2003 ABQB 295, 2003 ABQB 295

Re Target Liquidators Inc. (Bankrupt), 2003 ABQB 295 Date: 2003 0401 Action No. Bk03 99700 IN THE COURT OF QUEEN'S BENCH OF ALBERTA JUDICIAL DISTRICT OF EDMONTON IN THE MATTER OF THE BANKRUPTCY OF TARGET LIQUIDATORS INC. _______________________________________________________ REASONS FOR DECISION of M. FUNDUK , Registrar in Bankruptcy _______________________________________________________ APPEARANCES: D. Bieganek Duncan & Craig for the trustee D. Taylor for the landlord

[ 1 ] This is an application by the trustee in bankruptcy which is the culmination of a five months battle with a tenacious landlord. Facts [ 2 ] In May, 2002 the landlord and the tenant entered into a 66 month lease starting May 1, 2002. [ 3 ] On October 26 the landlord saw that the tenant was moving its chattels out of the premises. The vehicles that the chattels were being loaded into included three large trailer units. The landlord immediately had a civil enforcement agency seize whatever was still there.

It also took possession of the three trailer units with their contents. [ 4 ] On November 1 st the tenant assigned itself into bankruptcy. [ 5 ] The landlord refused to release possession of the chattels to the trustee. [ 6 ] On November 5 the landlord instructed the civil enforcement agency not to release possession to the trustee, exhibit D to November 26, 2002 affidavit by the trustee: We hereby advise you not to release the seized goods of Target Liquidators to the Trustee in Bankruptcy.

It is our opinion that the Trustee is acting for the tenants who have flagrantly breached their lease by attempting a midnight move and are now tying to illegally claim that they have some sort of security on the goods, which the lease specifically says in clause 10.03 is not allowed. The trustee was not able to get possession of the chattels. [ 7 ] There are two secured creditors of the bankrupt, who hold security over all the bankrupt ’ s chattels. On November 20 the landlord sued the two secured creditors and a number of individuals: Q.B. 0203 22221. I will set out some of the allegations: 15.

The individual Defendants knowingly and willfully caused a breach of Articles 10.03 of the Lease by permitting the encumbrancing of the said goods and chattels to the Defendants, Klein Financial Services Ltd. and The Loan Company Ltd., which encumbrancers, through their directors, knew or ought to have known of the restriction contained in

Article 10.02. Further, the taking of the security by these two corporate Defendants, without the knowledge or consent of the Plaintiff, constituted a fraudulent transaction as against the Plaintiff in contravention of the Fraudulent Preferences Act, R.S.A. 2000, c. F-24 . 16.

On October 26, 2002 the individual Defendants attempted to remove all of the Tenant ’ s trade fixtures, goods and chattels from the Leased Premises in direct contravention of the Lease, with the intention of causing the tenant to be in breach of the Lease and with the intention of preventing the Plaintiff from enforcing its rights as against the said trade fixtures, goods and chattels for payment of moneys due or accruing due under the Lease. 17.

The attempted removal by the individual Defendants was an intentional and wrongful interference with the Lease contract between the Plaintiff and the Tenant, carried out with full knowledge that such wrongful interference would cause the Plaintiff to suffer damages. 18. The attempted removal and intentional interference by the individual Defendants was a wrongful attempt to benefit the

individual Defendants at the expense of the Plaintiff. 19. Upon learning that the individual Defendants were in the process of removing the Tenant ’ s goods and chattels, the Plaintiff, on October 26, 2002, caused a distress warrant to be levied against the said goods and in accordance therewith and on the same date, Allied Civil Enforcement Agency Ltd. sized the said goods. 20.

The individual Defendants, in concert with the Defendants Klein Financial Services Ltd. and the Loan Company Ltd. cause the Tenant to assign itself into bankruptcy on October 31, 2002 in an attempt to benefit those corporate Defendants at the expense of the Plaintiff. [ 8 ] There are common shareholders for the two secured creditors and the bankrupt. [ 9 ] The landlord also filed a proof of claim dated November 20 th as follows: Costs of improvements $95,000.00 3 months basic rent (Nov, Dec, Jan @ $2,410.47 $20,612.10 3 months common costs (Nov, Dec, Jan @ $2,410.47 $7,231.41 $122,843.51 Preferred creditors status claimed, as landlord [ 10 ] On November 27 the trustee applied for an order that the landlord give possession of the chattels to the trustee.

The landlord ’ s representative, Dr. E. Adler, appeared and made lengthy submissions that the bankruptcy was a fraud and the landlord intended to challenge the bankruptcy. A full transcript of that hearing is filed. [ 11 ] The Registrar did not give the order the trustee sought but he also did not refuse it. Instead, he ordered this: 2. The Trustee shall be granted access by the Respondent Broadmoor to the property of Target Liquidators Inc. ( “ Target ” ) wherever situated for the purpose of conducting an inventory of such property. 3.

With respect to the property of Target which is loaded onto the three 48 foot trailers noted on page 3 of the Addendum of Notice of Seizure of Personal Property forming part of Exhibit “ C ” attached to the Affidavit of W.W. (Bill) McCulloch sworn November 25 th , 2002, once those goods are unloaded they may continue to be stored in the space the trailers are presently situated in and the trailers may be returned to Rainbow Transport. 4.

None of the property of Target may be removed from the premises in which they are presently stored except on an agreement between the Trustee and Broadmoor or upon further order of the Court.

5. If Broadmoor wishes to bring application to annul the bankruptcy it shall do so on notice to all of the parties named as Defendants in the Statement of Claim filed by Broadmoor on November 20 th , 2002 and on notice to the Trustee. [ 12 ] After reading the whole transcript I am satisfied that the order was just an interim measure to preserve the chattels and let the landlord apply to annul the bankruptcy. I do not agree that there was any decision by the Registrar about the rights of the trustee or the bankrupt.

In other words, the order was just an interim order maintaining the status quo. [ 13 ] The landlord never applied to annul the bankruptcy. [ 14 ] On December 11 the trustee got a consent order from another Registrar as follows: 1. The Trustee shall be at liberty to offer for sale by tender, on terms it sees fit, the assets of Target including those placed under seizure by the Landlord on October 26 th , 2002. 2.

After deduction of the Trustee ’ s reasonable fees and expenses (including legal fees) with respect to the sale, the net sale proceeds arising from the sale of assets of Target shall be held in trust by the Trustee and may not be distributed without either an agreement among the Trustee, the secured creditors of Target and the Landlord or further order of the Court. [ 15 ] On February 14, 2003 the trustee got an order from Registrar Quinn as follows: 1.

The proposed sale of the assets of Target to Richwood Developments Ltd. ( “ Richwood ” ) for the sum of $93,000 plus Goods and Services Tax is approved and BMA is authorized to close the sale on terms and conditions satisfactory to it.

Upon Richwood paying to BMA the sum of $93,000 plus Goods and Services Tax in accordance with its offer, Richwood shall be entitled to receive possession of the assets forthwith and all right, title and interest in the assets shall vest and pass to Richwood free and clear of all encumbrances, all interests of Target and all claims of the creditors (secured or unsecured) of Target or any parties claiming of or through Target. 2. All other offers for the purchase of the assets of Target are rejected. 3.

After closing of the sale, and after payment of BMA ’ s reasonable fees and disbursements (including BMA ’ s legal costs on a solicitor/client basis) in respect of the sale and any Court applications made to date, BMA shall be at liberty to proceed to administer the estate and distribute the funds to the secured creditors and thereafter the unsecured creditors, if any funds are remaining, in accordance with their interests. “ BMA is the trustee. [ 16 ] Although the

preamble to the order says that the landlord ’ s counsel appeared that is not so: February 27, 2003 letter by Mr. Bieganek to landlord. [ 17 ] Even after the February 14 order the landlord remained tenacious. In a February 25 letter to the trustee the landlord says: In relation to the Bankruptcy of Target Liquidators Inc. (a bankrupt), Broadmoor Place III Ltd. claims against you as trustee the following charges relating to the seizure and storage of the assets by third parties:

Allied Civil Enforcement: (Seizure) $1,300.85 Rainbow Transport trailer rentals 4 x $2,407.50 $9,630.00 Highland Moving: $1,184.49 Total 3 rd party charges $12,115.34 In addition Broadmorr Place III Ltd. claims rent in the sum of $4,280.00 representing rent of $1,000.00 per month to February 28, 2003 and the G.S.T. thereon. The total claim is this $16,395.34 for which full re-imbursement is demanded from the sale proceeds. [ 18 ] On February 27 the landlord took a different line.

It said to the trustee: Re: Claim against Trustee for Seizure & Storage Concerns have been raised regarding the possibility of the loss of the possessory lien on the goods and chattels for the charges and expenses set out in our letter of today ’ s date if such goods are released. We therefore require assurance from you that payment of the sum of $16,395.34 will be made forthwith upon receipt of the goods and chattels by yourself. Master Quinn ’ s order of February 14, 2003 indicates that our lien, being for charges for services rendered to you as trustee, is protected.

Please contact me immediately by faxed reply (484-6227) to confirm that payment of the said sum will be made forthwith upon your receipt of the goods. [ 19 ] On February 27 Mr. Bieganek wrote to the landlord as follows: Your letter of February 25 th , 2003 has been forwarded to me for response on behalf of the Trustee. You are well aware of counsel ’ s involvement in this matter on behalf of the Trustee and therefore I ask that all further correspondence be directed to me. In response to your letter I write to advise as follows: 1. The Court Order obtained from Registrar Quinn is quite straight forward.

After the sale closes, the Trustee is to distribute funds to the secured creditors first. Your office chose not to attend to speak to the matter and chose not to raise these issues at the time. The appeal period on the Order has now expired. 2. The suggestion that your principals are entitled to payment when they undertook what would appear to be an inappropriate distress for rent, conducting the seizure after they had changed the locks and terminated the lease and when there were no rental arrears, is quite outrageous.

Your principals then held the assets ransom forcing the Trustee to take out three Court applications to deal with the matter, the last of which you chose not to oppose.

3. Given that it was your principal ’ s actions that tied up the assets and placed them into storage, not the Trustee ’ s it is somewhat preposterous for you to suggest that the Trustee should now be responsible for making payment of these third party costs and for occupation rent. You need the Trustee ’ s agreement in advance for that. You did not have it then and you do not have it now. 4. If any attempt is made by you or your principals to thwart the transfer of possession of assets to the purchasers it will be met with a Court application and we will seek full indemnification of costs.

If your principals wish to submit an unsecured Proof of Claim in the bankruptcy they are free to do so but the Trustee is going to fully abide by the provisions of Registrar Quinn ’ s Court Order, which you chose not to appear on nor appeal, and the funds will be distributed to the secured creditors. [ 20 ] The sale to the purchaser has now been completed and the trustee holds the sale proceeds in trust. [ 21 ] The trustee now seeks this relief: a. an order in the nature of advice and directions confirming that the landlord, Broadmoor Place III Ltd. ( “ Broadmoor ” ) does not have a Possessory Lien on the assets of Target in respect of the claims being advanced for a storage and occupation rent; b. an order authorizing the Trustee to release the balance funds held to the secured creditors, Klein Financial Services Ltd. and The Loan Company Ltd. in accordance with their interests; [ 22 ] The trustee ’ s simple position is that: a. the effective cause of the assets being held in storage was the landlord; b. at no time did the Trustee agree to make payment to the landlord for the costs and expenses undertaken by the landlord in maintaining possession of the assets in question; c. the landlord ’ s claim, if any, is a preferred claim in the bankruptcy estate only; It is common ground that the sale proceeds are not sufficient to trickle anything into the estate for the benefit of preferred and unsecured creditors. [ 23 ] The landlord ’ s claim is set out in the March 18 affidavit of David Quentin Los, as follows: 10.

As a result of the default of the lease by Target and the ensuing need for seizing of the tenant ’ s goods to protect Broadmoor ’ s interest, Broadmoor incurred costs of $1,300.85 and now shown me and attached to this my affidavit as Exhibit “ A ” is a true copy of the Invoice/Statement for same issued by Allied Civil Enforcement Agency Inc. 11.

Target or its principals had obtained trailers from Rainbow Transport in its attempt to remove the goods and as these trailers had been loaded by Target or its principals, the bailiff seized the goods contained therein and sealed the trailers resulting in Broadmoor becoming responsible for payment thereof from October 30, 2002 until the same were released in February 2003 when the purchaser of the goods from the Trustee obtained possession of the goods.

As a result, Broadmoore was charged the sum of $2,250.00 per month plus G.S.T. for a total of $9,630.00 and now shown me and attached to this my affidavit as Exhibit “ B ” are true copies of invoices for the months from October 26 through November and December 2002 and January and February 2003.

12. In furtherance of Mr. Eli Adler ’ s and this Honourable Court ’ s understanding, Broadmoor incurred costs of $1,184.49 to move the goods and trailers from the leased premises into secured storage and now shown to me and attached to this my affidavit as Exhibit “ C ” is a copy of the invoice from Highland Moving for the costs of the move. 13. Now shown to me and marked as Exhibit “ D ” is an invoice for the use of three storage bays in the sum of $4,000.00.

This amount is not a claim for rent under the lease but for storage and protection of the goods for the benefit of the estate of the bankrupt and the secured creditors. 14. I verily believe that the costs incurred and stated herein were for the sole benefit of the estate of the bankrupt and the secured creditors and that it would be an unjust enrichment to the estate and the secured creditors if Broadmoor is not reimbursed for these costs. [ 24 ] Mr. Taylor relies on In re Work & Day Estate , 1921 CanLII 368 (AB KB) , 58 D.L.R. 377 (Alta.

S.C.) , Re Giorgio Galleria Ltd. , 1995 CanLII 329 (BC SC) , 30 C.B.R. (3d) 302 (B.C.S.C.) and Mr. Bailiff Inc. v. T. Carleton & Co. , 43 C.B.R. (3d) 158 (Ont. C. J.) . Issues One [ 25 ] It is not necessary for me to decide if the landlord had a right to distrain when it did. I will assume without deciding that the distress was justified.

Two [ 26 ] Prior to 1949 a distraining landlord was a secured creditor in a bankruptcy. (Absent a bankruptcy provincial law governed priority between a distraining landlord and a secured creditor). [ 27 ] A distraining landlord ’ s secured position in a bankruptcy was ousted by the 1949 Bankruptcy Act. A distraining landlord is no longer a secured creditor except for its distress costs: Re Profoot Enterprises Ltd. , (1981) 31 A.R. 420 (Reg) ; Federal Bsuiness Development Bank v. Quebec (Comm. de la sant é du travail , 1988 CanLII 105 (SCC) , [1988] 1 S.C.R. 1061 .

A secured creditor now trumps a distraining landlord if there is a bankruptcy: Re Fresh Air Fireplaces of Canada Ltd. , 45 Alta. L.R. (2d) 27 (Q.B.) , aff ’ d 1987 ABCA 35 (CanLII) , 52 Alta. L.R. (2d) 184 (C.A.) . The scheme of distribution under what is now s. 136 is “ subject to the rights of secured creditors ” . The limited exception is that given a distraining landlord by s. 73(4).

Other than this limited exception the landlord is now just a preferred creditor under s. 136 and no longer has priority over secured creditors. [ 28 ] Re Radioland Limited , 1957 CanLII 160 (SK CA) , 36 C.B.R. 158 (Sask.C.A.) deals with a landlord ’ s position in a bankruptcy. In a case comment by Houlden and Morawetz, they say, p. 163: As the Court points out, prior to the 1949 Act, a landlord who had distrained before bankruptcy was a secured creditor ( In re D.S. Patterson & Company , 12 C.B.R. 433 , [1931] O.R. 777 ). The instant case makes it clear that this is no longer the law.

Regardless of the fact that seizure has been made before bankruptcy, the landlord is only a preferred creditor and he must release possession to the trustee on bankruptcy occurring. Under s. 42(4) he is protected as regards the costs of distress and sale and can be regarded as a secured creditor for that portion of his claim but apart from that small item the landlord is a preferred creditor and nothing more. (emphasis mine) Section 42(4) is now s. 73(4).

Three [ 29 ] I turn now to the landlord ’ s claim for distress costs, identified in paragraph 10 of Los ’ s affidavit: [ 30 ] The

section relevant to this issue is 73(4). It says: 73(4) Any property of a bankrupt under seizure for rent or taxes shall on production of a copy of the receiving order or the assignment certified by the trustee as a true copy thereof be delivered forthwith to the trustee, but the costs of distress are a first charge thereon and, ifless the costs of distress and sale shall be paid to the trustee. (emphasis mine) [ 31 ] If there were not two secured creditors the debate could end here. But it must continue because there are two secured creditors.

The trustee has accepted their claims as secured claims. [ 32 ] In Re Work & Day Estate was decided in 1921 and is no longer relevant (except for one point) because the legislation has changed.

In 1921 the relevant legislation said this: 52(1) Where the bankrupt or authorised assignor is a tenant having goods or chattels on, which the landlord has distrained, or would be entitled to distrain, for rent, the right of the landlord to distrain or realise his rent by distress shall cease from and after the date of the receiving order or authorised assignment and the trustee shall be entitled to immediate possession of all the property of the debtor, but in the distribution of the property of the bankrupt or assignor the trustee shall pay to the landlord in priority to all other debts, an amount not exceeding the value of the distrainable assets, and not exceeding three months ’ rent accrued due prior to the date of the receiving order or assignment, and the costs of distress, if any. (emphasis mine) So the landlords costs of distress were lumped in with what is now s. 136(1)(f).

That is not now the law. [ 33 ] In re Work & Day Estate is relevant to a different issue. It says this about the costs of distress, p. 379: The sheriff ’ s costs, I think, ought to include the expense of holding the goods and chattels, calculated from the date of the actual seizure up to the date upon which a proper demand was made for their actual delivery over to the trustee in bankruptcy, and not only up to the date of the authorised assignment.

That is today relevant only to the quantum of a distraining landlord ’ s priority for costs under s. 73(4). [ 34 ] There are two provincial Court of Appeal decisions dealing with the effect of s. 73(4) as against secured creditors: Burdyny v. Dacar Ent. Ltd. (Trustee Of) , 1988 CanLII 7197 (MB CA) , [1989] 2 W.W.R. 44 (Man.C.A.) , and Re Pinestone Resort and Conference Centre Inc. , 1999 CanLII 1705 (ON CA) , 171 D.L.R. (4 th ) 426 (Ont.

C.A.) . [ 35 ] In Burdyny there was a secured creditor of the bankrupt, a landlord ’ s distress for rent, the bankruptcy and then a delivery of the seized chattels to the trustee. The Court says this, p. 47: In this case, s. 51(4) is sufficiently specific to displace the rights of the secured creditor with respect to the costs of a bailiff in making a landlord ’ s seizure.

In the present case, it is conceded that absent the bankruptcy of Dacar, the landlord ’ s distress would have had priority over the secured creditor. When bankruptcy does occur, s. 51(4) simply provides that although the prior claim of the landlord for three months ’ arrears of rent give way to that of the trustee or of a secured creditor (in this case Canadian Imperial Bank), the costs of distress are a first charge on the property of the bankrupt, in the sense that they must be paid first out of the property. In short, a landlord loses his claim for rent but not his costs of distress.

That was clearly the intent of s. 51(4), for otherwise a secured creditor would fully benefit from the cost of a bailiff ’ s seizure (including inventory and appraisal) without any costs to him. If a sale of the seized goods had taken place, the clear wording of s. 51(4) indicates that the bailiff ’ s costs would have been deducted and only the net amount would have been remitted to the trustee. I do not think s. 51(4) should be interpreted as intending a different result where, as in this case, the goods under seizure had not yet been sold.

In sum, s. 51(4) should be construed as conferring on the bailiff a first claim or priority for his costs of distress. Section 51(4) is now s. 73(4). [ 36 ] Pinestone Resort and Conference Centre Inc . is two appeals. There was a secured creditor in one appeal. This is the nub of the decision relevant to the issue before me, paras. 23-24: This view is further strengthened by the fact that other sections of the BIA contemplate the situation where a municipality has seized goods for arrears of business taxes.

In particular, s. 73(4), directs that property under seizure is to be delivered to the trustee, with a provision for payment of the costs of the distress: . . . . . In general terms, under s. 136(1), a municipality is given a preference that is subject to the rights of secured creditors. However, under s. 73(4) a municipality is given a first charge that ranks ahead of secured creditors for the costs of the distress. [ 37 ] Section 73(4) covers both a distraining landlord and a tax distress. [ 38 ] That is the law.

But the problem today for the landlord is that its legal position under s. 73(4) was overrun by Registrar ’ s Quinn ’ s February 14 order which directed that the sale proceeds be applied first to the trustee ’ s costs of the sale, then second to the secured creditors and last to the benefit of unsecured creditors. [ 39 ] The

preamble to the order makes it clear that the secured creditors are just the two secured creditors. The landlord is not a secured creditor of the bankrupt and the order does not make it so. The

preamble differentiates between the two secured creditors and the landlord. [ 40 ] Mr. Taylor finds some kind of comfort in the order that the trustee ’ s costs “ in respect of the sale ” are to be paid first. That is no comfort to the landlord. Its distress costs are not part of the trustee ’ s costs “ in respect of the sale ” . They are simply not trustee ’ s costs. They are the landlord ’ s costs. The landlord cannot now ask that the trustee pay these costs and add them to its costs to be paid first.

That is just an attempt to circumvent the February 14 order by requiring a different order of distribution to give the landlord a priority over the two secured creditors. [ 41 ] In re Work & Day Estate makes it clear that a landlord ’ s priority for distress costs is still second to the trustee ’ s costs, p. 379, last paragraph. A landlord cannot ask that its distress costs be treated as part of the trustee ’ s costs. That is not sustainable factually or legally.

A landlord ’ s distress costs, except for the storage costs between the date of bankruptcy and the trustee ’ s demand for possession, precede the bankruptcy so factually and legally cannot be trustee ’ s costs.

[ 42 ] The February 14 order is a substantive order. It accepts an offer by an offeror to buy the chattels and directs what the trustee is to do with the sale proceeds. I cannot change that order directly or indirectly. The landlord ’ s claim for distress costs is now a collateral attack on the February 14 order. That is not permissible: Skagos v. Emery Jamieson , (1986) 1986 CanLII 1916 (AB KB) , 72 A.R. 231 (M) . [ 43 ] The landlord cannot now advance an alternative claim to be paid its distress costs in priority to the secured creditors on the ground that it is just and equitable for the trustee to do so.

That would be contrary to the February 14 order and is still a collateral attack on the order. The only permissible method of attacking that order is by appealing it, which was not done. Four [ 44 ] I turn now to the balance of the landlords costs claim as identified in paragraphs 11-13 of Los ’ s affidavit. [ 45 ] All the costs the landlord incurred after the trustee ’ s demand for possession in early November were incurred solely because the landlord refused to give possession to the trustee.

The landlord just dug in its heels and now wants to bootstrap itself into getting all those subsequent costs. [ 46 ] The first simple answer is that the landlord tries to get around the February 14 order by invoking “ equity ” , but that is still a collateral attack on the order. [ 47 ] Re Geiorgio Galleria Ltd . is a case of a landlord ’ s distress for rent and a secured creditor, a bank under the Bank Act. The decision holds that s. 73(4) cannot trump Bank Act legislation. However, that did not end the debate.

The bailiff who had done the seizure had submitted a proof of claim which the trustee had rejected in its entirety. The non-application of s. 73(4) raised a second issue. Could the bailiff at least be an unsecured creditor in the bankruptcy? The Court said yes, paragraphs 22, 24, 28 and 29: This does not end the matter. Counsel for the bailiff raises and alternative argument in equity based on the case of Re Condon; Ex parte James (1874), 9 Ch. App. 609 [hereinafter referred to as Ex parte James ], as applied in Price Waterhouse Ltd. v. A.E. LePage Real Estate Services Ltd . (1984), (sub nom.

Re Hardy) 51 C.B.R. (N.S.) 21 (N.S. T.D.) . The rule in Ex parte James imposes a duty on a trustee in bankruptcy to act fairly in the administration of a bankrupt ’ s estate. The bailiff argues that, given its efforts served to enrich the estate by preserving the assets, the Trustee acted unfairly in denying the bailiff ’ s claim. . . . . .

Before embarking on an analysis of these cases, I should state that on the affidavit material before me, I am satisfied that, but for the efforts of the bailiff, much if not all of the goods on the premises would have been released to customers or suppliers prior to the assignment into bankruptcy. It was through the efforts of the bailiff that the goods were preserved for the bankrupt ’ s estate. . . . . . A trustee in bankruptcy is an officer of the Court and has imposed upon him an obligation to act fairly and justly, and to do what is morally right and honest.

These concepts are reviewed in Price Waterhouse (supra). In that case, the judge found that the sale of certain property in the bankrupt ’ s estate would likely never have happened but for the efforts of the real estate company, whose claim for commission had been denied by the trustee. Following the principle in Ex parte James , the Court held that the estate had been unjustly enriched at the expense of the real estate agent. It was unfair for the trustee to take advantage of the services performed by the real estate agent and refuse to pay for them.

In my view, this reasoning is directly applicable to the facts before me. The Trustee and the estate have the advantage of the preservation of the goods as a direct result of the efforts of the bailiff. It is unfair to deny the bailiff his lawful costs. [ 48 ] I take it from that that there were assets in the estate for the general body of creditors, that the bailiff had preserved assets for the general body of creditors and so he should at least rank as an unsecured creditor under s. 136. [ 49 ] That is not what the landlord ’ s claim is about. There is nothing in the estate for the unsecured creditors.

The trustee ’ s costs and the two secured creditors eat up the entire sale proceeds. [ 50 ] The trustee and the two secured creditors probably could not care less if the landlord ’ s costs are simply an unsecured claim. [ 51 ] In Mr. Bailiff Inc. the landlord had terminated the lease by changing the locks and re-entering. The Court says that the bailiff ’ s costs were not for a distress for rent and so s. 73(4) did not apply.

The Court followed Re Georgio Galleria Ltd . in applying “ equity ” , para. 2: The Plaintiff claims that it should be entitled to relief on the basis of the equitable principle stated in Re Georgio Galleria Ltd., (1995), 1995 CanLII 329 (BC SC) , 30 C.B.R. (3d) 302 (B.C.S.C.) . In that decision, the court relies on the decision of Houlden J. in Re M.C.C. Product Ltd. , (1972), 1972 CanLII 490 (ON SC) , 17 C.B.R. (N.S.) 28 (Ont.

S.C.) at 36, where Houlden J. states that Ex parte James applies “ in circumstances where the bankrupt estate had been enriched at the expense of the person making the claim and to permit this to happen would be unfair and inequitable, even though it might be perfectly legal. ” Here it appears to me that the bailiff ’ s action must be regarded as having preserved the kitchen equipment and therefore as having enriched the estate. There was a suggestion that the equipment was a fixture but, as between the landlord and tenant, it was treated as the tenant ’ s asset and it was sold to the landlord.

Perhaps it would have been difficult for the tenant to remove the equipment quickly but there was no evidence on the point. There was a question whether the dealing by the trustee with the assets was part of the receivership or the bankruptcy. The sale of the assets and the payment to Revenue Canada are recorded on the statement for the receivership but Revenue Canada ’ s claim were apparently made by way of proofs of claim in the bankruptcy.

I conclude that unless the claims of Revenue Canada should lead to a different result, the Plaintiff is entitled to equity to be paid, out of the proceeds recovered from the kitchen equipment assets, the amount of the reasonable costs incurred by the Plaintiff in securing the premises. [ 52 ] That begs the obvious question - what benefit has the estate received from the landlord ’ s actions? [ 53 ] The landlord cannot say that it preserved the chattels for the benefit of the two secured creditors.

They and the bankrupt have the same shareholders so the bankrupt would not have somehow done away with the secured creditors collateral. I agree with Mr. Bieganek ’ s submission that this is just part of the landlord ’ s continuing battle with the secured creditors and their shareholders. [ 54 ] Re Condon: Ex Parte James (1874) 9 Ch. App. 609 cannot help the landlord. In addition to its references in the cases I have referred to, Houlden & Morawetz, Bankruptcy & Insolvency Act (The 2003 Annotated) discuss it pp. 333-34. [ 55 ] Although the facts are different in Re M.C.C.

Precision Products Limited , 1972 CanLII 490 (ON SC) , 17 C.B.R. (NS) 28 (Ont. S.C.) the following paragraph is quite appropriate, p. 36: To begin with, I find it strange that an equitable doctrine should be used to benefit someone who, as a result of his own criminal conduct, has been forced to pay a sum of money to avoid prosecution. However, disregarding this, I do not think that the rule in Re Condon has ever been applied to a situation where the trustee has not received property or is asserting a claim to property, which is claimed by some other person.

In other words, the rule is applied in circumstances where the bankrupt estate has been enriched or could be enriched at the expense of the person making the claim, and to permit this to happen would be unfair and inequitable even though it might be perfectly legal: see Re McDonald , 1971 CanLII 690 (ON SC) , [1972] 1 O.R. 363 , 23 D.L.R. (3d) 147 , and the judgment of Lord Keith in Government of India v. Taylor , [1955] A.C. 491 at 512, [1955] 1 All E.R. 292 .

I do not see how it would be applied to a proof of claim where the bankrupt estate has not in any way been enriched. [ 56 ] I find it strange that the landlord relies on an equitable doctrine to get a benefit as a result of its own misconduct in refusing to

give possession of the chattels to the trustee as required by s. 73. The costs incurred by the landlord after the trustee ’ s demand for possession were caused solely by its refusal to turn over to the trustee the seized chattels. [ 57 ] I do not see how the equitable doctrine can be applied where the bankrupt estate has not in any way been enriched. Nothing trickles down into the estate for the benefit of the general body of creditors. Re Goldin , 2002 CanLII 49598 (ON SC) , 34 C.B.R. (4 th ) 196 (Ont.

C.J.) succinctly identifies the rationale for applying Ex Parte James , para. 12: In my view, the principle to be extracted from these decisions is that, in a situation where the estate of the bankrupt has been enriched through the efforts of, or at the expense, of a claimant, and the trustee is invoking a legal right to retain the amount by which the estate has been enriched, the court will where it would be unfair or dishonest for the Trustee to take advantage of its legal rights, order the Trustee to return the enrichment amount to the claimant. [ 58 ] It cannot even be said that what the landlord did benefited the two secured creditors.

There are common shareholders of the two secured creditors and the bankrupt so the secured creditors did not face the slightest risk of their collateral disappearing because of the bankrupt ’ s actions. [ 59 ] There is no “ dishonest or unjust advantage being obtained [by the trustee] which would be inconsistent with natural justice. ” : In Re Taylor Estate , 7 C.B.R. 550 (Ont. S.C.) , p. 553 . [ 60 ] See also Re Appleby Estates Limited , 1984 CanLII 1859 (ON CA) , 53 C.B.R. (N.S.) 10 (Ont.

C.A.) , p. 18 : The rule in Re Condon prevents a trustee in bankruptcy, as an officer of the court, from claiming or retaining money or property in circumstances where it is inequitable for him to do so. ... The trustee neither retains or claims the sale proceeds. The February 14 order tells it what it must do. There is no inequity by the trustee in refusing to accede to the landlord ’ s claim. It would be an inequity for me to decide that the landlord ’ s claim should be paid by the trustee. To do so is to stand the equitable doctrine on its head. There is no equity on the landlord ’ s side.

It took a legally untenable position in refusing to give possession of the chattels to the landlord. It hoisted itself on its own petard. It cannot expect the trustee to get it off the petar. [ 61 ] I do not agree that the February 14 order “ protected ” the landlord ’ s claim. Decision 1. The landlord does not have a claim for any costs subsequent to the trustee ’ s demand for possession of the chattels. 2. Any possible claim by the landlord under s. 73(4) is res judicata because of the February 14 order. 3. the trustee will release the balance of the sale proceeds as provided for in the February 14 order. 4.

The trustee will have costs of $1,000 against the landlord.

HEARD on the 18 th day of March, 2003. DATED at Edmonton, Alberta this 1st day of April, 2003. __________________________ M. FUNDUK Registrar in Bankruptcy