Crowe Mackay & Company Ltd. v. 0731431 B.C. Ltd., 2022 BCCA 158

May 11, 2022

Can a law firm appeal an order requiring the repayment of professional fees in a bankruptcy?

In three related bankruptcy proceedings and two related civil actions, the Trustee and its counsel (the “Law Firm”) filed notices of appeal from orders of the trial judge requiring them to repay substantial amounts of professional fees paid to them in accordance with previous court orders. The notices purported to have been filed by the Trustee and its counsel, although the Law Firm was not a “party”. No notice of appeal was filed by the Law Firm on its own behalf. The successful plaintiffs below sought to have the notices of appeal declared nullities.

The trial judge below had found that the Trustee and the Law Firm had used funds that were held in trust for third parties to pay to pay the Trustee’s and the Law Firm’s accounts. His Honour concluded that there was no order authorizing the Trustee to use funds which had been found to be beneficially owned by non-bankrupts to pay its general administrative expenses related to the bankruptcies.

Following the Trustee’s deductions, the amount that remained in the trust account was $790,485, compared to the proportionate share beneficially owned by the third parties of $2,675,046. The trial judge remarked that unless the Court intervened, the only entities who would benefit from the bankrupt estates were the Trustee and its counsel. While the trial judge noted that “strictly speaking”, the Law Firm was not before the Court, he added that “the practical effect of the orders sought may well be to require the Trustee to restore funds that have been used to pay [the Law Firm’s] legal bills.”

On appeal, the Law Firm acknowledged that the fact the Trustee’s notice of appeal had referred as well to the Law Firm as an appellant did not mean it was an appellant. Further, the ability of a person to be added as an appellant on an appeal is restricted and it is generally not open to a judge in chambers to so order. Accordingly, the Law Firm’s notice of motion sought only that it be added as a respondent under Rule 2(2) of the Court of Appeal Rules as a person who “could be affected” by the orders sought.

The Court noted that no procedural rules of the Bankruptcy and Insolvency Act applied. Section 3 of the Bankruptcy and Insolvency General Rules states that “[i]n cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdictions, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules.” Section 183(2) of the BIA also confirms the jurisdiction of courts of appeal of Canada to hear and determine appeals from the courts vested with original jurisdiction under the BIA.

Accordingly, the Court of Appeal Act and Rules were applicable to all five proceedings. The Law Firm sought to be added as a respondent on the appeals on the basis that it “could be affected” by the orders requested by the appellants under Rule 2(2). The trial judge’s orders affected the Law Firm not only financially but reputationally, and the orders sought on the appeals were likely to do so as well.

The Court granted the Law Firm’s application to be added as a respondent in the five proceedings and extend the time for the filing of its notices of motion notwithstanding its failure to meet the deadline in R. 33(1)(d). The Court also held that the reference to the Law Firm as an appellant in the Trustee’s notices of appeal was of no force or effect and should hereafter be taken as struck out.

Judge: The Honourable Madam Justice Newbury

Counsel: John Sullivan and Erin Hatch of Harper Grey LLP for the Appellant/Respondent on Cross Appeal, Crowe MacKay & Company Ltd. in its capacity as Trustee in Bankruptcy; G.A. Phillips for the Respondents/Appellants on Cross Appeal, Daljit Singh Garcha and Jaswinder Kaur Garcha; David J. Taylor and Krystle M. Wilkinson of Taylor Nakai Litigation LLP for the Respondents, 0731431 B.C. Ltd., Daljit Singh Mattu, Grewal Management Ltd. and Jasprit Singh Grewal; Michael A. Feder, Q.C. and Kate Macdonald of McCarthy Tétrault LLP for the Law Firm

By Matilda Lici