Beal et al (re), 2023 NSSC 373

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INSOLVENCY Citation: Beal et al (re) , 2023 NSSC 373 Date: 20231120 Docket: No. 41088 Registry: Halifax Estate Number : 51-2157964 In the Matter of: The bankruptcy of Darryl Owen Beal And Date: 20231120 Docket: No. 45552 Registry: Halifax Estate Number : 51-2419960 In the Matter of: The bankruptcy of Joseph Carl Cuffari Registrar: Raffi A. Balmanoukian Heard: By correspondence Final written submissions: October 10, 2023 Counsel: J. Eric Findlay, for the Trustee, MNP Ltd.

Nathalie Robichaud-Wong, providing written submissions on behalf of the Office of the Superintendent of Bankruptcy Corrected Decision: The text of the original decision has been corrected according to the attached erratum dated November 28, 2023.

By the Court: [ 1 ] “ ‘When I use a word, Humpty Dumpty said in a rather scornful tone, ‘it means just what I choose it to mean – neither more nor less.’ “ ‘The question is,’ said Alice, ‘whether you can make words mean so many different things.’ “ ‘The question is,’ said Humpty Dumpty, ‘which is to be the master – that’s all.’ ” - Lewis Carroll, Through the Looking Glass [ 2 ] Conversely, the question in these estates is whether the Trustee has observed all relevant canons, or whether it has egg on its face. As our Court of Appeal recently and succinctly stated, “words matter.” [1] [ 3 ] Both estates began as

summary administrations. Along the way – as will appear, well along the way - they were converted to ordinary administrations. In both cases, the Trustee drafted letters to the Office of the Superintendent of Bankruptcy (OSB) undertaking to cap its fees to those recoverable under

Summary Administration Estates (namely, based on Rule 128’s tariff applicable to receipts of $15,000). In one, the letter was sent; in the other, it was not. Now, the Trustee seeks to tax accounts based on time-spent, in each case dramatically exceeding the $7,833.75 maximum recoverable under Rule 128 [2] . The Beal Estate

[ 4 ] Mr. Beal’s assignment in bankruptcy was on August 23, 2016. A prior proposal, in 2002, was completely performed by 2006. He declared no non-exempt assets. Nor did the filing anticipate any surplus income.

Registrar MacAdam issued a conditional order in July 2017, calling for income and expense information, payment of any resultant surplus (by then anticipated to be some $15,355 per the Trustee’s s. 170 report), and addiction treatment. [ 5 ] In May 2020 – almost four years after filing and almost three years after it became apparent there was a surplus income obligation – the Trustee sent its “capping” letter to the OSB, indicating that its fees would be held to the Rule 128 calculation cited above. [ 6 ] Nine months after that, in early 2021, the Trustee applied to the OSB to convert the estate to ordinary administration.

By then, the Trustee had also realized on a Honda Civic to the tune of $7,345.10. [ 7 ] Shortly thereafter, in April 2021, the Trustee applied for taxation of its interim fees, in the amount of $9,610.15 plus HST and disbursements, for a total of $12,620.18. There was, at that time, $20,777.84 in the estate, consisting of the motor vehicle realization, $13,075 paid by the bankrupt, and $267.74 in interest. In other words, the Trustee sought some 60% of the funds then in the estate. [ 8 ] The Trustee submitted, as is my requirement, its detailed work in progress.

In reviewing the timesheets, I noted an entry on May 1, 2020 from an LIT reading “Review file and wip; review and sign letter to capp [sic] fees.” On the same date, a separate entry from a different employee of the Trustee reads “Prepared/reviewed List of Estates Receipts Report for estates over $15,000.00.

Prepared letter capping fees.” On the same date, that employee entered time showing “Efiled letter capping fees to the OSB.” [3] This was not otherwise referenced in the Trustee’s submissions on taxation. [ 9 ] On May 11, 2021 I allowed an interim draw on account of fees in the amount of $7,833 plus HST and disbursements allowed under Rule 128, as opposed to the $9,610.15 (plus HST) claimed [4] . At that time, I wrote to the Trustee that As an interim measure , I am allowing a draw of $7,833 plus Rule 128 disbursements which is what the Trustee would have been entitled to under a

summary administration . It is not clear from Mr. Findlay’s response whether the OSB is under the impression that fees would or would not be capped. [emphases added] [ 10 ] It later appeared that the Trustee had (at the time, properly) previously withdrawn $750 during the

summary administration of the estate, in accordance with Rule 128. I have reviewed the timesheets to February 2021 and there is no entry that is apparent to me that would ‘flag’ such a withdrawal. This puts the total draws at $8,583 plus HST and disbursements, which was not made apparent to me until the Trustee’s second application for an interim draw on fees. I will return to this. [ 11 ] In September 2023, the Trustee requested a second interim draw for an additional $5,360.40 plus HST, and included its timesheets in support. The Trustee had by then withdrawn the authorized $7,833 plus tax, and as noted had previously withdrawn an additional $750 when the estate was in

summary administration. This additional $750 only became apparent to me when reviewing the affidavit which referred to draws to date of $8,583 ($7,833 plus $750), and when the Trustee provided my requested explanation to explain the discrepancy between the $8,583 noted in his affidavit, and the $7,833 I had authorized. [ 12 ] I wrote to the Trustee (copied to the OSB) on September 15, 2023, saying in part: Among other questions, I asked Mr.

Findlay in May 2021 to explain the Trustee’s submitted claim in the context of an apparent May 2020 representation to the OSB that it wished to cap its fee calculation on a maximum of $15,000 in receipts (which would be the $7,833 noted above). The Trustee replied that the representation to the OSB appears to have been made in error.

Nonetheless, I am concerned that the estate may have been converted to an OA [ordinary administration] estate based on this representation and reliance, and I am providing the Trustee and the OSB with the opportunity to comment why, if at all, I should not hold the Trustee to this representation, particularly given the gross sum claimed to date would be almost double the $7,833 noted. [ 13 ] Both the Trustee and the OSB accepted this invitation to make submissions. [ 14 ] On September 18, 2023, the Trustee replied, in part, as follows: On May 1, 2020 another trustee in our office that is no longer working with us, signed a letter on my behalf, without consulting with me [5] , advising the OSB that the above noted estate had receipts which exceeded $15,000 and that we wished the keep the estate as a

summary administration estate and cap our fees on receipts not exceeding $15,000. (the “cap fees letter”). This letter is attached herein. On February 19, 2021, when it became clear that the administration of the estate was requiring considerable resources from our office and would continue to consume considerable resources for possibly several more years, we wrote to the OSB to request that [the prior letter of May 1, 2020 be revoked] and that the estate should be converted to an ordinary administration.

The reasons for this request are described in detail, in the attached letter to the OSB. [6] [ 15 ] I asked further how the Trustee was not bound by the subject letter. The Trustee responded, also on September 18, 2023: You are correct in regard to it being Mr. Cramm’s retirement, and no I am not asserting that I am not bound my former partner’s decisions. I just wanted to add some additional context and advise all copied herein that is not the decision that I would have made with my file and part of the reason I later requested that the OSB correct what I believe should have been done in May 1, 2020.

The Cuffari Estate [ 16 ] Joseph Carl Cuffari, a practicing lawyer, made his assignment on September 13, 2018. The estate appears to have been converted from

summary to ordinary administration, as with Beal also about four years later, in October 2022. At present, there are $25,509.24 in receipts in the estate, representing land proceeds ($5,520), mediation payments ($19,448) and interest ($541.24). The

Trustee seeks fees of $14,011.55 plus HST, including the $750 withdrawn during the

summary administration; and to retain $2,000 in trust, presumably against future fee claims. If the interim draw (and prior draw) are allowed with disbursements in full, the resultant $16,673.78 represents just under two-thirds of receipts to date. There would be an interim dividend of 3.57%, almost entirely to CRA. [ 17 ] When reviewing the work in progress, I noted an entry on September 19, 2022: Continued review of List of Estates Receipts over $15,000.00 for

Summary files. Prepared letter to the OSB capping fees at $15,000.00 in receipts. Sent email to Trustees regarding fee cap letters. [ 18 ] A subsequent time entry by the same person, on October 5, 2022, refers to the application for change of status from

summary to ordinary. [ 19 ] According to the Trustee, in this estate the “fee cap” letter was prepared, but unlike the Beal estate, was not sent to the OSB [7] . Nonetheless, as I will now discuss, in its reply to my invitation to comment the OSB takes the position that this estate should also be taxed according to Rule 128 – that is, with a resultant ceiling of fees of $7,833.75. The OSB’s Position [ 20 ] In both estates, the OSB takes issue with the four year timeline to convert the estates from

summary to ordinary. It points to its Circular 2R2 which calls upon the Trustee to convert “as soon as possible after the realizable assets in a

summary administration exceed $15,000.” [8] It further points out that the bulk of time was not spent on asset realization, but instead on calculation and realization of surplus income payments, as well as dealing with Mr. Cuffari’s professional regulator and Mr. Beal’s health challenges - issues which were or should have been apparent at the time of intake, or in any event much sooner than the four years that elapsed in each estate before the conversion request.

It concludes: However, while both estates appear to have receipts exceeding $15,000, most of the amounts identified are surplus income payments made by the bankrupts, of which our office does not consider to fall under the title of ‘realizable assets’ and would therefore be considered routine review/analysis/work conducted by LITs in the course of typical

Summary Administrations. Additionally, it should be noted that the costs for the realization of assets in either estate does not appear to be a considerable proportion of overall money collected during their respective administrations. Further, the requests to convert from

Summary Administration to Ordinary were made late during both estate administrations – more than 4 years after the date of filing for each estate. Therefore, based on the review of both estates, it is the opinion of the Halifax Division office that both estates be taxed in accordance with Rule 128. The Trustee’s Position [ 21 ] The Trustee seeks its fees, as presented, in each file. It submitted, by way of final comment to the Court on October 10, 2023 that I have found nothing in the BIA , Directives or Rules that estoppes [sic] a LIT from filing a request with the OSB to convert an estate from

summary to ordinary, at any time. We know from the OSB’s comments that their preference is for the LIT to file its request “as soon as possible” which we are making improvements in our practice to meet OSB’s preference. [ 22 ] It further points out that although the threshold for

summary vs. ordinary administration is assets over $15,000 pursuant to Section 49(6) of the BIA and General Rule 130, anecdotally much more time can be spent on surplus income realization than mundane assets – and that these files bear that out. [ 23 ] Lastly, it submits that it sometimes “eats” WIP by keeping estates as

summary administration when they could be converted to ordinary administrations, but the Trustee has elected not to do so. Analysis and Disposition [ 24 ] I am taxing both accounts at $7,833.75 – the amount allowable under Rule 128 – plus HST and the allowable disbursements under that Rule, in each estate. I am doing so, however, for different reasons in each estate. [ 25 ] With respect to Mr. Cuffari : I begin by observing that OSB directives are binding on Trustees (when addressed to them) but are not binding on the Court: BIA s. 5(5) and 5(6) ; see also Re Ross , 2020 NSSC 36 at para. 20 .

Nonetheless, they provide useful informed guidance and can sometimes be of immeasurable practical assistance. As well, Courts must be cognizant that Trustees are accountable both to the OSB and to the Court. As such, Trustees will find themselves bound to follow the directives unless otherwise ordered by the Court; and accordingly, Courts should pay adequate attention to the Directives if and when called upon to review “what the Trustee did and why,” or if asked for Court authorization or direction to diverge from those Directives. [ 26 ] With that said, I agree with the Trustee that (

a) income streams can be as or more time-consuming to get into the estate than assets and (

b) there is no specific timeline in the BIA or the General Rules to convert a

summary administration to ordinary. Indeed, one may wonder why the OSB considered it “appropriate” to convert these estates, pursuant to s. 49(8), so late in the process; however, that is their call. This Court’s function is, instead, to oversee the files that come before it and, when appropriate, to exercise its discretion as to fees as part of its jurisdiction over its process and procedure, and over Trustees as its officers. That is what I am doing here. [ 27 ] The fact four years has elapsed here between assignment and conversion is something the Court should not ignore; there were no significant new facts that came up so late as to justify those late conversions.

[ 28 ] In Mr. Cuffari’s estate, it was clear that there would be regulatory (ie Barristers’ Society) and calculation issues that would take time and effort. By January 2020 at the latest, it was clear that he was in surplus; the request to convert was almost three years later. According to the OSB’s analysis, only 1.9 hours was spent on asset realization. No new realizable assets came to light over those listed in the Statement of Affairs. [ 29 ] I believe it is appropriate to exercise my discretion as to fees in the Cuffari estate to cap the Trustee’s fees at the Rule 128 maximum.

The delay was not adequately explained to me. Nor is it clear to me what if any efforts the Trustee has taken to expedite the estate – there is, for example, no s. 68 order in place to compel compliance with the Bankrupt’s payment obligations, some five years after assignment. In my view, in light of the timeline and all of the circumstances, the Court should convey its disapproval of the delay both in marshalling funds and in converting the estate; and I reiterate that there appear to be few if any “unknown unknowns” with Mr.

Cuffari’s affairs that came out during the administration of the estate – the Trustee knew or should have known of the regulatory and mathematical road it would be facing, from or near inception. [ 30 ] With respect to Mr. Beal : Once again, most of the initial challenges were or should have been apparent either at inception, or in any event far sooner than the four year mark.

What changed in this estate was the realizable asset and income stream – and when it became clear that this would be a 21 month estate and would take much longer than that to complete, the request should have been made in a timely fashion to convert. Indeed, the Trustee submits it is “making improvements” in this regard. [ 31 ] That is not, however, the basis upon which I am capping the fees in the Beal estate at the Rule 128 level. [ 32 ] Words matter, indeed. [ 33 ] The Trustee said it would cap its fees. It said so to the OSB. It was said by a senior partner.

It did so nine months prior to asking the OSB to convert the estate to ordinary administration. Despite assertions to the contrary, I found nothing in that request by the Trustee asking to be relieved of its commitment. Even if there was, I found nothing from the OSB releasing the Trustee from its undertaking. And even if there then was, this Court still has its unfettered jurisdiction, exercised judicially, over taxation of accounts. [ 34 ] Courts and regulators look to their officers – whether lawyers or Trustees – continually for their candid assistance.

In doing so, Trustees and lawyers make assertions, representations, undertakings. Regulators and Courts rely upon and act on them. Those words particularly matter. If regulators and Courts had to double-and-triple check everything we were told in argument or briefs, an already strained system would grind to a halt. We simply cannot come to need to look out the window every time someone asserts that it’s a nice day.

Nor can the Court let the word of one Trustee within a firm with respect to what it will seek to charge not be binding on another, to the detriment of creditors. [9] [ 35 ] The corollary is the “fee cap” letter binds the Trustee unless relieved of that commitment, “neither more nor less.” The fee cap letter was not part of the Trustee’s submissions – it was only on my review of its WIP that it even came to the Court’s attention. Indeed, it was only on further inquiry that the Court learned that it had been prepared and sent in Mr. Beal’s file, and prepared but not sent in Mr. Cuffari’s.

The Court cannot sanction that peekaboo disclosure, much less sanction that course and then proceed to allow another $5,360.40 in fees. [ 36 ] If the Trustee sought to resile from its “fee cap” commitment, it should have clearly and unequivocally done so with the OSB (and obtained a positive reply), and further should have clearly and unequivocally disclosed its existence, change, and any reply to the Court.

To be clear, in all instances the Court’s discretion over costs and fees remains unfettered and is not bound by the outcome of communications between the Trustee and the OSB; but their disclosure is critical, particularly where, as here, the Trustee seeks compensation in the Beal file far in excess of its “cap letter” that the OSB had months before the request to convert the estate to ordinary administration.

It should also disclose any prior draws. [ 37 ] In my opinion, and in the exercise of my discretion, the appropriate remedy in all of the circumstances is to hold the Trustee to its word and to cap its fees in the Beal estate at $7,833.75 plus HST and the disbursements allowable under Rule 128. As it has already drawn this (save for $0.75) and has also drawn an additional $750 plus tax while the estate was under

summary administration, I am directing the Trustee to complete its administration in the Beal file for the Rule 128 maximum, which will also mean that it must refund $749.25 plus tax to the estate (being the $750 that was previously unknown to the Court as having been drawn down during the

summary administration estate, less the $0.75 noted above, for a total of $861.64.) This is also in accordance with the order on file herein, which reads in part: It is further ordered that should the aggregate of the Trustee’s interim draws exceed the amount of remuneration taxed and allowed on conclusion of this proceeding, the trustee will forthwith reimburse the estate for the difference. [ 38 ] I note that although the order refers to taxation “on conclusion of this proceeding,” these reasons make it clear that the Trustee is already beyond the ceiling of fees the Court will allow in the Beal file; the balance must be accordingly refunded forthwith.

My email at the time of the May 2021 taxation made it clear that what the Court was allowing was what Rule 128 would provide for, not what it would provide for “over and above previous draws.” Finally, the Court notes that the timesheets are from “day one,” and thus the $750 previously drawn would be double-counted against fees if allowed on a time-spent basis. [ 39 ] For clarity, and pursuant to my jurisdiction under BIA ss. 192(1) (i), (k), and (m), the Trustee is to continue that administration, and is not to seek its discharge from the OSB except with permission of the Court. [ 40 ] The Trustee is to prepare revised orders in each estate, for my consideration.

Balmanoukian, Registrar in Bankruptcy. SUPREME COURT OF Nova Scotia

IN BANKRUPTCY AND INSOLVENCY Citation: Beal et al (re) , 2023 NSSC 373 Date: 20231120 Docket: No. 41088 Registry: Halifax Estate Number : 51-2157964 In the Matter of: The bankruptcy of Darryl Owen Beal And Date: 20231120 Docket: No. 45552 Registry: Halifax Estate Number : 51-2419960 In the Matter of: The bankruptcy of Joseph Carl Cuffari Registrar: Raffi A. Balmanoukian Heard: By correspondence Final written submissions: October 10, 2023 Counsel: J. Eric Findlay, for the Trustee, MNP Ltd.

Nathalie Robichaud-Wong, providing written submissions on behalf of the Office of the Superintendent of Bankruptcy Erratum Registrar: Raffi A. Balmanoukian Heard: By correspondence Final written submissions: October 10, 2023 Counsel: J. Eric Findlay, for the Trustee, MNP Ltd. Nathalie Robichaud-Wong, providing written submissions on behalf of the Office of the Superintendent of Bankruptcy Erratum date: November 28, 2023

Erratum details: At paragraphs 10 and 11, I alluded to the time sheets in the Beal matter not flagging a prior draw of $750 plus tax while that estate was in

summary administration. On a subsequent review of the file (and on the Court’s own initiative), I located an affidavit, sworn March 26, 2021, which did indeed refer to compensation to that date of $1,020 – the two counselling fees ($170), the $750 interim draw and the $100 administration fee. The interim SRD in that file also credited these amounts. The statement in paragraph 38 to double-counting is wrong. I am issuing these additional reasons as I do not wish to be unfair in recounting what the Trustee previously put before the Court.

My disposition remains unchanged – the cap on fees in both files is to be the $7,833.75 plus HST and disbursements allowable under Rule 128, for the reasons set forth in the original decision.