2017 QCCA 523, 2017 QCCA 523

Krespil c. Nathalie Brault Syndic inc. 2017 QCCA 523 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-025905-167 (500-11-047603-143) MINUTES OF THE HEARING DATE: March 29, 2017 CORAM: THE HONOURABLE NICHOLAS KASIRER , J.A. MARTIN VAUCLAIR , J.A. LOUIS LACOURSIÈRE, J.A. ( ad hoc ) IN THE MATTER OF THE BANKRUPTCY OF: APPELLANT COUNSEL DAVID KRESPIL Mtre ALLEN E. FELDMAN RESPONDENT COUNSEL NATHALIE BRAULT SYNDIC INC. Mtre serge petit ( absent ) ( DPG avocats ) 144155 CANADA INC. (Dolis Equipment) Mtre CRAIG BERGER ( Craig Berger )

On appeal from a judgment rendered on February 8, 2016, by the Honourable Madam Justice Danielle Turcotte of the Superior Court, District of Montreal. DESCRIPTION : Bankruptcy and Insolvency Act – Application to expunge or reduce proof of claim. Clerk: Marcelle Desmarais Courtroom: Antonio-Lamer HEARING 9:31 Commencement of the hearing. Identification of counsel. Submissions by Mtre Allen Feldman. 9:50 Submissions by Mtre Craig Berger. 9:55 Mtre Feldman has no reply. End of arguments. 9:55 Suspension 9:59 Resumption.

Unanimous judgment rendered by the Honourable Louis Lacoursière, J.A. ( ad hoc) – see page 3. 10:00 Conclusion of the hearing.

Marcelle Desmarais Clerk BY THE COURT JUDGMENT [ 1 ] This is an appeal from a judgment of the Superior Court, District of Montreal (the Honourable Danielle Turcotte), rendered on February 8, 2016, which granted a Motion to Dismiss by 144155 Canada Inc. (the “Respondent”) of Appellant’s appeal of the decision of respondent Nathalie Brault Syndic Inc. (the “Trustee“) to allow Respondent’s proof of claim [1] . [ 2 ] The main questions in issue are that of the determination of the Bankruptcy and Insolvency Act ( B.I.A .) [2] provision applicable to Appellant’s appeal of the Trustee’s decision to deem Respondent’s proof of claim provable and that of the period within which an appeal must be brought. [ 3 ] The relevant facts may be summarized as follows. [ 4 ] In August of 2012, the Respondent served upon the Appellant a Motion to Institute Proceedings asking that he cease operating

his automotive tool business in violation of a non-competition agreement and asking for damages in the amount of $99,848.95 (“the 144155 Action“). [ 5 ] On August 27, the Superior Court issued a Safeguard Order in the 144155 Action enjoining Appellant to cease competing with Respondent. This judgment was rendered by default and an attempt by Appellant to have it revoked was unsuccessful. [ 6 ] On September 12, Appellant transferred his condominium to his spouse with whom he is separate as to property for a sum of $1.00. [ 7 ] On December 7, the Safeguard Order was renewed, to be in force until April 24, 2013.

On that date, the Superior Court granted the injunction sought by the Respondent. As to the conclusions seeking damages, the claim remained pending. [ 8 ] On June 26, 2014, Appellant filed a voluntary assignment in bankruptcy. On that date, Respondent’s claim was valued at $1.00. [ 9 ] On July 14, the Trustee filed a Notice to Stay Proceedings in the 144155 Action.

As a consequence, approximately a month later, on August 19, 2014, Respondent filed a proof of claim for $99,848.95, which is the total amount claimed in the 144155 Action. $50,000 is sought as punitive damages and $49,848.95 is a claim for loss of profits. [ 10 ] On October 27, 2014, the Trustee asked the Superior Court to review the sale of the condominium under the terms of subsection 96(1)(b)(ii) of the B.I.A .

These proceedings have been suspended pending the outcome of Respondent’s claim in the present case. [ 11 ] On the same day, the Trustee advised the Respondent that it had a provable claim assessed at $99,848.95. As a consequence, the list of provable claims was modified so that, as of November 25, 2014, Respondent’s claim was registered with the Trustee in this amount. [ 12 ] On November 26, 2014, the second consultation meeting was held between the Appellant and the Trustee. There is a difference in the accounts of what took place at the time.

Appellant does not remember whether the updated list of provable claims, including that of the Respondent, was discussed with him; he stated, nevertheless, that he was first advised of the Respondent’s provable claim in February 2015, by receiving a letter from the Trustee. [ 13 ] For its part, the Trustee stated that Appellant was shown Respondent’s provable claim of $99,848.95 at the November 26th meeting.

This is the version of the events retained by the trial judge. [ 14 ] On February 6, 2015, Trustee’s attorney did send a letter to Appellant’s attorney which included an updated list of creditors and referred to the Respondent’s $99,848.95 proof of claim. [ 15 ] On April 9, 2015, Appellant served upon the Trustee and the Respondent a motion, the object of which was to have Trustee’s decision to admit the latter’s proof of claim rescinded and to continue the proceedings in the 144155 Action. [ 16 ] This motion was countered by Respondent’s Motion to Dismiss which alleged, essentially, that Appellant’s motion was filed outside of the prescribed delays, that no other recourse was available to him and that Appellant’s claim should therefore be dismissed. [ 17 ] The trial judge disposed of the Motion to Dismiss as follows: CONSIDÉRANT que le 27 octobre 2014, le syndic à la faillite de David Krespil a évalué la réclamation de la mise en cause au montant de 99 848,96$; CONSIDÉRANT que l’article 135 (1.1) de la

Loi sur la faillite stipule que dès lors, la réclamation est réputée prouvée; CONSIDÉRANT que le registre des réclamations tenu par le syndic a été modifié en conséquence le 25 novembre 2014; CONSIDÉRANT que le Tribunal retient la version du syndic Nathalie Brault voulant qu’elle ait rencontré le failli le 26 novembre 2104 et que ce dernier a été informé que la preuve de réclamation de la mise en cause a été acceptée à 99 848,96 $; CONSIDÉRANT que ce n’est que le 9 avril 2015 que la failli signifie sa contestation de cette décision du syndic quant à la preuve de réclamation de la mise en cause; CONSIDÉRANT que l’article 135(4) de la

Loi sur la faillite prévoit qu’un appel d’une décision du syndic rendue dans un tel contexte, doit être formulé dans les 30 jours; CONSIDÉRANT que le failli n’allègue pas pourquoi il ne s’est pas prévalu plut tôt de son droit d’appel et qu’il ne demande pas d’être relevé de son défaut; CONSIDÉRANT que l’argument voulant que ce soit l’article 135(5) de la

Loi sur la faillite qui doive recevoir application, même s’il était fondé, amène au même résultat puisqu’il aurait quand même fallu que le failli agisse dans un délai raisonnable; or, un délai de plus de quatre mois n’est pas un délai raisonnable. POUR CES MOTIFS, LE TRIBUNAL : ACCUEILLE la requête en rejet de la requête du débiteur en appel de la décision du syndic; REJETTE la requête en appel de la décision du syndic;

AVEC FRAIS en faveur de la mise en cause. [ 18 ] The Appellant initially formulated four grounds of appeal all of which, in one manner or another, raise the issue of delays, either to contest the application of any particular delay to his appeal to the Superior Court or to challenge the trial judge’s finding of fact that said delay started to run on November 26, 2014. This last finding is no longer challenged by the Appellant. [ 19 ] All of the Appellant’s arguments are rejected. [ 20 ]

Section 135 of the B.I.A . provides as follows: Admission et rejet des preuves de réclamation et de garantie Examen de la preuve 135

(1) Le syndic examine chaque preuve de réclamation ou de garantie produite, ainsi que leurs motifs, et il peut exiger de nouveaux témoignages à l’appui. Réclamations éventuelles et non liquidées

(1.1) Le syndic décide si une réclamation éventuelle ou non liquidée est une réclamation prouvable et, le cas échéant, il l’évalue; sous réserve des autres dispositions du présent article, la réclamation est dès lors réputée prouvée pour le montant de l’évaluation. Rejet par le syndic

(2) Le syndic peut rejeter, en tout ou en partie, toute réclamation, tout droit à un rang prioritaire dans l’ordre de collocation applicable prévu par la présente loi ou toute garantie.

Avis de la décision

(3) S’il décide qu’une réclamation est prouvable ou s’il rejette, en tout ou en partie, une réclamation, un droit à un rang prioritaire ou une garantie, le syndic en donne sans délai, de la manière prescrite, un avis motivé, en la forme prescrite, à l’intéressé. Admission and Disallowance of Proofs of Claim and Proofs of Security Trustee shall examine proof 135

(1) The trustee shall examine every proof of claim or proof of security and the grounds therefor and may require further evidence in support of the claim or security. Determination of provable claims

(1.1) The trustee shall determine whether any contingent claim or unliquidated claim is a provable claim, and, if a provable claim, the trustee shall value it, and the claim is thereafter, subject to this section, deemed a proved claim to the amount of its valuation. Disallowance by trustee

(2) The trustee may disallow, in whole or in part, (

a) any claim; (

b) any right to a priority under the applicable order of priority set out in this Act; or (

c) any security. Notice of determination or disallowance

(3) Where the trustee makes a determination under subsection (1.1) or, pursuant to subsection (2), disallows, in whole or in part, any claim, any right to a priority or any security, the trustee shall forthwith provide, in the prescribed manner, to the person whose claim was subject to a determination under

Effet de la décision

(4) La décision et le rejet sont définitifs et péremptoires, à moins que, dans les trente jours suivant la signification de l’avis, ou dans tel autre délai que le tribunal peut accorder, sur demande présentée dans les mêmes trente jours, le destinataire de l’avis n’interjette appel devant le tribunal, conformément aux Règles générales, de la décision du syndic. Rejet total ou partiel d’une preuve

(5) Le tribunal peut rayer ou réduire une preuve de réclamation ou de garantie à la demande d’un créancier ou du débiteur, si le syndic refuse d’intervenir dans l’affaire. subsection (1.1) or whose claim, right to a priority or security was disallowed under subsection (2), a notice in the prescribed form setting out the reasons for the determination or disallowance. Determination or disallowance final and conclusive

(4) A determination under subsection (1.1) or a disallowance referred to in subsection (2) is final and conclusive unless, within a thirty day period after the service of the notice referred to in subsection (3) or such further time as the court may on application made within that period allow, the person to whom the notice was provided appeals from the trustee’s decision to the court in accordance with the General Rules. Expunge or reduce a proof

(5) The court may expunge or reduce a proof of claim or a proof of security on the application of a creditor or of the debtor if the trustee declines to interfere in the matter. [ 21 ] For some reason, Appellant has omitted, in his brief, subsection 135(1.1) and the references to that subsection in subs. 135(3) and (4). [ 22 ] Section 135(1.1) B.I.A. establishes the trustee’s obligation to determine whether a contingent or unliquidated claim is a provable claim and to value it. This is what the Trustee did on October 27, 2014.

It then advised the Respondent of this decision. [ 23 ] The fact that the claim was litigious does not prevent it from being a provable claim [3] . [ 24 ] It is plain from the very wording of subsections 135(3) and (4) of the B.I.A . that the notice of the determination made by the trustee under subsection 135(1.1) has to be communicated to the creditor and that this determination is final unless appealed from within 30 days. [ 25 ] The appeal provided for at subsection 135(4) is therefore only available to the creditors whose claim was subject to a decision by the trustee pursuant to subsections 135(1.1) and (2). [ 26 ] This

interpretation is confirmed by the General Rules on Bankruptcy and Insolvency [4] , s. 113 and by Form 77 which deal with the notice of disallowance or of valuation to be provided by the trustee to the creditor pursuant subsection 135(3) of the B.I.A :

Avis de rejet ou d’évaluation 113 L’avis de rejet ou l’avis d’évaluation donné par le syndic, conformément au paragraphe 135(3) de la Loi, à l’intéressé dont la réclamation, le droit à un rang prioritaire ou la garantie ou la sûreté a été rejeté ou évalué, en tout ou en partie, est soit signifié, soit envoyé par courrier recommandé ou par service de messagerie.

Notice of Disallowance or of Valuation 113 The notice of disallowance or notice of valuation provided by a trustee under subsection 135(3) of the Act to a person whose claim, right to a prior rank, or security has been disallowed or on which a valuation has been made, in whole or in part, must be served, or sent by registered mail or courier. FORMULAIRE 77

Avis de rejet d’une réclamation, du droit à un rang prioritaire ou d’une garantie ou Avis d’évaluation d’une réclamation (paragraphe 135(3) de la Loi) Avis est donné que : (

A) en ma qualité de syndic agissant relativement à la faillite ( ou à la proposition) de , j'ai rejeté votre réclamation ( ou votre droit à un rang prioritaire ou votre garantie sur les biens) en totalité ( ou pour la somme de $), conformément au paragraphe 135(2) de la Loi pour les motifs suivants : (Donnez les motifs du rejet.) (ou) (

B) en ma qualité de syndic agissant relativement à la faillite ( ou à la proposition) de , j'ai décidé que votre réclamation éventuelle ou non liquidée est une réclamation prouvable, et j'ai évalué celle-ci à $, et, en conséquence, votre réclamation est réputée prouvée pour ce montant conformément au paragraphe 135(1.1) de la Loi. Dans la mesure où vous désirez contester ma décision de rejeter votre réclamation en tout ou en

partie ( ou votre droit à un rang prioritaire, ou votre garantie ou l'évaluation de votre réclamation), vous pouvez interjeter appel devant le tribunal dans les 30 jours suivant la date de signification du présent avis, ou dans tel autre délai que le tribunal peut accorder sur demande présentée dans les mêmes 30 jours. Daté le , à . Syndic autorisé en insolvabilité FORM 77 [5] Notice of Disallowance of Claim, Right to Priority or Security or Notice of Valuation of Claim (Subsection 135(3) of the Act) Take notice that: (

A) as trustee acting in the matter of the bankruptcy ( or proposal) of , I have disallowed your claim ( or your right to a priority or your security on the property) in whole ( or to the extent of $ ), pursuant to subsection 135(2) of the Act, for the following reasons: (Set out the reasons for the disallowance.) ( or ) (

B) as trustee acting in the matter of the bankruptcy ( or proposal) of , I have determined that your contingent or unliquidated claim is a provable claim and have valued it at $ and therefore, it is deemed a proved claim to this amount pursuant to subsection 135(1.1) of the Act.

And further take notice that if you are dissatisfied with my decision in disallowing your claim in whole or in part ( or a right to rank or your security or valuation of your claim), you may appeal to the court within the 30- day period after the day on which this notice is served, or within any other period that the court may, on application made within the same 30-day period, allow. Dated at , this day of . Licensed Insolvency Trustee [ 27 ] Therefore, it follows from the wording of Rule 113 and of Form 77 that the person affected by the notice of subsection 135(3)

or the person to whom the notice is provided pursuant to subsection 135(4) is the creditor who wishes to have his claim allowed. [28] As for an application by a debtor, such as the Appellant, who wishes to expunge or reduce a proof of claim, it is governed bysubsection 135(5) of the B.I.A. and is subject to a condition. In order to ask the court to intervene, the debtor must show that the trusteehas declined to interfere in the matter. [29] Professor Jacques Deslauriers[6] states: 1692.

Même si le syndic a accepté une preuve de réclamation, le failli ou tout créanciers peut demander au tribunal de la rayer ou de laréduire, quand le syndic, dûment avisé de l’opportunité ou de la nécessité de le faire, refuse de reconsidérer sa décision ou d’accepter oude rejeter la créance. (art. 135(5) L.f.i.). 1693. Le refus du syndic d’intervenir est une condition préalable à l’examen de la situation par le tribunal et cette demanded’intervention doit être présentée dans un délai raisonnable […]. [30] The burden of an applicant under subsection 135(5) of the B.I.A. is described as follows in Roberts v. E.

Sands & Associates Inc.[7]: [29] In an application pursuant to s. 135(5) under the B.I.A., there must first be a request to the Trustee to disallow or expunge theclaims which have been allowed by the Trustee and the Trustee must then decline to interfere: Royal Bank of Canada v. Insley (2010),2010 SKQB 17 , 64 C.B.R. (5th) 105 (Sask.

Q.B.) at paras. 8 and 24; Ted Leroy Trucking Ltd. (Re) (2012) 86 C.B.R. (5th) 149(B.C.S.C.), at para. 8; Purdy (Re) (1997), (BC SC), 50 C.B.R. (3d) 225 (B.C.S.C.) at para. 28; and Re Light TravelService Ltd. (1985), (BC SC), 56 C.B.R. (n.s.) 175 (B.C.S.C.). [31] In the case at hand, prior to requesting the intervention of the Court pursuant to the terms of subsection 135(5), the Appellanthad to ask the Trustee to revise its decision. He did not do so.

In fact, there is not even an allegation, let alone evidence, that theAppellant asked the Trustee to rescind or modify its decision to deem the Respondent’s claim provable for the amount of $99,848.95. [32] Given that the precondition for subsection 135(5) to apply was not satisfied, this recourse was not available to the Appellant. [33] For this reason alone, the appeal must fail. [34] Leaving aside the issue of the request to the Trustee, there is a further reason that the appeal must be dismissed. [35] Subsection 135(5) B.I.A. does not provide for a specific time limit to ask for the intervention of the Court.

It is appropriate, inthe circumstances, to rely on the general rule of the B.I.A.

Section 37 of the B.I.A. provides that the bankrupt who is aggrieved by adecision of the trustee may apply to the court to have the decision reversed or modified. This application, however, has to be made within a reasonable time[8]. [36] This Court[9] has upheld a judgment of the Superior Court which ruled in that sense. [37] In the present case, the judge held that the Appellant knew of the Trustee’s decision to allow the Respondent’s proof of claim asof November 26, 2014. [38] It was only on April 9, 2015, four and a half months later, that Appellant filed his Motion to contest Trustee’s decision.

Thisdelay is unreasonable. FOR THE AFOREMENTIONED REASONS, THE COURT: [39] DISMISSES the appeal, with legal costs. NICHOLAS KASIRER, J.A. MARTIN VAUCLAIR, J.A. LOUIS LACOURSIÈRE, J.A. (ad hoc)LOUISLACOURSIÈRE, J.A. (ad hoc)