



COURT OF APPEAL FOR ONTARIO

CITATION: Ridel v. e3m Investments Inc., 2016 ONCA
    522

DATE: 20160630

DOCKET: C61568

Rouleau, van Rensburg and Benotto JJ.A.

In the Matter of the
    Bankruptcy of e3m Investments Inc.

BETWEEN

Jean-Marc Ridel, Nadine Suzanne Josephine Ridel
    and
Marc H. Ridel

Applicants (Appellants)

and

Schwartz, Levitsky, Feldman Inc. - Trustee

Respondent (Respondent)

Philip Anisman, for the appellants

Martin Greenglass, for the respondent

Heard: June 20, 2016

On appeal from the order of Justice Michael A. Penny of
    the Superior Court of Justice, dated November 12, 2015.

ENDORSEMENT

[1]

The appellants are judgment creditors of e3m
    Investments Inc. (e3m), which is bankrupt. They assert a trust claim over
    certain funds held in the name of the bankrupt in an Accumulating Account on
    the direction of the Ontario Securities Commission (the OSC). The parties
    agreed that the matter would proceed in court through the disallowance of the
    claim by e3ms Trustee in Bankruptcy, and an appeal to a judge of the Superior
    Court (referred to here as the motion judge) under s. 81 of the
Bankruptcy and Insolvency Act
, R.S.C. 1985 c. B-3,
(the BIA). The dismissal of that appeal is the subject of the
    appeal to this court.

[2]

For the reasons that follow the appeal is
    dismissed.

[3]

e3m was an investment dealer registered with the
    OSC and a member of the Investment Industry Regulatory Organization of Canada
    (IIROC). The appellants were former clients of e3m. In April 2013 they obtained
    a judgment against e3m of approximately $750,000, including costs and interest
    (the Ridel Judgment). e3m appealed.

[4]

e3m treated the Ridel Judgment as a contingent
    liability, which resulted in a deficiency of $550,000 in its estimated
    regulatory capital.

[5]

As a result of the judgment, and pending the
    hearing of its appeal, e3m, in July 2013, agreed to sell its client accounts to
    Caldwell Ltd. (Caldwell), with the consideration payable in instalments. The
    transaction required the consent of the OSC and an exemption to permit Robert
    Goldberg, e3ms president, to be employed and registered with both Caldwell and
    e3m.

[6]

The OSC issued terms and conditions on e3ms
    registration when it granted the exemption (the OSC Decision). The terms and
    conditions, which were negotiated between legal counsel for the OSC and e3m
    (and without any involvement of the appellants), required e3m to direct
    Caldwell to pay all proceeds from its purchase of e3ms assets, which were estimated
    at the time to be $750,000, into e3ms Accumulating Account at Caldwell. e3m
    also agreed to transfer $100,000 from its operating account into the
    Accumulating Account.

[7]

The OSC Decision terms and conditions referred
    to e3ms representation that it would accumulate and maintain sufficient assets
    to satisfy the Ridel Judgment, and that no distribution of these assets up to
    the amount of the judgment would be made prior to the satisfaction of that
    judgment except by consent or approval from the OSC and IIROC. The terms and
    conditions became effective on the closing of the sale of e3ms assets to
    Caldwell in September 2013.

[8]

In November 2014, e3m lost its appeal of the
    Ridel Judgment. The appellants were successful in their cross-appeal and the
    amount of the judgment was increased. In February 2015, e3m made an assignment
    in bankruptcy. In its statement of affairs, e3m recorded cash of $546,837,
    substantially all of which was in the Accumulating Account.

[9]

The motion judge considered whether the funds in
    the Accumulating Account were trust funds which belonged to the appellants,
    rather than monies of e3m divisible among the bankrupts creditors (including
    the appellants).

[10]

The motion judge was satisfied that the
    Accumulating Account met two of the required three certainties for a trust.
    There was certainty of subject matter  the proceeds of sale of e3ms customer
    accounts and $100,000 contributed by e3m were transferred into the Accumulating
    Account and segregated. There was certainty of the object of the trust  to
    preserve assets of e3m for the satisfaction of the appellants judgment.

[11]

The motion judge found, however, that there was
    no certainty of intention that the funds were to be held in trust for the
    appellants. It was the appellants onus to prove such intention. The motion
    judge concluded that neither e3m nor the OSC intended to create a trust.
    Although the funds were held in a single-purpose, separate account, the OSC
    terms and conditions were in the nature of a 
status quo
preservation order to ensure that the funds were not dissipated
    pending e3ms appeal of the judgment. In reaching this conclusion the motion
    judge noted that the terms and conditions and other contemporaneous documents
    did not refer expressly to a trust, and that the OSCs and IIROCs authority
    under the terms and conditions to consent to specific expenditures was not
    consistent with the intention to create a trust.

[12]

The appellants submit that the motion judge made
    two fundamental errors that dictated the outcome of the case. First, in
    focusing on the OSCs role in creating the trust, he concluded that the OSC
    Decision and the terms and conditions were put in place in the face of a
    reasonable, if not high, likelihood that e3m was or would be insolvent if the
    appeal were unsuccessful. The appellants say that e3m was not in fact insolvent
    and had given assurances about its solvency, which the OSC relied on in
    granting the exemption. Second, having found that e3m was facing a situation of
    insolvency, the motion judge expressed doubt about the jurisdiction of the OSC to
    create a preference for certain judgment creditors of a registrant over the
    interests of other creditors in a bankruptcy. The appellants say that this was
    an improper collateral attack on the OSC Decision. The appellants also contend
    that e3ms bankruptcy occurred many months after the OSC Decision, and that
    requiring money to be put aside for the appellants would not, in the
    circumstances, have constituted a preference.

[13]

In our view, the appellants make too much of the
    motion judges expression of concern about the scope of the OSCs authority.
    The onus was on the appellants to establish that the monies in the Accumulating
    Account, an account held by Caldwell in the name of e3m, were held in trust for
    the appellants.

[14]

While the motion judge expressed doubt about the
    OSCs jurisdiction to require terms and conditions that would have the effect
    of preferring the interests of the appellants over other creditors of e3m, his
    decision does not rest on this concern, or his view that e3m was likely
    insolvent. Rather, he considered a number of factors in concluding that the necessary
    intention had not been proven.

[15]

The motion judge found that the OSCs own
    position on the issue was ambiguous. There was nothing in the documentation
    drawn by counsel for any of the parties that referred to the Accumulating
    Account as a trust account. After issue had been joined, the OSC took the
    position that the Accumulating Account was to be funded and maintained for the
    benefit of the judgment creditors, but did not take the position that it was a
    trust fund. He noted that the judgment creditors, for whose benefit the trust
    was allegedly established, were unaware of the arrangements that had been put
    in place. The motion judge referred to the wording of the terms and conditions
    in the OSC Direction: there was an obligation to accumulate and maintain
    assets to satisfy the Ridel Judgment but the ultimate entitlement to the funds
    was not addressed. And, while the terms and conditions required that no
    distribution of assets from the Accumulating Account would be made prior to
    the satisfaction of the judgment without the consent or approval of the OSC and
    IIROC, in fact the OSC and IIROC consented to a distribution from the account
    to fund the preparation and mailing of income tax slips to 330 e3m clients. The
    ability of the OSC and IIROC to permit the funds to be used for essentially any
    purpose they might deem appropriate within their regulatory mandate was
    fundamentally inconsistent with an intention to create a trust in favour of the
    appellants.

[16]

Contrary to the appellants submission, there
    was no error in principle in the motion judges consideration of these factors.
    His conclusion that the necessary intention to create a trust had not been
    established, was open to the motion judge, and is unassailable. He did not base
    his decision on any conclusion that the OSC would have been acting outside its
    authority in requiring a trust or on the fact that a trust would have the
    effect of preferring the appellants over other creditors of e3m at a time of
    insolvency. Rather, he examined the evidence as to intention and concluded that
    it had not been made out.

[17]

The appeal is accordingly dismissed. Costs to
    the respondent in the sum of $17,000, inclusive of disbursements and applicable
    taxes.

Paul Rouleau J.A.

K. van Rensburg J.A.

M.L. Benotto J.A.


