Hazin (Re), 2011 ABQB 197

Court of Queen ’ s Bench of Alberta Citation: Hazin (Re), 2011 ABQB 197 Date: 20110324 Docket: BK03 76407 Registry: Edmonton In the Matter of the Bankruptcy of Ramsey Issa Hazin Between: Laura Hazin Applicant - and - Deloitte & Touche Inc., Trustee In Bankruptcy of the Estate of Ramsey Issa Hazin and Ramsey Issa Hazin Respondents _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice John .J. Gill _______________________________________________________ [ 1 ] This is a bankruptcy matter.

The Trustee in Bankruptcy of the Estate of Ramsey Issa Hazin (the “Trustee”) applies for directions in relation to the realization of the bankrupt Ramsey Issa Hazin’s (the “Bankrupt”) non-exempt equity in the former matrimonial home (the “matrimonial home ”); an Order for Sale of the matrimonial home to realize upon the non-exempt equity for the benefit of the proven creditors of the estate; and, an Order directing that the Bankrupt’s share of the net sale proceeds including any exempt portion be paid over to the Trustee.

[ 2 ] There is a cross-application by the wife of the Bankrupt (Laura Hazin) for an Order that upon payment of the sum of $56,500, that the Trustee shall transfer to Ms. Hazin all of the Trustee’s right, title and interest in the matrimonial home. Background Facts [ 3 ] The Bankrupt made a voluntary assignment into bankruptcy on June 4, 1999 and Deloitte & Touche Inc. was appointed as Trustee of his estate. At the time of his assignment into bankruptcy, the Bankrupt and Ms. Hazin were registered as owners of the matrimonial home.

In a statement of affairs, the Bankrupt declared the matrimonial home to have a value of $258,000 and secured charges of $188,986. The Bankrupt claimed that his interest in property was exempt. [ 4 ] Since the Bankrupt’s state of bankruptcy commenced, Ms. Hazin and her five children have continued to occupy the matrimonial home. Some time after the date of bankruptcy, the Bankrupt separated from Ms. Hazin.

He now resides in Ontario. [ 5 ] In September 2002 the Trustee applied to Registrar Breitkreuz for advice and directions regarding the value of the non- exempt portion of the matrimonial home for realization by the Trustee. At that hearing in 2002, counsel for the Bankrupt argued that the Bankrupt could be entitled to a portion larger than the statutory exemption (under the Civil Enforcement Act , R.S.A. 2000, c.

C-15) based upon the increase in value of the matrimonial home from the date of bankruptcy until the date of discharge. [ 6 ] In his Reasons Registrar Breitkreuz rejected the Bankrupt’s arguments, accepted an appraisal of the matrimonial home of $305,000 and ruled: “I will direct the portion of the matrimonial home available for distribution among creditors after allowing for 50% being the wife’s portion, to be $36,500. I have accepted the figures presented by Mr.

Mintz, counsel for the Judgement Creditor”. [ 7 ] At that time Registrar Breitkreuz also set the terms for the Bankrupt’s discharge from bankruptcy being that he pay 75% of proven claims. The Bankrupt appealed the Discharge Order to Madam Justice Veit who dismissed the Bankrupt’s appeal. [ 8 ] At this time the Bankrupt is still not discharged from bankruptcy. Ms. Hazin and her children continue to reside in the matrimonial home. It is also not in dispute that the Trustee has paid nothing on the mortgage or to taxes, upkeep or maintenance of the matrimonial home.

For reasons unknown, the Trustee has taken no steps to realize the Trustee’s interests declared by the Court. [ 9 ] The matrimonial home now has an assessed value of approximately $533,500.00. Positions of the Parties [ 10 ] The Trustee asserts that he is entitled to one half of the increased equity in the matrimonial home. Ms. Hazin takes the position that the Trustee is estopped from asserting any greater interest in the matrimonial home other than $36,500 (plus the exemption of $20,000 for the Bankrupt) as a result of the direction and Order made by Registrar Breitkreuz in 2002. Submissions of the Parties Ms.

Hazin

[ 11 ] Ms. Hazin notes that the purpose of the hearing in front of Registrar Breitkreuz was to deal with the question of non-exempt equity. At that time the main creditor provided detailed appraisal information and a decision was made by the Registrar. [ 12 ] The issue of non-exempt equity has to be dealt with at the application for discharge stage. It makes no difference if the application results in a conditional discharge: Re MacKay, Bankrupt , 2002 ABQB 598 , 318 AR 315 . There is good reason for this state of affairs.

Otherwise as noted by Master Funduk in Re MacKay , “ the bankrupt would be left twisting in the wind” (at paragraph 81). [ 13 ] An increase in non-exempt equity is not “after acquired property” as asserted by the Trustee. The argument put forward by the Trustee if accepted would nullify the whole concept of finality on limited exemption assets. To accept this proposition would fly in the face of what the Courts have said on these issues. [ 14 ] Ms.

Hazin submits that the application now being made by the Trustee is identical to the application made in 2002 and therefore the principles of issue estoppel and res judicata apply. The Trustee is estopped from arguing that its interest in the matrimonial home is anything other than the $36,500 (plus the exemption of $20,000 for the Bankrupt). [ 15 ] Reference was made to the case from the Alberta Court of Appeal of Ernst & Young Inc v. Central Guarantee Trust Co , 2006 ABCA 337 , 2006 A.J. 1413 where the doctrine of issue estoppel was applied.

In that case a chambers judge managing the receivership of international warranties made rulings that implied that trusts administered by Central Guarantee Trust Co. were valid. Later when Central Guarantee Trust Co. was sued it argued that the trusts were not valid. Counsel for the plaintiffs successfully argued that Central Guarantee Trust Co. was estopped from arguing that the trusts were not valid.

The Trustee [ 16 ] The Trustee submits the issue that was decided by Registrar Breitkreuz in 2002 is a different issue from the one before the Court today which is whether or not the increased equity in the property is after acquired property of the Bankrupt. [ 17 ] The Trustee refers to Section 67(1) (

c) of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 which provides that the property of a bankrupt divisible among his creditors shall comprise “all property wherever situated of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve on the bankrupt before their discharge”.

This increase in equity is after acquired property. [ 18 ] The Trustee submits that Registrar Breitkreuz did not order that a charge against the non-exempt equity be limited to $36,500 but rather directed that the portion of the non-exempt equity to be distributed at that time was $36,500. [ 19 ] No realization of the non-exempt equity has occurred. The Trustee has not made an application to the Court to deal with the non-exempt assets. The relevant value of the property is its value at the time of realization.

The Order of Registrar Breitkreuz does not contain any finality on that issue. [ 20 ] The Trustee also submits that the Bankrupt has not reached the moment of discharge and the Bankrupt in fact has not paid the monies to entitle him to his absolute discharge. In the meantime the Bankrupt’s non-exempt equity has increased or he has acquired property in the home which should be made available to the creditors.

Since the Bankrupt is still not discharged he has entitlement to one half of the property at issue. [ 21 ] He also notes that the direction of Registrar Breitkreuz in relation to the non-exempt equity was not included in the Order that was generated. That Order primarily addressed the requirement for the conditional discharge of the Bankrupt upon payment of 75% of the proven claims.

[ 22 ] The Trustee also submits there are special circumstances which would bar the application of issue estoppel. Ms. Hazin and/or the Bankrupt now seek to unjustly enrich themselves as a result of the Trustee’s generosity. One half of the equity in a property which has appreciated belongs to the Bankrupt’s estate. Issue 1. Is the Trustee entitled to any greater interest in the matrimonial home than $36,500 (plus the exemption of $20,000 for the Bankrupt)? Legal Framework [ 23 ]

Section 67 of the Bankruptcy and Insolvency Act provides that all property of the bankrupt at the date of the bankruptcy or that may be acquired by or devolve upon the bankrupt before his discharge vests in the Trustee. That

section also provides that property that is exempt from execution or seizure under Provincial Law is not divisible among creditors. [ 24 ] Under the Civil Enforcement Act , RSA 2000, c. C-15, an owner of a house is entitled to an exemption of $40,000. As this Bankrupt had only a half interest in the matrimonial home, his exemption was limited to $20,000. [ 25 ] Several cases have dealt with the question as to whether or not a bankrupt was entitled to the statutory exemption plus increased equity in the property from the date of bankruptcy until the bankrupt’s date of discharge.

A number of decisions have unanimously rejected any such proposition. See ICI Paints v. Gazelle (Bankrupt) , 2001 ABQB 233 , 343 AR 1 ; Re MacKay, Bankrupt , supra ; and Re Piraux (Bankrupt) , 2006 ABQB 409 , 398 AR 66 . Analysis [ 26 ] This case raises a number of issues. There are two that are determinative of the outcome in this case. [ 27 ] Firstly, the issue of when is the time to address the issue of non-exempt equity. The comments of Master Funduk in the Re MacKay case are applicable here.

At paragraphs 100 and 101 he stated: 100 Regardless whether a bankrupt has gotten an absolute, suspended or conditional discharge nobody can later raise an issue about surplus equity in a house. The discharge is the latest time that issue is to be dealt with, if anyone wants to make that an issue. 101 If a conditional order is given requiring the bankrupt to pay for the surplus equity nobody can later ride the market, up or down, to revisit that. If the house value later goes up the trustee and creditors cannot ask that the bankrupt now pay more.

If the house value later goes down the bankrupt cannot ask that he now pay less. [ 28 ] The latest time to raise an issue about surplus equity in a house is at the time of discharge. In this case it was in September, 2002 at the time of the discharge pursuant to the order of Registrar Breitkreuz .

[ 29 ] Secondly, the issue of the doctrine of issue estoppel. The Court of Appeal in Ernst & Young Inc , supra , outlined the doctrine at paragraphs 29 to 30: 29 The doctrine of res judicata has two branches: issue estoppel and cause of action estoppel. Issue estoppel precludes the litigation of an issue previously decided in another court proceeding, and cause of action estoppel precludes the litigation of a cause of action which was adjudged in a previous court proceeding: Donald J. Lange, The Doctrine of Res Judicata in Canada , 2d ed. (Ontario: LexisNexis Canada Inc., 2004) at 1 [ Res Judicata ].

We need not consider the applicability of cause of action estoppel because issue estoppel precludes Central Guaranty from attacking the validity of the trusts in this litigation. 30 For issue estoppel to be successfully invoked, the issue must be the same as the one decided in the prior judicial decision, the prior judicial decision must have been final, and the parties to both proceedings must be the same, or their privies: Toronto (City) v.

Canadian Union of Public Employees, Local 79 , [2003] 3 S.C.R. 77 , 2003 SCC 63 at para. 23 [Toronto] . [ 30 ] I find that the three requisite elements of issue estoppel are present in this case. [ 31 ] The issue that the Trustee is seeking to be decided in the current application is the same one that was decided in 2002 which is: what is the Trustee’s interest in the matrimonial home? [ 32 ] That 2002 judicial decision of Registrar Breitkreuz is a final judicial decision. No appeal was taken with respect to the Court’s determination in 2002 of the Trustee’s interest in the matrimonial home.

Madam Justice Veit in the appeal in relation to the conditions of discharge commented upon, but did not disturb it on the appeal. [ 33 ] In the text book The Doctrine of Res Judicata in Canada , 3d ed. (Markham, Ont: LexisNexis Canada Inc, 2010), Donald J. Lange deals with the various

definitions of privity found in Canadian case law. He states at page 84: A privy is a person who has a right to participate with a party in the proceeding or who has a participatory interest in its outcome. A person who has no right to participate as a party in a proceeding lacks a due process requirement to make a finding of privity of interest.

To determine whether a person has a participatory interest in the outcome of the proceeding is to determine whether the outcome could affect the liability of that person. [ 34 ] Further at page 85, Lange writes: For issue estoppel to apply, it must be shown that the “wait and see” party could easily have been involved in the prior proceeding. [ 35 ] Although Ms. Hazin did not make an appearance at the Court hearing in 2002, she was aware of the decision that affected the matrimonial home in which she resided. The determination of the Trustee’s interest in the matrimonial home was an in rem Order affecting Ms.

Hazin’s interest in the matrimonial home. I therefore conclude that Ms. Hazin was a privy to the 2002 decision. Conclusion [ 36 ] For these reasons the Trustee’s application is dismissed and Ms. Hazin’s application is granted. [ 37 ] As requested by Ms. Hazin the following Order will issue:

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a) Upon payment of the sum $56,500 (comprising the non-exempt equity amount of ($36,500 and the exemption of $20,000 for the Bankrupt) to the Trustee, the Trustee shall convey all of its right, title and interest in and to the matrimonial home to Ms. Hazin. Heard on the 8 th day of March, 2011. Dated at the City of Edmonton, Alberta this 24 th day of March, 2011. John. J. Gill J.C.Q.B.A. Appearances: Brian Summers Fraser Milner Casgrain LLP for the Applicant Bruce E. Mintz Mintz Law for the Respondent Trustee Ramsey Issa Hasin Appeared by Telephone on His Own Behalf