2017 ONSC 6469, 2017 ONSC 6469

CITATION : Ferina Construction Limited v. Labno, 2017 ONSC 6469 DIVISIONAL COURT FILE NO.: 307/17 DATE: 20171027 SUPERIOR COURT OF JUSTICE – ONTARIO DIVISIONAL COURT RE: ferina construction limited , Plaintiff (Respondent) AND: LABNO DEVELOPMENTS CORP., ROYAL VISTA HOMES LTD., SEBASTIAN LABNO, ANNA LABNO and ANNA LABNO, LITIGATION ADMIISTRATOR OF THE ESTATE OF WIESLAW LABNO, A DECEASED, Defendants (Appellants) BEFORE: L.A. PATTILLO J.

COUNSEL: Jordan Nussbaum , for the Plaintiff (Respondent) Kim Ferreira , for the Defendant (Appellant), Anna Labno HEARD at Toronto: October 27, 2017 ENDORSEMENT [ 1 ] The defendant Anna Labno (“Labno”) appeals from the order of Master Brott dated May 4, 2017 which required her to, among other things, attend an examination in aid of execution on May 11, 2017. [ 2 ] The plaintiff Ferina Construction (“Ferina”) obtained a default judgment against the defendants, including Labno from Justice Faieta dated December 12, 2016 providing that the defendants and each of them pay Ferina $671,375.91 plus costs on a substantial indemnity basis fixed at $25,000 (the “Judgment”). [ 3 ] Paragraph 2 of the Judgment further provided: 2.

THIS COURT DECLARES that the Defendants and each of them breached their trust obligations which they owed to the Plaintiff with respect to the subject indebtedness, and, as such the subject indebtedness shall survive any assignment into or discharge from bankruptcy pursuant to Section 178(1) (

d) and 178(1)(

h) of the Bankruptcy and Insolvency Act R.S.C. 1985. C. B-3 , as amended. [ 4 ] On May 2, 2017, Labno filed for bankruptcy. [ 5 ]

Section 69.3(1) of the Bankruptcy and Insolvency Act (the “ BIA ”)provides: 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 of continue any action, execution or other proceedings, for recovery of a claim provable in bankruptcy. [ 6 ]

Section 69.3(1.1) provides that the stay in subsection (1) ceases to apply in respect of a creditor on the day on which the trustee is discharged. Subsection (2) deals with secured creditors and is not applicable. [ 7 ]

Section 69.4 provides, among other things, that a creditor who is affected by, the operation of a stay can apply to the court for an order lifting the stay.

Section 69.5 exempts certain provincial legislation dealing with the collection of taxes and other monies. [ 8 ] In allowing Ferina’s motion, the Master issued a brief endorsement. She acknowledged that Labno had advised that she declared personal bankruptcy and was under the impression she was “judgment-proof”.

She stated that Labno was advised she must attend the examination and “she is agreeable to doing so.” The Master ordered that Labno pay costs of the motion which she fixed at $1,000, payable within 60 days. [ 9 ] Subsequent to the Master’s order of May 4, 2017, Ferina obtained an order on June 27, 2017 lifting the stay. [ 10 ] Labno submits that the Master erred in law in granting the order in light of the automatic stay of proceedings, including execution, that issues under s. 69.3(1) of the BIA . [ 11 ] Ferina submits that the Master did not err in ordering Labno to attend the JD examination since Labno’s indebtedness survived any assignment into or discharge from bankruptcy pursuant to ss. 178(1)(

d) and (

h) of the BIA and the Judgment. [ 12 ] Section 178(1)(

d) and (

h) provide as follows: s. 178(1) An order of discharge does not release the bankrupt from

(

d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others. (

h) any debt for interest owed in relation to an amount referred to in any of paragraphs (

a) to (g). [ 13 ] I have two problems with Ferina’s submission. [ 14 ] First, s. 178 speaks to claims that survive an order of discharge. By contrast, the stay provision under s. 69.3(1) arises at the time of bankruptcy and lasts, in the absence of being lifted, until the trustee is discharged.

Section 178 does not affect the stay. [ 15 ] Second, the Judgment speaks of breach of trust but does not indicate that it arises from “fraud, embezzlement, misappropriation or defalcation.” So even if s. 178 applied, there is an issue, which I need not decide today, as to whether it is operable in respect of the Judgment. I should also say that the Judgment cannot override the legislation.

To the extent therefore that paragraph 2 of the Judgment purports to provide that the indebtedness “shall survive any assignment into…bankruptcy”, that portion of the Judgment is of no effect as s. 178 of the BIA does not refer to assignments into bankruptcy. [ 16 ] Nor do I consider the appeal to be academic as a result of the subsequent order lifting the stay. That does not cure the Master’s order.

Nor does this court have jurisdiction, as submitted, to simply issue the same order that was originally requested, notwithstanding the stay has now been lifted. [ 17 ] Accordingly, for the above reasons, the Master erred in granting the May 4, 2017 order. Given Labno’s assignment into bankruptcy on May 2, 2017, a stay applied to Ferina’s motion. I agree there was no stay of the Judgment, having already been granted, but there was a stay in respect of execution. [ 18 ] The appeal is therefore allowed and Master Brott’s order of May 4, 2017 is set aside.

In light of the fact that Labno appeared on her own before the Master, I am not prepared to award her any costs of the motion. [ 19 ] I have endorsed the Appeal Book and Compendium as follows: “For oral reasons given in court today, the appeal is allowed and the order of Master Brott of May 4, 2017 is set aside. Based on the submissions of counsel and the costs outlines provided by both counsel, I am satisfied that the costs of this appeal should be on a partial indemnity basis. I do not consider the communications between counsel to constitute a R.49 offer.

Nor is there a conduct issue on the part of the respondent. Based on the cost outlines and the issues, in my view a fair and reasonable partial indemnity cost award for the appeal is $4,000.00 in total. Costs to the appellant Labno, fixed in that amount.” _______________________________ L.A. PATTILLO J. Date of Endorsement: October 27, 2017 Date of Release of Endorsement: October 30, 2017