plied to the foreclosure proceeding. Instead, both parties and the cham-bers judge accepted that s. 3(6)(a) of the Act governed any further steps


the appellants sought to take to realize on their security. That provisionstates:

3 (6) Without limiting subsection (5) and despite subsections (2) and(4), after the expiration of 6 years after the date on which right to doso arose an action may not be brought:

(a) by a secured party not in possession of collateral to realize onthat collateral;

12 The critical issue before the chambers judge was thus whether thatsix-year limitation period had been postponed by Mr. Pereira’s dealingswith the appellants between 1998 and 2010. The chambers judge foundthis issue was governed by s. 5(3) of the Act, which provides:

5 (3) If a secured party has a cause of action to realize on collateral,either of the following is a confirmation by the payer or performer ofthe cause of action:

(a) a payment to the secured party of principal or interest securedby the collateral, or

(b) any other payment to the secured party in respect of thatparty’s right to realize on the collateral, or any other perform-ance by the other person of the obligation secured.

13 The chambers judge found the limitation period began to run on Sep-tember 3, 1998, when the redemption period expired and the appellants’right to be in possession arose. He examined Mr. Pereira’s alleged acts ofacknowledgement, and found the payment he had made in late 1998postponed the expiry of the limitation period to late 2004. Since Mr. Per-eira had made no other payments to the appellants, the chambers judgeconcluded there had been no further postponement and the limitation pe-riod had expired in 2004. He found the appellants were therefore barredfrom realizing on their security, and discharged the mortgages and as-signments of rent they held on Lot 7.

Issues on Appeal14 While the appellants raise several grounds of appeal, it is only neces-

sary to consider the first: did the chambers judge err by failing to con-sider that the Act had no bearing on the relief sought in the petition forforeclosure?

Discussion15 As set out above, the question of whether the Act applied at all to the

foreclosure proceedings was not argued before the chambers judge. I am


satisfied that it is open to this Court to consider this issue, however, asMr. Pereira raises no objection, and it is a matter of pure law that can bedetermined on the record before us: Prince George (City) v. ColumbusHotel Co. (1991) Ltd., 2011 BCCA 218 (B.C. C.A.) at para. 14, (2011),17 B.C.L.R. (5th) 149 (B.C. C.A.).

16 The appellants argue the chambers judge should have recognized thatthe Act did not apply at all in the circumstances before him. They saytheir petition for foreclosure was commenced well within the six-yearlimitation required by s. 3(6)(a), and the Act had no further application.The order nisi did not terminate their foreclosure proceeding; nor did itcreate a new cause of action. Instead, they are entitled to bring subse-quent applications in this proceeding to obtain the relief they claim in thepetition. The proceeding does not end until they have realized their inter-est through a sale of the property, a payment from the mortgagor, or anorder absolute permitting them to take the property in payment of thedebt. The appellants say the Act has no bearing on the time frame withinwhich these steps may be taken. If Mr. Pereira is frustrated by their delayin concluding the matter, they maintain his remedy is an application todismiss the petition for want of prosecution.

17 In response, Mr. Pereira contends the appellants misconstrue the na-ture of their cause of action. He says they are properly characterized assecured creditors with an in rem claim who are not in possession of theland that provides their collateral. Their right to seek possession of thatland did not crystallize until the order nisi was pronounced, and the mort-gagor’s right of redemption had expired. Mr. Pereira argues the order nisiwas a final order declaring the appellants’ security interest in Lot 7, andat that point the six-year limitation period under s. 3(6)(a) of the Act be-gan to run on any future steps they intended to take to realize on theircollateral.

18 Mr. Pereira supports his position by drawing an analogy between amortgagee’s in rem claim in foreclosure proceedings, and the in per-sonam claim that arises from judgment on a personal covenant. Regard-ing the personal claim, he points out that once judgment is pronouncedthe mortgagee must take steps to enforce it in a new action, generallybrought under the Court Order Enforcement Act, R.S.B.C. 1996, c. 78.Such an action is governed by the ten-year limitation period in s. 3(3)(f)of the Act. Mr. Pereira maintains that, in the same manner, a mortgageewho seeks to take further steps to enforce an in rem claim following afinal order nisi must do so in a timely manner, and the six-year limitation


period in s. 3(6)(a) of the Act operates to enforce this. The chambersjudge thus made no error in removing the appellants’ charges from Lot 7because that limitation period had expired.

19 I am unable to accept Mr. Pereira’s arguments, as the analogy onwhich they are based is invalid. The in rem cause of action arising from aforeclosure is distinct from an in personam claim arising from a personalcovenant associated with the mortgage. As well, the remedies for eachare distinct: Courtenay Savings Credit Union v. Harle (1987), 13B.C.L.R. (2d) 357 (B.C. C.A.), at 361-62, (1987), 39 D.L.R. (4th) 1(B.C. C.A.) .

20 It is undisputed that a judgment on such a personal covenant is final,and gives rise to a new cause of action based on the judgment, as op-posed to the covenant. The mortgagee must pursue this new claim in anew action, which is subject to a ten-year limitation period: Young v.Verigin, 2007 BCCA 551, 72 B.C.L.R. (4th) 332 (B.C. C.A.) .

21 By contrast, an order nisi, while correctly described as a “final” orderinsofar as the validity and enforceability of the mortgage are concerned,does not conclude a foreclosure proceeding. Nor does it give rise to anew cause of action. Instead, following an order nisi, mortgagees rou-tinely take further, sequential applications in the same proceeding to en-force their in rem claim. These generally include an application for anorder for sale of the land, or for an order absolute to vest title of theproperty in them. Such steps are not founded on a new and independentcause of action, but are supplemental or ancillary to the order nisi: Singh(Banns) v. Bank of Montreal (1979), 18 B.C.L.R. 149 (B.C. C.A.), at153-154, (1979), 109 D.L.R. (3d) 117 (B.C. C.A.); HSBC Bank Canadav. Ba-Oose Inc., 2011 BCCA 511 (B.C. C.A.) at paras. 21-22, (2011), 26B.C.L.R. (5th) 209 (B.C. C.A.) .

22 This view is supported by legislation applicable to foreclosure pro-ceedings in this province. Section 15(a) of the Law and Equity Act,R.S.B.C. 1996, c. 253, reinforces the broad power given to the courts tomake an order for sale at any stage of foreclosure proceedings:

15 The court may, before or after judgment in a proceeding

(a) by a mortgagee, for the foreclosure of the equity ofredemption in mortgaged property, or

. . .

on the application of a person who has an interest in the property orland, direct a sale of the property or land on the terms the court con-siders just.


23 As well, both Rule 21-7(7) of the Supreme Court Civil Rules, whichgoverns Foreclosure and Cancellation, and its predecessor, Rule 50(7) ofthe Supreme Court Rules, which was in place at the commencement ofthe appellants’ petition, state:

A party of record may apply at any time for an order that the mort-gaged property be sold or be put up for sale.

24 I conclude that remedial steps taken to enforce an in rem claim fol-lowing an order nisi are not subject to a new limitation period. As long asthe originating petition was commenced within the six-year period pro-vided by s. 3(6)(a) of the Act the mortgagee’s cause of action remainsextant, and the Act has no further role in a foreclosure proceeding.

25 Here, the appellants commenced their petition for foreclosure wellwithin that six-year period, and the Act has no application to the stepsthey may take to obtain the relief they seek in the petition. If Mr. Pereirais concerned about the appellants’ delay in taking those steps, he is notwithout a remedy. He may apply to dismiss the petition for want of pros-ecution, pursuant to Supreme Court Civil Rule 22-4(5). Such an applica-tion will address concerns similar to those underlying the enforcement oflimitation periods, including inordinate and unreasonable delay,prejudice to an opposing party, trial fairness, and the interests of justice:PMC Builders & PMC Builders & Developers Ltd. v. Country WestConstruction Ltd., 2009 BCCA 535 (B.C. C.A.) at para. 27, 100B.C.L.R. (4th) 252 (B.C. C.A.).

26 I would accordingly allow the appeal and set aside the order of March2, 2012, thereby restoring the appellants’ charges registered against Lot7.

Finch C.J.B.C.:

I AGREE:

Harris J.A.:

I AGREE:

Appeal allowed.

Arbutus Capital Vehicle Leasing Ltd. v. Hanif 119

[Indexed as: Arbutus Capital Vehicle Leasing Ltd. v. Hanif]

Arbutus Capital Vehicle Leasing Ltd., Plaintiff and MohammedShaieed Hanif and Ashiyana Jahan Hanif, Defendants


Docket: Vancouver S123555

2013 BCSC 189

Steeves J.

Heard: January 18, 2013

Judgment: February 6, 2013

Contracts –––– Remedies for breach — Damages — Leasing agreement ––––Plaintiff leased truck to defendants — Defendants defaulted and plaintiff seizedtruck — Truck was sold by bailiff for $49,372.96 — Defendants claimed thatfair market value of truck was about $70,000 — Plaintiff brought action fordamages of $96,987.14 for breach of contract — Action allowed — Defendantsfailed to establish that sale was improvident or that plaintiff was negligent —Defendants’ evidence consisted solely of belief as to what fair market valuewas — Plaintiff’s evidence detailed its dealings with bailiff and explained diffi-culty in selling repossessed vehicles — Plaintiff by terms of agreement was notrequired to consider defendants’ request to assign it to third party.

Cases considered by Steeves J.:

HSBC Bank Canada v. Kupritz (2011), 2011 BCSC 788, 2011 CarswellBC1503, 82 C.B.R. (5th) 73, 88 B.L.R. (4th) 328, 18 P.P.S.A.C. (3d) 322 (B.C.S.C.) — referred to

Onset Capital Corp. v. 1286188 Ontario Ltd. (October 25, 2004), Doc. 04-BN-1374SR, [2004] O.J. No. 4550 (Ont. S.C.J.) — referred to

Summit Leasing Corp. v. Virtual Softnet Canada Inc. (2012), 2012 BCSC 1858,2012 CarswellBC 3821 (B.C. S.C. [In Chambers]) — referred to


Interest Act, R.S.C. 1985, c. I-15Generally — referred to

Personal Property Security Act, R.S.B.C. 1996, c. 359s. 10 — considereds. 59(6) — considereds. 62 — considered

ACTION by lessor for damages for breach of contract.


D. Moonje for PlaintiffR. Doran for Defendants

Steeves J.:

Introduction1 The plaintiff seeks judgment against the defendants because they de-

faulted on lease payments for a vehicle. As of May 2, 2012, the amountsought was $96,987.14. Special costs are also sought by the plaintiff.

Background2 The plaintiff operates a business that finances equipment leases and

the defendants operate a trucking business.3 In September 2011, a written lease agreement was signed between the

plaintiff and the defendants. Under this lease it was agreed that the plain-tiff would lease to the defendants a Volvo tractor in accordance with theterms of the lease. Fourty-eight monthly payments as well an initial pay-ment were required.

4 The defendants defaulted on the lease in March 2012 with the lastpayment being February 1, 2012. Demand letters were issued in May2012 by registered mail but were returned unclaimed.

5 The leased vehicle was seized by a bailiff retained by the plaintiff andit was sold by a bailiff for $49,372.96. The plaintiff ultimately received$43,544.54, after the costs of the bailiff.

6 The plaintiff sent a new demand letter to the defendants on June 18,2012, which set out the accounting of the plaintiffs claim against the de-fendants. No payments have been received.

7 In an affidavit dated November 1, 2012, the defendant MohammedShaieed Hanif describes the events leading up to the seizure and sale ofthe vehicle from his point of view. I set out the relevant paragraphs asfollows:

10. In March 2012 I contacted by telephone a business phone numberthat I had for Arbutus Capital and I spoke with Mike of Arbutus Cap-ital [the plaintiff]. I told him that I was having trouble and issues withmy company. Mike asked me what happened. I told him that I didnot have money to run the company and that I had a buyer for thetruck and who would take over the payments under the lease. I toldhim the name of the buyer who was Mohammed Khan. Mike in-formed me that I could not sell the truck. I asked him why. He in-

Arbutus Capital Vehicle Leasing Ltd. v. Hanif Steeves J. 121

formed me that Arbutus Capital would take care of the truck and Iwould have to return the truck to them.

11. In the circumstances, Mike outright refused permission for me tosell or transfer the truck to a third person, namely, Mohammed Khan.

12. In my discussions with Mike he did not even consider my requestto sell or transfer the truck and the lease.

13. Mohammed Khan was involved in a trucking business similar tomine and presented to me that he was financially qualified topurchase the truck and take over the lease payments.

14. A few weeks later I received a telephone call from a bailiff whoinformed me that Arbutus Capital wanted to seize the truck. Thetruck was in possession of my driver. I gave the name, address andtelephone number of my driver, Tod Bremner to the bailiff. On May3, 2012 I received a text message from Tod that the truck had beentaken by the bailiff.

15. When the truck was seized by the bailiff I believed that it wouldbe sold by the bailiff through a Volvo dealer for fair market value.

16. As of May 2012 I believed that the fair market value of the truckwas approximately $70,000.00. In September 2011, when my wifeand I leased the truck the sale value for the truck for the purpose ofthe lease was $72,000.00 plus HST. The bailiff seized the truck only8 months after it was leased by us.

17. In reply to Exhibit “P” of the Benda Affidavit, it states that thetruck was sold by the bailiff for $44,093.00 plus HST. I do not be-lieve that the bailiff properly marketed the truck to obtain fair marketvalue of the truck.

18. I have bought and sold 3 or 4 trucks in my business in the past 15years. I do not believe that the bailiff sold the truck for a fair or rea-sonable price.

The Lease8 Part I of the lease has the following provisions:

• You have read, understand, and accept this Agreement, includingthe Terms and Conditions on Page 2 hereof, and hereby affirmthat if one or more of the named Lessees is a corporation, theparty signing for the corporation is authorized by the corporationto execute this Agreement.

• YOU CANNOT CANCEL OR TERMINATE THISAGREEMENT


• Arbutus is not associated with, or an agent of, the Vendor(s), nor amanufacturer or a distributor (initials required below).

• The sales person, vendor, broker or any other party that you havebeen dealing with, is not an agent of Arbutus and has no authorityto make any representations or promises or warranties on behalf ofArbutus. This Agreement is the entire agreement between you andArbutus. Unless something is in writing and signed by Arbutus itis not binding upon Arbutus (initials required below).

9 The lease also includes the following terms and conditions: 1. TERM & RENTALS: When an amount owing under this Agree-ment is not paid when due, you agree to pay us interest at the rate of36% per annum, calculated and compounded monthly, and payableon all amounts due and owing to us hereunder.

2. NO WARRANTIES: We are neither the Equipment supplier northe Equipment manufacturer and we are renting the Equipment toyou “AS IS”.

. . .

8. DEFAULT: You will be in default under this Agreement if:

(1) You fail to pay any rental or other amount due under this Agree-ment within 10 days of its due date. If you are in default, in additionto our other rights under this Agreement or otherwise at law:

(a) You must pay us the total of:

(i) all amounts then due and unpaid hereunder, includingrentals, and

(ii) as Liquidated Damages, and not as a penalty, the pre-sent value (calculated using a discount rate of six per-cent (6%) per annum, compounded monthly) of theremaining rentals;

(b) you must return the Equipment to us;

(c) we may, immediately and without notice to you or legal ac-tion, take possession of the Equipment,

(d) all your rights in respect of the Equipment shall cease andterminate absolutely; and

(e) we may, by notice in writing, terminate this Agreement. Allour rights, either under this Agreement or at law or equity, arecumulative and not alternative. You shall pay on demand alllegal fees on a solicitor and its own client full indemnity ba-sis, repossession, Equipment repair, rights enforcement,Equipment disposition and other realization costs) we incur


due to your default All amounts payable under this sectionwill bear interest at the rate stated in Section 1. After yourdefault we may sell, reassign, or otherwise dispose of Equip-ment at public or private sale with or without notice to youand upon such terms and in such manner as we may deter-mine. We shall not be obligated in any way to take steps totake possession of, or dispose of, the Equipment.

. . .

10. TRANSFER OF AGREEMENT: You may not sell, transfer orassign this Agreement, or pledge, hypothecate, or otherwise encum-ber or part with possession or control of the Equipment, or any inter-est in this Agreement, without first obtaining our written consent. Wemay sell, assign, or transfer this Agreement without notice to you.You agree that if we sell, assign, or transfer this Agreement, the as-signee (whether or not the assignee is related to Arbutus) will havethe same rights and benefits that we have now and will not be subjectto any claims, defences, or setoffs that you may have against us. Inthe event of assignment or transfer, you agree to remain responsiblefor our obligations under this Agreement.

Analysis10 The defendants raise a number of issues with respect to the lease.11 First, it is submitted on behalf of the defendants that s. 10 of the lease,

“Transfer of Agreement”, required the plaintiff to give reasonable con-sideration to the defendant’s request for an assignment to Mr. Khan.However, that is not what the plain language of s. 10 of the lease says. Itis very much in favour of the lessor/plaintiff and it does not create anyobligation on the plaintiff to consider the defendant’s proposal for an as-signment. The plaintiff complied with s. 59(6) of the Personal PropertySecurity Act, R.S.B.C. 1996, c. 359, in giving notice of the disposition ofthe vehicle. The defendants then had rights of redemption and reinstate-ment under s. 62 of the same legislation but they did not exercise thoserights.

12 As well, the evidence as to a possible assignee is that contained inMr. Hanif’s affidavit as above. It does refer to a third person, Moham-med Khan, and describes an apparent conversation between Mr. Hanifand Mr. Khan. The problem is that Mr. Khan has not provided any directevidence in this case and all that is before the court is hearsay about Mr.Khan’s intentions.


13 The defendants also submit that proceeds from the sale of the vehicleby the plaintiff (through a bailiff) were not sufficient. That is, it was animprovident sale. There is some authority for the proposition that theburden on the defendants is that, “generally”, they should provide expertevidence on the industry standard against which their allegations can bemeasured. That will not always be the case because in some cases theconduct of a secured party may so obviously depart from commercialcommon sense that evidence of what was done alone will suffice. (HSBCBank Canada v. Kupritz, 2011 BCSC 788 (B.C. S.C.) at para. 36). In anycase, that authority does not assist the defendants.

14 The defendants’ evidence is, as above, in Mr. Hanif’s affidavit. Hedeposes that the market value of the vehicle was approximately $70,000and, therefore, the sale by the plaintiff at a price of $44,083 did not real-ize the fair market value. According to Mr. Hanif, “I do not believe thatthe bailiff sold the truck for a fair or reasonable price.”

15 In contrast, the evidence of the plaintiff is taken from a series ofemails between the plaintiff and the bailiff. The initial assessment wasthat the expected sale price was between $26,300 and $31,400. Abouttwo weeks later, the bailiff advised they had an offer of $40,000 and theplaintiff instructed acceptance. In the end, the final price was $43,888,minus bailiff costs. In an affidavit sworn November 28, 2012, MikeBenda, a lease manager for the plaintiff, provided evidence on behalf ofthe plaintiff. He explained that liquidating vehicles such as in this casehas proven over the years to generate slower sales at lesser amounts thanis the norm. Dealers require the same rate of return as from the sale oftheir own vehicles and they prefer to sell their own inventory first. Theplaintiff relied on the bailiff’s expertise in assessing the condition and, inany event, the vehicle sold for “well above” what the bailiff advised thevehicle was worth.

16 Overall, the fact that the one of the defendants did not “believe” thatthe plaintiff obtained fair market value does not counter the detailed in-formation provided by the plaintiff. The result is that I am not persuadedthat the evidence supports a finding of an improvident sale in this caseand nor is there evidence of gross negligence and carelessness by theplaintiff, as alleged by the defendants. It follows that I do not accept thedefendants’ assertion that the lease between the parties was somehowfrustrated when the plaintiff refused to “accept” the indirect offer fromMr. Khan. Nor was there repudiation of the lease by the plaintiff.


17 Another issue raised by the defendants relates to the provisions of thelease themselves. In argument, they do not challenge directly the 36%per annum for overdue amounts (compounded monthly). In this regard, Inote that a previous judgment has held that an interest rate on overdueamounts of 36% is not contrary to the Interest Act, R.S.C. 1985, c. I-15(Summit Leasing Corp. v. Virtual Softnet Canada Inc., 2012 BCSC 1858(B.C. S.C. [In Chambers]) at para. 14; also, Onset Capital Corp. v.1286188 Ontario Ltd., [2004] O.J. No. 4550 (Ont. S.C.J.)). It is also sub-mitted by the defendants that there is an unconscionable differential be-tween a lease rate of 18% (as calculated by counsel) and the default rateof 36%. No authority for this submission is provided and I am unable toagree that is an objectionable feature of this lease.

18 Finally, I reject the defendant’s submission that parts of the lease arenot binding on them because they only read portions that were high-lighted before they signed it. They signed or initialled more than one partof the lease and thereby agreed to be bound by all of its provisions.

19 With respect to costs, as above the lease stipulates that special costsare payable. However, special costs were not sought in the pleadings. Iconclude this is not a fatal defect and I note that the defendants raisedissues in argument that were not specifically pleaded.

20 In summary, the plaintiff is granted judgement against the defendantsin the amount of $96,987.14 as of May 2, 2012, plus interest payable todate under the lease. Special costs are also payable by the defendants tothe plaintiff.

Action allowed.


[Indexed as: Sbaraglia, Re]

In the Matter of the Securities Act, R.S.O. 1990, c. S.5, asAmended

In the Matter of Peter Sbaraglia

Ontario Securities Commission

Docket: None given.

Alan J. Lenczner Commr.

Heard: February 27, 2013

Oral reasons: February 27, 2013

Debtors and creditors –––– Receivers — General principles — Miscellane-ous principles –––– Summoning receiver — Securities Commission alleged thatdeceased debtor and his company were involved in Ponzi scheme — Securitiescommission summoned receiver of deceased’s company and estate to appearbefore it and provide documentation related to investigation — Receiver broughtmotion to quash summons — Motion granted — Receiver cannot be compelledto produce documents for proceeding outside of or unrelated to receivership —Notes of receiver were not shown to be likely relevant.

Securities –––– Commissions and exchanges — Investigations –––– Summon-ing receiver — Securities Commission alleged that deceased debtor and hiscompany were involved in Ponzi scheme — Securities commission summonedreceiver of deceased’s company and estate to appear before it and provide docu-mentation related to investigation — Receiver brought motion to quash sum-mons — Motion granted — Receiver cannot be compelled to produce docu-ments for proceeding outside of or unrelated to receivership — Notes of receiverwere not shown to be likely relevant.

Cases considered by Alan J. Lenczner Commr.:

R. v. O’Connor (1995), [1996] 2 W.W.R. 153, 1995 CarswellBC 1098, 1995CarswellBC 1151, [1995] 4 S.C.R. 411, 44 C.R. (4th) 1, 103 C.C.C. (3d) 1,130 D.L.R. (4th) 235, 191 N.R. 1, 68 B.C.A.C. 1, 112 W.A.C. 1, 33 C.R.R.(2d) 1, EYB 1995-67073, [1995] S.C.J. No. 98 (S.C.C.) — considered

SA Capital Growth Corp. v. Mander Estate (2012), 110 O.R. (3d) 765, 2012CarswellOnt 6330, 2012 ONSC 2800, 90 C.B.R. (5th) 241 (Ont. S.C.J.[Commercial List]) — considered

SA Capital Growth Corp. v. Mander Estate (2012), 354 D.L.R. (4th) 748, 2012ONCA 681, 2012 CarswellOnt 12445, 117 O.R. (3d) 16 (Ont. C.A.) —followed

Sbaraglia, Re Alan J. Lenczner Commr. 127


Securities Act, R.S.O. 1990, c. S.5s. 122(1)(a) — referred tos. 126.1(b) [en. 2002, c. 22, s. 182] — referred tos. 127 — considered

MOTION by receiver to quash summons to appear before Ontario SecuritiesCommission in investigation of debtor.

Matthew Gottlieb for Robert Kofman, the Moving PartyKevin D. Toyne, Richard Niman for Peter Sbaraglia, the Respondent on the

MotionPamela Foy, Catherine Weiler for Staff of the Ontario Securities Commission

Alan J. Lenczner Commr.:

1 Robert Kofman (“Kofman”) of Duff & Phelps Canada RestructuringInc. (“D&P” or the “Receiver”) moves to quash a summons which wasissued by the Ontario Securities Commission (the “Commission”) andserved on him by Peter Sbaraglia (“Sbaraglia”) on January 17, 2013 (the“Summons”). In March 2010, the Ontario Superior Court of Justice (the“Court”) appointed D&P as the Receiver over the assets, property andundertaking of the late Robert Mander (“Mander”), his company, E.M.B.Asset Group Inc. (“EMB”) and related companies (the “Mander Receiv-ership”). In December 2010, on the application of Enforcement Staff ofthe Commission (“Staff”), D&P was also appointed the Receiver over theassets, property and undertaking of Sbaraglia, his wife and their compa-nies (the “Sbaraglia Receivership”).

2 In a Statement of Allegations filed on February 24, 2011, Staff al-leged that Mander, through EMB, operated a fraudulent Ponzi scheme(“Mander’s Ponzi Scheme”), and that Sbaraglia, through his company,C.O. Capital Growth Inc. (“CO”), participated in Mander’s PonziScheme in a manner which he knew or ought reasonably to have knownperpetrated a fraud on investors contrary to s. 126.1(b) of the SecuritiesAct, R.S.O. 1990, c. S.5, as amended (the “Act”) and contrary to the pub-lic interest. Staff also alleges that Sbaraglia made statements to Staff,during the course of its investigation, that were materially misleading oruntrue and/or failed to state facts which were required to be stated, con-trary to subsection 122(1)(a) of the Act and contrary to the publicinterest.


3 The Summons requires Kofman to attend to give evidence at the hear-ing on the merits in this matter, which is scheduled to begin on March18, 2013, and requires Kofman to bring with him and produce at thehearing the documents and things set out in Appendix “A” to the Sum-mons. The Summons asks for documents in various categories and quitebroadly, including copies of all documents relevant to the Statement ofAllegations, all documents provided by 15 named individuals, all notestaken during interviews with the named individuals, all recordings of anyinterviews, and all documents provided to the Commission. Sbaragliasubmits that these documents may be relevant to the allegations againsthim and may assist him in making full answer and defence.

4 Kofman moves to quash the Summons on three bases: (1) on the basisof res judicata or issue estoppel, and, as a subsidiary point, abuse of pro-cess; (2) on the basis of the non-compellability of the Receiver to pro-duce documents in a proceeding outside the receivership; and (3) on thebasis that the documents are not likely to be relevant to the allegationscontained in the Statement of Allegations (the “Motion”).

5 Having considered the matter, I am granting the Motion on the basisof grounds (2) and (3). There is a long line of unbroken, consistent au-thority that a receiver cannot be compelled to produce documents for aproceeding outside of or unrelated to the receivership. The latest case inthat long line is related to this Motion. It is the decision of the Court ofAppeal in SA Capital Growth Corp. v. Mander Estate, 2012 ONCA 681,117 O.R. (3d) 16 (Ont. C.A.), which incorporates a number of importantelements as to why the Receiver is not compellable in these circum-stances. I make particular reference to paragraphs 8, 9 and 10 of thatdecision:

The reach of the phrase “interested person” was discussed and ap-plied by Greer J. in Battery Plus Inc. (Re), [2002] O.J. No. 261, 31C.B.R. (4th) 196 (S.C.J.), where “interested person” was held to in-clude parties who have a direct interest in the subject matter of thereceivership itself but to exclude parties who seek production of doc-uments that do not “relate to a specific purpose” concerning the re-ceivership itself. This approach is in line with the case law that statesthat receivers are not subject to cross-examination on their reportsexcept in exceptional or unusual circumstances: see Bell Canada In-ternational Inc. (Re), [2003] O.J. No. 4738, 126 A.C.W.S. (3d) 790(S.C.J.); Impact Tool & Mould Inc. (Re), [2007] O.J. No. 5492, 41C.B.R. (5th) 112 (S.C.J.), affd [2008] O.J. No. 962, 41 C.B.R. (5th) 1(C.A.), leave to appeal to S.C.C. refused [2008] S.C.C.A. No. 220;


and Anvil Range Mining Corp. (Re), [2001] O.J. No. 1125, 21 C.B.R.(4th) 194 (S.C.J.). It is also consistent with bankruptcy case law thatestablishes that a court officer (trustee in bankruptcy) will not becompelled to produce documents created and obtained as part of itsduties in one proceeding for a collateral purpose; see, for example,Impact Tool & Mould Inc. (Estate Trustee of) v. Impact Tool &Mould Inc. (Interim Receiver of) (2006), 79 O.R. (3d) 241, [2006]O.J. No. 958 (C.A.); GMAC Commercial Credit Corp. — Canada v.TCT Logistics Inc., [2002] O.J. No. 4210, 37 C.B.R. (4th) 267(S.C.J.).

The OSC proceedings are clearly separate and distinct from the re-ceivership. The appellant does not seek production for the purpose ofadvancing any legal claim or interest in the receivership, but ratherfor a purpose collateral to the receivership, namely, his defencebefore the OSC. Accordingly, in our view, the appellant is not aninterested person as his request was made for a purpose collateral tothe receivership proceeding.

We agree with the receiver’s submission that to recognize a right torequire the receiver to produce material for purposes collateral to thereceivership could lead to serious mischief. A court-appointed re-ceiver is an officer of the court, not a regular litigant. Officers of thecourt should be left to perform their functions and duties without thedistraction, added cost and potential chilling effect on their investiga-tions that could result from permitting open-ended access to the fruitsof their investigation.

6 There is a rationale for the determinative elements that I’ve just readinto the record, and I say, on my own behalf, that each one of those ele-ments applies to these particular circumstances.

7 On the next point, I recognize the right of a respondent, in a section127 hearing before the Commission, to be able to make full answer anddefence, and to have the necessary production and disclosure sufficientto make that right meaningful; but the required disclosure and productionmust be tied and linked to the allegations levelled against him.

8 In this case the respondent has received 55 volumes of disclosure en-compassing loan agreements, banking documents and other original doc-uments relating to the specific factual allegations that are in paragraphs 9to 11 and 14 to 20 of the Statement of Allegations.

9 I am satisfied that Dr. Sbaraglia has received disclosure enabling himto fully respond to these allegations. What Dr. Sbaraglia now seeks areprimarily interview notes from the Receiver which the Receiver himself


describes as follows in his Thirteenth Report, at paragraph 3.1(d) of thatReport:

The primary purpose of the interviews was to gather background in-formation regarding the Mander Debtors. However, a majority of theinformation obtained from the individuals was highly speculative,unsupported and anecdotal; much of it related to the stories woven byMander to justify his investment techniques and the whereabouts ofinvestor monies. Accordingly, in preparing its reports to the court,the Receiver relied on the financial information that it analyzed.

10 The financial information that is relevant has also been provided toDr. Sbaraglia.

11 I refer to paragraph 3.1(e) of the Receiver’s Thirteenth Report inwhich he says:

Over the course of carrying out its mandate, the Receiver generatedvarious notes and internal memoranda regarding the interviews,which were created solely for its internal purposes and were not in-tended to be relied upon by other parties. The notes were not re-viewed by the individuals. The notes prepared were not intended tobe a verbatim transcript of what was said by the individuals, and theReceiver cannot confirm that the notes are an accurate or completereview of all that was discussed. The Receiver cannot confirm that itsnotes summarize all of the discussions that the Receiver had with theindividuals. The notes were only meant to be used by the Receiverfor its purposes in the context of the discussions that were had withthe respective individuals.

12 Dr. Sbaraglia states that these notes might lead to other avenues ofinquiry or might provide some corroboration for his own evidence.

13 In my view, such statements do not meet the material requirement of“likely relevant” under the test set out in R. v. O’Connor, [1995] 4 S.C.R.411 (S.C.C.). I can do no better than relate what Justice Pattillo saidwhen he made a review of Dr. Sbaraglia’s claim for these notes in hisdecision, SA Capital Growth Corp. v. Mander Estate, 2012 ONSC 2800,110 O.R. (3d) 765 (Ont. S.C.J. [Commercial List]), at paragraphs 47-50:

In my view, Sbaraglia has not established, based on the allegations inthe OSC’s Notice of Hearing and the evidence or lack thereof beforeme, that the information or documents provided to the Receiver bythe 11 individuals who were former partners, associates, employeesor clients of Mander is likely relevant to his defence to the OSC alle-gations. Sbaraglia has not established that the information requestedis either logically probative to an issue before the OSC or relates to


the credibility of a witness or the reliability of other evidence in thecase.

First, and given that the Receiver has had no communication witheither of Walton and Fluke, there is no evidence that there is anyrecord in the hands of the Receiver concerning them that is likelyrelevant to Sbaraglia’s due diligence defence.

Of the nine individuals remaining, there is no evidence that any ofthem have refused to speak to Sbaraglia or his counsel about theirdealings with the Receiver or to provide copies of the documentsthey provided to the Receiver, if any. In fact, [the] Sbaraglia affidavitindicates that in the case of three of the individuals, Zurini,Auriemma and Ward, either he or his wife spoke with them after theymet with the Receiver. Sbaraglia has listed the nine individuals spe-cifically and the Receiver has confirmed that it had discussions withthem. Any information or documents given to the Receiver thatSbaraglia now seeks to obtain came from the individuals and onewould have thought they would be first persons to speak to about it.It is no answer, in my view, to say that the discussions with the Re-ceiver took place a long time ago and the Receiver’s record is there-fore the best evidence when no attempt whatsoever has been made tospeak with these individuals in the first instance.

Further, some of the individuals have been cross-examined at lengthby Sbaraglia’s counsel in the CO Group receivership application. Noexplanation has been provided by Sbaraglia as to why the informa-tion obtained from that proceeding about individuals’ relationshipwith Mander and Sbaraglia is not sufficient. In fact, it was not men-tioned at all by Sbaraglia in his affidavit.

14 I echo what Justice Pattillo has said and I come to the samedetermination.

15 For these reasons, the Motion to quash is granted. I thank counsel.16 An Order will issue accordingly.

Motion granted.


[Indexed as: Crystallex International Corp., Re]

In Matter of the Companies’ Creditors Arrangement Act, 1985,c.C-36 as Amended

In the Matter of a Plan of Compromise or Arrangement ofCrystallex International Corporation


Docket: CV-11-9532-00CL

2012 ONSC 6812

Newbould J.

Heard: November 29, 2012

Judgment: November 30, 2012

Bankruptcy and insolvency –––– Companies’ Creditors Arrangement Act —Arrangements — Approval by court — Miscellaneous –––– Debtor companyapplied for approval of claims procedure order to establish process for identifi-cation and determination of claims against it, except for debt claims of notehold-ers — Noteholders had various concerns regarding draft order — Draft order ap-proved with certain changes — Noteholders should not have right to requiretheir consent to any claim over $100,000 — There was sufficient protection infact that monitor was central to claims process and would review claims withmanagement of debtor — Order to contain provision by which monitor wouldgive notice to noteholders and any other appropriate stakeholder before ac-cepting any claim in excess of $2.5 million, and giving noteholder or otherstakeholder reasonable time to apply to court regarding claim, failing whichmonitor with consent of debtor could accept claim — Paragraphs 41, 42, and 43contained substantive provisions regarding set-off and were inappropriate for in-clusion in claims procedure order — Draft order provided that debtor, with mon-itor’s consent, could appoint claims officer — Appointment of claims officer re-quires court approval — Draft order should be amended accordingly.


Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36Generally — referred tos. 21 — considered

Winding-up and Restructuring Act, R.S.C. 1985, c. W-11s. 73(1) — referred to

APPLICATION by debtor company for approval of claims procedure order.

Crystallex International Corp., Re Newbould J. 133

Markus Koehnen for Crystallex International CorporationJay A. Carfagnini, Fred Myers for Computershare Trust Company of CanadaDavid R. Byers for Monitor, Ernst & Young Inc.Blake Moran for Tenor Special Situations Fund LP

Newbould J.:

1 Crystallex applies for the approval of a claims procedure order to es-tablish a process for the identification and determination of claimsagainst Crystallex and its current and former officers and directors exceptfor the debt claims of the Noteholders which will be dealt with in a sub-sequent order.

2 Although the Noteholders’ debt claims will be dealt with in a subse-quent order, they raise issues with the order sought by Crystallex. If theyintended to make any D & O claim, the order would affect them.Whether this is so, or whether the Noteholders decide to buy up any un-secured claim, is unknown. However, the points raised by the Notehold-ers should be dealt with.

3 The draft order provides that the Monitor, with the assistance of Crys-tallex, shall review the pre-filing and restructuring claims. The Monitorwill have the right to accept, revise or disallow any claim less than$100,000. The decision of the Monitor regarding any claim over thatamount requires either the consent of Crystallex or court approval. TheNoteholders contend that for claims over $100,000, the consent of theNoteholders should also be required, failing which court approval wouldbe required.

4 The Monitor advises that a review of the books and records of Crys-tallex indicates that there are only five possible claims against Crystallexover $100,000 and that the largest one is approximately $2.5 million.

5 Crystallex opposes giving the Noteholders a veto right to any settle-ment, which would be the effect of requiring their consent in order toobviate the need for a court order. Crystallex submits that creditors nor-mally do not have consent rights to other creditor claims, and there is noreason to depart from that in this case. Crystallex also contends that itwould be prejudiced because of the history of aggressive actions in thiscase by the Noteholders in attempting to obtain leverage against Crystal-lex. This has been costly for Crystallex with very limited funds, and it isconcerned that for some reason the Noteholders will take action with re-spect to the claims for tactical purposes that will incur further expense. Ithink it fair to say that regardless of where fault may lie, the differences


between the Noteholders and Crystallex in this ongoing CCAA processhas been expensive for Crystallex and further unnecessary expenseshould best be avoided. It is in all stakeholders’ interests that there besufficient funds to prosecute the arbitration against Venezuela.

6 Crystallex points out that there is protection to the Noteholders andall stakeholders by the fact that it is the Monitor that will be involved inany decision with respect to the claims. It can be expected that the Moni-tor as a court officer will be responsible in its dealing with the claims.The Monitor is content with the draft order. It points out that manage-ment of Crystallex has an incentive not to readily agree to pay out toomuch on a claim because any amount paid out will reduce the fundsavailable to management under the Management Incentive Program ap-proved some time ago.

7 During argument, counsel for the Noteholders said their concern isthat some large unknown claim in excess of $2.5 million may come inand be paid and that they want to have the right to be involved in anydecision to accept the claim. Mr. Byers for the Monitor said that it islikely that if some large claim came in, the Monitor would either disal-low it or come to the Court for advice and direction or give notice to theNoteholders and other interested stakeholders of its intention to permit anapplication by the Noteholders or others to make some application to theCourt regarding it.

8 I do not think that the Noteholders should have the right to requiretheir consent to any claim over $100,000. There is sufficient protectionto all concerned in the fact that that the Monitor is central to the claimsprocess and the Monitor will no doubt review the claims with manage-ment of Crystallex, who are the appropriate persons for the Monitor todeal with. The extra cost and expense of the Monitor or Crystallex hav-ing to deal with the Noteholders on these claims is not warranted.

9 It is not known if there will be any claim in excess of $2.5 million.The Monitor and Crystallex are not aware of any such claim, but it couldoccur. During argument I asked counsel if they could live with a compro-mise provision in the order by which the Monitor would give notice tothe Noteholders and any other stakeholder it thought appropriate beforeaccepting any claim in excess of $2.5 million, and giving the Notehold-ers or other stakeholder a reasonable time within which to apply to Courtregarding the claim, failing which the Monitor with the consent of Crys-tallex could accept the claim. Counsel indicated agreement to that, andthe order made should contain such a provision. The $2.5 million figure


may need to be re-jigged depending on the precise amount of the knownpossible claims on the books of Crystallex.

10 The draft order contains provisions dealing with set-off. The Note-holders object to any such provision. They contend that the provisionsdeal with substantive rights of parties, and that a claims process ordershould not deal with substantive rights. The CCAA provides for set-offrights for all claims and they contend that there is no need to add rightsto the order. The draft order provides as follows:

41. THIS COURT ORDERS that Crystallex may set off (whether byway of legal, equitable or contractual set-off) against the Claims ofany Claimant, any claims of any nature whatsoever that any of Crys-tallex may have against such Claimant arising prior to the FilingDate, provided that it satisfies the requirements for legal, equitable orcontractual set-off as may be determined by the Court if there is anydispute between Crystallex and the applicable Claimant, however,neither the failure to do so nor the allowance of any Claim hereundershall constitute a waiver or release by Crystallex of any such claimthat Crystallex may have against such Claimant.

11 This draft paragraph 41 does two things. First, it provides to Crystal-lex set-off rights against claims. Mr. Koehnen in argument said that itwas not intended to provide for set-off rights different than as providedin the CCAA. I was referred to section 73(1) of the Winding-Up andRestructuring Act, R.S.C. 1985, c. W-11, and while it is essentially thesame as the set-off provision in the CCAA, it is the provision in theCCAA that is applicable. Section 21 of the CCAA provides:

21. The law of set-off or compensation applies to all claims madeagainst a debtor company and to all actions instituted by it for therecovery of debts due to the company in the same manner and to thesame extent as if the company were plaintiff or defendant, as the casemay be.

12 The second thing draft paragraph 41 contains is the caveat that thefailure of Crystallex to set-off any claim against a claimant shall not con-stitute a waiver or release by Crystallex of the claim against the claimant.This is a substantive provision that may or may not be in accordancewith the set-off principles as they would apply to the facts of any case.The provision would affect the rights of any claimant without that claim-ant having an opportunity to contest them.

13 I agree with the Noteholders that paragraph 41 should not be in theclaims procedure order. If the intent of the first part of paragraph 41 is tobe consistent with section 21 of the CCAA, there is no need for it. If the


intent were to effect a change from section 21, that would be a substan-tive provision that should not be part of a claims procedure order.

14 The second part of paragraph 41 is a substantive provision. Mr.Koehnen contended that recent case law in the U.K. had created someconfusion as to when a right of set-off need be asserted, and the provi-sion was included in the draft order in order to avoid such confusion. Healso pointed out that a recent claims procedure order in Canwest con-tained a similar provision. He was not able to say if that provision wentin the order by consent, and thus its use as a precedent is somewhatweakened.

15 Mr. Koehnen contended that the provision would permit Crystallex toaccept a claim of a creditor without any set-off being claimed by Crystal-lex and leave it open to Crystallex to later claim a right of set-off whenmaking payment to the creditor pursuant to a successful plan of arrange-ment. Mr. Koehnen also contended that it would be open to Crystallex towait until after it emerged from the CCAA process to commence an ac-tion against any creditor whose claim had been compromised and paid.Whether or not set-off rights in any particular case would permit this, Ifail to see fairness to the creditors to have such a situation foisted onthem at this stage regardless of the situation that may occur. It would bepreferable if at all possible that a creditor know when being asked to voteon a plan of compromise and arrangement what amount the debtor con-cedes is owing to that creditor.

16 In my view the second part of paragraph 41 should not be included inthe order, with the result that paragraph 41 in its entirety is to be re-moved from the draft order.

17 Paragraph 42 of the draft order also contains set-off provisions. 42. THIS COURT ORDERS that Crystallex may set off (whether byway of legal, equitable or contractual set-off) against payments orother distributions to be made to any Claimant, any claims of anynature whatsoever that any of Crystallex may have against suchClaimant arising after the Filing Date, provided that it satisfies therequirements for legal, equitable or contractual set-off as may be de-termined by the Court if there is any dispute between Crystallex andthe applicable Claimant, however, neither the failure to do so nor theallowance of any Claim hereunder shall constitute a waiver or releaseby Crystallex of any such claim that Crystallex may have againstsuch Claimant.


18 This paragraph permits Crystallex to exercise a right of set-off arisingafter the filing date of the CCAA against a payment or other distributionto be made to a claimant. It suffers from the same problems as paragraph41. Paragraph 42 should not be included in the claims process order.

19 A third set-off provision is contained at the end of paragraph 43,which deals with notice required to be given to a transferee or assigneeof a claim made after the filing date. The paragraph then adds the follow-ing:

A transferee or assignee of a Claim takes the Claim subject to anyright of set-off to which Crystallex may be entitled with respect tosuch Claim. For greater certainty, a transferee or assignee of a Claimis not entitled to set off, apply, merge, consolidate or combine anyClaims assigned or transferred to it against or on account or in reduc-tion of any amounts owing by such Person to any of Crystallex.

20 In my view, this provision should not be included in the claims proce-dure order as it is substantive in nature. It may or may not be that what isstated in the provision would be the result of the application of set-offprinciples to any particular claimant, but that should not be settled in theclaims procedure order.

21 The other issue raised by the Noteholders is that the draft order pro-vides for a claims officer and that Crystallex may with the consent of theMonitor appoint the claims officer. The Noteholders contend that the ap-pointment of a claims officer should require the approval of the Court. Iagree with that and the draft order should be amended accordingly.

22 If the parties are unable to agree on the form of the order, it may besettled at a 9:30 am appointment.

Order accordingly.


[Indexed as: Equitable Trust Co. v. Lougheed Block Inc.]

The Equitable Trust Company Respondent (Plaintiff) and TheLougheed Block Inc., Neil John Richardson, Hugh Daryl

Richardson and Heritage Property Corporation Respondents(Defendants) and 604 - 1st Street S.W. Inc. Appellant

(Purchaser)

Alberta Court of Appeal

Docket: Calgary Appeal 1001-0290-AC

2012 ABCA 261

Marina Paperny, J.D. Bruce McDonald, Brian O’Ferrall JJ.A.

Heard: June 18, 2012

Judgment: September 12, 2012

Real property –––– Mortgages — Sale — Judicial sale — Effect of convey-ance — Rights and obligations of purchaser –––– Mortgagor owned commer-cial building with various tenants, and received $340,704.50 in security depositsthat were supposed to be applied to tenants’ last two months’ rent if they com-plied with their leases — Mortgagor converted security deposits to its own useand when mortgagee foreclosed on building, security deposits were not recov-ered by receiver-manager appointed as part of foreclosure proceedings — Judi-cial sale of property to purchaser ensued, under offer to purchase with term pro-viding for assumption of all leases with tenants and with purchase price subjectto “usual adjustments” — Purchaser unsuccessfully brought application for or-der directing adjustment to be made for security deposits — Purchaser’s appealwas initially allowed, but leave was granted to re-argue appeal de novo — Ap-peal dismissed — Purchaser was sophisticated commercial purchaser who knewor ought to have known that court owed it no duty in overseeing judicial sale ofproperty, but did owe duties to mortgagor and mortgagee to optimize benefits ofsale — There was no compelling evidence, and nothing in offer to purchase, asto what constituted “usual adjustments” — It was clear that when purchasermade offer to purchase, it knew or should have known that receiver-managerhad not received deposits from defaulting mortgagor — Since purchaser ex-pressly assumed all obligations pertaining to leases, including to apply depositsto future rent, it was incumbent on purchaser to expressly and clearly specify inoffer that there should be adjustment for deposits — While mortgagee could notrely on doctrine of contra as third party to offer presented to court, purchaserbore risk of its own drafting as it failed to use clear wording to obtain specificadjustment.

Equitable Trust Co. v. Lougheed Block Inc. Per curiam 139

Cases considered:

Calvert Home Mortgage Investment Corp. v. Ro/Lin Holdings Ltd. (2007), 2007ABCA 259, 58 R.P.R. (4th) 184, 410 W.A.C. 315, 417 A.R. 315, 2007CarswellAlta 1084, 79 Alta. L.R. (4th) 278 (Alta. C.A.) — referred to

Chilton v. Co-operators General Insurance Co. (1997), 32 O.R. (3d) 161, 97O.A.C. 369, 143 D.L.R. (4th) 647, [1997] I.L.R. I-3423, 41 C.C.L.I. (2d) 35,1997 CarswellOnt 360, [1997] O.J. No. 579 (Ont. C.A.) — referred to

Eli Lilly & Co. v. Novopharm Ltd. (1998), 227 N.R. 201, 152 F.T.R. 160 (note),1998 CarswellNat 1061, 1998 CarswellNat 1062, 161 D.L.R. (4th) 1, [1998]2 S.C.R. 129, 80 C.P.R. (3d) 321, [1998] S.C.J. No. 59 (S.C.C.) — referredto

Equitable Trust Co. v. Lougheed Block Inc. (2012), 544 W.A.C. 79, 522 A.R.79, 2012 ABCA 87, 2012 CarswellAlta 386 (Alta. C.A.) — referred to

Equitable Trust Co. v. Lougheed Block Inc. (2012), 2012 ABCA 171, 2012CarswellAlta 959 (Alta. C.A.) — referred to

First National Mortgage Co. v. Realistic Homes (1981), [1981] 3 W.W.R. 1, 18R.P.R. 83, 10 Sask. R. 71, 120 D.L.R. (3d) 509, 1981 CarswellSask 104(Sask. Q.B.) — referred to

McDonald Crawford v. Morrow (2004), 2004 ABCA 150, 2004 CarswellAlta546, 348 A.R. 118, 321 W.A.C. 118, 28 Alta. L.R. (4th) 62, 244 D.L.R. (4th)144, [2004] 11 W.W.R. 335, [2004] A.J. No. 496 (Alta. C.A.) — referred to

McKee v. R. (1977), 1977 CarswellNat 272, [1977] C.T.C. 491, 77 D.T.C. 5345(Fed. T.D.) — referred to

R. v. Burnco Industries Ltd. (1984), 53 N.R. 393, [1984] C.T.C. 337, 84 D.T.C.6348, (sub nom. R. v. Burns) [1984] 2 F.C. 218, 1984 CarswellNat 56F,1984 CarswellNat 56 (Fed. C.A.) — referred to

Spartacus Holdings Ltd. v. Building 400 Ltd. (2011), 2011 CarswellAlta 46,2011 ABCA 18, 515 A.R. 1, 532 W.A.C. 1, 100 R.P.R. (4th) 1 (Alta.C.A.) — referred to

APPEAL by purchaser from judgment dismissing application for order directingadjustment to be made to purchase price for security deposits.

F.C.R. Price, Q.C., D. Young for Respondent, Equitable Trust Company Inc.S.L. Hunka for Appellant

Per curiam:

Background1 This court previously allowed this appeal: Equitable Trust Co. v.

Lougheed Block Inc., 2012 ABCA 87, 522 A.R. 79 (Alta. C.A.) (“Origi-nal Judgment”), leave to appeal to SCC requested, [2012] SCCA No 176.We subsequently permitted re-argument because of a potential eviden-


tiary misapprehension by the court on a critical point: Equitable TrustCo. v. Lougheed Block Inc., 2012 ABCA 171 (Alta. C.A.) (available onCanLII). The appeal was re-argued de novo and these are our reasons fordismissing the appeal. Accordingly, this judgment replaces the OriginalJudgment.

2 The Original Judgment allowed the appeal by the purchaser, 604 - 1st

Street S.W. Inc. (“appellant”), and ordered a property’s purchase pricereduced by $340,704.50 to credit the appellant with deposits the pro-perty’s commercial tenants had paid their former landlord (“Deposits”).Pursuant to its offer to purchase, the appellant assumed the obligationsassociated with the Deposits.

3 Shortly after the Original Judgment issued but before it was entered,the respondents brought an opposed application seeking leave to rearguethe appeal. On the basis of the parties’ written submissions and a tran-script of the original appeal, we held that the requirement for re-argu-ment was satisfied because the court may well have misapprehended theappellant’s knowledge of the status of the Deposits when it made its June22, 2010 offer to purchase (“Offer to Purchase”).

4 We stated in the Original Judgment that the appellant did not knowthat “the security deposits, totalling $340,704.50, had long since beenconverted to the former owners’ use”: para 5. Similarly, we wrote thatthe mortgagee (the respondent, Equitable) “ought to have specifically ex-cluded” the Deposits if it did not want them adjusted because only it“would know that it had not recovered [the Deposits] from its defaultingmortgagor”: para 31. Finally, the court wrote “[s]ince there was no dis-closure of the fact that the vendor no longer had the security deposits, theparties must be taken to have agreed that those security deposits wouldbe adjusted.”: para 36.

5 In fact, however, the Deposits were never received by the receiver-manager from the former landlord/defaulting mortgagor and it is con-ceded that the appellant knew or ought to have known this when it madethe Offer to Purchase.

6 The appeal was reargued de novo, and is dismissed for the reasons setout below.

Grounds of Appeal and Standard of Review7 The appellant submits that the chambers judge erred in failing to

make a determination, and therefore find, as a matter of law, that a de-posit of the same nature as the Deposits is an adjustment usually adjusted


for at closing in the sale and purchase of commercial lands. Further, or inthe alternative, the chambers judge erred in finding that, as a matter ofcontractual interpretation, the Offer to Purchase does not provide that theDeposits are to be adjusted for at closing.

8 Once the exact terms and nature of a contract and the surroundingfacts have been established, the interpretation of the words of the con-tract is a matter of law, reviewed for correctness: Spartacus HoldingsLtd. v. Building 400 Ltd., 2011 ABCA 18, 515 A.R. 1 (Alta. C.A.).

Analysis9 This appeal concerns whether, as a matter of contractual interpreta-

tion, the purchase price of a court-ordered sale should have been adjusted(credited) for deposits commercial tenants had paid their former landlord,the defaulting mortgagor. In oral reasons, a chambers judge dismissedthe purchaser’s application to adjust the purchase price.

a. The Deposits10 The Deposits paid by the commercial tenants to their former landlord

were security for faithful performance by the tenants under their respec-tive leases and, assuming faithful performance, were to be appliedagainst the tenants’ future rent obligations.

11 As mentioned, the Deposits were never received by the receiver-man-ager appointed as part of the foreclosure proceedings initiated by the re-spondent, Equitable, against the defaulting mortgagor/landlord.

b. The Offer to Purchase12 The appellant’s Offer to Purchase was dated June 22, and gave it until

August 5 to “satisfy itself as to such matters which must meet the Pur-chaser’s approval at its sole discretion”: cl. 1(a). The Offer to Purchasewas the third the appellant had made, and it bettered its second offer(which bettered its first).

I. Court as Vendor13 The Offer to Purchase defined Allied Properties REIT Acquisition

Corporation as “Purchaser” and the Court of Queen’s Bench of Albertaas “Vendor”.

14 The court’s role as Vendor is to oversee the judicial sale of the pro-perty, here with the assistance of a receiver-manager. See generally


Calvert Home Mortgage Investment Corp. v. Ro/Lin Holdings Ltd., 2007ABCA 259, 417 A.R. 315 (Alta. C.A.).

15 In overseeing a judicial sale of property, the court owes a duty to themortgagor, mortgagee, subsequent encumbrancers and potential guaran-tors to optimize the benefits of the sale. Significantly, however, the courtdoes not owe a duty as such to the purchaser. See generally the concur-ring reasons of Conrad J.A. in Ro/Lin Holdings Ltd. at paras 33-35.

16 Much of the appellant’s purchase-related due diligence was facilitatedby the receivermanager. The court directed it to provide the appellantwith “any and all consents” and documents (including all leases and con-tracts, billing statements sent to tenants, etc.) thereby permitting the ap-pellant to “conduct such searches and enquiries” it “deemed necessary oradvisable”: cl. 1(b). The court also directed the receiver-manager to ad-vise and consult with the appellant throughout: cl. 1(d).

17 In due course, the appellant waived the conditions in the Offer toPurchase and became “ready, willing and able” to close the transaction.Pursuant to clause 6 of the Offer to Purchase, this meant:

The Purchaser agrees to purchase the Property in “as-is” conditionand it is agreed that there is no representation, warranty, collateralagreement or condition affecting the Property or this Offer. The par-ties hereto acknowledge that this Offer constitutes the entire agree-ment between them concerning the Property and that there are noother warranties, representations or collateral agreements made by orwith any other party ... regarding the Property or adjacent lands in-cluding, but without limiting the generality of the foregoing: anywarranties, representations or collateral agreements regarding build-ing or site size and measurements; descriptions of the Property; or,descriptions of income, expense and financing. All leases and con-tracts that are assignable shall be assigned to the Purchaser as ofthe Closing Date and the Purchaser shall assume all obligationsthereunder.

(emphasis added)

18 Accordingly, the appellant assumed the tenants’ leases and the obli-gation to apply the Deposits to future rent (assuming faithful perform-ance by the tenants).

19 The Offer to Purchase referred to “usual” adjustments and also speci-fied that adjustments were to be made “for all items of income andexpense”.


ii. “Usual Adjustments”20 The Offer to Purchase stipulated that a portion of the purchase price

was to be $30,150,000 “more or less, and subject to the usual adjust-ments, after execution by the Vendor of the necessary conveyances” (em-phasis added).

21 The chambers judge correctly noted that the Offer to Purchase did notdefine “usual adjustments” and said that nothing “assists me in determin-ing what a usual adjustment in a matter such as this would be”: Tran-script at F52/13-14. As such he was not prepared to hold that the Depos-its were a “usual adjustment”.

22 Had the appellant adduced evidence to the satisfaction of the cham-bers judge that an adjustment for the Deposits was a “usual adjustment”,then by the terms of the Offer to Purchase, it would have been entitled toa credit for them.

23 We are in the same position as the chambers judge; nothing in thesubmissions on appeal are determinative of what constitutes “usual” ad-justments in this Offer to Purchase or in the ordinary course of transac-tions of this nature.

iii. Specified Adjustments - “All Items of Income and Expense”24 With respect to specific adjustments, the Offer to Purchase provided

(with emphasis added): 2.(a) The date for closing of this transaction shall be September 1,2010 (the “Closing Date”), and on that date all items of income andexpense, including but not limited to rents, operating costs, taxesand utilities but specifically excluding:

I. any tenant improvement allowances owing to Tenants;

ii. any landlord’s work required pursuant to any Leases, and,

iii. any real estate commissions,

remaining unpaid as at the date of Closing, shall be adjusted betweenthe Purchaser and the Vendor ....

25 Although there is a myriad of authority as to what constitutes “ex-pense”, much of it is in the taxation context, see e.g., McKee v. R., [1977]C.T.C. 491, 77 D.T.C. 5345 (Fed. T.D.); R. v. Burnco Industries Ltd.(1984), 84 D.T.C. 6348, 53 N.R. 393 (Fed. C.A.). We were referred to asingle case (First National Mortgage Co. v. Realistic Homes (1981), 10Sask. R. 71, 120 D.L.R. (3d) 509 (Sask. Q.B.)) which considered “ex-


pense” in the judicial sale context. It appears that the weight of authorityis to the effect that an expense necessarily entails an outlay of money.

26 The Deposits required no outlay of money as between the Purchaser(the appellant) and the Vendor (the Court of Queen’s Bench). Nor werethey “remaining unpaid as at the date of Closing”.

27 Moreover, contrary to our earlier misapprehension, it is now clearthat when the appellant made the Offer to Purchase, it knew or shouldhave known that the receiver-manager had not received the Depositsfrom the former landlord/defaulting mortgagor.

28 Since the appellant expressly assumed all obligations pertaining to theleases, and in the absence of compelling evidence about what constitutesa “usual adjustment”, it was incumbent upon the appellant, if it wantedcredit for the Deposits, to have expressly said so in the Offer to Purchase.This is particularly so since it knew that the Deposits were not in thereceiver-manager’s possession.

29 A contractual term is not ambiguous unless it can be read in either oftwo opposing senses: McDonald Crawford v. Morrow, 2004 ABCA 150(Alta. C.A.) at para 67, (2004), 348 A.R. 118 (Alta. C.A.). Courts shouldnot search for or create an ambiguity if none exists: Chilton v. Co-operators General Insurance Co. (1997), 32 O.R. (3d) 161, 143 D.L.R.(4th) 647 (Ont. C.A.), at 654 . It is only as a last resort that courts applythe contra proferentem rule to resolve an ambiguity in the contract: GHLFridman, The Law of Contract in Canada, 6th ed (Toronto: ThomsonReuters Canada Limited, 2011) at 455.

30 The Offer to Purchase was drafted by the appellant and presented tothe Court of Queen’s Bench. The respondent, Equitable, as a third partyto the Offer to Purchase, cannot rely upon the doctrine of contraproferentem: Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129,161 D.L.R. (4th) 1 (S.C.C.), at 27.

31 That said, given that a sophisticated commercial purchaser on a judi-cial sale knows or ought to know that the court owes it no duty (andowes a duty to the mortgagor and mortgagee, among others, to maximizerecovery), if the purchaser wishes to obtain the benefit of a specific ad-justment it is incumbent upon the purchaser to so provide by clear word-ing in its offer to purchase. If it fails to do so, the purchaser bears the riskof its own drafting.


32 In this case, it was incumbent upon the appellant to have clearly spec-ified in the Offer to Purchase that there should be an adjustment for theDeposits if it wished to receive such a credit. It did not do so.

Conclusion33 The appeal is dismissed. The Original Judgment, Equitable Trust Co.

v. Lougheed Block Inc., 2012 ABCA 87, 522 A.R. 79 (Alta. C.A.), is ofno effect.

Appeal dismissed.


[Indexed as: Gelpke, Re]

In Bankruptcy

In the Matter of the Bankruptcy of Margaret Mary Gelpke


Docket: Victoria 10 3756

2012 BCSC 1770

Master W. McCallum

Heard: October 15, 2012


Bankruptcy and insolvency –––– Discharge of bankrupt — Conditional dis-charge — Tax obligations –––– 76-year-old bankrupt made assignment on Au-gust 24, 2010 with one creditor (Canada Revenue Agency) with proven claim of$793,220.21 and realized assets of $2,209.69 — Bankrupt’s tax debt arose fol-lowing audit of her 1999 and 2000 income tax returns for which losses were notproperly deductible from income, investments were non-qualified investmentsfor trust governed by RRSP, and other losses and carrying charges were disal-lowed — Bankrupt had present income of $1,400 monthly and exempt assets of$16,000 from her bankruptcy, and she was dependent on her husband for manyof her living expenses — Bankrupt brought application for discharge from bank-ruptcy — Application granted — Bankrupt discharged upon payment into herestate of $150,000 and filing of personal income tax returns and payment ofincome taxes when due — At time tax debt was incurred, bankrupt was em-ployed, had assets in excess of $850,000, no debts, and she lived with her em-ployed husband — At time of her bankruptcy, bankrupt’s RRSP assets wereworthless — Bankrupt knew of her income tax debt when she sold her interest inmatrimonial home to her husband in 2004 for $362,500 and she made no effortto either pay her tax debt or appeal reassessment — Bankrupt set in motion cir-cumstances that lead to both reassessment of income tax due and loss of herinvestments — Even assuming she had professional advice that was faulty, shetook first step — Bankrupt had advantage of minimal living expenses thanks toher husband and she enjoyed enviable standard of living — Conditional orderwas required to bring home consequences of non-payment of income taxliabilities.

Cases considered by Master W. McCallum:

Trueman, Re (2001), 2001 CarswellAlta 580, 2001 ABQB 377, 25 C.B.R. (4th)124, [2001] A.J. No. 588 (Alta. Q.B.) — considered

Gelpke, Re Master W. McCallum 147


Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3Generally — referred tos. 170 — considereds. 172.1(1) [en. 2005, c. 47, s. 105] — considereds. 172.1(3) [en. 2005, c. 47, s. 105] — considereds. 172.1(4) [en. 2005, c. 47, s. 105] — considered

Words and phrases considered:

rrsp strip scheme

[Canada Revenue Agency] said in its evidence that the Bankrupt “removedfunds from her RRSP without paying taxes on the withdrawals in a scheme com-monly known as an “RRSP Strip Scheme”.. . . The essence of that scheme in-volved the purchase by the Bankrupt (using her RRSP funds) of shares in com-panies that did not qualify as RRSP investments. The withdrawn funds($502,500) were then treated as income in the Bankrupt’s hands for that taxationyear.

APPLICATION for discharge from bankruptcy.

M.R. Scherr for Margaret Mary GelpkeC. Matthews for Canada Revenue AgencyK. Glover for Trustee in Bankruptcy, Glover-Drennan Inc.

Master W. McCallum:

Introduction1 This is an application by Margaret Mary Gelpke (“Bankrupt”) for her

discharge from bankruptcy. The application is opposed by her only credi-tor, Canada Revenue Agency (“CRA”). For the reasons that follow, Ihave concluded that the bankrupt should be discharged upon the follow-ing conditions:

(a) payment into her estate of the sum of $150,000; and

(b) filing of personal income tax returns as required by law solong as she remains an undischarged bankrupt and paying,when due, income taxes for those taxation years.

Background2 The Bankrupt is a now 76-year-old woman who made her assignment

into bankruptcy on August 24, 2010. The trustee’s report made under s.170 of the Bankruptcy and Insolvency Act (“Act”) shows that the Bank-


rupt had one creditor (CRA) with a proven claim of $793,220.21 andrealized assets of $2,209.69. The s. 170 report states that the bankruptcyarose because of misfortune and that the trustee was not opposed to thedischarge of the Bankrupt.

3 The Bankrupt is married and has a present income of approximately$1,400 monthly. She retained exempt assets valued at about $16,000from her bankruptcy. She lives with her husband in a house he owns. Hepays the majority of their household expenses. She has no “surplus in-come” as defined by the Bankruptcy and Insolvency Act Directives.

4 The Bankrupt’s tax debt arose following an audit of her income taxreturns for 1999 and 2000. In an audit report dated June 17, 2003, CRAconcluded that certain losses claimed by the Bankrupt ($525,278) for1999 were not properly deductible from income. For the taxation year2000 CRA concluded that certain investments acquired by the Bankruptas RRSP investments were non-qualified investments for a trust gov-erned by an RRSP. The amounts paid by the RRSP ($502,500) were ad-ded to the Bankrupt’s income as they had been transferred from an RRSPto a self-directed RRSP. Certain other losses and carrying chargesclaimed in 2000 were also disallowed.

5 CRA reassessed the Bankrupt for income tax for those years and is-sued Notices of Reassessment. The Bankrupt objected to the reassess-ments and eventually entered into a negotiated settlement with CRA onNovember 19, 2009 for taxation years 1999, 2000, 2001, 2007 and 2008.The effect of the agreement was to remove certain penalties charged byCRA and other modest income amounts from the assessments. TheBankrupt agreed she would not object to or appeal the reassessmentswith respect to those issues. In the result, the Bankrupt was reassessedfor income taxes that form the basis of the CRA debt.

6 The Bankrupt said in her evidence and her affidavit that she was “thevictim of an RRSP scam in which my RRSP savings of $502,500 werestolen”. (Affidavit #1 of Mary Margaret Gelpke). The evidence did notdetail how or when the events to which she referred came about. TheBankrupt’s counsel said in submissions that she received professional ad-vice that lead to the decisions she made but there is no evidence of thatactivity.

7 CRA said in its evidence that the Bankrupt “removed funds from herRRSP without paying taxes on the withdrawals in a scheme commonlyknown as an “RRSP Strip Scheme”. (Affidavit #1 of M. Santos). Theessence of that scheme involved the purchase by the Bankrupt (using her


RRSP funds) of shares in companies that did not qualify as RRSP invest-ments. The withdrawn funds ($502,500) were then treated as income inthe Bankrupt’s hands for that taxation year.

8 The Bankrupt said that the money invested in the companies had beenstolen. At the very least, it appears that the investments were worthless.The result was that the Bankrupt’s funds were not recovered and she wasrequired to pay taxes on those amounts as income in her hands.

9 The Bankrupt said in her affidavit that she attempted to avoid bank-ruptcy although she does not say specifically what efforts she made. Shealso said she used the funds she had to pay living expenses and ulti-mately became dependent upon her spouse for most of her living ex-penses. The Bankrupt’s spouse is a medical doctor who continues topractice and earn an income.

10 In February 2004, the Bankrupt sold her interest in the matrimonialhome she shared with her husband to her husband for $362,500 repre-senting what was said to be one-half the fair market value of the pro-perty. The sale was made pursuant to an agreement between the spousesto allow the Bankrupt to dispute “various assessments of tax”. The Bank-rupt’s spouse agreed to pay the sale price in 300 monthly installments of$1,208.33 commencing on March 1, 2004. The Bankrupt’s husband gavethe Bankrupt a Promissory Note in those terms reserving the right to ac-celerate the payment of his obligation without penalty.

11 The Bankrupt’s husband paid the amount owing to the Bankrupt infull between 2004 and 2009. At the time of her assignment in bankruptcyin 2010, the Bankrupt had no assets. She said in her evidence that shespent the proceeds of the sale of the matrimonial home on living ex-penses between 2004 and 2009. She also testified that she had sold 60gold coins for approximately $60,000 prior to her bankruptcy in order topay her living expenses. Although the apparent purpose of the real estatesale was to provide funds for appeals of the tax reassessments, there wasno evidence of appeals or expenditures relating to the reassessments.

12 At the date of this application, the Bankrupt had no assets, and amonthly income of approximately $1,400. She remains dependent uponher husband for many of her living expenses. Her financial circum-stances are not likely to improve given her retirement from employmentin 2003 and her age.


Discussion13 The Bankrupt says she is, in the words of the authorities, an honest

but unfortunate debtor entitled to a discharge from bankruptcy on pay-ment of $5. She says her RRSP funds were stolen and the bankruptcyoccurred as a result of that event.

14 CRA says the Bankrupt was part of a scheme to remove funds fromher RRSP without paying tax on those withdrawals and the tax debt re-sulted from those improper withdrawals. CRA says the bankrupt hadother assets sufficient to pay almost all of her income tax debt at the timeit was incurred and avoided payment of that debt. CRA says the dis-charge should be conditional upon payment by the bankrupt of $160,000.

15 This application falls within s172.1 (1) of the Bankruptcy and Insol-vency Act, R.S.C 1985, c. B-3 (“BIA”) that refers to bankrupts with$200,000 or more of personal income tax debt where that debt represents75% or more of the proven claims. The discharge is governed bys.172.1(3) that reads:

Powers of court to refuse or suspend discharge or grant conditionaldischarge

(3) On the hearing of an application for a discharge referred to insubsection (1), the court shall, subject to subsection (4),

(a) refuse the discharge;

(b) suspend the discharge for any period that the court thinksproper; or

(c) require the bankrupt, as a condition of his or her discharge, toperform any acts, pay any moneys, consent to any judgmentsor comply with any other terms that the court may direct.

Factors to be considered

(4) In making a decision in respect of the application, the court musttake into account

(a) the circumstances of the bankrupt at the time the personal in-come tax debt was incurred;

(b) the efforts, if any, made by the bankrupt to pay the personalincome tax debt;

(c) whether the bankrupt made payments in respect of other debtswhile failing to make reasonable efforts to pay the personalincome tax debt; and

(d) the bankrupt’s financial prospects for the future.


16 The court is required to take into account the factors set out in s172.1(4). In the case at bar, I make the following findings.

17 At the time the tax debt was incurred, the Bankrupt was employed,had assets in excess of $850,000 (including the matrimonial home andthe RRSP) and no debts. She lived with her husband who was also em-ployed. There is no evidence of the circumstances of the Bankrupt’s hus-band other than his ownership of a one-half interest in the matrimonialhome. The Bankrupt’s RRSP assets were worthless by the time of herbankruptcy in 2010.

18 The Bankrupt made no effort to pay the personal income tax debt. Onthe evidence, it appears she made every effort to avoid paying the debt.She sold her interest in the matrimonial home in 2004 on very favourableterms to her husband and sold the gold coins she owned. She did notapply any of the proceeds of those sales to the tax debt.

19 The bankrupt did not make payments in respect of other debts as shehad no debts other than those incurred for her living expenses. Many ofher living expenses during the period following the tax debt being in-curred were paid by her husband. There is no evidence that the Bankruptlived in straitened circumstances during that period thanks to the gener-osity of her husband.

20 The Bankrupt’s financial prospects for the future appear to be a con-tinuation of the years since the tax debt was incurred. She has a verymodest income with little prospect of significant increases, equally mod-est living expenses while living with her husband, no assets and no debts.

21 I am satisfied on the evidence that the Bankrupt has no real prospectof paying a conditional order given her current and likely future circum-stances. That is not sufficient to warrant the order the Bankrupt seeks tobe discharged now without condition.

22 The Bankrupt set in motion the circumstances that lead to both thereassessment of income tax due and the loss of her investments. There isno evidence as to those circumstances but, even assuming she had pro-fessional advice that was faulty or indeed fraudulent, she took the firststep. The evidence as to disallowed claims of trading losses in 1999shows her desire to avoid the payment of income tax. I do not say theavoidance of tax is wrong in itself but taxpayers must take into accountthe potential fallout from those activities.


23 In Trueman, Re, 2001 ABQB 377 (Alta. Q.B.), Master Funduk said ofincome tax debtors at para. 16 of his reasons:

Rehabilitation is not the driving fact here. Deterrence is, not just forthe bankrupt but more important for others who might be tempted toevade income tax liability by conveniently using bankruptcy as a fi-nancial planning tool.

24 The Bankrupt knew of her income tax debt when she sold her interestin the matrimonial home for $362,500 and made no effort to either payher tax debt or appeal the reassessment. She has the significant advantageof minimal living expenses thanks to the circumstances of her husbandand enjoys an enviable standard of living. A conditional order is requiredto bring home the consequences of non-payment of income tax liabilitiesin circumstances such as these.

Conclusion25 The Bankrupt will be discharged on payment of $150,000. So long as

she remains an undischarged bankrupt she will be required to file all re-turns of income required by law and pay all income taxes due as a resultof those filings.


Morbank Financial Inc. v. Wong 153

[Indexed as: Morbank Financial Inc. v. Wong]

Morbank Financial Inc. Petitioner and Nancy Lai Ping Wong,644036 Alberta Ltd., Eric Burton also known as Eric AlanBurton, Roger Field, Robert William Stuart Murray, The

Occupiers of the Mortgaged Property Respondents


Docket: Fort St. John 18860

2012 BCSC 1781

R.S. Tindale J.

Heard: August 7, 2012


Real property –––– Mortgages — Foreclosure — Practice and procedure —Judgment or order — Miscellaneous –––– In commercial foreclosure proceed-ing, order nisi was pronounced in July 2008 when amount owing was$230,148.13 plus 14 percent interest — On May 11, 2009, order was granted forconduct of sale of property but property did not sell — As of November 21,2011, petitioner sought judgment in amount of $477,613.64, including interestand appraisal fee of $2,100.00 — Petitioner’s application for personal judgmentagainst respondents was granted in part, with , but petitioner was to have judg-ment as of May 26, 2009, including amount for appraisal — Petitioner appliedto settle terms of order regarding protective disbursements and costs — Applica-tion granted — With regard to date of judgment against respondents, intentionwas that judgment date should be date that order for conduct of sale was madeand that was mistakenly referred to as May 26,2009 in many of materials inprior hearing — Correct date of judgment was actually May 11, 2009 — Re-spondents also argued that appraisal fee should not be included in personal judg-ment as protective disbursement, but there was no jurisdiction to change order ascourt was functus officio on this issue — Argument with respect to appraisal feewas rejected and respondent did not make any objection at prior hearing to otherprotective disbursements — In any event, there were sound policy arguments forpermitting recovery of protective disbursements incurred after date of judgmentas they preserved value of security benefiting both petitioner and respondents —Respondent’s calculation, of amount of judgment as of May 11, 2009 as being$266,216.17 was correct and protective disbursements in amount of $77,391.12would be included in personal judgment — As parties had divided success onboth applications, they would bear their own costs.


Cases considered by R.S. Tindale J.:

Eaton Bay Trust Co. v. InnerSpace Developments Ltd. (1986), 1986 CarswellBC3, 10 B.C.L.R. (2d) 29 (B.C. S.C.) — distinguished

Federal Business Development Bank v. 332100 B.C. Ltd. (1995), 1995 Car-swellBC 2137 (B.C. S.C.) — followed

ADDITIONAL REASONS to judgment reported at Morbank Financial Inc. v.Wong (2012), 2012 BCSC 115, 2012 CarswellBC 249 (B.C. S.C. [In Cham-bers]), clarifying terms of order and determining costs.

D. Randall for PetitionerT. Matte for Respondent, Nancy Lai Ping Wong

R.S. Tindale J.:

1 On January 25, 2012, I pronounced judgment in this matter which isindexed as Morbank Financial Inc. v. Wong, 2012 BCSC 115 (B.C. S.C.[In Chambers]).

2 By way of a requisition filed July 10, 2012, by the petitioner, thismatter was brought before me to settle the terms of the order that I madeon January 25, 2012, regarding protective disbursements and costs. Infact the parties are seeking clarification on a number of issues. First, theyseek clarification on the date of judgment I granted against the respon-dents, which was May 26, 2009. Second, the amount owing as of thatdate, and finally whether protective disbursements incurred by the peti-tioner after May of 2009 are to be included in the amount of the judg-ment, particularly the $2,100 appraisal fee. The parties also seek a deter-mination of the costs of these applications.

3 With regard to the date of judgment against the respondents my inten-tion was that the judgment date should be the date that the order for con-duct of sale was made. This was referred to as May 26, 2009, in many ofthe materials in the previous hearing; however the correct date is May11, 2009. The correct date for judgment against the respondents is May11, 2009.

4 The respondent Nancy Lai Ping Wong also argues that the appraisalfee of $2,100 should not be included in the personal judgment as a pro-tective disbursement. I am not prepared to change my order in that regardfor two reasons. First, I am functus officio and do not have the jurisdic-tion to change my order, and second, for the reasons to follow with re-

Morbank Financial Inc. v. Wong R.S. Tindale J. 155

gard to the other protective disbursements in question I would not changemy decision in any event.

5 During the January 25, 2012, hearing Mr. Matte, on behalf of the re-spondent Ms. Wong, made the following submissions:

As far as the amount owing, I have only one thing to say, and thatreally is to do with should your Lordship not accept what I have gotto say otherwise — sorry, should your Lordship accept what I haveto say about no judgment and then we don’t — and that’s the end ofthe matter, if your Lordship decides that judgment should be grantedas of May 11 or — 2009 or April 16, 2010, we will have to havesome kind of an accounting as to the amount owing at that time. Andif your Lordship does not accept either of my submissions, then Ihave one comment or complaint about the existing accounting andthat relates to an entry on March 19, 2010, which is for an appraisal.And in my submission, that is cost not a protective disbursement. Ican understand the protective disbursements. I don’t have any partic-ular objection to those. But the appraisal is really part of the litigationexpense and should not have been included as a — it’s really justcosts and should be removed. And, of course if that is correct, it af-fects the interest calculation going forward from that date...

6 Mr. Matte argues in this hearing that the appraisal and protective dis-bursements cannot be included in the personal judgment against the re-spondents as they were all incurred after the date of personal judgmentagainst the respondents. His authority for that is a case of this court citedas Eaton Bay Trust Co. v. InnerSpace Developments Ltd. (1986), 10B.C.L.R. (2d) 29 (B.C. S.C.).

7 The petitioner argues that Mr. Matte should have argued this positionat the original hearing. The petitioner argues that it was unclear that hewanted to make such an argument after I gave my decision as to the dateof the personal judgment against the respondents. The petitioner alsopoints to the fact that Mr. Matte, on behalf of the respondent Ms. Wong,said that he did not have any particular objection to the protective dis-bursements other than the appraisal. Finally, the petitioner argues thatthere is authority to add protective disbursements to the personal judg-ments after the date of judgment has been made.

8 With the greatest respect to Mr. Matte, he made his argument withregard to the appraisal at the hearing of January 25, 2012, and I rejectedthat argument.

9 In my view it is also clear that Mr. Matte’s position at the January 25,2012, hearing was the respondent, Ms. Wong, was not making any objec-


tion to the remaining protective disbursements. However, in the interestof fairness I will consider his argument on the remaining protectivedisbursements.

10 In the case of Eaton Bay, supra, the court considered the question ofwhether or not a judgment on the personal covenant in a mortgage in-cluded in the order nisi in foreclosure proceedings can be varied upwardto reflect taxes paid by the mortgagee after the entry of the order. Thecourt said at para. 16:

When the petitioner chose to pay the taxes, it appears that there wasno longer any “principal” due under the mortgage: this debt had be-come a judgment debt; therefore the taxes when paid could not be“added to the principal hereby secured” as the clause provides. Oncethe petitioner chose to collect the totality of the debt under the provi-sions of the contract permitting acceleration, in my view, it cannot ata later time claim any further sums as part of the “principal” of thedebt. The right to collect under the covenant to pay principal andinterest had been exhausted regardless of what sums made up theprincipal and in the absence of a right to collect the taxes indepen-dently of the right to collect principal and interest no second actioncan be taken under the auspices of that right. It is not a matter ofmerger; it is a matter of the provisions in the contract and theirinterpretation.

11 The petitioner relies on the decision of this court in Federal BusinessDevelopment Bank v. 332100 B.C. Ltd. [1995 CarswellBC 2137 (B.C.S.C.)], Vancouver Registry No.C934090, 1995 CanLII 2782. In that casethe court considered Eaton Bay on an appeal from a master which pre-cluded the plaintiff from recovering taxes, receiver’s fees and protecteddisbursements. The court, at paras. 21 to 24, said the following:

21 There are sound policy arguments for permitting the recovery ofprotective disbursements, taxes paid and receiver’s fees, all of whichhave the effect of preserving, if not enhancing, the value of the secur-ity which benefits borrowers and guarantors as well as lenders, re-gardless of what stage in the preceding these expenses are incurred.

22 The plaintiff is seeking by further accounting, a determination thatthe taxes, receiver’s fees, and protected disbursements rank in prior-ity against the monies payable to the plaintiff in satisfaction of theprincipal and interest due under the debenture. That would mean anyshortfall after the application of the proceeds of the sale must bemade up by the guarantors.

23 I agree with the plaintiff’s submission which is supported by thedecision in Duguay with which I agree.


24 I allow the appeal in part and order that there be a further sum-mary accounting which should include taxes and protective disburse-ments paid by the plaintiff chargeable against the defendants andthird party in priority before principal and interest.

12 The case of Eaton Bay is distinguishable from the case at bar becausein Eaton Bay the order nisi included personal judgment against the re-spondents. That is not the case here as it was the request of the respon-dents to adjourn the application for personal judgment so that they couldobtain financing. This was consented to by the petitioner.

13 In any event, I prefer the reasoning of Mr. Justice Edwards in thedecision of Federal Business Development Bank v. 332100 B.C. Ltd.,supra, as I agree that there are sound policy arguments for permitting therecovery of protective disbursements as they have the effect of preserv-ing the value of the security which benefits both the petitioner and re-spondents in this case.

14 The following protective disbursements which can be found in affida-vit # 4 of John Tiberio will be included in the personal judgment againstthe respondents:

June 26, 2009 Payment of Property Taxes $19,579.00August 19, 2009 Funds transferred to Receiver 1,933.22September 22, Funds transferred to Receiver 820.072009October 19, 2009 Funds transferred to Receiver 1,204.91November 5, 2009 Funds transferred to Receiver 1,444.91December 4, 2009 Funds transferred to Receiver 1,676.66December 8, 2009 Funds transferred to Receiver 137.11December 18, 2009 Funds transferred to Receiver 813.65January 18, 2010 Funds transferred to Receiver 1,269.91February 4, 2010 Funds transferred to Receiver 2,390.46March 4, 2010 Funds transferred to Receiver 1,880.44March 19, 2010 Appraisal Fee 2,100.00March 30, 2010 Funds transferred to Receiver 1,359.69April 6, 2010 Funds transferred to Receiver 713.91April 22, 2010 Funds transferred to Receiver 503.93May 18, 2010 Funds transferred to Receiver 1,275.23June 7, 2010 Funds transferred to Receiver 1,594.95June 25, 2010 Funds transferred to Receiver 597.07


June 25, 2010 Funds advanced to Receiver by 15,000.00Morbank

July 9, 2011 Payment of Insurance 3,555.00July 29, 2010 Payment of Insurance 1,963.00September 13, Funds advanced to Receiver by 5,000.002010 MorbankDecember 21, 2010 Payment of Insurance 3,278.00January 6, 2011 Funds advanced to Receiver by 5,000.00

MorbankMarch 3, 2011 Funds advanced to Receiver by 5,000.00

MorbankApril 19, 2011 Credit for funds received by -5,000.00

MorbankJuly 12, 2011 Payment of Insurance 3,266.00August 18, 2011 Credit for funds received by -766.00

MorbankOctober 31, 2011 Credit for funds received by -200.00

MorbankTOTAL $77,391.12

15 The parties also disagree as to the amount owing on the judgment asof May 11, 2009. The petitioner states that the amount of the judgment is$267,589.42. The respondent, Ms. Wong, argues that the order nisi pro-vided a redemption amount of $238,148.13 with interest at $91.13 perday after July 7, 2008. She further argues that there are 308 days fromJuly 8, 2008 to May 11, 2009, which would result in additional interestof $28,068.04. This would result in the judgment as of May 11, 2009,being $266,216.17.

16 The respondent’s calculation is correct in my view.

Summary17 The date for the personal judgment against the respondents is May

11, 2009. The amount of the personal judgment against the respondentsis $266,216.17.

18 The protective disbursements in the amount of $77,391.12 will be in-cluded in the personal judgment against respondents. This amount in-cludes the $2,100 appraisal fee.


19 As the parties have had divided success in both this application andthe application of January 25, 2012, they will bear their own costs ofthese applications.

Order accordingly.


[Indexed as: Do All Metal Fabricating Ltd. v. Embury]

Do All Metal Fabricating Ltd. Plaintiff and Ken EmburyDefendant

Alberta Court of Queen’s Bench

Docket: Calgary 1201-07364

2013 ABQB 135

Master J.B. Hanebury

Heard: December 11, 2012


Civil practice and procedure –––– Summary judgment — General princi-ples –––– Defendant agreed to buy drilling rig from plaintiff — Rig was not de-livered in timely manner, was not delivered with certification necessary for op-eration, and did not meet safety requirements — Defendant claimed that itsuffered financial loss from not having rig ready at time agreed upon — Defen-dant made partial payment only on amount demanded by plaintiff — Plaintiffbrought action for recovery under agreement — Plaintiff brought applicationfor summary judgment — Application dismissed — Genuine issue for trial ex-isted in that defendant might have claim for set-off — Guarantee did not specif-ically disallow claim for equitable set-off.

Cases considered by Master J.B. Hanebury, In Chambers:

Bank of Montreal v. Wilder (1986), 1986 CarswellBC 370, 1986 CarswellBC763, [1986] 2 S.C.R. 551, 32 D.L.R. (4th) 9, 70 N.R. 341, [1987] 1 W.W.R.289, 8 B.C.L.R. (2d) 282, 37 B.L.R. 290, [1986] S.C.J. No. 67 (S.C.C.) —referred to

Cactus Restaurants Ltd. v. Morison (2010), 2010 CarswellBC 2788, 2010BCCA 458, 292 B.C.A.C. 287, 493 W.A.C. 287, 10 B.C.L.R. (5th) 227(B.C. C.A.) — considered

Cormode & Dickson Construction (1983) Ltd. v. Harrison (1999), 1999 ABQB538, 1999 CarswellAlta 665, 247 A.R. 330 (Alta. Master) — considered

First Investors Corp. v. Mehra (1986), 1986 CarswellAlta 558, 71 A.R. 140,[1986] A.J. No. 464 (Alta. Master) — referred to

Jens Hans Investments Co. v. Bridger (2004), 22 R.P.R. (4th) 12, 45 B.L.R. (3d)132, 29 B.C.L.R. (4th) 1, 2004 BCCA 340, 2004 CarswellBC 1313, 201B.C.A.C. 86 (B.C. C.A.) — referred to

KKBL No. 348 Ventures Ltd. v. Vancouver Tech Park Corp. (2003), 2003 BCSC164, 2003 CarswellBC 204, 8 R.P.R. (4th) 312 (B.C. S.C.) — referred to

Manulife Bank of Canada v. Conlin (1996), 1996 CarswellOnt 3941, 1996 Cars-wellOnt 3942, 6 R.P.R. (3d) 1, 94 O.A.C. 161, 203 N.R. 81, [1996] 3 S.C.R.

Do All Metal Fabricating Ltd. v. Embury Master J.B. Hanebury, In Chambers 161

415, 139 D.L.R. (4th) 426, 30 O.R. (3d) 577 (note), 30 B.L.R. (2d) 1, [1996]S.C.J. No. 101 (S.C.C.) — referred to

Meridian Developments Ltd. v. Nu-West Group Ltd. (1984), [1984] 4 W.W.R.97, 52 A.R. 248, 32 R.P.R. 149, 1984 CarswellAlta 39, 1984 ABCA 75, 31Alta. L.R. (2d) 1, 6 D.L.R. (4th) 663, [1984] A.J. No. 983 (Alta. C.A.) —considered

Papaschase Indian Band No. 136 v. Canada (Attorney General) (2008), (subnom. Lameman v. Canada (Attorney General)) 372 N.R. 239, [2008] 5W.W.R. 195, 2008 CarswellAlta 398, 2008 CarswellAlta 399, 2008 SCC 14,[2008] 2 C.N.L.R. 295, 68 R.P.R. (4th) 59, 292 D.L.R. (4th) 49, (sub nom.Canada (Attorney General) v. Lameman) [2008] 1 S.C.R. 372, (sub nom.Lameman v. Canada (Attorney General)) 429 A.R. 26, (sub nom. Lamemanv. Canada (Attorney General)) 421 W.A.C. 26, 86 Alta. L.R. (4th) 1, [2008]S.C.J. No. 14 (S.C.C.) — referred to

Tottrup v. Clearwater (Municipal District) No. 99 (2006), 68 Alta. L.R. (4th)237, 391 W.A.C. 88, 401 A.R. 88, 2006 ABCA 380, 2006 CarswellAlta1627, [2006] A.J. No. 1532 (Alta. C.A.) — referred to

420093 B.C. Ltd. v. Bank of Montreal (1995), 128 D.L.R. (4th) 488, 1995CarswellAlta 439, 34 Alta. L.R. (3d) 269, [1996] 1 W.W.R. 561, 174 A.R.214, 102 W.A.C. 214, 1995 ABCA 328, [1995] A.J. No. 862 (Alta. C.A.) —referred to

732311 Alberta Ltd. v. Paradise Bay Spa & Tub Warehouse Inc. (2003), 21Alta. L.R. (4th) 17, 339 A.R. 386, 312 W.A.C. 386, [2004] 5 W.W.R. 59,2003 ABCA 362, 2003 CarswellAlta 1733, [2003] A.J. No. 1502 (Alta.C.A.) — referred to

APPLICATION by defendant for summary judgment in action for breach ofcontract arising out of sale of drilling rig.

Melissa N. Burkett for Plaintiff / ApplicantMalinda Yuen for Defendant / Respondent

Master J.B. Hanebury, In Chambers:

1 This is an application for summary judgment on the guarantee of adebt owed by Tough Enough Drilling Limited. At issue is whether theguarantor can rely on Tough Enough’s defence of set off to defeat sum-mary judgment on his guarantee.


Facts2 Mr. Embury is the director and operating mind of Tough Enough.

Tough Enough ordered a rig from Do All Metal Fabricating Ltd. whoassured Tough Enough that the delivery time was 3 1/2 months.

3 On those representations, Tough Enough agreed to purchase the rigand provided a deposit. It also entered into a contract with another com-pany to provide drilling services which were to commence in October,2011, or as soon as the rig was ready.

4 The rig was not delivered in October and Tough Enough, at its ownexpense, supplied labor assistance to Do All during October and subse-quently, believing that the completion of the rig was imminent.

5 Further delays occurred. Finally the rig was to be ready for load outon January 3, 2012. However Tough Enough was indebted to Do All andneeded more time to pay. To satisfy Do All, on December 31, 2011, Mr.Embury signed a personal guarantee up to a maximum of $2 million ofthe indebtedness owed by Tough Enough to Do All.

6 Further promises and further delays occurred and the rig was finallyloaded out on February 6, 2012, approximately 4 months after the origi-nal delivery date.

7 Tough Enough arranged for transportation of the rig, using 20 semitrucks to pick the rig up on February 6, 2012. After two trucks had beenloaded and were in transport, Mr. Embury was told that he had to signtwo invoices or Do All would not allow the continued loading of the rig.As the trucks were there, he signed them. They contained additionalhandwritten wording which acknowledged that he had inspected thegoods and that they were in accordance with specifications and that heagreed to the amount invoiced.

8 Mr. Embury says that he did not have an opportunity to inspect therig nor was he qualified to do so. He also states that while the rig wasbeing loaded out he had a conversation with the representative of Do Allwho indicated that Tough Enough would be entitled to some“chargebacks” in relation to the agreement.

9 Numerous problems occurred in relation to the rig, not all of whichneed to be listed here. A safety audit found that it was in contravention ofoccupational health and safety regulations. There was a fast line sheavefailure that resulted in downtime. A welder who worked on the rig pro-vided an e-mail to Tough Enough in March, 2012, in relation to the de-lays, the haste in construction and stated that the rig was released “in-


complete”. As well an e-mail was received by Tough Enough from theelectrical foreman for Do All who worked on the rig speaking ofproblems with its construction. Certifications necessary to operate the rigwere to be included upon its delivery and were not included nor subse-quently provided.

10 Do All has invoiced Tough Enough for a total of $7,732,239.26.Tough Enough paid Do All $5,094,336.45. It withheld payment of$2,637,902.81 on the basis of the damage caused by the delay in deliv-ery, the deficiencies, the missing certifications, and the resulting loss toTough Enough, details of which were provided. Mr. Embury’s evidenceis that Tough Enough’s damages exceed $5,000.000.00.

Issue11 At issue in this case is the question of whether the wording in the

guarantee permits Do All to obtain summary judgment against Mr. Em-bury despite the defences, including set off, that may be available to thedebtor, Tough Enough.

Analysis12 The test on an application for summary judgment is not in dispute.

The Court must be satisfied that there is no genuine issue for trial. Thebar on a motion for summary judgment is high: Papaschase Indian BandNo. 136 v. Canada (Attorney General), [2008] S.C.J. No. 14, 2008 SCC14 (S.C.C.); 732311 Alberta Ltd. v. Paradise Bay Spa & Tub WarehouseInc., [2003] A.J. No. 1502 (Alta. C.A.), para. 10 - 12.

13 Other terminology has also been used. It must be plain and obvious,or clear or beyond a real doubt that a summary determination of the mat-ter should be made: Tottrup v. Clearwater (Municipal District) No. 99,[2006] A.J. No. 1532, 2006 ABCA 380 (Alta. C.A.), para. 10.

14 Do All relies on the guarantee and its wording to argue that the debtis owed and there is no genuine issue for trial.

15 Mr. Embury responds that he has two defences to the guarantee. First,the company was placed in financial difficulty as a result of Do All’sfailure to provide the rig on time and its failure to provide a fully func-tioning rig. Second, he is entitled to claim set off against the amountoutstanding as a result of the losses suffered by the company due to theproblems with the rig.

16 Do All filed no affidavit evidence contesting the veracity of Mr Em-bury’s list of Tough Enough’s concerns and complaints. It says that Do


All can’t complain about anything that happened before the execution ofthe guarantee; that there is no evidence of the financial ruin of the com-pany; and, set off is not a defence as the wording of the guarantee entitlesit to judgment regardless.

17 As I have concluded that this application can be decided on the solequestion of whether it is plain and obvious that there is no defence of setoff available to Mr. Embury, it is unnecessary to consider his argumentthat the actions of Do All resulted in the financial ruin of Tough Enoughthereby releasing him from his guarantee.

18 The liability of a guarantor when the principal debtor has defences tothe debt has been considered in a number of cases.

19 In Meridian Developments Ltd. v. Nu-West Group Ltd., 1984 ABCA75 (Alta. C.A.), the Court stated that, prima facie, the guarantor’s obliga-tions are co-extensive with those of the principal debtor. However theterms of the guarantee may continue the guarantor’s obligation evenwhen the creditor cannot pursue the debtor to collect the debt. See aswell: First Investors Corp. v. Mehra (1986), 71 A.R. 140 (Alta. Master)(Master).

20 The debtor can raise all of the defences that the principal debtor canraise both legal and equitable, including the right of setoff: 420093 B.C.Ltd. v. Bank of Montreal, 1995 ABCA 328 (Alta. C.A.)1.

21 However, those defences can be rendered unavailable to the guarantoras a result of the wording in the guarantee. The Supreme Court of Can-ada noted that most guarantees are contracts of adhesion with the resultthat the guarantor has little if any ability to negotiate terms. Therefore,particularly in the case of accommodation sureties, the court has con-strued guarantees strictly and been vigilant in limiting guarantor’s liabil-ity to the precise terms of the guarantee. The words used to contract outof the protections usually afforded to a guarantor must be clear and anydoubt or ambiguity is to be construed in favour of the guarantor:Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 (S.C.C.)., para.4, 15.

22 For example, a guarantor may be able to claim that he has been re-leased from his guarantee when the creditor’s conduct caused the default

1See: contra, Cormode & Dickson Construction (1983) Ltd. v. Harrison, 1999ABQB 538 (Alta. Master), which does not refer to the Court of Appeal decisionin 420093 B.C. Ltd. and, unlike the Court of Appeal, is not binding on this court.


of the debtor. A general clause in the guarantee permitting the lender todeal with the company as it saw fit was found insufficient to remove thatdefence and the creditor could not enforce the guarantee: Bank ofMontreal v. Wilder, [1986] 2 S.C.R. 551 (S.C.C.), para. 36. See as well:Jens Hans Investments Co. v. Bridger, 2004 BCCA 340 (B.C. C.A.).

23 In the case of set off, if a guarantee seeks to remove the right to claimthat defence, the words themselves or the implication of the words usedmust be clear: KKBL No. 348 Ventures Ltd. v. Vancouver Tech ParkCorp., 2003 BCSC 164 (B.C. S.C.), para. 12.

24 Do All relies on the wording found in paragraphs 9 and 7 of the guar-antee to argue it is entitled to judgment.

25 In this case paragraph 9 of the guarantee provides that Mr. Emburymust accept any account stated by Do All as “conclusive evidence of theamount which at the date of the account... is due by [Tough Enough] to[Do All] or remains unpaid by [Tough Enough] to [Do All].”

26 Those words are not so clear and unambiguous that it is plain andobvious that set off cannot be raised as a defence. An argument of set offdoes not necessarily dispute the original invoices, but claims a deductionagainst that amount. This was noted in Cactus Restaurants Ltd. v. Mori-son, 2010 BCCA 458 (B.C. C.A.), where the British Columbia Court ofAppeal said at paragraph 11 that an “equitable set-off, as distinct from aprocedural set-off, is a substantive right held by a debtor that constitutesa charge against a chose in action for his debt.” The Court then quotedfrom the text Set-Off, 2nd ed. (Oxford: Clarendon Press, 1996), S.R. Der-ham, para. 56-58 where the author noted that in earlier times equitableset-off was only a procedural defence and it had no effect until judgment.This situation has changed:

...However, a characteristic of the form of equitable set-off under dis-cussion which has emerged in recent years is that it operates as atrue, or substantive, defence...It may be set up by a person indebtedto another, not merely as a means of preventing that other personfrom obtaining judgment, but also as an immediate answer to his lia-bility to pay the debt otherwise due...

27 While paragraph 9 acknowledges the amount of the invoices, it doesnot clearly or by clear implication remove the right to claim equitableset-off as a defence against that debt.

28 I turn next to paragraph 7 of the guarantee. It provides: Any sum which may not be recoverable from the undersigned on thefooting of the guarantee, whether for the reasons set out in the previ-


ous sentence [which do not include set-off], or for any other reason,similar or not, shall be recoverable from the undersigned as sole orprincipal debtor in respect of that sum, and shall be paid to the lenderon demand with interest and accessories2 .

29 Those general words seek to change the nature of the contract from aguarantee to an indemnity in certain instances. However, again, they donot refer specifically or by clear implication to set off as a circumstancewhereby the guarantor waives his defences as a guarantor and becomesinstead a principal debtor.

30 The guarantee signed by Mr. Embury does not specifically or by clearimplication waive any right to rely on the defence of set off. Therefore,in my view, the wording is insufficiently precise for this Court to say thatthere is no genuine issue for trial as to whether Mr. Embury can rely onthe defence of set off to avoid liability for the amount claimed.

31 The defendant is entitled to its costs.

Application dismissed.

2Accessories is the word used.

CANADIAN BANKRUPTCY REPORTS

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