MNP Ltd v Desrochers, 2018 MBCA 97

Citation: MNP Ltd v Desrochers , 2018 MBCA 97 Date: 20181001 Docket: AI17-30-08933 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Marc M. Monnin Mr. Justice Christopher J. Mainella Madam Justice Jennifer A. Pfuetzner BETWEEN : ) M. R. Desrochers MNP LTD. ) on his own behalf ) (Applicant) Respondent ) D. R. M.

Jackson ) for the Respondent (Trustee in - and - ) Bankruptcy) ) marcel r. desrochers ) Appeal heard: ) April 25, 2018 (Respondent) Appellant ) ) Judgment delivered: ) October 1, 2018 monnin JA [ 1 ] The appellant, Marcel Desrochers (the bankrupt), appeals from a bankruptcy judge’s decision dismissing his application to declare his bankruptcy proceedings a nullity becau se of the procedural requirements in the Farm Debt Mediation Act , SC 1997, c 21 ( the FDMA ). [ 2 ] This is not the first time the bankrupt is before this Court on matters involving his bankruptcy. In our earlier decision, Keystone Agri-Motive

(2005) Inc v Desrochers , 2014 MBCA 109 , we dealt with the bankrupt’s appeal of the order placing him into bankruptcy. A succinct and helpful outline of the facts and proceedings which led to that initial appeal can be found in my colleague, Hamilton JA’s decision (at paras 6-13): Keystone obtained default judgment against the appellant in March 2010 for outstanding payments due under a lease for grass-cutting equipment. In November 2012, Dewar J. determined that Keystone was entitled to $66,934.07 plus execution costs on a solicitor-client basis under the judgment.

Keystone’s efforts to realize on the judgment, which included examining the appellant in aid of execution, have been unsuccessful. More than $100,000 is now owed under the judgment. Keystone is one of several judgment creditors. The appellant is the sole shareholder of Frenchie’s Farm & Ranch Ltd. (the corporation), which owns a quarter

section of land in rural Manitoba (the land). During the course of the examination in aid of execution in 2011 and 2012, the appellant testified that the corporation has never paid him and he works for it for free; that he did not expect any income whatsoever in 2011 and 2012 from farming; and that he had no income personally as a farmer from 2008 to 2011. There is no evidence to suggest that this changed at any later date. He also testified that he owned an unincorporated grass-mowing business that did work in Manitoba for the Province of Manitoba and that he was employed in Alberta doing the same work.

Dewar J. subsequently found him in contempt of court on September 6, 2013, for refusing to produce court-ordered particulars about his mowing business and employment. On July 26, 2013, Keystone applied under s. 43(1) of the BIA [ Bankruptcy and Insolvency Act , RSC 1985, c B-3] for an order of bankruptcy against the appellant, stating that he had committed

an act of bankruptcy by ceasing to meet his liabilities generally as they became due within the six months preceding the date of filing its application. See s. 42(1)(

j) of the BIA . In support of its application, Keystone filed, among other documents, transcripts from the proceedings before both Master Lee and Dewar J.

The appellant opposed the application, arguing that he was not insolvent; that the order could not be granted because he was a farmer forthe purposes of s. 48 of the BIA; and that leave was required under s. 8(1) of the FFPA [The Family Farm Protection Act, CCSM c F15. [3] By that decision, this Court upheld the bankruptcy judge’s decision that the bankrupt was not a farmer for thepurposes of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (the BIA), and that he had committed

an act of bankruptcy for thepurposes of making an order against him under that Act. [4] Before the bankruptcy judge, when challenging the granting of the original order, the bankrupt raised the provisionsof The Family Farm Protection Act, CCSM c F15 (the FFPA) and, more particularly, under

section 8 of that Act, that leave was requiredfrom the Court of Queen’s Bench to commence or continue a proceeding. In raising that argument, he relied upon the Supreme Court ofCanada decision of M & D Farm Ltd v Manitoba Agricultural Credit Corp, (SCC), [1999] 2 SCR 961, where thebankrupt was successful in obtaining a stay of proceedings for an action brought against him by his creditor on the ground that it hadfailed to obtain leave to commence its proceedings under the then Farm Debt Review Act, RSC 1985, c 25 (2nd Supp),

section 23. [5] Of note, before the bankruptcy judge and before this Court, in the proceedings challenging the validity of thebankruptcy order, the bankrupt (represented by counsel at both levels) raised only the provisions of the FFPA, the provincial statute. Hedid not invoke the FDMA. In our decision on the appeal of that order, we agreed with the bankruptcy judge that the FFPA wasinapplicable given the

definitions of farmer and farmland in the FFPA, namely, that the bankrupt was not a farmer as defined, nor wasthe farmland registered in his name, which could lead to a deprivation of farmland from a farmer which was required to engage theprotections of that statute. [6] We therefore dismissed the appeal. Further Proceedings [7] The bankruptcy did not proceed smoothly. Part of the bankrupt’s assets consisted of his claim as a beneficiary of hisfather’s estate which was the subject of a contentious dispute between him and the joint executors of that estate.

The bankrupt was alsonot a willing participant with the trustee in a number of the attempts to resolve matters arising from the bankruptcy. This was, in part, theresult of the bankrupt being involved in criminal proceedings and in custody for a significant portion of the time it took the trustee toresolve the issue. [8] Without going into further detail, the trustee eventually applied to the Bankruptcy Court for advice and direction withrespect to surplus funds and assets of the estate and dealing with the discharge of the bankrupt.

That matter was eventually brought onbefore the bankruptcy judge on August 29, 2017. At that time, the bankrupt requested a ruling that the entire bankruptcy was a nullity. While no formal motion was filed, the bankruptcy judge generously gave an

interpretation to a portion of an affidavit filed by thebankrupt seeking his discharge to find that the issue was before him. [9] The bankrupt’s argument was that the M & D Farm Ltd decision referred to previously was applicable and, as aresult, by reason of the failure to obtain leave, the entire bankruptcy proceeding was a nullity. [10] The bankruptcy judge, following the comments of this Court dismissing the argument on the basis of the FFPA, foundthat the matter had been dealt with and refused the request. [11] On appeal to this Court, the bankrupt argues that M & D Farm Ltd deals with the need for leave to be obtained underthe FDMA, an issue not dealt with by this Court previously or by the bankruptcy judge on his discharge application.

Issues [12] The bankrupt had counsel file a factum on his behalf. However, at the hearing of the appeal, he chose to act on his ownbehalf. [13] The issue raised in the factum by the bankrupt is whether the operation of the provisions of sections 21 and 22(1) of theFDMA, the successor to the Farm Debt Review Act referred to in M & D Farm Ltd, renders the bankruptcy proceedings null and void. The bankrupt argues that it does. The trustee argues that the FDMA is inapplicable given that the bankrupt does not satisfy the definitionof farmer under the FDMA, nor do Keystone Agri-Motive

(2005) Inc. or the trustee qualify as secured creditors. [14] The preliminary issue is whether, by virtue of the principles of res judicata and/or abuse of process, the issue can beraised at this time. [15] The bankrupt has brought a motion for fresh evidence proposing to file two affidavits: one from him and one from hiscounsel’s legal assistant containing information with respect to his being a farmer under the FDMA and whether the proceedings wereinitiated by a secured creditor according to the provisions of the FDMA.

At the hearing of the appeal, as is our practice, we reserved ourdecision on the motion to our decision on the appeal as a whole. Analysis Res Judicata/Abuse of Process [16] This appeal can be decided on the question of whether the bankrupt can raise the issue of the applicability of the FDMAat this stage in the proceedings. In my view, he cannot.

[ 17 ] Before the bankruptcy judge on the motion for discharge, the bankrupt was not represented by counsel. He did not articulate the contention, which he now advances before our Court, that the FDMA was applicable and not complied with.

He simply referred the bankruptcy judge to the M & D Farm Ltd decision without arguing that the federal statute had to be complied with, as opposed to the provincial statute upon which the initial argument before the bankruptcy judge on the challenge to the bankruptcy order had been based. [ 18 ] It is no surprise, therefore, that the bankruptcy judge proceeded to dismiss the request on the basis of res judicata , namely, that the issue had previously been determined.

It is only before this Court that the bankrupt, through his counsel’s factum, argues that it is the federal statute that has not been complied with and that issue has not yet been determined. [ 19 ] The Latin phrase, res judicata , is a fundamental doctrine of our justice system in Canada. The words, taken literally, mean “the matter has been decided”.

The reasons for the doctrine are: firstly, to put an end to litigation; and, secondly, so that no individual should be subjected to a re-litigation of the same cause (see Donald J Lange, The Doctrine of Res Judicata in Canada , 4th ed (Markham: LexisNexis, 2015). [ 20 ] Not only is it the same issue that should not be the subject of re-litigation, it is also what should have been raised by a party at the initial proceeding.

As set out in Sidney N Lederman, Alan W Bryant & Michelle K Fuerst, The Law of Evidence in Canada , 5th ed (Toronto: LexisNexis, 2018) (at para 19.93): The second principle [of res judicata ] makes it mandatory that a plaintiff asserting a cause of action must claim all possible relief in respect thereto, and prevents any second attempt to invoke the aid of the courts in the same cause. . . .

This principle prevents the fragmentation of litigation by prohibiting the litigation of matters that were never actually addressed in the previous litigation, but which properly belonged to it. [ 21 ] Lange refers to it as an “extended form of issue estoppel” (at p 59). In his text, he states ( ibid ): Any point which could have been raised in the first proceeding as part of the question to be determined in the first proceeding is precluded from determination in the second proceeding.

This means that the same question cannot be relitigated in the second proceeding on the basis that some point materially affecting the question which could have been considered, but was not, in the first proceeding should now be considered. [ 22 ] For our purposes, the issue of the applicability of the federal statute, the FDMA , was not raised in the first proceeding before the bankruptcy judge challenging the validity of the bankruptcy order, nor before us on the appeal of that order. If the bankrupt wished that point to be considered, he should have raised it then.

As noted, he had legal counsel who raised the provisions of the provincial statute for him, as well as on the appeal of that decision to this Court. In my view, the doctrine of issue estoppel clearly prevents the matter from being raised at this time. There may have been tactical reasons not to raise the federal statute given the differing

definitions of farmer and creditor from the provincial statute. However, that is not before us. [ 23 ] Another aspect of the doctrine of res judicata is preventing a collateral attack of a previously valid decision. Were the bankrupt able to challenge the validity of the entire bankruptcy proceedings at this late stage, it would amount to a collateral attack on the validity of the initial bankruptcy order which was properly made and upheld upon appeal. The decision he seeks would collaterally attack both the initial bankruptcy order and the subsequent appeal decision well after the time for appeals had passed.

This would be contrary to the concept of finality ensconced in the doctrines of res judicata and abuse of process. [ 24 ] The appeal must be dismissed and the corollary issues with respect to the applicability of the FDMA need not be decided. This obviates the need to rule on the motion for fresh evidence as that evidence is not relevant to the res judicata issue but only to the applicability of the FDMA . Conclusion [ 25 ] I would therefore dismiss the appeal from the bankruptcy judge’s order and uphold the discharge upon the terms set out in the bankruptcy judge’s order.

Costs are in favour of the trustee on a solicitor and client basis payable from the estate. JA I agree: JA I agree: JA