



COURT OF APPEAL FOR ONTARIO

CITATION: Thistle v. Schumilas, 2020 ONCA 88

DATE: 20200206

DOCKET: C66432

Watt, Hourigan and Trotter JJ.A.

BETWEEN

Jason Michael Thistle

Plaintiff

(Respondent)

and

James Schumilas, Jr.
, WCS Financial Services, Cinaber Financial Inc. and Bridgeforce
    Financial Group Inc.

Defendants

(
Appellant
)

Marie Sydney, for the appellant

Sean Zeitz, for the respondent

Heard: November 29, 2019

On appeal from the order of Justice Catrina D. Braid of
    the Superior Court of Justice, dated December 21, 2018.

Hourigan J.A.:

A.

Introduction

[1]

On June 4, 2009, Equitable Life of Canada issued a life insurance policy
    to the respondents spouse. The policy was in the amount of $600,000. The
    respondent was the sole beneficiary.

[2]

The respondent made a voluntary assignment in bankruptcy, effective June
    25, 2009. He was not discharged from bankruptcy until June 13, 2011.

[3]

The respondents wife died on October 14, 2010. He made a claim under
    the policy. On February 22, 2011, Equitable Life denied the claim on the basis
    that the respondents wife had misrepresented or failed to disclose material
    facts on her application for insurance. Specifically, it was alleged that she
    failed to disclose an existing medical condition.

[4]

The respondent commenced an action against Equitable Life on March 29,
    2011, seeking a declaration that Equitable Life was required to pay $600,000
    under the policy. During that litigation, in approximately December 2012, the
    respondent became aware of a potential claim in professional negligence against
    the appellant, who had acted as his wifes insurance agent when she purchased
    the policy. The respondent commenced a claim against the appellant on February
    11, 2013, seeking damages equivalent to the policys value.

[5]

The appellant brought a motion for summary judgment to dismiss the
    action on the basis that any right to assert a claim against him arose when the
    respondent was an undischarged bankrupt and, therefore, the cause of action
    vested with his trustee in bankruptcy. The respondent brought a cross-motion
    seeking an order
nunc pro tunc
granting him standing to bring this
    action issued February 11, 2013 in his own name and at his own risk and expense,
    notwithstanding his assignment in bankruptcy and subsequent discharge.

[6]

The motion judge found that she had a discretion under the
Bankruptcy
    and Insolvency Act
, R.S.C., 1985, c. B-3 (
BIA
) and/or the
Rules
    of Civil Procedure
,
R.R.O. 1990, Reg. 194
, to
    validate the claim and regularize the proceedings. She relied on s. 187(9) of
    the
BIA,
which
provides that no bankruptcy proceeding shall be invalidated by a formal defect
    or irregularity. According to the motion judge, the order the respondent sought
    was consistent with the interests of justice and would help protect innocent
    third-party creditors and the respondent. To do otherwise, she reasoned, would
    result in a potential windfall for the appellant and a corresponding loss to
    the creditors.

[7]

The motion judge further found that the expiry of the limitation period was
    not an absolute bar to an order
nunc pro tunc
and that the court can
    still exercise its discretion. She determined that the order would not
    undermine the limitation periods purpose because it was a mere procedural
    irregularity and there was no intent to defraud creditors. Further, the appellant
    was aware of the claim within the limitation period, defended the action from
    the outset, and did not take the position that it relied on the limitation
    period or that it had been prejudiced.

B.

Issues

[8]

The appellant raises two grounds of appeal. He submits that the motion
    judge erred in finding that: (1) she had a discretion to make an order
    regularizing the proceeding; and (2) the order could be made on a
nunc pro
    tunc
basis
.

[9]

For reasons I will explain, I am of the view that the motion judge erred
    on ground 2  that is, the motion judge did not have the authority to make the
    order
nunc pro tunc
. I would allow the appeal on that basis. Accordingly,
    it is unnecessary to consider ground 1.

C.

Analysis

(a)

Necessity of the Order Sought

[10]

To
    understand how the motion judge erred in finding that she could make an order
nunc
    pro tunc
, it is first necessary to consider the respondents cross-motion.
    On that cross-motion, the respondent sought an order granting him standing to
    bring the action.

[11]

Was
    that order required? Section 71 of the
BIA
provides that upon an
    assignment in bankruptcy being filed, the bankrupt ceases to have any capacity
    to deal with his or property, which, subject to the
BIA
and the rights
    of secured creditors, immediately passes to and vests in the trustee. As the
    Supreme Court stated in
Wallace v. United Grain Growers Ltd.
, [1997] 3
    S.C.R. 701, at para. 58, [a]n undischarged bankrupt has no capacity to deal
    with his or her property and no distinction is made with respect to whether
    that property was acquired before or after the assignment in bankruptcy.

[12]

The
BIA
makes no provision for the automatic re-vesting
    of the property of a bankrupt in the bankrupt either on his or her discharge or
    on the discharge of the trustee:
Douglas v. Stan Fergusson Fuels Ltd.
,
    2018 ONCA 192, 139 O.R. (3d) 721, at para. 64, leave to appeal refused [2018]
    S.C.C.A. No. 141. Instead, pursuant to s. 40 of the
BIA
, a trustee is
    obligated to return property  that is listed in the bankrupts statement of
    affairs
or
    otherwise disclosed to the trustee, and that is found incapable of realization
     to the bankrupt before the bankrupts discharge
.

[13]

Section 2 of the
BIA

defines
    property as follows:

any type of property, whether situated in Canada or elsewhere,
    and includes money, goods, things in action, land and every description of
    property, whether real or personal, legal or equitable, as well as obligations,
    easements and every description of estate, interest and profit, present or
    future, vested or contingent, in, arising out of or incident to property

[14]

Section 67(1)(c) of the
BIA
states that a bankrupts
    property shall comprise all property wherever situated of the bankrupt at the
    date of the bankruptcy or that may be acquired by or devolve on the bankrupt
    before their discharge. There are only a few prescribed exemptions from this
    definition, as noted in ss. 67(1)(a)-(b.3).

[15]

Here, the parties agreed before the motion judge and this court
    that the cause of action arose during the respondents bankruptcy, constituted property
    under the
BIA
,

and thus vested in the trustee in bankruptcy.

[16]

This panel raised with the parties whether the cause of action vested
    with the trustee, given that the respondent only discovered the cause of action
    after his discharge from bankruptcy. In response, the respondent submitted that
    he was not resiling from his position below that the cause of action vested
    with the trustee. However, the respondent suggested that this court should
    consider importing the concept of cause of action accrual/discoverability as an
    exemption to the automatic vesting of a cause of action pursuant to s. 71 of the
BIA
. He argued that until a bankrupt or a trustee has discovered a
    claim, there is nothing that can be practically done to prosecute a cause of
    action. Finding that a cause of action vests with the trustee regardless of
    discoverability, he submitted, would allow defendants like the appellant to wrongfully
    avoid liability.

[17]

I am not persuaded by this argument. Pursuant to ss. 2 and 67(1)(c) of
    the
BIA
, the bankrupts property is broadly defined and includes a
    cause of action, regardless of whether it has been discovered or not. The
    respondent acquired the cause of action during the currency of his bankruptcy,
    notwithstanding that the running of the limitation period was contingent on
    discoverability. Grafting the concept of discoverability to the vesting procedure
    under s. 71 of the
BIA
would not only create uncertainty, it could
    incentivize bankrupts to avoid learning of and disclosing all assets to their
    trustee.

[18]

The respondents argument also runs contrary to Parliaments intention. The
    Supreme Court in
Saulnier v. Royal Bank of Canada
, 2008 SCC 58, [2008]
    3 S.C.R. 166, at para. 43 has stated that:

The terms of the definition [of property] are very wide.
    Parliament unambiguously signalled an intention to sweep up a variety of assets
    of the bankrupt not normally considered property at common law. This
    intention should be respected if the purposes of the
BIA
are to be
    achieved.

[19]

Parliament also created distinct and narrow exemptions to property, to
    allow the bankrupt to continue a living pending discharge and, when discharged,
    to make a fresh start:
Saulnier
, at para. 17. These limited exemptions
    are not analogous to the respondents proposed exemption based on discoverability.

[20]

Nor am I persuaded that in this case the vesting of the cause of action
    in the trustee works an injustice. The trustee could have been reappointed
    pursuant to s. 41(11) of the
BIA
to prosecute the claim. If the
    trustee determined that it did not want to prosecute the claim, the respondent
    could have arranged to have the cause of action assigned to him. In either case,
    the doctrine of discoverability could be relied on to argue that the claim was
    not statute barred. Thus, the
BIA
does not prevent a claim from being
    asserted or prevent discoverability from operating; all it does is direct that a
    cause of action vests in the trustee.

[21]

Rather than seek an assignment and/or arrange for the reappointment of
    the trustee, in his cross-motion the respondent sought an order granting him
    standing to bring and maintain an action that he said remained vested in the
    trustee. Consequently, to the extent that an order regularizing the proceeding was
    available, the respondent required that it be made on a
nunc pro tunc
basis
. The question is whether the court
    had the capacity to make that order.

(b)

Availability of the Nunc Pro Tunc Order

[22]

To answer this question, regard must be had to the Supreme Courts
    decision in
Canadian Imperial Bank of Commerce v. Green
, 2015 SCC 60,
    [2015] 3 S.C.R. 801 (
Green
). That case considered three appeals (
CIBC
,
IMAX
and
Celestica
) where the respondent plaintiffs claimed
    damages under the common law tort of negligent misrepresentation and pleaded an
    intention to claim damages under the statutory cause of action in s. 138.3 of
    the
Securities Act,
R.S.O. 1990,
    c. S.5
.

[23]

None of the plaintiffs obtained leave to commence the statutory action,
    required under the
Securities Act
, before commencing the class
    proceeding based on the common law cause of action. In all the cases, the
    limitation period for the statutory action, if not suspended, would have run
    out prior to leave being obtained. In
IMAX
,
the motion for leave was filed and argued before the
    expiry of the limitation period; in
CIBC
,
the motion for leave was filed before the expiry of the
    limitation period; and in
Celestica
,
the motion for leave was filed after the expiry of the limitation period.

[24]

An issue arose in
Green
regarding whether the court had
    authority to make a leave order on a
nunc pro tunc
basis. Côté J., at
    para. 85, recognized that courts have a power to make
nunc pro tunc
orders, which she described as essentially backdated orders, noting that rule
    59.01 of the
Rules of Civil Procedure
states: An order is effective
    from the date on which it is made, unless it provides otherwise. She reviewed
    a non-exhaustive list of factors courts have considered in determining whether
    to exercise their inherent jurisdiction to grant such an order. Côté J. then turned,
    at paras. 91 to 93, to the question of whether
nunc pro tunc
orders
    should be permitted where a plaintiff required leave to bring an action but
    failed to seek leave within the applicable limitation period:

Returning to the issue in the cases at bar, there are two
    schools of thought in the jurisprudence on whether a failure to obtain leave within
    a specified limitation period results in the nullity of the action or is merely
    a procedural irregularity. According to one view, a failure to do so results in
    the nullity of the action, which cannot be remedied by a
nunc pro tunc
order, and is therefore an insurmountable obstacle. According to the second
    view, such a failure is merely a procedural irregularity that can be corrected
    by a
nunc pro tunc
order.

In my opinion, van Rensburg J. correctly stated the law on this
    point in
IMAX
. She noted that the courts have been willing to grant
nunc
    pro tunc
orders where leave is sought within the limitation period but not
    obtained until after the period expires (as in
Montego Forest Products
).
    She also noted that, in the cases suggesting that an action commenced without
    leave was a nullity, the applicable limitation periods had expired before the
    application for leave was brought. A
nunc pro tunc
order in such cases
    would be of no use to the plaintiff, as it would be retroactive to a date after
    the expiry of the limitation period.

Thus, subject to the equitable factors mentioned above, an
    order granting leave to proceed with an action can theoretically be made
nunc
    pro tunc
where leave is sought prior to the expiry of the limitation
    period. [Citations omitted.]

[25]

In circumstances where a motion is brought after the expiry of a
    limitation period, a
nunc pro tunc
order cannot be made for the simple
    reason that such an order is of no practical effect. It would only serve to
    backdate the order to the date of the motion, which was already beyond the
    expiry of the limitation period. In
Celestica
, the plaintiffs did not
    file their motion for leave prior to the limitation period expiring.
    Accordingly, on that basis, the Supreme Court denied the granting of a
nunc
    pro tunc
order:
Green
, at para. 111.

[26]

This court followed
Green
in
Douglas
. Like this case,
Douglas
concerned a cause of action that arose when a party was an undischarged
    bankrupt and that was asserted at a time when the cause of action remained
    vested in the trustee. The partys insurer attempted to bring the action in the
    partys name, based on alleged subrogation rights. This court held that the
    party had no capacity to bring the action

because
    an undischarged bankrupt lacks capacity to commence an action in his name, if
    his cause of action vested in the trustee on his assignment or at any time
    before his discharge
:
Douglas
, at paras. 92-93.

[27]

This court refused to make a
nunc pro tunc
order pursuant to
    ss. 38 or 40 of the
BIA
because, among other things, the insurer
    sought a
nunc pro tunc
order almost seven years after the limitation
    period had passed. Citing
Green
, this court ruled that a court has no
    authority to make a
nunc pro tunc
order if the party did not seek an
    order before the relevant limitation period expired:
Douglas
, at
    para. 104.

[28]

This case is analogous to
Douglas
, the only difference being that
    at the time the action was commenced in this case, the respondent was a
    discharged bankrupt. The respondent sought a
nunc pro tunc
order in
    2018, which was well after the expiry of the two-year limitation period
    pursuant to the
Limitations Act

2002
, S.O. 2002, c. 24, Sch. B.
    The limitation period for the respondents claim expired, at the latest, in
    2015, which was two years after the respondent brought his action against the
    appellant. The motion judge thus had no authority to grant the
nunc pro
    tunc
order.

[29]

The motion judge attempted to distinguish
Douglas
by noting
    that, in this case: (1) the respondent was discharged from bankruptcy when the
    cause of action was discovered, and the action commenced; and (2) the trustee
    consented to an order regularizing proceeding. Given that the
nunc pro tunc
order was only sought after the expiry of the limitation period, these factual
    differences are of no consequence in this particular case.

[30]

The motion judge also cited
Montego Forest Products Ltd.

(Re)
(1998), 37 O.R. (3d) 651 (C.A.), to demonstrate that the expiry of the
    limitation period is not an absolute barrier to granting an order
nunc pro
    tunc
. However, this court has noted that the
nunc pro tunc
order
    was properly granted in
Montego Forest Products
because the order was
    sought within the limitation period:
Douglas
, at para. 104; see also
Green
,
    at para. 92.

[31]

Given the decisions in
Green
and
Douglas
, the motion
    judge erred in granting a
nunc pro tunc
order regularizing the
    proceeding for the respondent. She had no authority to make that order and,
    accordingly, it cannot stand.

D.

Disposition

[32]

For the foregoing reasons, I would allow the appeal, set aside the order
    below, and dismiss the respondents claim as against the appellant.

[33]

Regarding the costs below, in my view the appellant is entitled to his
    costs of the motion and cross-motion. If the parties cannot agree on the
    quantum of those costs, they may make brief written submissions to this court.
    The appellant is also entitled to his costs of the appeal, which I would fix in
    accordance with the parties agreement, in the all-inclusive sum of $10,000.

Released: D.W. February 6, 2020

C.W.
    Hourigan J.A.

I agree.
    David Watt J.A.

I agree. G.T.
    Trotter J.A.


