



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



McKibbon v. BDO Canada Limited ,









2020 BCCA 7




Date: 20200107

Docket: CA46145



IN
THE MATTER OF THE BANKRUPTCY OF
William Edward McKibbon

Between:

William Edward
McKibbon

Appellant

(Bankrupt)

And

BDO Canada
Limited, Dustin Joslin, and Stewart Rennie

Respondents

(Trustee)




Before:



The Honourable Madam Justice Garson

(In Chambers)




On appeal from:  An
order of the Supreme Court of British Columbia, dated
May 30, 2019 (
McKibbon (Re)
, 2019 BCSC 848, Vernon Docket 52581).




Counsel for the Appellant:



A. Calvert





Counsel for the Respondents:



S.D. Dvorak





Place and Date of Hearing:



Vancouver, British
  Columbia

November 22, 2019





Place and Date of Judgment:



Vancouver, British
  Columbia

January 7, 2020






Summary:

The applicant applies for
leave to appeal pursuant to s. 193(e) of the Bankruptcy and Insolvency Act
on the question of whether fraudulent intent is required to revoke the
discharge of a trustee under s. 41(8) of the Act
.
Held: Application
granted. The applicant raises an arguable case on the question of statutory
interpretation.

Reasons for Judgment of the
Honourable Madam Justice Garson:

[1]

Mr. McKibbon applies for leave to appeal pursuant s. 193(e) of
the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B‑3 [
BIA
].
He also seeks an order that the time to file and serve the notice of motion for
leave to appeal and the motion book be extended to September 18, 2019. The
respondents consent to the application for an extension of time but oppose the
application for leave to appeal.

[2]

The underlying appeal is a challenge to an order discharging a trustee
in bankruptcy. Mr. McKibbon submits that to revoke the discharge of a
trustee in bankruptcy under s. 41(8) of the
BIA,
proof of
fraudulent intent is not required to establish suppression or concealment of a
material fact. His application was denied by a Supreme Court judge.

I.

Background

[3]

Mr. McKibbon made an assignment into bankruptcy on July 2, 2013. He
was discharged from bankruptcy on February 24, 2016, after successfully
fulfilling the terms of a conditional discharge order pronounced on January 4,
2016. The trustee in bankruptcy was discharged on November 5, 2016.

[4]

Mr. McKibbon proposes to file a civil claim against his former
trustee in bankruptcy, the respondent BDO Canada Limited. Mr. McKibbon says
that as a result of the conduct of his trustee he has been required to pay
additional income taxes that should have been paid from the surplus funds in
the bankruptcy, and, further, that owing to the misconduct of the trustee there
was a delay in his discharge that resulted in his suffering a significant loss
of income. He alleges that the trustees conduct amounts to suppression or
concealment of a material fact.

[5]

The steps he must follow to commence a civil suit against his former
trustee in bankruptcy are somewhat procedurally complex. On discharge of the
trustee, s. 41(8) of the
BIA
provides for a release of all
liability unless the discharge is revoked. Therefore, Mr. McKibbon must
first satisfy the requirements of s. 41(8) in order to revoke the
discharge. Absent a court‑ordered revocation, s. 41(8) is an
absolute bar to civil liability of the trustee. If Mr. McKibbon is
successful in obtaining an order revoking the discharge, he may then apply
pursuant to s. 215 of the
BIA
for leave to commence an action
against the trustee. In this case, Mr. McKibbon has commenced a proceeding
under s. 41(8) and also one pursuant to s. 215. Counsel have agreed
to proceed first under s. 41(8) as it may be dispositive of Mr. McKibbons
proposed claim against his former trustee. It is the s. 41(8) application
that is before me by way of an application for leave to appeal the dismissal of
his s. 41(8) application before a Supreme Court chambers judge.

A.

Proceedings in the Court Below

[6]

Mr. McKibbon sought to revoke the discharge of his trustee pursuant
to s. 41(8) in a hearing before Justice Hori in chambers. On May 30, 2019,
in reasons indexed as
McKibbon (Re)
, 2019 BCSC 848, Justice Hori
dismissed Mr. McKibbons application to revoke the trustees discharge.

[7]

As to the factual allegation underlying the claim, the chambers judge
said:

[13]      The applicant submits that when the trustee applied
for a discharge it should have disclosed to the court the following facts but
instead concealed and suppressed them for the purposes of obtaining a
discharge:

a)    that the
surplus income had been incorrectly calculated by the trustee;

b)    the method
by which the trustee calculated the surplus income; and

c)     that the
trustee had erroneously prepared the applicants pre- and post- bankruptcy
income tax returns.

(the Alleged Material Facts)

[8]

At paras. 18 and 19 the chambers judge found there was no evidence
of intentional conduct:

[18]      Finally, there is no evidence from which I can
conclude that the trustees failure to disclose the Alleged Material Facts was
intentional. The applicant suggests that the failure to disclose was motivated
by the trustees desire to avoid civil liability under the protection of
section 41(8) of the
Act
. However, the evidence falls short of
establishing this theory. There is no evidence that the trustee was concerned
about civil liability before it applied for a discharge. There is no evidence
that the trustee was put on notice that it should be concerned about civil
liability before it applied for a discharge. The evidence is that the trustee
had proceeded through this bankruptcy with the view that the surplus income
calculations were done in the proper manner and that the income tax issues,
which had been created by the Canada Revenue Agency, were corrected.

[19]      Accordingly, I have
concluded that there is no basis upon which any fraudulent intention that can
be inferred on the part of the trustee in failing to disclose the Alleged
Material Facts in its discharge application. Therefore, the application to
revoke the trustees discharge is dismissed.

[9]

As for the legal test to revoke a discharge under s. 41(8), the
chambers judge concluded that an applicant is required to establish that any
suppression or concealment of facts by the trustee was done fraudulently: at paras. 810.

[10]

The chambers judge dismissed the application. Mr. McKibbon appeals
this order.

II.

The Legislation

[11]

Section 41 of the
BIA
provides:

41 (1)
When a trustee has completed the duties
required of him with respect to the administration of the property of a
bankrupt, he shall apply to the court for a discharge.



(7)
Nothing in or done under authority of this section
relieves or discharges or shall be deemed to relieve or discharge a trustee
from the results of any fraud.

(8)
The discharge of a
trustee discharges him from all liability

(a)
in respect of any act done or default made
by him in the administration of the property of the bankrupt, and

(b)
in relation to his conduct as trustee,

but any discharge may be revoked by the court on proof
that it was obtained by fraud or by suppression or concealment of any material
fact.

Section
193 of the
BIA
provides:

193
Unless otherwise expressly provided, an appeal
lies to the Court of Appeal from any order or decision of a judge of the court
in the following cases:



(e)
in any other case by leave of a judge of
the Court of Appeal.

III.

Positions of the Parties

[12]

Mr. McKibbon submits that in order to revoke the discharge of a
trustee in bankruptcy under s. 41(8), proof of fraudulent intent is not
required to establish suppression or concealment of a material fact. Rather he
submits that actual knowledge of an undisclosed material fact is sufficient to
meet the test under s. 41(8). He suggests that s. 41(8) should be
read in a somewhat bifurcated manner. The first part of the section provides
that a discharge may be revoked if it was obtained by fraud. He says the second
part of the section, or by suppression or concealment of any material fact,
may be met by a lesser standard.

[13]

Mr. McKibbon acknowledges that a mere allegation of negligence
would not meet the statutory test. But he says the fraud requirement does not
modify the words suppression or concealment of any material fact.

[14]

He contends that at issue in the proposed appeal is a question of
statutory interpretation: is proof of fraudulent intent required to establish
suppression or concealment of a material fact for the purpose of s. 41(8)
of the
BIA
? If it is not, should this Court revoke BDOs discharge on
the basis of the correct legal test or order a new hearing?

[15]

The respondents submit that leave should not be granted. The respondents
argue that motivating the application to revoke the discharge is a civil claim
against the trustee that is now time barred (though Mr. McKibbon says it is
not time barred because he has already filed the s. 215 application.) As a
result, the trustee contends, there is no live controversy between the parties
and the appeal has become moot. On this application, I am not able to reach any
conclusion about whether the claim is barred by the effluxion of time and I
would not decide the application on this basis.

[16]

The respondents further submit that the proposed appeal raises no issues
of general importance to bankruptcy practice. They say the chambers judge
followed law that has been settled for many years.

[17]

The respondents submit that the appeal has no merit because the decision
of the chambers judge involved the exercise of discretion. The respondents also
contend that there is nothing in the record to show that the discharge was
obtained by fraud, suppression, or concealment of a material fact.

[18]

In a new argument not raised in the court below the respondents rely on
s. 62 of the
Bankruptcy and Insolvency General Rules
, C.R.C.,
c. 368, for the proposition that because this was a summary administration
(meaning that no court appearance was required to effect the discharge), any
knowledge that Mr. McKibbon imputes to the trustee is not material. The
respondents say that only two criteria are required to obtain the discharge,
namely:

62
The trustee of the estate of a bankrupt under
summary administration shall apply for taxation of the trustees accounts and
for the discharge of the trustee by sending to the Division Office

(a)
the
trustees final statement of receipts and disbursements, in prescribed form;
and

(b)
the dividend sheet, showing
the dividends paid or to be paid to the creditors of the bankrupt.

[19]

I would not decide the application on the basis of s. 62.

IV.

The Test for Leave

[20]

In
Farm Credit Canada v. Gidda
, 2015 BCCA 236 at para. 11
(Chambers), Justice Goepel citing
Business Development Bank of Canada v.
Pine Tree Resorts Inc.
, 2013 ONCA 282 articulated the test for granting
leave under s. 193(e) of the
BIA
. The test inquires whether the
proposed appeal:

a)

raises an
issue that is of general importance to the practice in bankruptcy/insolvency
matters or to the administration of justice as a whole, and is one that this
Court should therefore consider and address;

b)

is
prima
facie
meritorious, and

c)

would unduly hinder the progress of the bankruptcy/insolvency proceedings.

[21]

Justice Goepel noted that these criteria are functionally identical to
the general test for leave to appeal set out in
Power Consolidated
(China) Pulp Inc. v. British Columbia Resources Investment Corp.
(1988), 19
C.P.C. (3d) 396 (B.C.C.A.), which direct an inquiry into:

[1]        whether the point on appeal is of significance to
the practice;

[2]        whether the point raised is of significance to the
action itself;

[3]        whether
the appeal is prima facie meritorious or, on the other hand, whether it is
frivolous; and

[4]        whether the appeal
will unduly hinder the progress of the action.

[22]

In the general test for leave to appeal, the overarching concern is the
interests of justice:
Hanlon v. Nanaimo (Regional District)
, 2007 BCCA
538 (Chambers) at para. 2. As per Justice Goepel in
Farm Credit Canada
,
the two tests above are functionally identical, and this includes the
requirement that I consider the interests of justice in an application for
leave to appeal under s. 193(e) of the
BIA
.

V.

Analysis

[23]

I accept that the appeal is of significance to the parties and will not
hinder the progress of the action as the bankruptcy is completed. The
significance to Mr. McKibbon is that he says that not only was he required
to pay additional income tax as a consequence of the conduct of the trustee,
but additionally he lost significant income also attributable to the trustees
conduct.

[24]

Mr. McKibbon submits that, due to uncertainty in the law, the
proposed appeal is significant to the practice generally and provides this
Court with an opportunity to offer an authoritative interpretation of s. 41(8)
of the
BIA
. He submits that only two appellate decisions have considered
s. 41(8) or its predecessors, and neither discusses the issue of interpretation
raised in this proceeding:
Lachapelle c. Verdier
(1990), A.C.W.S.
(3d) 286 (C.A.Q.) and
Mann v. KPMG Inc.
, 2001 SKCA 45. Mr. McKibbon
argues that the interpretation of the chambers judge is based on a line of only
three cases from the Superior Court of Quebec that adopt the reasoning in
Re
Harris
:
Ex parte Hasluck
, [1899] 2 Q.B. 97, an English case that
required an element of fraud:
Delorme, (Sindic de)
, 2011 QCCS 236;
Denis,
(Faillite de)
, J.E. 99‑1919, 1999 CanLII 11481 (Q.C.C.S.); and
Leclair
c. Ginsberg, Gingras et associés Inc.
, J.E. 88‑925, 1988
CarswellQue 1057 (C.S.Q.). Two other Canadian lower court decisions simply refused
to find suppression or concealment without any discussion of the provision:
Rodd
v. Welton
, 104 A.C.W.S. (3d) 626 (Ont. Sup. Ct.) and
Alec Smith
Decorating Ltd. v. Parkland School Division No. 63
(1982), 16 A.C.W.S.
(2d) 154 (Sask. Q.B.).

[25]

The respondents submit that because the law has been settled for
over a century, this proposed appeal raises no issue of general importance.

[26]

I turn to the evidentiary record in order to clarify the nature of the
allegations that Mr. McKibbon proposes to advance.

[27]

In support of the application, Mr. McKibbon relies on his
own affidavit and those of his wife. Mrs. McKibbon looked after Mr. McKibbons
business and financial affairs. She recounts a difficult bankruptcy with many
miscalculations and mistakes by the trustee concerning Mr. McKibbons tax liability.
She alleges the trustee did not inform the court that there was a $10,000
discrepancy and further that the trustee was aware of this issue but failed to
advise the court the taxes were in dispute. At paras. 74, 81, 82, and 83 of
her second affidavit she says:

74.       Mr. Joslin
also knew at the time of the hearing on January 4, 2016 that the estate was not
realized or complete because there was still a $10,000 discrepancy in the 2013
taxes that has not been corrected. It is clear that if Mr. Joslin had been
correct in his opinion that the amount owed to the 2013 post‑bankruptcy
taxes was approximately $2,000 then this may not have made much difference in
the final reconciliations, but he was not correct. The amount owed was closer
to $10,000 and Mr. Joslin and BDO were responsible for the errors, the
delays and the allocation of funds from the pre‑bankruptcy to the post‑bankruptcy.



81.       I
understood that based on my correspondence and conversations with Mr. Joslin
that he was at all times aware of the 2013 tax issues and discrepancies
involved in the estate.

82.       To the
best of my knowledge, and upon a review of the trustees Form 82 Report,
and the Statement of Receipts and Disbursements, the trustee did not inform the
court that there was a $10,000 discrepancy in the 2013 taxes that had not yet
been corrected.

83.       Mr. Joslin was aware of
this issue and he knew that a final calculation remained. Mr. Joslin
reported to the court [t]hat this estate was realized and complete on the
Form 82 even though the amount of the post‑bankruptcy taxes was
still in dispute.

[28]

The chambers judge considered this evidence and held that there was no
evidence from which he could conclude that the trustee intentionally failed to
disclose material facts.

[29]

Mr. McKibbon raises an issue of statutory interpretation. He
submits that if Parliament had not intended suppression or concealment to offer
an alternative to fraud, it could have omitted the phrase as it did in s. 180(2)
of the
BIA
, which provides for the annulment of a bankrupts discharge
if obtained by fraud. Mr. McKibbon submits that, in his proposed test,
suppression or concealment requires only that the applicant show that the
trustee had actual knowledge of the material facts at issue. Mr. McKibbon
says that here the trustee had actual knowledge of undisclosed material facts,
namely that that the surplus income was incorrectly calculated and that income
tax returns were erroneously prepared. Further, he says this is evidence of
intentional conduct sufficient to meet the statutory test.

[30]

In saying that the trustees knowledge of the inaccuracy of the tax
calculation is sufficient evidence to ground his legal argument that
intentional conduct, even in the absence of fraud, he raises an arguable point.

[31]

I conclude that there is a
prima facie
argument on this basis and
accordingly grant leave to appeal.

VI.

Disposition

[32]

The application to extend the time to apply for leave to appeal and to
file the motion book to September 18, 2019 is granted. Pursuant to s. 193(e),
leave to appeal is granted.

The
Honourable Madam Justice Garson


