Buzzell v. Conway Visions Inc., 2018 BCSC 1021

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Buzzell v. Conway Visions Inc., 2018 BCSC 1021 Date: 20180621 Docket: S23176 Registry: Fort St. John Between: Douglas Buzzell and Myrna Konrad Plaintiffs And Conway Visions Inc., formerly known as Conway Electric Ltd. Defendant Before: The Honourable Madam Justice W.A. Baker Reasons for Judgment Counsel for the Plaintiffs: N. Bauder Counsel for the Defendant: S.D. Cope Place and Date of Hearing: Fort St. John, B.C. June 13, 2018 Place and Date of Judgment: Fort St. John, B.C.

June 21, 2018 [ 1 ] This was an application brought by the defendant to have the claims of the plaintiffs dismissed because the plaintiffs are both undischarged bankrupts. The defendant took the position the plaintiffs do not have capacity to commence or maintain this litigation. [ 2 ] This matter was set to commence for a three-day trial on June 13, 2018. On the first day of trial the defendant brought this application to have the entirety of the plaintiffs’ claim dismissed. On June 13, 2018 I dismissed the defendant’s application. These are the reasons for my decision. [ 3 ] This action was commenced in 2016.

The plaintiffs, Mr. Buzzell and Ms. Konrad, seek to enforce an agreement to purchase lands from the defendant Conway Visions Inc., which lands they had been making payments on, they allege, for over 20 years. [ 4 ] The discoveries of the plaintiffs took place on May 22, 2018, and this was the first time the issue of the bankruptcies was raised. On this application printouts from the bankruptcy and insolvency records held by the Government of Canada were produced showing a bankruptcy of Mr. Buzzell in 1983 with total liabilities of $10,500, with a conditional discharge noted, and a bankruptcy of Ms.

Konrad in 1983 with total liabilities of $9,500, showing the hearing of her discharge proceeding was adjourned. The evidence of the plaintiffs on this hearing and on discovery was that they didn’t understand there was anything left to do with respect to their bankruptcy proceedings. They believed that these matters had been completed in or around 1983. [ 5 ] It is not contested on this application that the plaintiffs are undischarged bankrupts.

However, I am also satisfied that the plaintiffs did not appreciate at any time after the mid-1980s that they were undischarged bankrupts or that they had any obligations or restrictions on their behaviours pursuant to their bankruptcies. I accept that the plaintiffs have been able to obtain credit and carry out business since the date of the bankruptcy without any intervention from the trustee in bankruptcy. The trustee in bankruptcy appears to have taken no further steps with respect to either of the plaintiffs since the assignment into bankruptcy in the mid-1980s.

In the last week the plaintiffs have contacted the trustee in bankruptcy to try to understand the status of their matters. The trustee in bankruptcy did not appear on this application or provide any evidence in relation to this application or the status of the undischarged bankruptcies. [ 6 ] In this litigation the plaintiffs plead that in 1997 the defendant approached them to purchase certain lands and they agreed to purchase the lands on a monthly payment plan.

They say they made payments pursuant to that arrangement for over 20 years and now seek to have the purchase agreement completed and the lands transferred to their names. The defendant denies the existence of this agreement. [ 7 ] On this application the defendant takes the position that the plaintiffs, because of their status as undischarged bankrupts, did not have the legal ability to enter into a contract for purchase and sale 1997, or to commence this litigation.

Is the property at issue exempt from the bankruptcies? [8] Mr. Buzzell in his affidavit sworn June 11, 2018 says that he and Ms. Konrad used their wages and earnings over the last 20years to make payments under the agreement for sale of the property at issue. Their payments are alleged to be in the range of $600 permonth. In his affidavit Mr. Buzzell says that their payments have totalled $151,800 over the past 20 years. [9] Under s. 67 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) the property of a bankrupt which is divisibleamong his creditors includes all property that may be acquired by the bankrupt before his discharge, unless specifically exempted underthe Act.

Section 68 of the BIA sets out exemptions relating to revenues earned by a bankrupt. The Act provides that the trustee shalldetermine whether a bankrupt has surplus income, having regard to the personal and family situation of the bankrupt. If the trusteedetermines that a bankrupt has surplus income, that income may be required to be paid to the estate of the bankrupt, i.e., that surplusincome may form part of the property available to creditors.

Section 68 of the BIA has been determined by the Supreme Court of Canadato be a complete code governing the income of a bankrupt, and that a trustee must look to s. 68 to determine what portion, if any, of thebankrupt’s revenues form part of the bankruptcy estate available for distribution to creditors: Conforti (Re), 2015 ONCA 268 at para 21,citing with approval Marzetti v. Marzetti, (SCC), [1994] 2 S.C.R. 765. [10] In the case at bar there is no evidence before me to suggest that the trustee declared any wages or earnings of the plaintiffs to besurplus income available for distribution to creditors.

Rather, the evidence before me is that the plaintiffs used their wages and earningsto make payments towards the acquisition of the property at issue. In the affidavit of Mr. Buzzell sworn May 2, 2017, Mr.

Buzzellconfirms that the property at issue has been the plaintiffs’ home for the last 20 years and continues to be their home to the present. [11] I find on the evidence before me that payments made by the plaintiffs with respect to the property at issue in this litigation arepayments derived from the wages and earnings of the plaintiffs and that such revenue has not been declared surplus income within themeaning of s. 68 of the BIA.

As such, the interest of the plaintiffs in the subject matter of this dispute is property exempt from theoperation of s. 67 of the BIA. [12] In the event I am wrong in my analysis with respect to ss. 67-68 of the BIA, I have also considered whether the plaintiffs havethe capacity to commence litigation with respect to the property they allege they acquired after the date of their bankruptcies.

Capacity to enter into agreements [13] The defendant says that by virtue of s. 71 of the BIA, on an assignment into bankruptcy the bankrupt ceases to have anycapacity to dispose of or otherwise deal with his property, and all such property vests in the bankruptcy trustee. Until the bankrupt hasbeen discharged, the defendant says that the bankrupt has no ability or capacity to enter into agreements. [14] The plaintiffs argue that notwithstanding their bankruptcy, the BIA does not preclude them from entering into contracts. Theplaintiffs rely on Parent v.

M.N.R., (TCC), and Reamon (Re) (1984), (AB KB), 59 AR 73 (Q.B.). Inaddition, the plaintiffs rely on the language of the BIA, including s. 67(1)(

c) which refers to property that “may be acquired by” abankrupt. [15] I agree with the submissions of plaintiffs and find that a bankrupt is entitled to acquire property after the bankruptcy, and thereis nothing in the Act which prevents a bankrupt from entering into a contract. The bankrupt deals with any after-acquired propertysubject to the rights and interests of the trustee. Capacity to commence litigation [16] The defendant argues that the plaintiffs are incapable of initiating an action because they are undischarged bankrupts.

Thedefendant relies on s. 71 of the BIA, and relies on the following decisions: Walek v. Guardian Storage Inc., 2010 BCSC 365; Vetro v.Canadian National Exhibition Association, 2014 ONSC 4324; Kinal v. 1502851 Ontario Inc., 2017 ONSC 2426; and Montalban (Re),2013 BCSC 683. [17] There is no question that at the time a bankruptcy is declared or assigned, the property in the bankrupt vests in the trustee andthe bankrupt can take no further actions with respect to such property, including commencing or maintaining litigation.

An undischargedbankrupt has no capacity to initiate an action with respect to property which has vested in the trustee as at the date of bankruptcy andsuch action would be a nullity: Walek at para. 73. [18] In the case of Walek, Mr. Walek commenced the action following his assignment into bankruptcy and the action related toproperty which had existed at the time of that assignment. As a result, by virtue of s. 71 of the BIA, Mr.

Walek had no capacity to initiatean action in relation to such property. [19] Similarly, in Vetro the issue arose with respect to property which vested in the plaintiff’s trustee in bankruptcy by virtue of s. 71of the BIA, in other words, property which was in existence and owned by the bankrupt at the time of the bankruptcy. [20] The case of Kinal confirms that property which is vested in the trustee in bankruptcy could not be the subject of an actioncommenced by the undischarged bankrupt. [21] Montalban (Re) is a decision arising out of an application for a discharge from bankruptcy.

In that case the court discussed thegrounds upon which the applicant was refused a discharge. As part of that discussion the court reviewed the property acquired by thebankrupt after the bankruptcy. It is clear from the reasons of the court that the bankrupt in that case did acquire property after the

bankruptcy. The issue arose not with respect to the acquisition of property but with respect to the failure of the bankrupt to notify thetrustee and to report to the trustee in respect of his property. Fitzpatrick, J. Found: [105] Mr. Montalban cites Davies v. Levy (1994), 27 C.B.R. 3d 133 at paras. 28 - 45, [1994] O.J. No. 1681, in support of the propositionthat pursuant to the BIA, s. 99 in particular, a bankrupt may deal with after-acquired property in good faith and for value, unless and untilthe trustee intervenes.

I do not doubt the correctness of that decision, but the proposition begs the question: how can the trustee decidewhether or not intervene unless he knows about the after-acquired property the bankrupt is required to tell him about? [22] The conclusion of the court in Montalban (Re) is consistent with the law cited by the plaintiffs, including as referenced in Chitty on Contracts, 31st ed., (London: Sweet & Maxwell, 2004): 20 – 055 Action by bankrupt. An undischarged bankrupt may sue on a contract made by him after his adjudication, unless his trusteeintervenes.

Thus he may sue … for specific performance of the contract for the sale of land. [23] Chitty, in support of the

summary of the law noted above, relies on the case of Dyster v. Randall and Sons, [1926] 135 L.T.596, [1926], 1 Ch. 932 in which an issue arose as to whether a bankrupt plaintiff was entitled to specific performance of a conveyance ofland.

The High Court of Justice (Chancery Division) found, at pp. 939-940: It is well-established that after acquired property continues in the bankrupt until the trustee interferes to claim it, and that, subject to theright of the trustee to intervene, an undischarged bankrupt can maintain any action in relation to after acquired property and can sue onany contract made with him after bankruptcy.

Further, under s. 47 of the Bankruptcy Act, 1914, all transactions by a bankrupt with anyperson dealing with him bona fide and for value in respect of property, whether real or personal, acquired by the bankrupt after theadjudication, if completed before any intervention by the trustee, are valid against the trustee. [24] The Supreme Court of Canada in Wallace v. United Grain Growers Ltd., (SCC), [1997] 3 S.C.R. 701 at para49-53 addressed the issue of whether an undischarged bankrupt had the ability to deal with after-acquired property.

The Supreme Courtof Canada confirmed that, “in my opinion, the ability to deal with such assets [after-acquired assets] is restricted to those situationsinvolving good-faith third-party transactions for value with an undischarged bankrupt regarding the after-acquired property of thebankrupt” (para. 53). [25] In the case at bar the plaintiffs’ claim against the defendant arises from an alleged good-faith third-party transaction for value,arising out of the after-acquired property of the bankrupt. [26]

Section 99 of the BIA was relied on by the plaintiffs on this application.

Section 99 protects the property of third parties whohave entered into bona fide transactions with an undischarged bankrupt: s. 99(1) All transactions by a bankrupt with any person dealing with the bankrupt in good faith and for value in respect to propertyacquired by the bankrupt after the bankruptcy, if completed before any intervention by the trustee, are valid as against the trustee, andany state, or interest right, in the property that by virtue of this act is vested in the trustee shall determine and pass in any manner and toany extent that may be required for giving effect to any such transaction. [27] As such, s. 99 clearly contemplates that a bankrupt may acquire property after the bankruptcy and may deal with it subject to theright of the trustee to intervene.

This is not to say that the trustee has no ongoing interest in such property. It merely states that theundischarged bankrupt has the ability to deal with such property subject to the interest of the trustee, and the bona fide third party, in thiscase the defendant, is protected from claims by the trustee. [28] In the decision of the Manitoba Court of Appeal in Wallace v. United Grain Growers Ltd., , the courtdiscussed the English case of Re Pascoe, [1944] 1 All E.R. 281, which has application to the case at bar.

At page 24 Manitoba Court ofAppeal stated: In Re Pascoe the Master of the Rolls, after acknowledging that Cohen v. Mitchell stood for the principle that “transactions by anundischarged bankrupt with third persons have a measure of protection,” went on to say at pp. 284 – 85: The precise relationship of the bankrupt to his after-acquired property has been described by various analogies. He has been likened to afactor or some other agent having authority to pass the title to the goods. He has been likened to a trustee. None of those analogies arereally accurate and, of course, they cannot be pressed.

He has certain powers to confer a title and he has certain rights in respect of hisafter-acquired property, the right to protected against wrongdoers, for instance. But the title of the trustee is there and is only qualified, asit seems to me, by those rights which are given to the bankrupt by virtue of sect. 47 [essentially the same as section 99(1) of the Act],which protects transactions with third parties and does not in any way qualify the title of the trustee, save in so far as that title is liable tobe impaired in cases which fall under the section.

It seems to me that the initial proposition on which the argument is based, namely, thatthe property is in the bankrupt until the trustee intervenes, not only does not find any authority but is quite contrary to the clear languageof the statute… The trustee’s property is qualified, but is qualified only to the extent of protecting those transactions.

Subject to that theproperties in the trustee. [29] I find that the Supreme Court of Canada decision in Wallace is consistent with the reasoning in Re Pascoe as set out in thedecision of the Manitoba Court of Appeal in Wallace, and is applicable to the case at bar. [30] The plaintiffs are entitled to protect the title to the property which they say they have acquired from the defendant.

The effortsof the plaintiff to protect the title to this property does not interfere with the rights of the trustee or the interest of the trustee in suchproperty. [31] It is not before me today to determine what the interest of the trustee may be in the property of the plaintiffs, including theproperty at issue in this litigation.

[ 32 ] The action brought by the plaintiffs protects their asset against a wrongful taking by the defendant. This action is consistent with the rights of the trustee. [ 33 ] I find that this application by the defendant to be an illegitimate use of the protections in the BIA , in an attempt to avoid the plaintiffs claim.

If I allowed the BIA to be used in the way suggested by the defendant and the claim of the plaintiffs was meritorious, it would result in a potential windfall to the defendant, having received a significant economic benefit over the course of 20 years. [ 34 ] I find that the plaintiffs’ claim will be allowed to proceed and the defendant’s application is dismissed. [ 35 ] Costs are ordered to the plaintiffs in the cause. “Baker J.”