2011 QCCA 1310, 2011 QCCA 1310

Boivin (Syndic de) 2011 QCCA 1310 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL NO.: 500-09-019499-094 (550-11-007976-047) (550-11-008499-056) DATE: August 10, 2011 CORAM: THE HONOURABLE J.J. MICHEL ROBERT, J.C.Q. BENOÎT MORIN, J.A. JACQUES A. LÉGER, J.A. No.: 500-09-019499-094 (550-11-007976-047) IN THE MATTER OF THE BANKRUPTCY OF: MAURICE BOIVIN IMPLEADED PARTY – Debtor-Bankrupt and ATTORNEY GENERAL OF QUEBEC APPELLANT – Creditor and RAYMOND CHABOT INC. RESPONDENT – Trustee No.: 500-09-019499-094 (550-11-008499-056) IN THE MATTER OF THE BANKRUPTCY OF: 3827348 CANADA INC.

IMPLEADED PARTY – Debtor-Bankrupt and ATTORNEY GENERAL OF QUEBEC APPELLANT – Creditor and RAYMOND CHABOT INC. RESPONDENT – Trustee JUDGMENT [ 1 ] THE COURT , - On the appellant’s appeal from a judgment of the Superior Court, District of Hull (the Honourable Mr.

Justice Pierre Isabelle), rendered on March 4, 2009, which dismissed four motions brought by the appellant following the bankruptcies of Maurice Boivin and 3827348 Canada Inc.; [ 2 ] After having examined the file, heard the parties, and on the whole deliberated; [ 3 ] For the reasons of the Chief Justice, with which Morin and Léger JJ.A. agree; [ 4 ] ALLOWS the appeal, with costs; [ 5 ] SETS ASIDE the trial judgment and ALLOWS the motions to quash the notice of stay of proceedings instituted against the bankrupts, with costs. J.J. MICHEL ROBERT, J.C.Q. BENOÎT MORIN, J.A.

JACQUES A. LÉGER, J.A. Mtre Jocelyne Provost Bernard, Roy (Justice-Québec) For the Appellant Mtre Darquise Jolicoeur Beaudry, Bertrand For the impleaded parties Date of hearing: December 6, 2010 REASONS OF THE CHIEF JUSTICE [ 6 ] The appellant appeals from a judgment rendered on March 4, 2009, by the Superior Court, District of Hull (the Honourable Mr.

Justice Pierre Isabelle), which dismissed four motions brought by the appellant following the bankruptcies of Maurice Boivin and 3827348 Canada Inc. [ 7 ] It is appropriate to point out here that Maurice Boivin made an assignment of his property on November 16, 2004, that he was discharged from his bankruptcy on February 27, 2006, and that his trustee in bankruptcy was discharged on February 20, 2007. [ 8 ] As for 3827348 Canada Inc., it made an assignment of its property on June 21, 2005, and its trustee in bankruptcy was discharged on February 7, 2007.

FACTS AND PROCEEDINGS [ 9 ] This case originates from proceedings for $362,849 instituted by the appellant on October 3, 2007, against various individuals for having, between 2003 and 2005, unlawfully appropriated and resold topsoil, yellow earth, and sand from a vacant lot belonging to the government, more specifically the Quebec Ministère des Transports (hereinafter the “MTQ”).

This lot is adjacent to a lot belonging to 3827348 Canada Inc. [ 10 ] The aforesaid proceedings arose from a letter sent on August 16, 2005, by the City of Gatineau to the MTQ to notify it that, following a complaint, it had found that sand and arable land were being unlawfully extracted from the MTQ’s lot. Following this letter, the MTQ conducted an investigation which showed that such operations were indeed taking place. [ 11 ] As part of this investigation, two MTQ representatives met with Mr. Boivin on November 9, 2005.

According to the minutes of this meeting, as drafted by one of the MTQ representatives, [ translation ] “Mr. Boivin stated that he had not seen any work in progress or equipment in operation on lots other than his own”. [ 12 ] The defendants involved in the initial proceedings (docket number 550-17-003448-071) stated that they had removed materials from the MTQ lot on behalf of Maurice Boivin and for 3827348 Canada Inc., of which Mr. Boivin is the sole director (the “bankrupts”). Mr.

Boivin had allegedly told them that these materials belonged to him. [ 13 ] Following these statements, on July 7, 2008, the appellant amended its motion to introduce proceedings in order to include the bankrupts. On August 25, 2008, however, the respondent sent notices of stays of proceedings to the appellant, relying on

section 69 of the Bankruptcy and Insolvency Act [1] (the “ Act”) . [ 14 ] The appellant then brought two motions before the court under the Act in each of the bankruptcy files of Maurice Boivin and 3827348 Canada Inc.: one to quash the notice of stay of proceedings and the other for leave to institute proceedings against the bankrupts, the latter being a de bene esse motion. JUDGMENT UNDER APPEAL [ 15 ] The Superior Court proceeded to analyze the file in three stages.

First, it considered the jurisdiction of the trustee in bankruptcy to issue a notice of stay of proceedings after the discharge of the bankrupt and of the trustee itself. The Court found that the trustee had jurisdiction to give such a notice as part of its duty as an administrator and under sections 69 to 69.31 of the Act . [2] [ 16 ] The Court then considered whether the appellant required judicial authorization to pursue a civil remedy against a discharged bankrupt. The Court, after interpreting

section 69.3 of the Act , found that there was no such requirement. [3] [ 17 ] Finally, the Superior Court considered whether or not the bankrupts were discharged from the appellant’s claim. The appellant argued that its claim was not a provable claim within the meaning of the Act and that it was therefore not subject to the principle discharging the bankrupts from their debts, expressed in section 178(2). The Court found that it was up to the trustee to determine whether the claim was provable under

section 135 of the Act and that, once the trustee was discharged, it fell to the court to make such a determination. [4] It found that, following the notice of the City of Gatineau and Mr. Boivin’s meeting with the MTQ representatives on

November 9, 2005, the appellant had all the elements required to determine the bankrupts’ liability before they were discharged. [ 18 ] The Superior Court then went on to assess the exception in section 178(1)(

e) of the Act and the appellant’s argument that Mr. Boivin’s misrepresentations would result in his debt not being extinguished. The Court rejected this argument on the ground that the statements made by Mr. Boivin to the MTQ representatives on November 9, 2005, were made subsequent to obtaining the property in question. [5] It therefore disposed of the case by dismissing the appellant’s four motions, with costs. ISSUES [ 19 ] It should be noted that the respondent did not appear at trial or on appeal, and that it was the impleaded parties who did. [ 20 ] The appellant raises the following issues: 1.

Did the trial judge err in fact and in law by ruling that the trustee in bankruptcy, although discharged for more than two years, had the necessary interest to serve a notice of stay of proceedings under

section 69.4 of the Act in the circumstances of this case? 2. Did the trial judge err in fact and in law by ruling on the admissibility of the civil suit when there was no such motion before the court and it was sitting in bankruptcy? 3. Did the trial judge err in fact and in law by finding that the appellant had a provable claim against Maurice Boivin and 3827348 Canada Inc. in November 2005 and, as a result, that his claim against them had been extinguished by the bankruptcy? 4. Did the trial judge err in fact and in law by dismissing the appellant’s alternative argument under section 178(1) (

e) of the Act as part of the de bene esse motion under

section 69.4 of the Act ? 5. Did the trial judge err in fact and in law by dismissing the de bene esse motion for leave to pursue the proceedings? ANALYSIS 1. Did the trial judge err in fact and in law by ruling that the trustee in bankruptcy, although discharged for more than two years, had the necessary interest to serve a notice of stay of proceedings under

section 69.4 of the Act in the circumstances of this case? [ 21 ] The appellant relies on

section 69.3(1.1) of the Act to argue that the trustee no longer had the jurisdiction to apply for a stay of proceedings under

section 69 when he did because by that point he had been discharged. It should be noted that, despite the wording of the issue raised on appeal, the respondent gave notice pursuant to this provision, which provides for a stay of proceedings between the date of the notice of intention and the date of bankruptcy, and not under

section 69.4 . [6] [ 22 ] In response, the impleaded parties invoke the respondent’s general powers conferred by section 41(10), alleging that the respondent still had jurisdiction to issue such a notice: 41.

(1) When a trustee has completed the duties required of him with respect to the administration of the property of a bankrupt, he shall apply to the court for a discharge…

(10) Notwithstanding his discharge, the trustee remains the trustee of the estate for the performance of such duties as may be incidental to the full administration of the estate. [ 23 ] The parties both refer us to Chambre de la sécurité financière v. Harton . [7] In that case, a financial security advisor was made the subject of a disciplinary investigation. Shortly after the investigation was opened, the advisor made an assignment of her property and was discharged from her bankruptcy. She was ultimately found guilty of breaching professional ethics, her registration was cancelled, and she was fined.

Her trustee in bankruptcy was discharged and then filed a notice of stay with regard to the homologation of the judgment rendered against her under

section 69.3(1) of the Act . The motion to homologate was granted by the Court of Quebec. [8] [ 24 ] Interpreting this section, this Court, per Forget J.A., found that the trustee cannot issue a notice of stay after being discharged. If that were the case, the duration of the stay would be indefinite: [ translation] [48] Even if we agree for the sake of argument that the trustee could intervene after being discharged, I cannot see how he could justify issuing a notice of stay under

section 69.3 of the Bankruptcy and Insolvency Act ( BIA ). … [49] As a reading of this

section reveals, a notice of stay cannot be issued after the trustee’s discharge date . Furthermore, in this case, the notice of stay would be limitless, or sine die , because the bankruptcy was already over. [9] (Citations omitted, emphasis added.) [ 25 ] With respect, the court erred when it stated that the respondent was still authorized to give a notice of stay of proceedings even after being discharged because the Act provides for such a stay. [10] This Court’s

interpretation of this provision in Harton clearly suggests that the automatic stay under

section 69.3 ends when the trustee is discharged and does not empower him to issue notices of stay on his own initiative. [ 26 ] The issue that remains to be determined is whether section 41(10) exceptionally confers this power on the trustee. In the present case, the trial judge referred to the following excerpt from Re Hood , where the Ontario Supreme Court considered an application for discharge of a bankrupt before that of the trustee and interpreted an earlier version of section 41(10):

The trustee is, by the scheme of the Act , obliged to continue his administration of the estate until he has completed the duties required of him under the Act whereupon he shall apply for his discharge under s. 23 .

By s. 23(10), notwithstanding his discharge, the trustee remains de facto the trustee of the estate for the performance of such duties as may be incidental to the full administration of the estate ; by subs. (11), if the court is satisfied that there are assets that have not been realized or distributed, it may, if the trustee has been discharged, on the application of any interested persons appoint a trustee to complete the administration of the estate. [11] (Emphasis added.) [ 27 ] The Court adds that the trustee’s obligations once the bankrupt is discharged consist primarily of distributing assets to the creditors and that it can be assumed that they are the same even once the trustee has been discharged: There is also no provision in the Act that brings to an end the duty of the trustee to complete the administration of the estate and distribute the assets to the creditors once the bankrupt is discharged ; indeed the sense of the applicable provisions to which I have referred is that he must continue until the estate is completely administered and this is clearly so in my opinion notwithstanding the discharge of the bankrupt. [12] (Emphasis added.) [ 28 ] Ontario case law also provides that, under this provision, the trustee may be a party to proceedings after being discharged: The discharge of the bankrupt and the trustee does not affect the matter [of failing to obtain leave to proceed with an action].

The trustee can continue to act and to be made a party by virtue of s. 23(10) of the Bankruptcy Act, R.S.C. 1970, c. B-3. [13] (Emphasis added.) [ 29 ] Interpreting the scope of section 41(10), the Quebec Superior Court found that it includes the realization of property forming part of the bankrupt’s assets. [14] The Ontario Superior Court held that the assignment of property is covered by this

section as “purely an administrative” act. [15] The Supreme Court of British Columbia used the expression “minor matters” and found that a new trustee must be appointed to take possession of after-acquired assets: In considering the effect of s. 41(10), the court must consider what is meant by the words "such duties as may be incidental" to the administration of the estate.

The Shorter Oxford Dictionary defines incidental as "occurring or liable to occur in fortuitous or subordinate conjunction with something else." It is my view that the legislation contemplates the trustee being able to complete minor matters and tie up loose ends pursuant to s. 41(10) but that does not extend to taking possession of after-acquired assets. [16] (Emphasis added.) [ 30 ] In the present case, issuing a notice of stay would be logical if the claims were provable as at the date of bankruptcy.

Section 178(2) of the Act provides for the release from all claims provable against the bankrupt on his date of discharge.

The Act , however, does not confer power on the trustee to issue a notice after being discharged as he did. [ 31 ] A trustee’s duty with regard to a stay of proceedings is to protect the bankrupt from any proceedings with respect to the property covered by the bankruptcy and to prevent unsecured creditors from arrogating to themselves a larger share than they deserve. [17] This objective does not extend to defending the bankrupt in the proceedings instituted against him after being discharged.

It was up to the bankrupts, in the context of the preliminary objections in this case, to take action in response to the amendment to the motion to institute proceedings by the appellant in case number 550-17-003448-071; such an action did not fall within the powers of administrative management of assets following a full or partial discharge conferred on the respondent by the Act . [ 32 ] With respect, the trial court erred in finding that such a duty was incidental to the administration of the assets under section 41(10) and thereby diverting the provision from its objective as determined by Parliament.

I would therefore allow this first ground of appeal. 2. Did the trial judge err in fact and in law by ruling on the admissibility of the civil suit when there was no such motion before the court and it was sitting in bankruptcy? [ 33 ] The appellant argues that the trial judge made a ruling ultra petita by rendering a decision to dismiss a civil suit, rather than ruling on the validity of the motions brought. In the present case, the appellant presented four motions, namely, two motions to quash the notices to stay proceedings made by the respondent, under

section 69.3 and section 178(1) (

e) of the Act , and two de bene esse motions for leave to institute proceedings against the bankrupts under

section 69.4 and section 178(1)(

e) of the Act . The impleaded parties counter that the trial judge found that a provable claim had existed before the bankruptcy date and did not dismiss the motion to institute proceedings for damages, which falls within his jurisdiction in bankruptcy. [ 34 ] Section 183(1.1) of the Act recognizes the jurisdiction of the Superior Court over bankruptcy matters: In the Province of Quebec, the Superior Court is invested with the jurisdiction that will enable it to exercise original, auxiliary and ancillary jurisdiction in bankruptcy and in other proceedings authorized by this Act during its term, as it is now, or may be hereafter, held, and in vacation and in chambers. [ 35 ]

Section 69.3 of the Act provides for stays of proceedings between the date bankruptcy is declared and the date the trustee is discharged: 69.3

(1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy. (1.1) Subsection (1) ceases to apply in respect of a creditor on the day on which the trustee is discharged… 69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of

section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may

make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied (

a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or (

b) that it is equitable on other grounds to make such a declaration. [ 36 ] Section 178(2) of the Act provides for the release of the bankrupt from all claims provable at that date, and section 178(1)(

e) contains the exception raised by the appellant: 178.

(1) An order of discharge does not release the bankrupt from: … (

e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim;… (2) …an order of discharge releases the bankrupt from all claims provable in bankruptcy. [ 37 ] The Superior Court sitting in bankruptcy has broader jurisdiction. In Blaiklock Inc. v. Canadian Imperial Bank of Commerce , Jacques J.A., of this Court, citing the dissenting reasons of LeBel J. in Cry-O-Beef Ltd. v.

Thorne Riddell Inc ., [18] noted that everything concerning the application of the Act falls within the jurisdiction of the Superior Court, and that this Court does not become a separate and distinct court from the Superior Court sitting in civil matters. [19] [ 38 ] That being said, I am respectfully of the opinion that the court exceeded its jurisdiction in the present case.

From the moment that it ruled that the appellant did not need to seek leave to institute proceedings, [20] the court could withdraw itself from the two de bene esse motions without deciding whether the bankrupts had been discharged from their debt. In 1224-2927 Québec inc. v.

Kafko Manufacturing Ltd. , LeBel J.A., for this Court, clearly stated that, at the preliminary stage, a judge sitting in bankruptcy should not decide the merits of a civil case: [ translation] When faced with a motion to dismiss the bankruptcy, the trial judge’s duty, as a bankruptcy judge, was to determine whether or not the claim was contentious. The trial judge defined his duty differently.

He immediately attacked the merits of the parties’ claims, as shown in the first few sentences of his decision… Insofar as an actual dispute arises and is conducted in good faith, the bankruptcy court cannot be transformed into a collection department. It is not up to it to rule on the merits of the dispute before the civil court. In such case, it should not hear with the dispute… Resolving the dispute required more than a

summary examination of the parties’ claims to find that the proposed defence was weak. Relatively extensive documentary and testimonial evidence needed to be assessed to ensure the correct identification and characterization of the legal relationships of the parties. The

interpretation of this evidence could give rise to major uncertainty. The bankruptcy judge should not have heard the trial instead of the civil court, but should have limited himself to determining the contentious nature of the claim and, on that basis, solely the admissibility of the petition for a receiving order. [21] [ 39 ] In this case, the court was not hearing the merits of the civil action regarding the appropriation of government lands in case number 550-17-003448-071.

The issues before it concerned solely whether the appellant required leave to institute proceedings against the bankrupts and whether the respondent had jurisdiction to issue a notice of stay of proceedings. Although the appellant asked the court to consider the exception in section 178(1) (

e) of the Act , I am of the opinion that it did not need to do so once it had reached the conclusion that no leave was required. The court therefore exceeded its jurisdiction when, in paragraphs 73 and 74 of its judgment, it found that Mr. Boivin was discharged from his debt because it had not resulted from misrepresentations allegedly made to the MTQ representatives in November 2005. [ 40 ] It should be pointed out here that this finding by the judge was based on a false premise. Both the hearing before the Superior Court and the motions filed by the appellant at trial reveal that the appellant did not support its claims based on section 78(1) (

e) of the Act with Mr. Boivin’s statements to the MTQ representatives , but rather Mr. Boivin’s statements to the defendants involved in the initial proceedings. [ 41 ] I would therefore accept the second ground of appeal. Therefore, I need not discuss the third ground since it also concerns the merits of the dispute. [ 42 ] Given that the two de bene esse motions that are the subject of the last two grounds of appeal were alternative motions, I see no reason to analyze them.

Nevertheless, it should be pointed out here that the trial judge should not have dismissed these two motions since he did not actually have the evidence required to make an informed decision on the argument based on section 178(1) (

e) of the Act . This is an issue that the court hearing case number 500-17-003448-071 would be in a better position to decide, if applicable. CONCLUSION [ 43 ] For these reasons, I would allow the appeal, with costs, set aside the trial judgment, and grant the motions to quash the notice of stay of proceedings instituted against the bankrupts, with costs. J.J. MICHEL ROBERT, J.C.Q.