2019 NLSC 149, 2019 NLSC 149

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Norman, Re , 2019 NLSC 149 Date : August 2, 2019 Docket : 20160120935 In The Matter of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 , as amended (the “ BIA ”); And In The Matter of the Bankruptcy of Allen Frank Norman Before: Justice David F. Hurley Place of Hearing: St. John’s, Newfoundland and Labrador

Summary: Norman, an undischarged bankrupt, received benefits in the amount of $300,000 from a life insurance policy. The Trustee took the position that the funds are property of the bankrupt, divisible among his creditors in accordance with Section 67(1) (

c) of the Bankruptcy and Insolvency Act . Although not stated in the designation under the policy, Norman maintains that the proceeds are property held in trust for his infant son and therefore not divisible among his creditors as provided in Section 67(1)(

a) of the Act. Upon application by the Trustee under Section 34(1), the Court determined the funds received as proceeds from the life insurance policy are property of Norman and divisible among his creditors. Appearances: Darren D. O'Keefe and Allison J. Philpott Appearing on behalf of the Applicant Gregory A. French, Q.C. and Ian Penney Appearing on behalf of the Respondent

Andrew J. Wadden Appearing on behalf of Public Trustee Authorities Cited: CASES CONSIDERED: Harrison, Re (1996), (MB KB), 109 Man. R. (2d) 107, 39 C.B.R. (3d) 304 (Q.B.);Knight v. Knight (1840), 3 Beav. 148, 49 E.R. 58 (Eng. Ch.); Re Bond Worth Ltd., [1980] Ch. 228; Boulos v. Boulos (1986), 170 A.P.R.181, 57 Nfld. & P.E.I.R. 181 (Nfld. S.C.(T.D.)); Bank of Nova Scotia v. Atcon Group Inc., 2012 NBCA 57; V.K. Mason ConstructionLtd. v. Bank of Nova Scotia, (SCC), [1985] 1 S.C.R. 271; Mellco Developments Ltd. v. Portage la Prairie (City), 2001MBQB 236, aff’d 2002 MBCA 125; Toronto Dominion Bank v.

Leigh Instruments Ltd. (Trustee of) (1998), (ONSC), 40 B.L.R. (2d) 1, [1998] O.J. No. 2637 (Ct. Jus. (G.D.)) aff’d (1999), (ON CA), 178 D.L.R. (4th) 634, 45 O.R.(3d) 417 (C.A.) leave to appeal refused (2000) 260 N.R. 394 (S.C.C.); Canadian Pacific Railway v. Gilbert Plains (Rural Municipality)(1960), (MB KB), 67 Man. R. 241 (Q.B); Re Northland Properties Ltd., (BC SC), [1989]B.C.W.L.D. 1599, 74 C.B.R. (N.S.) 231 (S.C.); Butlin’s Settlement Trusts, [1976] Ch. 251, [1976] 2 W.L.R. 547; Dynamex Canada Inc.v. Miller (1998), (NL CA), 161 Nfld. & P.E.I.R. 97, 497 A.P.R. 97 (Nfld. C.A.); H.F. Clarke Ltd. v.

ThermidaireCorp. (1973), (ON CA), 33 D.L.R. (3d) 13, 9 C.P.R. (2d) 203 (O.N.C.A.); Sangha v. Reliance Investment Group Ltd.,2011 BCSC 1324; Merklinger v. Merklinger (1992), (ON SC), 11 O.R. (3d) 233, 1992 CarswellOnt 304 (Ct. J.(G.D.)), aff’d (ON CA), 30 O.R. (3d) 575, 26 R.F.L. (4th) 7 (C.A.); Hongkong Bank of Canada v. Wheeler HoldingsLtd., (SCC), [1993] 1 S.C.R. 167; Marshall v. Canadian Pacific Lumber Co. (1922), (SCC), 63S.C.R. 352; Shorb v. Alberta (Public Trustee) (1953), (AB KB), 8 W.W.R. (N.S.) 657, 1953 CarswellAlta 43 (Alta.S.C.), aff’d (1954), (AB CA), 11 W.W.R. 132, 1954 CarswellAlta 8 (Alta.

C.A.); Consortium Capital Projects Ltd. v.Blind River Veneer Ltd. (1988), (ON SC), 63 O.R. (2d) 761, 47 R.P.R. 225 (H.C.), aff’d (1990), (ON CA), 72 O.R. (2d) 703, 1990 CarswellOnt 2738 (C.A.) STATUTES CONSIDERED: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 TEXTS CONSIDERED: Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed.(Toronto: Carswell, 2012); G.H.L.

Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011) REASONS FOR JUDGMENT Hurley, J.: background [1] Allen Frank Norman (“Norman”) made an assignment in bankruptcy on the 17th day of April, 2015; Janes & NoseworthyLimited (“Janes & Noseworthy”) was appointed as Trustee. At that time, Norman’s Statement of Affairs disclosed that Norman hadoutstanding liabilities to creditors in the amount of $667,204. [2] The Registrar of Bankruptcy granted an Order setting out the terms for a discharge of the bankruptcy on the 18th day ofJanuary 2017.

As Norman had not fully complied with or fulfilled the terms and conditions of his conditional order of discharge,Norman remained an undischarged bankrupt within the meaning of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). [3] Of some relevance to these proceedings is the following personal background related to Norman as provided by Janes &Noseworthy:

a) Norman was married to Theresa Norman and was divorced in 2013. Norman has three adult children of this marriage.

b) Norman had entered into a relationship with Lisa Hickey in 2013. In June 2014, Ms. Hickey gave birth to a son, Parker Hickey.

c) Sometime after the birth of Parker Hickey, Norman and Ms. Hickey separated.

d) Norman entered into a relationship with Ms. Teena Harris in May 2015. The couple travelled to the Dominican Republic on April17, 2017, with the intention to marry while there. However, days prior to the wedding Ms. Harris died.

e) Prior to March 28, 2018, Norman commenced a relationship with Heather Roy, his present partner. [4] On April 20, 2016, Ms. Teena Harris executed a Designation/Change of Beneficiary for Manulife Group Policy No. 901102,for life insurance with benefits in the amount of $300,000. Primary coverage was changed from Ms. Harris’s parents, Mary and LarryHarris, to Norman, which provided for 100 percent recovery by him of the proceeds upon the death of Ms. Harris. [5] After the death of Ms. Harris, Norman applied for and received the proceeds from the life insurance policy.

He did not adviseJanes & Noseworthy that he had received the funds. [6] Insolvency Trustee Derrick Hutchens with Janes & Noseworthy, after being informed by an anonymous source, contactedNorman on March 9, 2018, wherein he confirmed Norman had received the sum of three hundred thousand dollars ($300,000), and that

he was holding the funds “in trust” for his son, Parker Hickey, then three years of age. [ 7 ] In conversations with Norman and by reviewing documents now filed in these proceedings, Mr. Hutchens discovered that Norman’s present partner, Heather Roy, purchased property located at Civic.

No. 487 Wiley Avenue, Windsor, Nova Scotia (the Property) together with related expenditures, using a significant portion of the insurance proceeds collected by Norman. [ 8 ] On March 15, 2018, the Trustee prepared Notice pursuant to section 34(1) of the BIA seeking direction from the Court regarding entitlement to the insurance proceeds. [ 9 ] Documentation dated March 28, 2018, filed under the land registration requirements in Nova Scotia including the Warranty Deed does not have any reference to the Property being held “in trust” for Parker Hickey nor for anyone. [ 10 ] Meanwhile, Mr.

Hutchens had several telephone discussions with Norman between January and August 12, 2018. During that time, Norman did not disclose that he had spent the insurance proceeds, which he claimed to be holding in trust for Parker Hickey. [ 11 ] On August 13, 2018, Norman informed Mr. Hutchens and counsel for Janes & Noseworthy that he spent the proceeds from the insurance on: i. A Harley Davidson motorcycle costing approximately $20,000; ii. Gifts of cash to his adult children from his first marriage; iii. Gift of cash to his disabled niece; and iv.

Purchase of a house in Nova Scotia for his son. [ 12 ] According to an email of August 13, 2018, counsel for Janes & Noseworthy confirms that Norman advised the Trustee that he spent $25,000 for personal use and $80,000 as payment for other personal debts. [ 13 ] Also on August 13, 2018, Mr. Hutchens informed Norman that Janes & Noseworthy would be proceeding with an application under section 34(1) of BIA seeking court direction to the entitlement of the insurance proceeds. [ 14 ] Between December 2017 and February 2019 Norman spent all of the $300,000 that he maintained he was holding in trust for Parker Hickey.

In his Affidavit sworn on September 24, 2018, Norman confirms that “the $300,000 is gone,” said to be spent on: Home Purchase (Nova Scotia) home of Heather Roy $165,524.50 Renovations (Nova Scotia house) 29,848.41 Labour (Nova Scotia house) 4,500.00 Furniture (Nova Scotia house) 8,000.00 Movers (to Nova Scotia) 3,904.00 Appliances (Nova Scotia house) 3,133.13 Stay in Dominican Republic due to Ms.

Harris’s Death 22,400.00 Lawyers 12,000.00 Airline Tickets for Respondent and Son 4,800.00 Care for Parker in Dominican Republic 6,400.00 Care of Parker while Working Away 5,000.00 Motorcycle Purchase 19,175.00 House Rental once Returned from Dominican Republic 8,500.00 (10 months @ $850./mth.) TOTAL $293,185.04 position of allen norman [ 15 ] Norman maintains the funds from the insurance coverage were intended to be held in trust for Parker Hickey, Norman’s infant child, and are therefore exempt from his creditors pursuant to section 67(1) (

a) of the BIA : 67(1) Property of bankrupt The property of a bankrupt divisible among his creditors shall not comprise

(

a) property held by the bankrupt in trust for any other person [16] According to Norman, he and Ms. Harris entered into a relationship in May 2015 when Parker was one year old. Ms. Harris“cared deeply” for Parker and referred to him as her son. [17] In 2016, Ms. Harris changed the designation in her group life insurance policy from her parents to Norman as sole beneficiary. According to Norman, this was done to protect Parker, concerned that his birth mother might get access to Parker and to any trust funds.

Norman described Parker’s mother as “messed up,” and has been troubled with addiction and mental health issues for some time. Shedoes not have contact with her son. Norman was told to protect Parker’s interest and that Norman would be the beneficiary on conditionthe money was for Parker. position of the trustee in bankruptcy [18] The evidence discloses that “Allen Frank Norman” is the 100 percent documented beneficiary of the Manulife Group PolicyNo. 901102 owned by Teena Harris being life insurance garnering benefits in the amount of $300,000.

Norman became the beneficiaryby a Designation/Change of Beneficiary executed by Ms. Harris on April 20, 2016. [19] The Trustee told the Court that Norman disputes the recorded beneficiary of the policy. He maintains that his son, Parker JaxonHickey, is the actual beneficiary as the policy was held by Norman for his son’s benefit.

The Trustee points out that there are nodocumentation or written records to substantiate that the policy’s proceeds were held in trust for Parker. [20] Counsel for the Trustee maintains that the life insurance proceeds were received after a conditional order of discharge but beforecompletion of the approved terms. Section 172(1)(

c) of the BIA provides that upon hearing an application for a discharge the court may“grant an order of discharge subject to any terms or conditions with respect to any earnings or income that may afterwards become due tothe bankrupt or with respect to the bankrupt's after-acquired property.” issue [21] The issue that must be determined is whether the proceeds of the Manulife Policy are the property of the estate of the Trustee orsubject to a trust in favour of Parker Hickey. CONSIDERATION – is the manulife policy trust property? (

i) Certainty of Intent [22] The evidence discloses that “Allen Frank Norman” is the 100 percent documented beneficiary of the Manulife Group PolicyNo. 901102 owned by Teena Harris, being life insurance in the amount of $300,000. Norman became the beneficiary by aDesignation/Change of Beneficiary declared and authorized by Ms. Harris on April 20, 2016. As is the practice, Norman was not asignatory to this document. Janes & Noseworthy takes the position that he is a third-party beneficiary. [23] Norman disputes the beneficiary as recorded in this document of the policy.

He maintains that his son, Parker Jaxon Hickey, isthe actual beneficiary, as the policy was held by Norman for his son’s benefit. [24] There are no documents or written records to substantiate or confirm that the policy was held in trust for Parker. Norman sayshis common-law partner, Ms. Harris, had decided in April 2016 to change the beneficiary in her life insurance policy, from her parents toParker. He testified that it was decided to have Norman as beneficiary with the understanding that the proceeds from the policy upon thedeath of Ms. Harris would be held in trust for Parker.

As previously stated, this was done to prevent Parker’s birth mother fromobtaining the funds. [25] The BIA defines property in

section 2 as “any type of property, whether situated in Canada or elsewhere, and includes money,goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations,easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident toproperty.” [26] As indicated, Norman did not dispute that under ordinary circumstances life insurance proceeds received after a conditionalorder of discharge, and before the completion of the approved terms, are considered to be after-acquired property that would becomevested in the trustee in bankruptcy.

The Manitoba Superior Court in Harrison, Re (1996), (MB KB), 109 Man. R.(2d) 107, 39 C.B.R. (3d) 304 (Q.B.)held at paragraph 6 “the law is well settled that until a bankrupt has obtained an absolute dischargethe trustee may claim any after-acquired property as an asset of the estate.” [27] The issue that must be determined is whether the proceeds of the Manulife Policy are the property of Norman or are subject to atrust in favour of Parker Hickey. [28] A trust can arise either by intention or by imposition of law.

It is generally accepted that whether a trust is called express,implied, resulting, or constructive is only of academic importance (Donovan W.M. Waters, Mark R. Gillen & Lionel D. Smith, Waters’Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012) at pp. 19 – 20). In any event, classifying the type of trust alleged was not anissue at the hearing. [29] With its roots in established English law, the creation of a trust requires the existence of these three conditions: 1. Certainty of intention – the intention of the settlor to create a trust must be clear; 2.

Certainty of subject matter – the trust property must be sufficiently ascertained;

3. Certainty of objects – the objects or beneficiaries of the trust must be certain. [30] If any one of the three certainties is missing, there can be no trust. (Knight v. Knight (1840), 3 Beav. 148, 49 E.R. 58 (Eng.Ch.), at 68; Re Bond Worth Ltd., [1980] Ch. 228 at 260-261; Boulos v. Boulos (1986), 170 A.P.R. 181, 57 Nfld. & P.E.I.R. 181 (Nfld.S.C.(T.D.)) at para. 53) [31] In the event that a trust is found to have been established, the subject matter would be the proceeds of insurance paid byManulife. The beneficiary of the trust would be Parker Hickey.

In these proceedings, the issue is whether there was a clear intention bythe settlor, Teena Harris, to establish a trust. [32] Before reviewing the evidence, it would be helpful to consider the underlying principles relating to the issue of intentionnecessary to establish a trust. [33] The New Brunswick Court of Appeal in Bank of Nova Scotia v. Atcon Group Inc., 2012 NBCA 57, considered a similarsituation and reviewed certain related issues that are relevant in the present case. A dispute arose between the former president of Atcon(Mr.

Toser) and Atcon’s trustee in bankruptcy, Ernst & Young Inc., and others relating to the ownership of a life insurance policy. Thepolicy named Atcon as owner and sole beneficiary. Mr. Toser maintained that the trustee held the policy in trust for him personally andthat he was entitled to be paid its cash value. The claim by Mr. Toser was denied at trial and the decision was upheld on appeal. [34] In dismissing Mr. Toser’s appeal, the court found the certainty of intention must be applied on an objective standard, anddetermined on a balance of probabilities. [35] Similar to the position taken by Mr.

Toser, Norman now maintains that while the Designation/Change of Beneficiary executedby Ms. Harris names him as beneficiary, it was agreed or understood that the proceeds would be held in trust for Parker. In dismissingMr. Toser’s contention, the court referred to the decision of the Supreme Court of Canada, V.K. Mason Construction Ltd. v.

Bank ofNova Scotia, (SCC), [1985] 1 S.C.R. 271, in which Wilson, J. writing for the court on the issue of negligentmisrepresentation, made the following statement in responding to submissions that an implied contract existed between the parties, atparagraph 22: 22 … I think this is one reason why the common law imposes an objective rather than a subjective test for the creation of anagreement.

The objective test is important because it prevents parties from avoiding obligations which a reasonable person wouldassume they had undertaken, simply on the ground that there is no document embodying the precise nature of the obligation. … [36] In Mellco Developments Ltd. v.

Portage la Prairie (City), 2001 MBQB 236; aff’d 2002 MBCA 125, Clearwater, J. cited atparagraph 19 the following, incorporating statements from learned Canadian authorities: 19 The following, from Waddams' text (supra), at p. 105, is instructive: The principal function of the law of contracts is to protect reasonable expectations engendered by promises. ...

But the test of whether apromise is made, or of whether assent is manifested to a bargain, does not and should not depend on an enquiry into the actual state ofmind of the promisor, but on how the promisor's conduct would strike a reasonable person in the position of the promisee. ... It is necessary to look firstly (and always in my view) at the "express terms" (the language) used by the parties in the documents.

Noteverything that is spoken or written during negotiations or leading up to negotiations or the conclusion of an agreement will amount to aterm of the agreement; the intention of the parties is key [see Fridman (supra), p. 475]. One must keep in mind the difference betweenthe "terms" of a contract and "representations" that are not contractual but may have been made for the purpose of inducing someone toenter into an agreement. The breach of a term creates a cause of action for breach of contract. A misrepresentation may create a cause ofaction to avoid or rescind a contract and (or) a tort action for damages.

As stated by Fridman (supra) at pp. 477-478: ... The contents of any express term or terms are basic to a true understanding of the nature, scope and extent of the contractual rights andduties of the parties. What has been spoken or written by them as part of the contract is the prime source of knowledge of their intentions.... If the parties have seen fit to put their contractual intentions into writing, it must be because they wanted their meaning to be clearlyand unequivocally established. There should be no room for argument about what has been agreed.

The written word should make plainbeyond doubt or question what were the requirements of the contract that was entered into by the parties. ... The golden rule is that the literal meaning must be given to the language of the contract, unless this would result in absurdity. Wordsof ordinary use in a contract must be construed in their ordinary and natural sense. The paramount test of the meaning of words in acontract is the intention of the parties. That is to be determined in the operative sense by reference to the surrounding circumstances atthe time of signing the contract.

But evidence of the commercial context surrounding the making of an agreement may be admitted onlyto show the purpose for which the various contractual provisions were included, not to vary the meaning of the words of a writtencontract. [37] In the present proceedings the language of the Designation/Change of Beneficiary is clear and unambiguous. Applying the testof objectivity mandated by common law, the document executed by Ms. Harris should be interpreted and understood by the ordinaryreasonable person viewing it from the outside (Toronto Dominion Bank v.

Leigh Instruments Ltd. (Trustee of) (1998), (ON SC), 40 B.L.R. (2d) 1, [1998] O.J. No. 2637 (Ct. Jus. (G.D.)) aff’d (1999), (ON CA), 178 D.L.R. (4th)

634, 45 O.R. (3d) 417 (C.A.) leave to appeal refused (2000) 260 N.R. 394 (S.C.C.)). [38] I therefore find that Norman’s evidence of Ms. Harris’s subjective intention fails to satisfy the certainty of intention to create atrust for Parker Hickey in light of the language in the document. (ii) Entitlement to an Equitable Remedy [39] In his response to the application, Norman maintains that Ms. Harris intended to appoint Parker as her beneficiary, but refrainedfrom doing so based on a concern that Parker’s birth mother might gain access to the funds.

Essentially, Norman is now saying that thedesignation that was reduced to writing does not reflect the discussion he had with Ms. Harris, and is now requesting the Court to alter orchange a significant aspect of this document, which would then provide that Norman is a trustee of the insurance funds for Parker. [40] While Norman contends that an objective standard must be applied to determine the certainty of intention to create a trust he isessentially requesting the Court to amend or rectify the designation to confirm that it was intended that Norman would hold the proceedsin trust for Parker.

In his written submission Norman states that it would be “inequitable” to Parker if the property acquired is to be soldfor the benefit of creditors. He also submits that it would be “unconscionable” to have him repay the insurance proceeds received byhim for Parker. [41] The basis of this aspect of the remedy requested by Norman may have its origin in the equitable doctrine of rectification, whichempowers a court to correct a document to reflect the parties’ intention and their final agreement (G.H.L.

Fridman, The Law of Contractin Canada, 6th ed. (Toronto: Carswell, 2011) at 442, 773 - 776). [42] The proceedings are complicated by the fact the designation of Norman as beneficiary was a document that was signed by oneparty only. However, this would not appear to be a bar to rectification. In Canadian Pacific Railway v. Gilbert Plains (RuralMunicipality) (1960), (MB KB), 67 Man. R. 241 (Q.B.), a

summary of the decision indicates that whether the mistakewas common, mutual, or unrelated was immaterial to the Court, which had the jurisdiction to administer the principles of equity. (Seealso Re Northland Properties Ltd., (BC SC), [1989] B.C.W.L.D. 1599, 74 C.B.R. (N.S.) 231 (S.C.) at para. 14; andButlin’s Settlement Trusts, [1976] Ch. 251, [1976] 2 W.L.R. 547) [43] Courts have consistently held that rectification is a discretionary equitable remedy that should be granted cautiously.

As waspointed out in our Court of Appeal, “the court must be clearly satisfied that the document in question does not harmonize with the trueintentions of the parties.” (Dynamex Canada Inc. v. Miller (1998), (NL CA), 161 Nfld. & P.E.I.R. 97, 497 A.P.R. 97(Nfld. C.A.) at para. 18). [44] While most authorities refer to rectification as a remedy to redress mistakes, a plea of rectification will be successful where thecourt is satisfied there is a complete agreement on the terms of a contract but the parties, or party, “wrote them down incorrectly.” (H.F.Clarke Ltd. v.

Thermidaire Corp. (1973), (ON CA), 33 D.L.R. (3d) 13, 9 C.P.R. (2d) 203 (O.N.C.A.) at 20 – 21; rev’don other grounds (SCC), [1976] 1 S.C.R. 319) [45] As was previously noted, none of the documentary evidence makes any reference to the insurance policy being held in trust. The Designation/Change of Beneficiary dated April 20, 2016, was executed solely by Ms. Harris. With the death of Ms. Harris, theCourt has not been advised of any other evidence of a trust except that of Norman, whose self-interest cannot be discounted. Theevidence confirmed that Ms.

Harris forwarded the Designation/Change of Beneficiary form to Manulife, who “issued” the changes. [46] The position taken by Norman is completely dependent upon his own evidence. However, Norman was not a good witness oncross-examination. He evaded various questions and had selective memory and could not recall certain events that should have beenclear to him. [47] For example, on August 13, 2018, Norman advised the solicitor for Janes & Noseworthy that he had provided three adultchildren from a previous marriage the sum of $20,000 each from the proceeds of the life insurance.

In court, he said that he gave each ofthe children the sum of $5,000 and that the money did not come from the insurance proceeds. As well, at one point, he admitted that hejust “threw numbers” in response to questions from the Trustee. [48] Norman’s counsel presented to the Court written submissions, which contained the following statement: “In this case, Ms.Harris was not given the option to create a trust for the benefit of Parker. She was not sophisticated, and neither Norman, nor Ms. Harris,had the means to seek a lawyer to create a trust.” [49] This submission does not accord with the evidence. Ms.

Harris, at the relevant time, was a retired member of the CanadianArmed Forces. She retained a solicitor on or about May 18, 2017, to assist in the drafting and preparation of her last will and testament. As well, while she designated Norman as the sole beneficiary of her Manulife policy, she designated Parker Jaxon Hickey, presumably inthe event of the death of Norman, to be the contingent beneficiary of 75 percent of the proceeds of the insurance. As Parker was a minorchild, she appointed her brother, Larry Harris, to be his trustee. [50] Norman maintains that a trust for Parker arose upon the death of Ms.

Harris. The Court is entitled to view Norman’s conductafter that time to assess whether a trust was properly created or was, in effect, a sham. (Sangha v. Reliance Investment Group Ltd., 2011BCSC 1324 at para. 353) [51] In Merklinger v. Merklinger (1992), (ON SC), 11 O.R. (3d) 233, 1992 CarswellOnt 304 (Ct. J. (G.D. )), aff’d (ON CA), 30 O.R. (3d) 575, 26 R.F.L. (4th) 7 (C.A.) the husband acquired the family cottage through a speciallyincorporated company, whose shares were held in trust for his children. The court found that this was done to shield him frommatrimonial litigation.

Similar to the present proceedings, the husband maintained the existence of a trust, but dealt with the trustproperty as if it were his own. The judge found at paragraph 48: 48 … I find the claim of a trust for the children to be a pure sham. If there is any trust, it is for the benefit of the husband, who has

treated the property throughout as being his and his alone. … [52] Upon receipt of the insurance proceeds, Norman did not take any steps to establish a separate fund by opening a designated bankaccount or otherwise. He did not obtain any professional advice as to his duties and obligations as a trustee for an infant. Once Normanhad access to the funds, he commenced spending them immediately. Within a week or so, he purchased airline tickets to visit his adultchildren from a previous marriage.

A substantial sum involved the purchase of a house in Nova Scotia in the name of his partner,Heather Roy, together with renovations and other expenditures approaching $215,000. As well, he says that upon return from theDominican Republic, he took $8,500 from the proceeds to cover 10 months of rent. Other expenditures of a similar nature are set out inparagraph 14 of this decision. [53] In

summary, I found Norman’s evidence to be less than forthright. While the primary burden of proving its claim on areasonable balance of probabilities remains with the Trustee, the evidence presented by the Trustee and Norman strongly indicate that notrust arrangement existed and that the allegation of its existence is a sham. [54] Moreover, to the extent Norman is relying on equitable relief, a remedy may be denied on the basis that he has committed actsof misconduct or that he came to court with “unclean hands.” (Hongkong Bank of Canada v.

Wheeler Holdings Ltd., (SCC), [1993] 1 S.C.R. 167 at para. 343 – 345) I find that Norman put forward the allegation of a trust for the improper purpose ofavoiding payment to his creditors. As well, in order for Norman to maintain the existence of a trust, he had to admit that he improperlytook possession of and spent what he called “Parker’s money.” These findings, however, are unnecessary to deny Norman’s claim to theestablishment of a trust, as I previously concluded that the evidence presented, in itself, fails to satisfy me that the existing Designation inquestion does not reflect the true intention of Ms.

Harris, as allegedly confirmed to Norman. [55] As well, courts are generally inclined not to grant rectification as an equitable remedy if it will affect third parties who were notoriginally involved in the transaction. Obviously, in this case, Norman’s creditors would be prejudiced by the change to the stateddesignation of the beneficiary to the insurance policy. (Marshall v. Canadian Pacific Lumber Co. (1922), (SCC), 63S.C.R. 352; Shorb v. Alberta (Public Trustee) (1953), (AB KB), 8 W.W.R. (N.S.) 657, 1953 CarswellAlta 43 (Alta.S.C.), aff’d (1954), (AB CA), 11 W.W.R. 132, 1954 CarswellAlta 8 (Alta.

C.A.); Consortium Capital Projects Ltd. v.Blind River Veneer Ltd. (1988), (ON SC), 63 O.R. (2d) 761, 47 R.P.R. 225 (H.C.), aff’d (1990), (ON CA), 72 O.R. (2d) 703, 1990 CarswellOnt 2738 (C.A.)) conclusion [56] The order sought by Janes & Noseworthy required Norman to cause his financial institution to pay the life insurance proceedsbeing the sum of $300,000, plus any interest earned, thereon, to the Trustee for distribution to Norman’s creditors in accordance with theBankruptcy and Insolvency Act, with any surplus funds to be returned to Norman. [57] As these funds are not with Norman’s financial institution, the Court is therefore issuing the following declaration and Order: 1.

In the matter of the Bankruptcy of Allen Frank Norman, the Trustee is entitled to reclaim the sum of $300,000 for the benefit of thecreditors of Allen Frank Norman, being proceeds from a life insurance policy identified Manulife Group Policy No. 901102, owned byTeena Harris (deceased). 2. The Trustee, Janes & Noseworthy Limited, is entitled to its costs on a party-and-party basis. _____________________________ David F. Hurley Justice