2023 QCCA 279, 2023 QCCA 279

Proposition de Honey 2023 QCCA 279 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-029928-223 (760-11-007845-213) DATE: February 27, 2023 CORAM: THE HONOURABLE STEPHEN W. HAMILTON, J.A. STÉPHANE SANSFAÇON, J.A. PETER KALICHMAN, J.A. CHARLES O’BRIEN APPELLANT – Applicant v. ROXANNE HONEY RESPONDENT – Insolvent Person and GROUPE SERPONE INC.

RESPONDENT – Licensed Insolvency Trustee and MICHAEL WEBBER, in his capacity as liquidator of the succession of the late Joseph Honey RESPONDENT – Intervenant JUDGMENT [ 1 ] The Appellant obtained a judgment for $52,929.89 with interest against the Respondent Honey on May 27, 2010 (the 2010 judgment), and then registered a legal hypothec against her house.

He exercised the hypothecary recourse of taking in payment nine years later in 2019 and obtained judgment ordering the surrender of the property and declaring him owner on December 7, 2020 (the 2020 judgment). [1] The 2020 judgment was not registered against the property. [2] [ 2 ] The Respondent Honey appealed the 2020 judgment in Court record 500-09-029288-214 and the Appellant made a motion to dismiss the appeal. On March 13, 2021, two days before the presentation of the motion to dismiss, the Respondent Honey filed a notice of intention to make a proposal in bankruptcy.

The Respondent Trustee, as trustee to her notice of intention, issued a notice of stay of proceedings and the Court took cognizance of the notice and stayed the appeal. [3] That appeal remains stayed and is not presently before the Court. [ 3 ] The Appellant made a motion in Superior Court to lift the stay on March 22, 2021. He only proceeded with the motion on February 11, 2022.

The Respondent Webber’s predecessor, as liquidator of the estate of the Respondent Honey’s father and creditor of the Respondent Honey, [4] intervened in the proceedings. [ 4 ] The judge allowed the intervention and dismissed the motion to lift the stay. [5] The Appellant filed a notice of appeal on both issues. *** [ 5 ] The appeal will be dismissed. [ 6 ] The issue of the intervention is moot and need not be decided.

Even assuming that the judge was wrong in allowing the intervention by the estate of the Respondent Honey’s father, the Court would not allow the appeal on that basis if the judge was correct on the issue of lifting the stay.

Moreover, even if the Appellant is right that the question of the intervention by a creditor on an application to lift the stay is of sufficient importance that it should be decided by the Court despite the fact that it has no impact on the outcome of the appeal, it would not be appropriate to do so in the present case where the intervenor did not participate in the appeal. [ 7 ] On the second issue, the Appellant pleads that he was the owner of the property as a result of the 2020 judgment. [ 8 ] But for the appeal from that judgment, the Appellant would be correct.

[ 9 ]

Article 2781 C.C.Q. provides that, when the creditor takes the property in payment, the judgment of surrender constitutes the creditor’s title: 2781. Where the default has not been remedied or the payment has not been made in the time allotted for surrender, the creditor takes the property in payment by the effect of the judgment of surrender , or by an act voluntarily made by the person against whom the hypothecary right is exercised, and accepted by the creditor, if neither the later ranking creditors nor the debtor required him to proceed with the sale.

The judgment of surrender or the act voluntarily made and accepted constitutes the creditor’s title of ownership . (Emphasis added) 2781. Lorsqu’il n’a pas été remédié au défaut ou que le paiement n’a pas été fait dans le délai imparti pour délaisser, le créancier prend le bien en paiement par l’effet du jugement en délaissement , ou par un acte volontairement consenti par celui contre qui le droit hypothécaire est exercé, et accepté par le créancier, si les créanciers subséquents ou le débiteur n’ont pas exigé qu’il procède à la vente.

Le jugement en délaissement ou l’acte volontairement consenti et accepté constitue le

titre de propriété du créancier . [Nos soulignements] [ 10 ] The Court has interpreted this provision as meaning that title is transferred when the judgment of surrender is rendered: “ il y a coïncidence juridique entre le jugement en délaissement forcé et la prise en paiement qui éteint l’obligation et consacre le droit de propriété du créancier ”. [6] Further, the Court has held that the failure of the creditor to register the judgment against the property has no effect on the transfer of title. [7] [ 11 ] As a result, if there had been no appeal, the Appellant would have been the owner of the property when the Respondent Honey filed her notice of intention to make a proposal.

The stay of proceedings under

Section 69 of the Bankruptcy and Insolvency Act ( B.I.A. ) [8] would not apply because there would have been no further proceedings to stay and in any event the property at issue would not belong to the insolvent person. Further, Sub- section 70(1) B.I.A. , which is set out below, would have no application because the 2010 judgment in favour of the Appellant would have been “completely executed by payment to the creditor”. [ 12 ] However, there was an appeal of the 2020 judgment, and the issue then becomes whether that appeal had the effect of suspending the transfer of title pursuant to the judgment.

That issue has never been clearly decided by the Court, although there are decisions by judges in chambers which are on point. [ 13 ] In Pelletier c. Caisse populaire Desjardins du Piémont Laurentien , [9] a judge of the Court was seized with a motion to suspend the provisional execution of a judgment of forced surrender of an immoveable for a taking in payment. He decided that the appeal suspended the conclusion transferring ownership of the property, because that conclusion was not mentioned in

Article 660 C.C.P. [ 14 ] That is the proper analysis. The general rule set out in

Article 355 C.C.P. is that a properly initiated appeal stays the execution of the judgment, unless provisional execution is provided for by law or is ordered by the court of first instance. Although

Article 355 C.C.P. refers to the “execution of the judgment”, it also applies to declaratory conclusions. [10] In the present matter, the judge did not order provisional execution and the Appellant does not argue that any of the exceptions in

Article 660 C.C.P. apply. [ 15 ] The conclusion that the transfer of title was suspended by the appeal is fatal to the Appellant’s position. First, Sub- section 70(1) B.I.A. provides that a judgment creditor who has not “completely executed” his judgment ( i.e. , the 2010 judgment) before the bankruptcy [11] is an unsecured creditor: 70

(1) Every bankruptcy order and every assignment made under this Act takes precedence over all judicial or other attachments, garnishments, certificates having the effect of judgments, judgments, certificates of judgment, legal hypothecs of judgment creditors , executions or other process against the property of a bankrupt, except those that have been completely executed by payment to the creditor or the creditor’s representative, and except the rights of a secured creditor. (Emphasis added) 70

(1) Toute ordonnance de faillite rendue et toute cession faite en conformité avec la présente loi ont priorité sur toutes saisies, saisies-arrêts, certificats ayant l’effet de jugements, jugements, certificats de jugements, hypothèques légales résultant d’un jugemen t, procédures d’exécution ou autres procédures contre les biens d’un failli, sauf ceux qui ont été complètement réglés par paiement au créancier ou à son représentant, et sauf les droits d’un créancier garanti. [Nos soulignements] [ 16 ] Because the Appellant had not obtained title to the property when the notice of intention was filed, he had not “fully executed” the 2010 judgment.

As a result, the legal hypothec has no effect and the Appellant is an ordinary creditor subject to the stay of proceedings under

Section 69 B.I.A. [ 17 ] The final issue is whether the judge should have lifted the stay of proceedings and allowed the Appellant to obtain a final judgment and title. According to

Section 69.4 B.I.A. , a stay can be lifted if the creditor is materially prejudiced or when it is equitable on

other grounds: 69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of

section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration , subject to any qualifications that the court considers proper, if it is satisfied (

a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections ; or (

b) that it is equitable on other grounds to make such a declaration. (Emphasis added) 69.4 Tout créancier touché par l’application des articles 69 à 69.31 ou toute personne touchée par celle de l’article 69.31 peut demander au tribunal de déclarer que ces articles ne lui sont plus applicables.

Le tribunal peut , avec les réserves qu’il estime indiquées, donner suite à la demande s’il est convaincu que la continuation d’application des articles en question lui causera vraisemblablement un préjudice sérieux ou encore qu’il serait, pour d’autres motifs, équitable de rendre pareille décision . [Nos soulignements] [ 18 ] The judge concluded that the test was not met. He first concluded that the Appellant was not being treated unfairly or differently from other creditors. Further, he concluded that it would not be equitable to lift the stay: [19] Dealing now with equitable remedy.

The Court agrees with the opposing parties: granting the lift of the stay would actually be unfair to the creditors in the bankruptcy. The Court is informed that the immovable, at its current value, covers 100% of the claims against the bankrupt.

Allowing the stay to be lifted would allow the petitioner to move forward and indeed be in a position much more advantageous than the other creditors. [ 19 ] This is a discretionary decision, and the Court will only intervene if there is an error in principle or it is plainly unreasonable. [12] On the contrary, the decision is clearly correct: lifting the stay would give the Appellant the chance to improve his status from ordinary creditor to owner of the property, thereby (if he is successful on the merits of the appeal from the 2020 judgment) giving a property which the Appellant alleges is worth over $600,000 to an ordinary creditor owed approximately $100,000, and leaving the other creditors with nothing. [ 20 ] The Appellant argues that this opens the door to abuse by a debtor, who can frustrate a hypothecary creditor by appealing from the judgment ordering forced surrender and then filing a notice of intention to make a proposal.

This is not so. First, this judgment only applies to legal hypothecs of judgment creditors. Any other hypothecary creditor is recognized as a secured creditor in insolvency proceedings and its rights are not in principle stayed by the proceedings. Moreover, the result would have been different if the 2020 judgment had been declared executory notwithstanding appeal. Finally, the filing of a notice of intention is a serious matter. The debtor who fails to file a proposal or whose proposal is ultimately rejected by the creditors or not approved by the court is deemed to have made an assignment in bankruptcy.

A court can also intervene if the debtor is not acting in good faith. FOR THESE REASONS, THE COURT: [ 21 ] DISMISSES the appeal, without judicial costs given that none of the Respondents filed a factum or participated in the appeal. STEPHEN W. HAMILTON, J.A. STÉPHANE SANSFAÇON, J.A. PETER KALICHMAN, J.A. Mtre Leslie A. Beck GRAVENOR BECK For Charles O’Brien

Mtre Andreas Stegmann GROUPE SERPONE For Groupe Serpone inc. Mtre Bruce Taub B.T.L.G. LAW GROUP For Roxanne Honey Mtre Paul-Yvan Martin MARTIN, CAMIRAND, PELLETIER For Michael Webber, in his capacity as liquidator of the succession of Joseph Honey Date of hearing: February 3, 2023