Bischke (Re), 2014 ABQB 473

Court of Queen ’ s Bench of Alberta Citation: Bischke (Re), 2014 ABQB 473 Date: 20140811 Docket: BE01 484806 Registry: Calgary In the Matter of the Bankruptcy of Matthew James Craig Bischke _______________________________________________________ Reasons for Decision of the Honourable Madam Justice B.E. Romaine _______________________________________________________ Introduction [ 1 ] The Trustee in bankruptcy of Matthew James Craig Bischke applies for an order discharging Mr. Bischke from bankruptcy, conditional upon satisfactory payment with respect to his interest in a residence. Mr.

Bischke applies for an order declaring that the liability arising from a judgment against him in favour of Columere Park Developments Ltd be extinguished upon his discharge from bankruptcy. Columere opposes that application on the basis that the judgment debt falls within the categories of exceptions to discharge set out by

section 178 of the Bankruptcy and Insolvency Act . Columere also submits that the British Columbia Supreme Court is the appropriate Court to decide this issue.

Facts [2] In 2010, Mr. Bischke, Enviro Custom Homes Inc. and two other directors of a related corporation were found were foundjointly and severally liable to Columere for the conversion of funds paid by Columere to Enviro BC or (Enviro AB) in the amount of$3,191,695.95: Columere Park Developments Ltd v Enviro Custom Homes Inc., 2010 BCSC 1248 (the “Melnick Judgment”). Thatjudgment was not appealed. [3] The debt arose from a contract between Enviro BC and Columere. However, Melnick, J. pierced the corporate veil to holdthe three directors of Enviro BC, including Mr. Bischke, jointly liable with Enviro BC. [4] Mr.

Bischke filed an assignment in bankruptcy on April 11, 2011. On June 8, 2011, Columere brought an application beforea Registrar in Alberta for leave to lift the stay and pursue a declaration before the Supreme Court of British Columbia that liability forapproximately $2.9 million, the amount remaining unpaid under the Melnick Judgment, not be extinguished by Mr. Bischke’s dischargefrom bankruptcy. Registrar Prowse found that Columere had not met its onus of showing why the stay should be lifted: Bischke (Re),2011 ABQB 422.

Analysis Discharge from Bankruptcy [5] The Trustee’s application for discharge was unopposed. [6] Given that Mr. Bischke has complied with his obligations under the Bankruptcy and Insolvency Act , I find that there is noreason why the Trustee’s application should not be granted, subject to a condition with respect to the 50% interest in Mr.

Bischke’sresidence now vested in the Trustee. [7] I agree with the Trustee’s analysis, supported by legal opinion, appraisals and the Trustee’s Supplementary Report, that Mr.Bischke’s offer to purchase that interest for $81,677.82 is reasonable and within a range of values, using a practical and pragmaticapproach. [8] I therefore grant the relief requested by the Trustee and discharge Mr. Bischke from bankruptcy, conditional upon himpaying the Trustee the recommended amount. Application for A Declaration of Release [9] Columere raised two preliminary issues with respect to Mr.

Bischke’s application for a declaration of release. It submits:

a) that the application is premature, and should await the Trustee’s discharge; and

b) that this Court should, on the basis of comity, defer to the jurisdiction of the British Columbia Supreme Court on the issue of adetermination involving

section 178 of the Bankruptcy and Insolvency Act. [10] With respect to whether the application is premature, Columere relies in part on Registrar Prowse’s decision. However, evenif I was bound by that decision, there is nothing in it that suggests that I need to wait until Mr. Bischke’s discharge has been finalized orthe Trustee is discharged before proceeding to hear this application. In fact, one of the alternatives correctly identified by RegistrarProwse was that the issue could be addressed in bankruptcy court in Calgary when Mr. Bischke’s application for discharge was broughtforward.

The matter is now at that stage. The application is not premature. [11] With respect to the submission that this Court should on the basis of comity defer to the jurisdiction of the British ColumbiaSupreme Court on the issue, Columere relies on Morguard Investments Ltd v de Savoye (SCC), [1990] 3 S.C.R. 1077.The Court in that case endorsed the following definition of comity: “Comity” in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon theother.

But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation,having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under theprotection of its laws ... [12] The concept of comity relates to co-operation with courts of other provinces or other jurisdictions where necessary to meet theends of justice. [13] As noted by Registrar Prowse and by the parties, there is no one correct venue for the determination of this issue.

Thequestion is within the jurisdiction of a bankruptcy court, but not within its exclusive jurisdiction. Depending on the circumstances, othercourts may exercise jurisdiction. [14] However, as noted in Canada (A.G.) v Bourassa (Trustees of) 2002 ABCA 205 at paras 6 and 12, the bankruptcy court, bystatute, normally determines what claims may survive a bankruptcy discharge application. [15] The application has been brought by Mr. Bischke before the Court of Queen’s Bench sitting as a Bankruptcy Court inCalgary, where he resides and where he has undergone bankruptcy proceedings.

Is there any good reason for this Court to decline to take

jurisdiction over the matter? [ 16 ] Columere suggests that I should defer to the British Columbia court because the decision that gave rise to the liability in question was issued by a British Columbia Justice. It submits that the British Columbia Court retains the jurisdiction to make supplemental orders for the purpose of “giving assistance and working out” the judgment in question, citing Winfield v Lomas, 2008 BCSC 1636 at para. 10 . [ 17 ] I disagree with the comment made by the Court in Winfield that the question of whether a debt is released by the operation of

section 178 is not a question for the bankruptcy court: para 9. However, the issue in Winfield was whether the court that had issued the consent judgment in question had any jurisdiction to make a supplemental order. Mr. Bischke does not dispute the concurrent jurisdiction of courts other than bankruptcy courts to hear this kind of application.

He merely suggests that this Court is the appropriate jurisdiction in the circumstances of this case. [ 18 ] With respect to the concept of a court issuing supplemental orders to “work-out” its judgment, I note that Justice Melnick issued his decision in September, 2010, nearly four years ago. There is no concurrent or competing application before him in this matter.

While Columere refers to an order dated October 22, 2013 involving one of the other defendants in the Melnick Judgment, that order was made under a different action number, was granted by a different judge in a different judicial district, and was granted in the absence of any representations by that defendant. The order does not identify the basis on which it was granted. [ 19 ] A determination under

section 178 is typically made on the basis of the judgment that gave rise to the liability.

Columere suggests that the Court may go behind the judgment to look at the pleadings, again citing Winfield , but the Winfield decision involved an underlying consent order with no reasons for judgment, and is thus distinguishable. [ 20 ] I agree with the comment made by Justice Smith in Toban v Nijjer, 2005 BCSC 891 at para 26 , that where there are written reasons for judgment, the reasons speak for themselves and it would be inappropriate to consider pleadings and arguments made at trial. [ 21 ] In this case, there are lengthy and thorough reasons for judgment.

Even if Justice Melnick could recall the evidence he heard after four years, that evidence is not determinative of the issue. It is the findings of fact and conclusions of law he made in the judgment that are relevant to the issue. I am able to determine those finding from the reasons.

If there is anything in the record that was before Justice Melnick that was necessary to supplement the reasons, that could have been brought into evidence before this Court. [ 22 ] There is no good reason in this case to decline to assume jurisdiction over this issue, and I do not. [ 23 ] Turning to the main issue, Columere bears the onus of establishing that its claim comes within one of the exceptions to release by bankruptcy identified by

Section 178 of the Bankruptcy and Insolvency Act . [ 24 ] Columere submits that its judgment debt is not released by Mr. Bischke’s bankruptcy because the debt arises from an award of damages, either: a. arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity (section 178(1)(d)); or b. resulting from obtaining property or services by false pretences or fraudulent misrepresentation (section 178(1)(e)). [ 25 ] Mr.

Bischke concedes that, given the Melnick Judgment, his liability for the tort of conversion can be characterized as misappropriation within the meaning of subsection 178(1)(d). However, he notes that it is not merely a debt arising from misappropriation that survives bankruptcy, but a debt arising from “ misappropriation ... while acting in a fiduciary capacity ”. There are two requirements for the exception to arise: a. the debt must be linked to the misappropriation; and b. the misappropriation must have occurred in the context of a fiduciary relationship: McAteer v.

Billes , 2007 ABCA 137 , at para 22 , leave to appeal refused 2007 CarswellAlta 1668 (SCC) . [ 26 ] Mr. Bischke submits that section 178(1)(

d) cannot apply to the judgment debt as he never dealt with Columere while acting in a fiduciary capacity. [ 27 ] Columere appears to argue that it is not necessary that the fiduciary duty in question be owed to the judgment creditor. I cannot agree: the impugned breach must occur while the debtor is in a fiduciary relationship with the creditor: Saskatchewan Wheat Pool v. Ewing Lake Farms Ltd. , 1998 CarswellAlta 1432 at para 42 , cited with approval in McAteer at para 22 . [ 28 ] Columere next submits that the jurisprudence regarding fiduciary duty supports characterizing Mr.

Bischke as a fiduciary in relation to Columere. The Melnick Judgment made no such finding.

While Justice Melnick may have implied at para 42 of his reasons that the directors of Enviro BC had some sort of duty, he certainly did not characterize it as a fiduciary duty, and, given the law with respect to fiduciary relationships, it is difficult to see how he could have. [ 29 ] As noted in McAteer at paras 24 – 27 , while corporate directors owe a duty of care, they do not owe a fiduciary duty to creditors, and fiduciary relationships are rare in arm’s length commercial transactions such as the one between Enviro BC and Columere. [ 30 ] The judgment liability rests on the tort of conversion.

Justice Melnick stated that if he was in error with respect to liability on that basis, he would find liability, or partial liability, for other reasons. Since there was no appeal, his decision stands with respect to conversion. [ 31 ] One of the alternative grounds mentioned in the decision was an alleged breach of the statutory trust imposed the British Columbia Builders Lien Act . Justice Melnick noted that owners of property are no longer beneficiaries of the statutory trust under that

Act . He commented if he was wrong with respect to liability in conversion, he would have found a remedy arising from the assignment of certain liens to Columere. However, such a remedy arising from assignment of a right of action implying a breach of trust with respect to lien-holders does not imply such a duty to Columere as owner, let alone a fiduciary duty. A fiduciary duty is only owed to the beneficiaries of the trust.

As noted by Justice Melnick at para. 63, to hold otherwise would “effectively do an end run around the express exclusion of owners as beneficiaries of the statutory trust”. [ 32 ] The Melnick Judgment also made a finding of negligent misrepresentation in the alternative, and Columere submits that such a finding can form the basis for an exception to discharge under section 178(1)(e). However, that exception refers to the tort of fraudulent misrepresentation. [ 33 ] The Melnick Judgment does not make a finding of fraudulent misrepresentation, and the debt arising from the judgment does not arise from that tort.

The tort of fraudulent misrepresentation requires the existence of a representation. The finding of negligent misrepresentation in the Melnick Judgment rests on a failure of Mr. Bischke to advise Columere of his fellow director’s misappropriation. [ 34 ] Finally, Justice Melnick very briefly referred to constructive trust as a remedy for breach of an equitable obligation, and found that, if he was in error with respect to conversion, he would impose a constructive trust. Thus, an argument may be made that the imposition of such a trust implies the existence of a fiduciary duty on Mr.

Bischke as one of the directors. [ 35 ] However, as noted by Mr. Bischke, an undertaking to relinquish self-interest must exist in order for a fiduciary relationship to exist: Galambos v Perez , 2009, SCC 48 at paras 71 – 80 . There was no finding of such an undertaking by Mr. Bischke in the reasons for judgment. [ 36 ] In any event, the finding of a constructive trust as a remedy does not retro-actively impose a trustee - beneficiary relationship between parties, absent such an undertaking : Tracy v.

Instaloans Financial Solutions Centres (C.B.C.) Ltd ., 2010 BCCA 357 at para 21 . [ 37 ] I therefore find that Mr. Bischke’s liabilities arising from the Melnick Judgment are extinguished by his discharge from bankruptcy. [ 38 ] If the parties are unable to agree on costs within 90 days, they may make written submissions on that issue. Dated at the City of Calgary, Alberta this 11 th day of August, 2014. B.E. Romaine J.C.Q.B.A. Appearances: Stan Carscallen Q.C. and N. Climenhaga for Matthew James Craig Bischke M.A.M. Brunton and J.A. Hall for Columere Park Developments Garry A. Befus for the Bankruptcy Trustee