Sutherland (Re), 2014 NSSC 59

IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Sutherland (Re), 2014 NSSC 59 Date: February 12, 2014 Docket: 35595 Registry: Halifax District of Nova Scotia Division No. 03- Sydney Court No. 35595 Estate No. 51-1509510 In the Matter of the Bankruptcy of William Edward Sutherland (aka Bill Sutherland) ____________________________________________________________________________ LIBRARY HEADING ____________________________________________________________________________ Registrar: Richard W. Cregan, Q.C.

Heard: January 15, 2014 Written Decision: February 12, 2014 A recently qualified physician from Ontario commenced practice in Cape Breton. He soon found the management of his practice to be difficult and was experiencing increasingly depressive moods. His wife and four children returned to Ontario. He continued to have difficulty coping with his practice. He sought medical advice and was diagnosed as having Bipolar II Disorder. He then returned to Ontario where he was treated by a psychiatrist.

When he felt well enough to return to work he obtained a licence to practice on the undertaking to undergo assessment and be subject to a psychiatric monitoring contract. He has since been working one 24-hour shift per week in the emergency department of a small hospital. This is all the work he can handle. Before leaving Cape Breton he made an assignment in bankruptcy. Two creditors opposed his discharge, the bank which helped finance his education and another bank which financed a home they bought when they came to Cape Breton. He was granted an absolute discharge.

THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT ’S DECISION . QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . IN THE SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Sutherland, (Re), 2014 NSSC 59 Date: February 12, 2014 Docket: 35595 Registry: Halifax District of Nova Scotia Division No. 03- Sydney Court No. 35595 Estate No. 51-1509510 In the Matter of the Bankruptcy of William Edward Sutherland (aka Bill Sutherland) _________________________________________________________________ D E C I S I O N __________________________________________________________________ Registrar: Richard W. Cregan, Q.C. Heard: January 15, 2014, in Halifax, Nova Scotia

Counsel: Paul E. Radford, Q.C., for the Applicant Maurice P. Chaisson, Q.C. for Farm Credit Canada Limited Gavin D.F. MacDonald, for National Bank of Canada Pamela J. Clarke, for the Trustee, PricewaterhouseCoopers Inc. BACKGROUND [ 1 ] This is the application of Dr. William Edward Sutherland for his discharge from bankruptcy. He made his assignment on June 16, 2011. His Trustee, PricewaterhouseCoopers Inc., recommends that his discharge be absolute. The application is opposed by two of his creditors, the National Bank of Canada ( “ Bank ” ) and Farm Credit Canada Limited ( “ FCC ” ). [ 2 ] Dr.

Sutherland is 43 years of age. He was brought up in rural Ontario. He attended the University of Toronto beginning in 2000 where he acquired a Bachelor of Nursing degree. He practiced for a year and then entered the medical school at McMaster University in 2005, graduating in 2008. This was followed by a two year family medicine residency. [ 3 ] He had a strong interest in First Nations communities. He, his wife, Lisa, and their four children, who are aged 17,16,12 and 8 moved in 2010 to Cape Breton where he established a practice in one of these communities.

For their home, they acquired an old farm house in a rural area that was in need of extensive renovations. [ 4 ] Since his teenage years he had struggled with mood swings. He coped with them through rigorous physical activity including martial arts. He had an interest in how First Nation people dealt with such matters including sweat lodges. [ 5 ] He found operating a sole practice in Cape Breton to be overwhelming. The paper work at the end of the day was demanding and he fell behind.

Working longer hours to catch up made things worse. [ 6 ] The costs of restoring the farm house were much higher than expected. [ 7 ] His wife found the situation with his increasingly depressive moods, the isolation, the lack of family support they had in Ontario, and the expenses of the house repairs also depressing. Their marriage was under great strain. She returned to Ontario with the children to regain the comfort and support of her family and friends. She rented a home for herself and the children. He visited them when he could get away from his work.

This added much to their expenses and contributed to their relationship stresses. [ 8 ] He sought advice regarding his depression from a family doctor in Cape Breton. To have greater stability he left his practice and commenced full time work as an emergency room physician at the Cape Breton Regional Hospital. [ 9 ] However, he found he still had difficulty coping with his work. He could not sleep properly and suffered chronic pain from an arthritic spine. He sought medical advice and was admitted to the Cape Breton Health Care Complex, Mental Health Services on November 15, 2011.

He was discharged six days later. He was diagnosed as having Bipolar II Disorder. He realized that he could not work until his health improved.

[ 10 ] In December, he returned to Ontario. Once in Ontario he was referred by his family physician to a psychiatrist with whom he has had monthly consultations since March 2013. [ 11 ] He began receiving payments from disability insurance he had with Sun Life. [ 12 ] In June 2012 he felt well enough to want to return to practice. He applied to the College of Physicians and Surgeons in Ontario for a licence to practice.

It was granted to him after he entered an undertaking to undergo assessment and be subject to a psychiatric monitoring contract. [ 13 ] He then received an appointment to the medical staff at the Groves Memorial Community Hospital. This appointment is subject to certain conditions which require him to comply with the monitoring contract and to make disclosure of any difficulties. [ 14 ] He commenced work in October 2012. He has been working one 24-hour shift in the emergency room per week. He taught a course at the McMaster Medical School from September to November 2013.

However he found this too exhausting on top of the emergency room shift. He needs the remainder of the week to recover. [ 15 ] His income is from several sources. He estimates that his net income from practice after tax is about $9,200 per month. [ 16 ] Their youngest child has had an eating and anxiety disorder and has spent time in hospital being treated. His wife has had the major responsibility for attending to the children. She had worked part-time as a dance instructor, but has given that up to attend to this child. With the care needed for this child and her own mental health issues, she is unable to work.

She has no income. She made an assignment in bankruptcy in May 2013. [ 17 ] There is a claim by the Canada Revenue Agency for $54,820.05 respecting outstanding student loans. This claim will survive bankruptcy because of Paragraph 178(1) (

g) of the Bankruptcy and Insolvency Act R.S.C. 1985, c. B-3 ( “ BIA ” ). It will be open to Dr. Sutherland, five years after he made his assignment, to seek relief under Subsection 178(1.1) provided he can prove that he has acted in good faith with respect to these loans and that he has or will continue to experience financial difficulty to such an extent that he will be unable to pay the debt. [ 18 ] To finance his education Dr. Sutherland arranged a line of credit with the Bank in 2005 for $50,000.00. The line was increased to $175,000.00 in January 2009 and to $190,000.00 in July 2009.

The Bank submitted a Proof of Claim in these proceedings for $189,817.84. [ 19 ] The purchase and repair of the farm house was financed by a loan of $192,000.00 provided to him and his wife by FCC in July of 2009. The loan was secured by a mortgage on the house lot and a second lot. [ 20 ] They stopped making payments on this loan when he made his assignment in bankruptcy. FCC commenced foreclosure proceedings. One lot was sold for $5,094.88, the minimum bid, and the other for $50,000.00. This resulted in a deficiency of $129,502.00. [ 21 ] The only evidence regarding the house is in Dr.

Sutherland ’ s affidavit, paragraph 9, which I quote: We purchased the property with the farmhouse because of the beauty of the property with the hope of doing a market gardening

business. The old farmhouse required many renovations for basic use, including electrical, roof and numerous others. The costs were much higher than we had imagined. It was reasonable for them to want to have a home in the area where he practiced. The amount in issue is less than $200,000.00. There is nothing excessive or suggestive of a lack of frugality on their part. The purchase of this house was simply a misfortune.

BIPOLAR DISORDER [ 22 ] I have been provided with “ An Information Guide ” regarding the Bipolar Disorder published by the Centre for Addiction in Mental Health (www.camh.net). [ 23 ] I need not go into detail regarding this disorder, but I shall take the liberty of quoting from it the following questions and answers: WHY IS BIPOLAR DISORDER CALLED AN “ILLNESS ”? Everyone has ups and downs in mood. Feeling happy, sad and angry is normal. Bipolar disorder, or manic-depressive illness, is a medical condition in which people have extreme mood swings.

Their moods may have nothing to do with things going on in their lives. These swings do not only affect mood, they also affect how people think, behave and function. Bipolar disorder is no one’s fault. It does not come from a “weak” or unstable personality. It is a medical disorder that can be treated. HOW COMMON IS BIPOLAR DISORDER? You or someone you care about may have been diagnosed with bipolar disorder. You may now feel alone in facing the problems of the illness, but you are not alone. About one to two per cent of adults worldwide suffer from bipolar disorder. Men and women are affected equally.

WHEN DOES BIPOLAR DISORDER BEGIN? More and more, the first signs of bipolar disorder are being recognized in adolescence or early adulthood. Yet the younger the person is when the symptoms first develop, the less typical the symptoms may be. The symptoms may then be mistaken for teenage distress or rebellion, so bipolar disorder is often not diagnosed until adulthood. [ 24 ] Dr. Sutherland gave evidence of his difficulties from the past which may well be forerunners of his present condition. In his younger days he had mood swings. He learned to control them through discipline including martial arts.

He had earlier quit university because of depression. He was unable to work after he had been diagnosed. He was only able to return after treatment and requalifying with the Ontario College which requires that he be supervised. There is a limit to how much work he can handle, one 24-hour shift a week. [ 25 ] He spoke of the need for resilience to keep going, but is concerned that what he has is very brittle. He has the feeling that it would be easy to “ fall off the edge ” . There is a continued stress not knowing what will happen. [ 26 ] I need not go into further detail. It is sufficient to say that Dr.

Sutherland labours under significant difficulties. He does the best he can. His wife ’ s circumstances are not without stress. One child has serious medical problems. What he has could easily fall

apart with another set back in his condition. There is a serious risk that such could happen. [ 27 ] He does not have any financial assets of significance. He and his family live frugally. [ 28 ] It is not likely that he will be able in the near future to work more and significantly increase his income. He will continue to be liable for the outstanding student loans. LAW [ 29 ] In considering Dr. Sutherland ’ s application for discharge I am governed by Subsections (1) and (2) of

Section 172 of the BIA. I quote them:

(1) On the hearing of an application of a bankrupt for a discharge, other than a bankrupt referred to in

section 172.1, the court may (

a) grant or refuse an absolute order of discharge (

b) suspend the operation of an absolute order of discharge for a specified time; or (

c) grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due to the bankrupt or with respect to the bankrupt’s after-acquired property.

(2) The court shall, on proof of any of the facts referred to in

section 173, which proof may be given orally under oath, by affidavit or otherwise, (

a) refuse the discharge of a bankrupt; (

b) suspend the discharge for such period as the court thinks proper; or (

c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgments or comply with such other terms as the court may direct. [ 30 ] The Bank and FCC ask that his discharge be conditional upon him paying into his estate a significant amount of money. They say that there is with reference to Subsection (2) proof of a fact referred to in

Section 173 namely: (

a) the assets of the bankrupt are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities, unless the bankrupt satisfies the court that the fact that the assets are not of a value equal to fifty cents on the dollar on the amount of the bankrupt’s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible; [ 31 ] Alternatively they say that Paragraph (

c) of Subsection (1) gives the court a discretion to require him, whether or not such a fact is proved, to continue making periodic payments based on his income. In effect, they say he should continue paying surplus income.

[32] Dr. Sutherland has completed his responsibilities to the satisfaction of the Trustee who recommends that he be absolutelydischarged. He has paid the surplus income required. The Trustee has had significant realization of his assets.

Prima facie he is entitledto his discharge without conditions. [33] The position of the Bank is simply that, having borrowed substantially from it to finance his education, which education giveshim the ability to make a good living, there is a special obligation on him to pay back this loan, and that he cannot satisfy the court thathis debt has resulted from circumstances for which he cannot justly be held responsible.

It goes further and says that, even if he cansatisfy the court in this regard, he should still be expected to make further payments because he should be able to. [34] In recent years there have been a number of cases which have dealt with persons seeking relief under the BIA for debts arisingfrom the financing of their education. Let me review a number of them. [35] Re Swerid (2007), 2007 MBQB 173 , 35 C.B.R. (5th) 316 (Man., Q.B.) concerned a bankrupt who at 43 hadaccumulated debts totalling $76,000 and was in his third year in law school. He sought an absolute discharge.

He was not sure hewanted to practice law and was interested in alternative and less lucrative careers. Registrar Cooper observed at paragraph 22: Mr. Swerid, having obtained his law degree, should have the potential to earn a substantial income. It may be that his bankruptcy maymake him a less attractive candidate for articling positions, but the fact of bankruptcy in itself would not preclude him from articling orpracticing law, although it may result in some restrictions related to trust accounts. If he chooses a less lucrative career path, his creditorsshould not have to suffer for this personal choice.

In my view, in these circumstances, where the bankrupt is on the verge of being ableto earn substantial income, a conditional discharge is appropriate. He was required to pay $30,000 into his estate as the condition of his discharge. [36] Dolgetta (Re) (2008), 46 C.B.R. (5th) 1206 (Alberta, Q.B.) concerned a student who was working on both an MD and a PhD,in the midst of which and following personal difficulties owed a bank $150,000. With two degrees she had good future earningpotential. Registrar Hanebury observed at paragraph 47: The evidence indicates that Ms.

Dolgetta is seeking to avoid payment to her primary creditor, the Royal Bank. The integrity of thebankruptcy system requires that, in the facts of this case, this not be allowed to occur. Ms. Dolgetta hoped to obtain two degrees whilemost students were obtaining one. Her personal situation resulted in an adjustment to her timing. This is not a reason to permit her tograduate almost debt-free, while other students will be shouldering heavy debt loads as they commence their medical careers. Publicconfidence in the bankruptcy system would be diminished.

Her discharge was made conditional on her consenting to a judgment in favour of her trustee for the amount owed to the bank. [37] Insley (Re) (2007), 2007 SKQB 383 , 43 C.B.R. (5th) 56 (Sask., Q.B.) involved a recent graduate from medical schoolwho owed creditors $258,000 in unsecured debt. The trustee had recommended that she pay $8,000 to obtain her discharge. The line ofcredit giving rise to this indebtedness was used to finance her education. While she was a student she was to make monthly payments ofinterest and was to pay principal and interest on graduation.

The line of credit began with a limit of $20,000, but during the course of hereducation had crept up to $193,475. Payments of interest became unmanageable. She compounded the problem with cash advancesfrom the bank on her VISA. On graduation she enrolled in a two year residency at a modest stipend, but with expectations of significantearnings upon completion and a year or two to build up a practice. Registrar Schwann commented, at paragraph [47]: She acquired exactly what she bargained for - financial support for the purposes of acquiring a long term, durable asset . . . .

She was required to consent to judgment for $193,000, the approximate amount of her student line of credit.

[38] In Re Shin (2009), (ON SC), 55 C.B.R. (5th) 118 (Ont., Dep. Reg. Mills) the bankrupt, who owed a bank asubstantial amount borrowed to finance her medical education, had been injured in a bicycle accident. The injuries had prevented herfrom completing her studies. It was uncertain at best whether she would ever be able to complete her training. She was granted anabsolute discharge. [39] In Brunt (Re) (2006), 2006 NSSC 237 , 246 N.S.R. (2nd) 276, an unconditional discharge was granted to thebankrupt. She had trained as a teacher, but was unable to find permanent employment.

She had medical problems and she needed tocare for her children, one of whom had medical problems that required her continuous attention. There was some hope that in time shewould be able to teach, but it was unlikely she would be able to do so until her children grew up. [40] In Abdo (Re), 2009 NSSC 338 an unconditional discharge was granted to the bankrupt. He had been indebted to a bank with aloan arrangement to finance both his education and some investments. He had dropped his studies in engineering because of healthproblems, the seriousness of which he refused to recognize.

It was found that the prospects that he would ever be able to make anymeaningful payments were slim. Furthermore he had not pursued his education far enough to have what would be considered an asset. [41] Stoski (Re) (2009), 51 C.B.R. (5th) 40 (Manitoba , Reg. Harrison) was a discharge application for a recently qualified dentistwho owed a substantial amount used to finance her education. She had experienced some health problems while in dental school. Shewas having difficulty establishing her practice. The court was concerned with her difficulty in focusing on establishing her practice.

Herdebts totalled over $300,000, $243,000 of which were borrowings to finance her education. Notwithstanding her health problems shewas able to practice. She was required to pay $150,000 over six years as a condition of her discharge. [42] Chow (Re) (1989), (SK KB), 73 C.B.R. (NS.) 225 (Sask., Barclay J.) concerned a lawyer who was indebtedto Revenue Canada for $321,550.20 (eight years of unremitted income tax). His income and expenses were considered at length as werethe responsibilities generally of self-employed persons.

It was found he had financial ability to make payments and was required to pay$36,000 as the condition of his discharge. [43] I shall simply quote a few lines from Pelletier, Re (1998), (SK KB), 5 C.B.R. (4th) 267 (Sask. RegistrarHerauf): 10 As a general rule I strongly believe that bankrupts in this type of situation receive a long term asset by virtue of their education andshould be expected to pay for this asset through long term payments. See Umpherville, Re (1995), (SK KB), 35C.B.R. (3d) 281 (Sask. Q.B.) and Pitzel, Re (1995), (SK KB), 36 C.B.R. (3d) 42 (Sask. Q.B.).

This principle is evenmore relevant when the bankrupt's employment is directly tied to the education received as a result of student loan funding. 11 However, this general principle must also be subject to a thorough review of the bankrupt's personal and financial situation. I amnot convinced after a careful review that the bankrupt's circumstances are such that a conditional order can be accommodated. [44] In Watkins(Re),

(2009) NSSC 35 the bankrupt had recently graduated from university owing approximately $60,000 to a bank. The money had been borrowed to finance his education. Being unable to reach an understanding with the bank for terms of repaymenthe made an assignment in bankruptcy. The money owed the bank constituted about 90% of his liabilities. He sought discharge on termsrecommended by the trustee, namely the payment of projected surplus income of approximately $1,000 per month over eleven months. The bank objected and submitted that he should be required to pay the amount of the indebtedness to the bank in full.

His projectedearning capacity would allow him to pay that amount without difficulty within a reasonable time. His education was a very valuableasset which would enable him to make a good income. The integrity of the bankruptcy system and commercial morality demanded thathe be required to pay a substantial amount before he could be discharged. The payment of $60,000 by monthly payments of $1,000 withright of prepayment was imposed as the condition of his discharge. [45] In Gardner (Re), 2010 NSSC 298 the bankrupt, a medical doctor, had financed her studies with a line of credit from a bank.

From time to time she had to delay her studies because of depression. After graduating she began a family medicine residency, but soonfound that she had to take a leave of absence. She made an assignment and asked to be discharged. She had been unable to work for ayear and a half and was advised by her doctor to seek training in some less stressful occupation. It was clear that she would not be ablein the reasonably foreseeable future to complete the residency program or practice medicine or be otherwise employed to be able to makemeaningful payments to her estate.

It was determined that she could not be held responsible under Section 173 (1) (

a) of the BIA. Shewas granted an absolute discharge.

[ 46 ] What one has in the present case and in a number of the cases reviewed is a special line of credit offered by banks to help students finance expensive and long periods of university education to qualify for a profession. The loans are granted on the understanding that with successful completion of the education the borrowers will be able to make good incomes which will enable them to repay the loans over a reasonable period of time as they establish their practices. A creditor cannot realize on an education.

The only security the bank has is the borrowers ’ good faith that they will complete their studies, and qualify for and establish their professional practices. Most of these arrangements are successful. Students graduate, are successful and pay the loans. For those students who for various reasons face misfortunes and do not establish successful practices, the remedy of bankruptcy is for them often appropriate. However, it should not be used by those who are successful or have good expectations of being successful as an easy way of eliminating their education debts.

ANALYSIS [ 47 ] These cases show a wide range of situations. At one end there are those who seek to avoid liability for the cost of the education which will provide them with the ability to make a good living. They simply cannot show that they are not justly responsible for their circumstances. They normally are required to make significant payments. At the other end are those who have incurred misfortune. Their expectations are limited. They should be entitled to the relief provided by the BIA. Where does Dr. Sutherland fit? [ 48 ] The overriding issue is his health.

He has a history of difficulties, depression and specifically the Bipolar condition. This is a condition which cannot be cured, just treated. As well he suffers from spinal arthritis. He is limited in the amount of work he can do. He holds his practice licence under conditions and is subject to continued supervision. His prognosis is uncertain. He may well gain strength, but will always be in a precarious situation. He may “ go off the edge ” to use his words at any time. He lives with a certain fragility. [ 49 ] He has family responsibilities. His wife is not now able to be gainfully employed.

Her time is needed to look after four children, one of whom has serious health issues. The older two children will shortly be completing high school. If they are to further their education, they will need some support, both material and emotional. [ 50 ] The Trustee recommends that he be given an absolute discharge. The judgment of the Trustee in this regard must be seriously considered. Trustees are well experienced in the issues which arise in personal insolvency. In the course of their professional relationship they gain understanding of their clients. [ 51 ] The Trustee reports that Dr.

Sutherland has been cooperative, has paid his surplus income and provided other assets so that about $100,000 has been realized. He has properly addressed the duties imposed on him. [ 52 ] There is nothing to suggest that he and his family have not been frugal. There is no evidence of indulging in an expensive lifestyle. What money he has earned has been to the support of his family. [ 53 ] The house financed by FCC clearly was a misfortune. They had not anticipated the difficulties in its restoration nor had the FCC. The amount borrowed was not unreasonable for a family home.

I see no basis for faulting him and his wife in this regard. [ 54 ] Although he estimates his monthly net income at $9,200, it is clear that it is not likely to significantly increase in the foreseeable future. He just cannot work much harder. He may have a set back and not be able to work as much or at all. This possibility is very real with the Bipolar Disorder. He needs what he can earn to support his family. He will remain responsible for the student loans. [ 55 ] As to the National Bank loan, he must be placed somewhere between the extremities illustrated in the cases reviewed above.

On the one hand there are those who have the resources to make significant payments. Allowing them to be discharged would offend the intent of the BIA . They were not honest debtors who incurred misfortune. At the other end there are those whose misfortune is most evident. In particular, I think of Abdo (Re) and Gardner (Re) . Dr. Sutherland ’ s condition is not as extreme as in these two cases. He can still work, but his ability to work as discussed is precarious and will continue to be so indefinitely. His situation is close to theirs.

[ 56 ] It is important that his family have stability, health wise and financially. Being required to continue making significant payments to his estate will add considerable stress which will endanger this stability. [ 57 ] He borrowed this money to become a physician. He graduated from medical school, qualified in a residency program and commenced practice, but unfortunately his health has prevented him from taking full advantage of this success, both professionally and financially.

He is doing what he can, but the future is qualified. [ 58 ] I am satisfied on the facts that his financial situation has arisen from circumstances for which he cannot justly be held responsible. No fact under Subsection 173(1) of the BIA has been proved. [ 59 ] As mentioned above counsel for the creditors submitted that I still should order that he make periodic payments pursuant to Paragraph 172 (1) (c). I accept that I have such authority. In effect such an order would be a continuation of the payment of surplus income beyond the normal period.

I can see that there may be situations where it would be appropriate. His is not one of them. [ 60 ] It was submitted by the Bank and the FCC that, if such an order were granted and after a year it was found to be a hardship, he could apply for relief under Subsection 172(3) to have the terms altered. This would only continue indefinitely the stresses which affect his health. CONCLUSION [ 61 ] He is an honest debtor who has suffered misfortune. His future is not predictable with any certainty. He has a family to support. He has to guard his health. He has a contribution to make to society.

Continued financial pressure could be very disastrous to him. Counsel for the Bank and FCC agree that the disposition of this matter is in the discretion of the court. This discretion must be exercised within the provisions of the BIA and its policies and principles. In the best of my judgment in this regard to ask more of him is not warranted. [ 62 ] He is entitled to an absolute discharge and to costs as against the Bank and the FCC. R. Halifax, Nova Scotia February 12, 2014