Date: 20L7042L
Docket: BK 14-01-03541
(Winnipeg Centre)
Indexed
as:
CIBC Wood Gundy Inc. v. BDO Canada Ltd.
Cited as: 20L7 MBQB 71
COURT OF OUEEN'S BENCH OF MANITOBA
IN THE MATTER OF:
THE BANKRUPTCY OF ROBERT ELIAS, OF THE CITY
OF WINNIPEG, IN THE PROVINCE OF MANITOBA
BETWEEN:
)
CIBC WOOD GUNDY INC., A DIVISION OF
CIBC WORLD MARKETS INC.,
applicant,
-andBDO CANADA LTD., TRUSTEE OF THE
ESTATE IN BANKRUPTCY OF ROBERT ELIAS,
respondent.
AND BETWEEN:
BDO CANADA LIMITED,
applicant,
-and-
ROBERT ELIAS,
respondent.
)
)
)
)
)
)
)
)
)
)
)
APPEARANCES:
Sherri Walsh and Kevin Toyne
for the applicant CIBC
Wood Gundy Inc.
Andrew Loewen
for the respondent BDO
Canada Ltd.
)
)
) Andrew Loewen
) for the applicant BDO Canada
) Limited
)
)
)
)
)
)
)
)
)
Victoria Lehman
for the respondent Elias
Judgment delivered:
April 21, 20L7
Page: 2
.UBIINJ.
I.
TNTRODUCTION
tll
This matter involves a personal bankruptcy and the eftect of various
sections and processes under the Bankruptcy and
1985, c. B-3 (the
means from the
"
BIAJ.
fnsolvencf Act,
R.S.C.,
Any reference in this decision to section numbers
BIA unless otherwise noted.
II.
BACKGROUND
Í21
On October
\7, 20t3, Mr. Elias made an assignment into bankruptcy.
BDO Canada Ltd. was appointed as Trustee
of his estate. In his Statement of
Affairs (Form 79) Mr. Elias disclosed two assets that have become contentious.
One was described as "Restricted Shares (CIBC)" and the other was an
inheritance. Subsequently, three events happened in the course of
administrating the bankrupt's estate that impact these matters.
t3]
First, respecting the restricted shares, the Trustee requested Mr. Elias's
former employer, CIBC World Markets, to liquidate the shares when Mr. Elias
became entitled to them and to remit the cash value to the Trustee. As a result,
in
December 2013, after withholding income tax, CIBC paid $28,634
to
the
Trustee for the first tranche of shares to which Mr. Elias was entitled. In
December 2OL4 the second tranche vested and net proceeds of $69,903 were
remitted to the Trustee. However, in December 2015, when the third and final
tranche of shares vested, CIBC unintentionally paid the net proceeds ($31,961)
Page: 3
to
Mr.' Elias which he then failed
to disclose to the Trustee. When the Trustee
learned this, it demanded payment from CIBC.
t4l
CIBC then looked at the matter more closely.
It
realized that the 2013
and 2014 payments should not have been remitted to the Trustee, as, under the
BIA, the proceeds constituted income rather than propefi of the
estate.
Ultimately the Trustee agreed with this analysis and agreed that the 2013 and
20L4 payments
to it were mistakenly made. Instead, subject only to a s. 68
surplus income calculation/process, Mr. Elias was entitled to the funds when they
were liquidated in 2013 and 20L4, as he was to the 2015 proceeds he received.
t5]
Second, respecting the inheritance, Mr. Elias did not cooperate with the
Trustee
- he failed to remit to the Trustee the inheritance he received, believed
to be $105,000. In so doing, he breached his obligations and duties as an
undischarged bankrupt.
t6]
Th_ird, aside
from the restricted share income and inheritance issues, as
paft of the normal administration of the estate the Trustee estimated that Mr.
Elias had surplus income of $712.50 per month which Mr. Elias agreed, and was
obligated,
to pay to the Trustee for the benefit of his creditors.
However, in
breach of his obligations and duties, he did not remit any of this surplus income
which by December 2016 added up to $26,362. To be clear, this surplus income
is separate from the restricted share income.
l7l
A few final points:
o this is Mr. Elias's second personal bankruptry;
Page: 4
.
from his assignment in October 2013 to present, Mr. Etias remains an
undischarged bankrupt;
o
I
note from the evidence embedded in the Trustee's affidavit that Mr.
Elias has significant personal hostility toward the Trustee; and
r
Mr. Elias has not provided any explanation for his conduct.
III.
ISSUES
t8]
These matters form the basis for two motions:
.
CIBC seeks
the return of the 2013 and 20L4 funds mistakenly paid to
the Trustee ($98,537). Notionally such funds would then be payable
to Mr. Elias as income; and
o the Trustee seeks a declaration that the inheritance received by Mr.
Elias is property of the estate, and an order that
it be paid forthwith to
the Trustee along with an accounting. Alternately, if it is not paid, the
Trustee seeks an order that the monies mistakenly paid by CIBC
remain with the estate, available for distribution to creditors.
t9l
At the beginning of the hearing, counsel for all parties, including for Mr.
Elias, conceded that (i) the inheritance was property of the estate; (ii) the $712
monthly surplus income was properly calculated and $26,362 was owed to the
estate from Mr. Elias; and (iii) pursuant to s. 67(1) and s. 68(2)(a) of the BIA,
the restricted shares proceeds were income and hence not property of the
estate.
Page: 5
[10]
Thus the real issue boiled down to whether the restricted share proceeds
mistakenly paid
to the Trustee should be returned to CIBC or whether through
some mechanism, such as an equitable set-off, the funds ought to remain with
the Trustee as a form of credit against the inheritance ($105,000) and surplus
income ($26,362) that Mr. Elias failed to remit the Trustee. Further, as the 2013
and 2014 funds are income, the Trustee also assefts those funds and the
December 2015 payment
to Mr. Elias are nonetheless
subject
to a surplus
income calculation which the Trustee claims in the amount of about $63,735.
Thus, the Trustee says Mr. Elias's total liability
to his estate slightly
exceeds
$195,098, almost double the amount of the mistakenly-paid funds.
IV.
POSITIONS OF THE PARTIES
[11]
At its core, CIBC argues that it would be unjust to allow the Trustee to
retain funds mistakenly paid to it, particularly as the Trustee initiated the request
for payment and it is an officer of the court. CIBC wants the wrong righted in
hopes of eliminating any potential liability to Mr. Elias for its mistake. CIBC does
not seek costs. Of note, initially CIBC assefted the funds must be forwarded on
or paid to Mr. Elias. CIBC now concedes it has no interest in what may happen
to the funds once they are returned to it and obviously would comply with any
court order directing how the funds should be handled once they receive them.
Uzl
The Trustee has empathy for CIBC's position, but more so for the
creditors who will be disadvantaged unless the funds are available for distribution
to them. It appears to the Trustee that Mr. Elias is playing a galling game in that
Page: 6
he refused to remit the inheritance, refused to pay the agreed monthly surplus
income, failed to account for the 2015 restricted share proceeds he received and
now implicitly hopes to exploit CIBC'S mistake by laying claim to the 2013 and
2014 restricted share money. As a matter of equity the Trustee says that the
court should fashion a remedy promoting the objectives of the BIA and the
integrity of this bankruptry proceeding. By necessity, the simplest and most
direct route would be to refuse CIBC's request and leave the funds with the
estate as a cash pool to compensate for Mr. Elias's misconduct.
[13]
Mr. Elias's position through his counsel is that the restricted share monies
ought to be returned to CIBC and then held until he can advance a claim for
them. While not providing any evidence, he maintains he is the victim.
V.
ANALYSIS
[4]
I start by noting that there is no elegant way to put the genie back in the
bottle. Whatever order I make, either CIBC or the creditors may be negatively
affected and, depending on the order, Mr. Elias may be further ahead in
thwarting the Trustee and the bankruptcy process thus enjoying a financial prize
at his creditors'expense. Over all, the couft must do justice consistent with the
aims and objectives of the BIA and, through equity and law, should avoid
facilitating Mr. Elias's wrongdoing.
[15] I
would have thought that counsel could have provided me with
a
relatively clear route to address CIBC's and the estate's interest. However, that
appears not
to be so. The solutions proposed are neither clear nor certain
in
Page: 7
law. I propose to approach this matter in as principled and pragmatic a manner
as possible.
Mn Elías's InherÍtance
[16]
Turning first to the inheritance issue, no serious argument has been raised
opposing the Trustee's motion against Mr. Elias
inheritance is
for a declaration that the
propefi of the estate (Koenne (Re), 2010
CarswellOnt 5388),
ONCA 524, 20L0
that Mr. Elias should rectify this default by paying
forthwith, and that he provide an accounting respecting
¡t
it. These orders will
follow.
t17l It is the aspect of the Trustee's motion that it retain the CIBC monies in
lieu of the inheritance where things get sticky.
I
thus turn to analysis of the
CIBC motion for return of the monies.
CúBCß Motion for Return of Income Mistakenlv Paid to the Trustee
[18] My analysis is premised upon a number of factual underpinnings.
t19] First, the restricted
share monies were mistakenly paid innocently,
through no ill motive or mischievous design by the Trustee or CIBC. Second,
had the 2013 and 2014 restricted stock unit monies been paid not to the Trustee
but to Mr. Elias, he would have been obligated to disclose this to the Trustee and
that income would have been subject to a surplus income claim. Third, Mr. Elias
should have disclosed receipt of the 2015 restricted share monies he received
from CIBC. That income would also have been subject to a surplus income
claim. Fourth, unrelated to the restricted share unit monies, Mr.
Elias also
Page: 8
breached his duties and obligat¡ons to the Trustee respecting the agreed surplus
income of $7L2 per month. F¡fth,
I have no doubt that Mr. Elias was fully aware
of his obligations once he entered into bankruptcy proceedings in October 2013
and has acted willfully in breaching those obligations.
[20]
As to the legal analysis, there is no dispute of the court's jurisdiction to
deal with this application (s. 183(1X0), nor of CIBC's ability
application
to bring the
(s. 37). And, the parties agree that this situation engages
interpretation and application of the rule
the
in Ex Parte James (Re: Condon
(1874),9 Ch. App.609).
l2ll
As explained in Houlden, MoraweE and Sarra's The 2076 Annotated
Bankruptcy and fnsolvency Act, (Toronto: Carswell, 2016) at p, 423, the
rule in Ex Parte James generally applies where money has been remitted to
Trustee
in bankruptcy under a mistake in law or equity.
situation, even
a
Depending on the
if a Trustee has the legal right to propefi, the court will
not
permit the exercise of that right if it would be inconsistent with natural justice to
do so, but rather may order the money be returned to the payor because the
Trustee, as an officer of the court, should do the fullest equity. "The rule is
prerogative
of mercy reposing in the
unusual hardship in which adherence
bankruptcy court
to alleviate
cases of
to strict legal or equitable rights
wot¡ld
work a manifest injustice ...." (p. 423). Further, the authors summarize at
423:
For the rule to apply, the following conditions must be met:
a
p.
Page: 9
(1)
The bankrupt estate must have been enriched or could
be
enriched at the expense of the person making the claim ....
(2)
(3)
In most
cases, the claimant must not be in
proof of claim in the bankruptcy ....
a
position to file a
To allow the trustee to retain the enrichment would be unfair and
unjust. The court will not lend assistance to or encourage the
trustee in bankruptcy in any transaction that would result in a
dishonest or unjust advantage being obtained by the bankrupt
estate that would be inconsistent with natural justice....
Here the second criterion is not in dispute, while the first and third are nuanced.
l22l
What makes this case unique from other cases where the rule in Ex
Parte James has been considered is primarily the notion that, as initially
proposed by CIBC, Mr. Elias would be entitled to the monies returned to CIBC by
the Trustee. But allowing that would benefit Mr. Elias in circumstances where he
has utterly failed
to
comply with his bankruptry obligations
to remit the
inheritance property and surplus income to the Trustee in an amount that far
exceeds the amount that CIBC claims. Further, it would effectively sideline the
Trustee's right and duty to claim surplus income from all of the restricted share
monies. Instinctively, this does not make sense. However, CIBC's position as
a
parlry requiring relief for its mistake is founded on several good grounds.
l23l
One, the relationships between the pafties are impoftant. CIBC is an
independent party with their own peculiar interests. They are not a proxy for Mr.
Elias and they are not trying
to facilitate an advantage for him. They
now
recognize that once they repossess the funds they mistakenly paid they have no
fufther interest in what happens to the funds provided they receive a court order
as to how to deal with the funds.
Page: 10
l24l Two, critically, the character of the funds or money is income - an asset
category
that Parliament considered sufficiently significant for public
policy
reasons to exclude as property available to the bankrupt estate. The Trustee is
statutorily barred from attaching income except for amounts that fall under the
surplus income scheme set out in s.
68. This is pafticularly impoftant because if
the Trustee has no legal right to the money in the first place, then, by extension,
neither should
it be able to retain such monies mistakenly
paid to
it. This is
different than applications of the rule in Ex Pafte James where the money was
not ordered returned to the person making the claim because here the Trustee
has no legal right to the mistakenly-paid funds per
se, It is simply
because he
possesses the funds that he was able to asseft a possible claim or form of set-off
for Mr. Elias's misdeeds respecting other property or under a fresh surplus
income claim for the restricted share funds. To look at it another way, but for
Mr. Elias's conduct in depriving his estate of funds due it, would the Trustee have
any legal right to the mistakenly paid funds?
I think not, and hence the rule in
Ex Parte James works against the Trustee.
l25l
Three, that having made the mistake, CIBC may be liable to pay the same
amount a second time to Mr. Elias
for
it.
if he were to initiate an action against them
Hence the estate could be enriched
at CIBC's expense for an innocent
mistake initiated by the Trustee's error in demanding the funds in the first place.
Whether Mr. Elias would advance such a claim is unknown, but absent some
restriction on his ultimate discharge he would have the legal capacity to do so
Page: 11
and hence clBc's concern is real. (wallace v,
llnited GraÍn Growerc Ltd,,
[1997] 3 S.C.R. 701.) CIBC should not be exposed to such a potential claim.
126l These
reasons are sufficient
for me to accept CIBC's position that its
mistake should be put right and corrected.
have been established
to
considering the reasons
I
I am satisfied that all three criteria
apply the rule
in Ex Parte James.
Notably,
have noted, the bankrupt estate may be enriched at
the expense of CIBC and to allow that in these circumstances would be unfair
and unjust. 'The Trusteet claims to access this pool of funds to redress Mr.
Elias's wrongdoing can be and should be analyzed apart from CIBC's valid
concerns.
127)
As such,
I will order that the 2013 and 2014 restricted share funds paid to
the Trustee be returned to CIBC, less any amount paid to tax authorities by the
Trustee respecting the
funds. Further, forthwith upon receipt of those funds
CIBC will pay them into court
to be held in court until I order otherwise. (Re
Landry (Re) (2000) s0 O.R. (3d)
I
(Ont. c.A.), [2000] o.J. No. 3249 (QL))
The Trustee's Claims to the Restric'ted Share Funds
[28]
As noted earlier, the Trustee's claim to access the restricted share funds
as a pool, to make whole Mr. Elias's wrongdoing respecting the estate,
comprised
of two categories of money to which the Trustee is entitled -
inheritance and surplus
is
the
income. Further, the surplus income should be
considered as comprising the $26,362 Mr. Elias agreed to pay by way of monthly
installments but did not, and the additional surplus income claims that arise as a
Page: 12
result of the additional restricted share income he would normally have received
in 2013 and 20L4, along with the monies he received in 2015.
l29l
Based on the numbers
I
have been provided,
it is likely that the pool of
funds available through the restricted share income will almost, if not entirely, be
exhausted if
I order the surplus income
claims to be paid from that pool. So for
example, based on the information provided to me, the Trustee will be returning
to
CIBC net funds
of
$95,5101 and claiming aggregate surplus income of
ç90,0972, plus they will be entitled to costs of the motion.
[30]
Therefore,
I
propose to deal with all of the surplus income claims before
addressing any potential setoffs for the inheritance as this issue may become
moot. And, a claim for a payment of inheritance money from a pool of income
may require a different analysis, with different considerations, than that at play
when considering a surplus income claim against a pool of income.
[31]
Before doing that analysis, however,
recalculate and attempt
I
would prefer the Trustee
to perfect the surplus income claims to ensure they are
completely accurate and up-to-date, and calculate a draft bill of costs. Further, I
would entertain two alternative scenarios respecting the surplus income related
to the restricted share income: one scenario based on calculating those surplus
income claims without considering that Mr. Elias wrongly benefitted from the
1
Funds remitted to the Trustee of $98,537 less $3027 paid by the Trustee to Canada Revenue
Agency respecting the 2014 funds
2
$90,097 beíng comprised of $26,362 surplus income Mr. Elias failed to remit and a total of
$63,735 surplus income claim calculated for the restricted share income from 2013, 2014 and
2015
Page: 13
inheritance monies, and the other with considering that he had the inheritance
monies. As well, to the extent practical, the Trustee should fulfill the process set
out in the BIA for handling of surplus income claims.
l32l
So there is no misunderstanding, without finally determining the matter at
this point, consistent with my authority at law and equity,
sense that
it
makes common
the restricted share income pool of funds should not go into
Mr.
Elias! hands but should be available to rectify his income-related defaults to the
Trustee. This should include not only the $26,326 surplus income he defaulted
in paying, but an appropriate surplus income calculation for the three tranches of
restricted share income and costs of the motion.
VI.
CONCLUSTON
[33]
The Trustee's motions for (i) a declaration that the inheritance constitutes
property of the bankrupt; (ii) that the inheritance be paid forthwith to the
Trustee; and (¡¡i) that Mr. Elias forthwith provide an accounting of those funds,
along with relevant records, particularizing all sums received and dispersed by
him relating to the inheritance, are granted along with costs from Mr. Elias.
l34l
CIBC's motion for return of the restricted share funds paid to the Trustee
is granted without costs. Forthwith upon receipt of those funds, CIBC shall pay
those funds into court. Those funds will not be released without fufther order.
[35]
The Trustee, with notice to Mr. Elias, should arrange another appointment
before me once
it
has perfected the surplus income claims.
I will then hear
fufther submissions and provide a ruling. Of course, none of this precludes the
Page: 14
Trustee and Mr. Elias reaching agreement respecting these matters, including
potentially providing a path for him to be discharged.
J