



COURT OF APPEAL FOR ONTARIO

CITATION: Global Royalties Limited v. Brook, 2016 ONCA 50

DATE: 20160118

DOCKET: M45801 (C61241)

Strathy C.J.O. (In Chambers)

BETWEEN

Global
    Royalties Limited and Benchmark Conversion

International Limited o/a
    BCI

Plaintiffs (Respondents)

and

David Brook
, Anna Brook, 2323593 Ontario
    Inc., Geoffrey Black a.k.a. Geoff Black, Griffin & Highbury Inc., Dario
    Beric a.k.a. Dario Beric-Maskarel, Dikran Khatcherian a.k.a. Diko Khatcherian
    a.k.a. Danny Matar, Leslie Frohlinger a.k.a. Les Frohlinger, Diversity Wealth
    Management Inc. and Diversity Wealth Management Holdings Inc.

Defendants (
Appellant
)

Harvey Stone, for the respondents

Frank Bennett, for the appellant

Heard: December 8 and 17, 2015

Motions for a declaration that the appellant has no right
    to appeal the order of Justice Michael A. Penny of the Superior Court of
    Justice, dated October 13, 2015, with reasons reported at 2015 ONSC 6277, under
    s. 193(b) of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3 (
BIA
)
    and for leave to appeal that order under s. 193(e) of the
BIA
.

Strathy C.J.O.:

[1]

The appellant seeks to appeal an order lifting the stay of proceedings
    provided him by s. 69.3 of the
Bankruptcy and Insolvency Act,
R.S.C.
    1985, c. B-3 (
BIA
). In my view, he has no right of appeal to this
    court under s. 193(b) of the
BIA
and should not be granted leave to
    appeal under s. 193(e).

A.

background

[2]

The appellant was deemed bankrupt on February 27, 2015 after his failed
    proposal.

[3]

The respondents brought this action in June 2015. The statement of claim
    alleges that the appellant, a former employee, breached his fiduciary duties to
    them. He did so, they say, by establishing a competing business with the
    co-defendants, stealing propriety information from the respondents, and
    diverting their sales and revenues to himself and the co-defendants.

[4]

The statement of claim seeks damages, injunctive relief and declaratory
    relief. The claim alleges breaches of duty before and after the date of
    bankruptcy.

[5]

The appellant took the position that the action was invalid because, as
    an undischarged bankrupt, the proceedings against him were stayed by s. 69.3 of
    the
BIA.


B.

the order of the superior court

[6]

The respondents brought a motion for the following relief: (a) a
    declaration that s. 69.3 of the
BIA
did not apply to stay the claims
    for injunctive and declaratory relief, or the claims for damages from the
    appellants post-bankruptcy conduct, because they are not claims provable in
    bankruptcy; and (b) an order under s. 69.4 of the
BIA
lifting the stay
    of proceedings for the damages claimed against the appellant for his
    pre-bankruptcy conduct.

[7]

The trustee in bankruptcy did not oppose the relief sought.

[8]

The motion judge granted the motion.

[9]

The motion judge agreed that the claims arising after the date of
    bankruptcy and the claims for injunctive and declaratory relief were not stayed
    by s. 69.3. That is because they were not claims provable in bankruptcy under
    s. 121 of the
BIA
. He therefore found there was no need for an order
    lifting the stay for those claims.

[10]

On
    the claims relating to the appellants pre-bankruptcy conduct, the motion judge
    found there were sound reasons to lift the stay, relying on
Re Ma
(2001), 24 C.B.R. (4th) 68 (Ont. C.A.). He rejected the appellants claim that
    lifting the stay would interfere with the proper administration of the bankrupt
    estate. He therefore lifted the stay, but clarified that the enforcement of any
    judgment for damages for pre-bankruptcy conduct would remain stayed until
    further order. I will explain his reasons below.

[11]

The
    appellant served a notice of appeal. He claimed he had a right to appeal under
    s. 193(b) of the
BIA
, but also sought leave to appeal, if necessary,
    under s. 193(e).

C.

the motions in this court

[12]

Each
    party brought a motion in this court.

[13]

The
    first was brought by the respondent for an order that the appellant had no
    appeal as of right pursuant to s. 193(b) and that the stay under s. 195 of the
BIA
did not apply.

[14]

The
    second, which only arose if the first motion was granted, was brought by the
    appellant for leave to appeal pursuant to s. 193(e).

[15]

I
    heard the motions on separate dates  granting the first and dismissing the
    second. I will discuss them separately.

(1)

Appeal
under
s. 193(b)

[16]

This
    motion was heard on December 8, 2015. At the conclusion of oral argument I
    granted the motion, declaring that the appellant had no right of appeal under
    s. 193(b), with reason to follow. These are those reasons.

[17]

A
    judge of this court has jurisdiction to make an order directing that the
    appellant does not have a right to appeal pursuant to s. 193(b) of the
BIA
:
    see
Re Robson Estate
(2002), 33 C.B.R. (4th) 86 (Ont. C.A. [In Chambers]).

[18]

Subsection
    193(b) provides that an appeal lies to this court if the order or decision is
    likely to affect other cases of a similar nature in the bankruptcy
    proceedings. There is no dispute that the governing authorities are those set
    out in L.W. Houlden, G.B. Morawetz & Janis Sarra,
Bankruptcy and
    Insolvency Law of Canada,
loose-leaf (2015-Rel. 4), 4th ed. revised
    (Toronto: Carswell, 2013), vol. 3 at para. I-59. Those authorities were
    recently discussed by the Court of Appeal for British Columbia in
Wong v.
    Luu,
2013 BCCA 547, 10 C.B.R. (6th) 318 (In Chambers),

at paras.
    15-19.

[19]

The
    governing authorities stress that s. 193(b) concerns real disputes likely to
    affect other cases raising the same or similar issues in the same bankruptcy
    proceedings: see e.g.
Wong v. Luu,
at para. 21;
Lemay v. Lamarre
(1934),
    16 C.B.R. 189 (Que. C.A.).

[20]

Here,
    the appellant submitted that the crossclaims against him by the co-defendants
    raise similar issues of whether the stay of proceedings under the
BIA
ought to be lifted.

[21]

In
    my view, this is a matter of pure speculation. Although counsel for the
    co-defendants was given notice of the motion to lift the stay, he did not
    appear on the motion and expressly disclaimed any intention to respond.

[22]

In
    addition, the statement of defence and crossclaim pleads the relationship
    between the co-defendants and the appellant took place after the bankruptcy. It
    seems arguable then that the stay would not apply to the crossclaim in any
    event.

[23]

Moreover,
    none of the grounds of appeal set out in the notice of appeal provide a basis
    to conclude that the order below would impact related cases in the bankruptcy.

[24]

I
    was therefore unable to find that the decision under appeal would likely
    affect another case raising the same or similar issues in the appellants
    bankruptcy proceeding.  I granted the motion and declared that the appellant
    does not have a right to appeal to this court under s. 193(b) of the
BIA
.

[25]

The
    motion for leave to appeal under s. 193(e) was then directed to proceed before
    me on December 17, 2015.

(2)

Leave to appeal

[26]

The
    test for leave to appeal under s. 193(e) was set out in
Business
    Development Bank of Canada v. Pine Tree Resorts
, 2013 ONCA 282, 115 O.R.
    (3d) 617 (In Chambers). In that case, at para. 29, Blair J.A. noted that
    granting leave under s. 193(e) is discretionary and must be exercised in a
    flexible and contextual way. The prevailing considerations are 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

(b) is
prima facie
meritorious, and

(c) would unduly hinder the progress of the bankruptcy/insolvency
    proceedings.

[27]

The
    appellants proposed appeal challenges the motion judges lifting of the stay
    under s. 69.4 of the
BIA
. That section provides that a creditor who is
    affected by the stay under s. 69.3 may apply to the court for a declaration
    that the stay no longer operates against it. The court may make that
    declaration if satisfied that the creditor is likely to be materially
    prejudiced by the stay or that it is equitable on other grounds to do so. The
    governing authority, and that relied on by the motion judge, is
Re Ma.

[28]

The
    appellants core argument in support of his leave application is that the test
    in
Re Ma
requires clarification. He submits that
Re Ma
s
    requirement of sound reasons to lift the stay must include an analysis of the
    merits of the creditors claim. To the extent
Re Ma
leaves this
    question uncertain, he says, the test requires clarification.

[29]

If
    granted leave, the appellant will argue that the motion judge failed to engage
    in any analysis of the merits of the respondents claim. Instead, he focussed
    on the allegations in the pleading without examining the underlying evidence.
    The appellant further argues that the motion judge also failed to make adverse
    findings from the respondents representatives failure to answer questions on
    examination.

[30]

The
    appellant says that this was unfair to him because it exposed him to
    potentially frivolous litigation outside the bankruptcy, without a preliminary
    showing that the claim had merit. Without some sort of hard look at the case,
    he says, a plaintiff could meet the test by simply dressing up a pleading with
    allegations of fraud, adding multiple parties and pleading a complex cause of
    action.

[31]

The
    appellant says that this issue is a matter of general importance in bankruptcy
    and insolvency, his appeal has merit and granting leave to appeal would not
    interfere with the administration of the bankruptcy.

[32]

As
    I mentioned earlier, the motion judge relied on
Re Ma.
He noted that
    in that case the bankrupt defendant had argued that the creditor seeking to lift
    the stay had to establish a
prima facie
case on the merits. The Court
    of Appeal held otherwise. The motion judge addressed this point at paras.
    18-19:

In
Re Ma
the Court of Appeal for Ontario upheld the decision of the registrar lifting
    the stay to permit the TD Bank to continue an action against the bankrupt. The
    bankrupt argued that the creditor had to establish a
prima facie
case on the merits by providing
    evidence of the facts giving rise to the proposed claim. The registrar held
    that the test to be applied is whether the type of claim which the creditor
    seeks to advance against the bankrupt is the type of claim that should be
    allowed to proceed. She held that it was not the function of the court on a
    motion to lift the stay to embark upon a scrutiny of the merits of the proposed
    action.

The Court of Appeal pointed out that lifting the statutory stay
    is far from a routine matter. The Court of Appeal affirmed, however, that there
    was no obligation on the part of the moving party to establish a
prima facie
case on the basis of evidence. The gloss on the previous law provided by the
    Court of Appeal in
Re Ma
is that the court is not precluded from
any
consideration of the merits where
    relevant to the issue of whether there are "sound reasons" for
    lifting the stay. The court used the example that, if the proposed action had
    little prospect of success, it would be difficult to find that there were sound
    reasons for lifting the stay.

[33]

The
    motion judge then considered what a creditor must show to establish sound
    reasons for material prejudice or other equitable grounds under s. 69.4 of the
BIA
. The grounds identified by the plaintiffs in this case were the
    following: (i) actions against the bankrupt for a debt for which a discharge
    would not be a defence (s. 178); (ii) actions of sufficient complexity to make
    the summary procedure under s. 135 of the
BIA
inappropriate; and
    (iii) actions in which the bankrupt is a necessary party for the complete
    adjudication of matters at issue involving other parties: see
Re Advocate
    Mines Ltd.
(1984), 52 C.B.R. (N.S.) 277 (Ont. S.C. [Reg.]).

[34]

The
    motion judge noted that fraud, misappropriation, and fraudulent
    misrepresentation had been alleged in the pleading. He referred to the
    observation of Morawetz J. in
Re Ieluzzi
, 2012 ONSC 1474, 88 C.B.R.
    (5th) 215, that the moving creditor need only plead specific facts which show
    that there are sound reasons to lift the stay, such as a set of facts which, if
    believed, would fall within the ambit of s. 178(1)(d)." He said that while
    the appellant
[1]
complained, as he does here, that the allegations were unproven, [t]hat,
    however, is clearly not the test.

[35]

In
    my view, it has been settled law in this province, for at least 20 years, that
    on a motion to lift the stay the bankruptcy court is not required to look into
    the merits of the action: see
Re Francisco
(1995), 32 C.B.R. (3d) 29
    (Ont. Gen. Div.), at para. 1, affd (1996), 40 C.B.R. (3d) 77 (C.A.), referred
    to with approval in
Re Ma.
As this court noted in
Re Ma,
at
    para. 3, this does not mean that the merits of the action can never be
    relevant. If, for example, the defendant wishes to argue that the action is
    frivolous, vexatious, or otherwise has little prospect of success, it may well
    adduce evidence to that effect.

[36]

I
    do not find that the proposed appeal raises an issue of general importance in
    bankruptcy and insolvency matters. Nor has the appellant satisfied me that the
    proposed appeal is
prima facie
meritorious. I, therefore, deny the
    appellant leave to appeal.

D.

Conclusion and order

[37]

For
    these reasons, the appellant has no right of appeal and the motion for leave to
    appeal is dismissed. Costs of both motions shall be payable to the respondents
    and fixed at $13,750.00, inclusive of all applicable taxes and disbursements.

G.R. Strathy C.J.O.





[1]
The motion judge referred to the appellant
/defendant
as the plaintiff, but in context it is clearly a typographical
    error.


