



COURT OF APPEAL FOR ONTARIO

CITATION:
Richards (Re), 2022 ONCA 216

DATE: 20220314

DOCKET: C69537

van Rensburg, Nordheimer and
    Harvison Young JJ.A.

In the Matter of the Bankruptcy of Michael
    Paul Richards, of the City of Toronto, in the Province of Ontario

Ian J. Klaiman, for the appellant,
    Michael Paul Richards

Catherine Francis, for the respondent,
    Royal Bank of Canada

Heard: March 11, 2022 by video
    conference

On appeal from the order of Justice Barbara
    A. Conway of the Superior Court of Justice, dated June 3, 2021.

REASONS FOR DECISION

[1]

Michael Richards appeals from the order of the
    bankruptcy judge that involved the interpretation of a trust of which he is the
    beneficiary (the Trust). At the conclusion of the hearing, we dismissed
    the appeal with reasons to follow. We now provide our reasons.

[2]

The appellant is an undischarged bankrupt. Royal
    Bank of Canada (RBC) has an outstanding judgment against him for $987,613
    plus costs and interest. On September 16, 2019, RBC filed a bankruptcy
    application against the appellant, which was issued the same day.

[3]

The appellant is the beneficiary of a property
    at 61 St. Clair Avenue West (the Property) pursuant to a Trust that was
    settled by his father in 2001. The Trust was set up to hold the Property during
    the lives of the appellants parents, with a life interest permitting them to
    live in the Property. The appellants father, George, died in 2010. His mother,
    Patricia, continued to live in the Property. She died in July 2020. According
    to the terms of the Trust, the date of death of the second of the appellants
    parents is called the Time of Division.

[4]

At the Time of Division, the trustees are
    required to distribute the Trust Fund (including the Property and any Chattels)
    to the appellant, if he is then alive. Section 5.2.2 of the Trust reads:

On the Time of Division the Trustees shall:



if George Richards is not then alive, the
    Trust Fund, including, for greater certainty, the Real Property and the
    Chattels  shall be paid and transferred to Michael Paul Richards, if he is
    then alive

[5]

Prior to Patricias death, the trustees of the
    Trust sold the Property. The proceeds of sale ($1,172,120.90) are being held in
    trust.

[6]

In October 2020, RBC obtained an order under s.
    38 of the
Bankruptcy and Insolvency Act
,

R.S.C. 1985, c. B-3
    (
BIA
), taking an assignment of rights of the appellants Trustee in Bankruptcy
    to make a claim against the sale proceeds of the Property. The Bankruptcy
    Trustee had not wanted to pursue the claim due to lack of funding. RBC now
    stands in the shoes of the Bankruptcy Trustee with respect to the sale proceeds
    of the Property.

[7]

RBC brought a motion to recover the sale
    proceeds up to the amount owing to RBC. It sought a declaration that the
    appellant was the beneficiary of the Trust and had an interest in the Property
    under the terms of the Trust. RBC argued that the sale proceeds constituted
    property of the bankrupt, pursuant to the broad definition in s. 67(1)(c) of
    the
BIA
, which vested in his Bankruptcy Trustee and formed part of his
    estate.

[8]

The appellant responded that his interest in the
    Property was suspended while he is a bankrupt, pursuant to the provisions of s.
    4.2 of the Trust. That provision is somewhat unusual. It reads:

Any right of a Beneficiary to receive any
    income or capital of the Trust Fund as a result of a mandatory direction to the
    Trustees to make such a distribution, including, for greater certainty, a
    mandatory entitlement of a Beneficiary to the exclusive use, occupation and enjoyment
    of the Real Property and the Chattels . shall be enforceable only until such Beneficiary
    shall become bankrupt  whereupon and so long as the effect or operation thereof
    shall continue, the Beneficiarys Interest shall cease until the cause of the Beneficiarys
    Interest becoming vested in or belonging to or being payable to a person other
    than such Beneficiary shall have ceased to exist  and then the Beneficiarys
    Interest shall again be allocated to such Beneficiary as aforesaid unless and
    until a like or similar event shall happen whereupon the Beneficiarys Interest
    of such Beneficiary shall again cease and so on from time to time.

[9]

The appellant submitted that his interest in the
    Property could not vest in his Bankruptcy Trustee as he had no rights to the
    Property, pursuant to s. 4.2, until such time as he was discharged from
    bankruptcy. The appellant contended that, during his bankruptcy, any rights he
    had were suspended. It is only on his discharge from bankruptcy that the
    Property will vest in him pursuant to s. 5.2.2 and he will own it outright.

[10]

The bankruptcy judge rejected that contention,
    as do we. She found that the mandatory distribution provision contained in s.
    5.2.2 of the Trust overrode s. 4.2. In particular, the bankruptcy judge held that
    the provisions of the Trust (Part IV), which contained s. 4.2, applied to the
    Property during the lifetimes of the appellants parents, but the provisions of
    the Trust (Part V) that contained s. 5.2.2 applied to the Property after the
    death of his parents. The bankruptcy judge noted that the mandatory division of
    the Property contained in Part V was not made subject to s. 4.2 nor did it
    otherwise reference that provision. She further found that, had the intent been
    as the appellant contends it to be, she would have expected there to have been
    express language in the mandatory distribution provision to that effect. As she
    said, at para. 18: I simply cannot conclude that the Settlor intended to
    override the mandatory mechanism of s. 5.2.2 by an oblique reference to capital
    in s. 4.2.

[11]

As a result, the bankruptcy judge concluded that
    the Property vested in the appellant at the Time of Division. The Property thus
    constituted property of the appellant and vested in his Trustee in Bankruptcy.
    Since the Trustee in Bankruptcy had transferred its rights in the appellants Property
    to RBC, RBC was entitled to receive the proceeds of sale up to the amount that the
    appellant owes to RBC.

[12]

The appellant has failed to demonstrate any
    error in the bankruptcy judges decision. Her decision involves an
    interpretation of the Trust document and is entitled to deference on review:
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at
    paras. 50-52. The fact is that we agree with her interpretation. It is
    consistent with the plain wording of the relevant section and is also
    consistent with the stated purpose of the Trust.

[13]

We would also observe that, if the
    interpretation of the Trust is as contended by the appellant, it would offend
    the public policy that underlies the
BIA
by allowing persons to place
    assets out of the reach of their creditors. As Rowe J. said in
Chandos
    Construction Ltd. v. Deloitte Restructuring Inc.
, 2020 SCC 25, 449 D.L.R.
    (4th) 293, at para. 31, the anti-deprivation rule renders void contractual
    provisions that, upon insolvency, remove value that would otherwise have been
    available to an insolvent persons creditors from their reach.

[14]

The appeal is dismissed. The respondent is
    entitled to its costs of the appeal in the amount of $17,500, inclusive of
    disbursements and H.S.T.

K. van Rensburg J.A.

I.V.B. Nordheimer J.A.

Harvison Young J.A.


