In what circumstances will costs be awarded against a trustee personally?
The Trustee commenced an action against the Bankrupt, his brother Paul and others, claiming that conveyances of certain properties by the Bankrupt prior to the assignment in bankruptcy should be set aside pursuant to s. 91 of the Bankruptcy and Insolvency Act as fraudulent conveyances. In December 2004, the Trustee registered certificates of pending litigation against the property at issue, 89 Main.
89 Main was originally purchased by the Bankrupt and DJ, his then-common law spouse, in April 1999. The Bankrupt subsequently transferred his interest to DJ in December 1999 for no consideration. Following two additional conveyances, interest in 89 Main became wholly held by Paul. On March 12, 2007, Paul obtained an Order discharging the CPL on 89 Main and awarding costs of $2,500 against the Trustee (the “Lax Order”). No one appeared for the Trustee. The Trustee paid the costs ordered on June 18, 2007 and subsequently discontinued the Action against Paul on October 31, 2007.
Nothing else happened in the Action until April 8, 2013, when the Trustee brought a motion seeking directions and an order from the court permitting the Trustee to continue the Action. In its report, the Trustee explained that the delay in proceeding with the Action was due to lack of Estate funds and the departure of the lawyer acting for the Trustee.
The Court declined to schedule the motion and directed the parties to attend a case conference to review their respective positions. The Court noted that the inspector from CRA—the Bankrupt’s largest creditor—had resigned. The second largest creditor, the Bankrupt’s former common law spouse, was involved in family law proceedings with the Bankrupt and the Trustee had intervened. The two remaining unsecured creditors had claims totalling approximately $10,000.00.
In the family law proceedings, the Bankrupt’s former common law spouse, supported by the Trustee, requested that the Court void the transactions involving the Bankrupt and Paul and order that the property be vacated and sold. The Court dismissed the fraudulent conveyance claim, and a subsequent appeal to the Court of Appeal was not successful.
On this motion, the Trustee sought authorization to continue with the Action. In order to be able to continue the Action, the Trustee sought to set aside the Lax Order and the October 31, 2007 Notice of Discontinuance of the Action in favour of Paul. The Trustee claimed that Paul had not properly served his motion materials for the Lax motion. The Court rejected that argument, holding that the Trustee did not meet the requirements of rule 37.14, which provides that a motion to set aside an order made without notice must be brought forthwith after the order comes to the person’s attention. The Lax Order obviously came to the Trustee’s attention sometime prior to June 18, 2007, when it paid the costs ordered by the Court. Commencing the motion to set it aside some 14 years after was the antithesis of “forthwith”. Accordingly, the Trustee’s requests for orders setting aside the Lax Order and the October 31, 2007 Notice of Discontinuance were denied, and the Trustee was barred from continuing the Action.
Both the Bankrupt and Paul sought costs against the Trustee personally. A trustee in bankruptcy may be liable for costs personally in respect of litigation in circumstances where it had no statutory duty to pursue the litigation, took an adversarial, non-neutral position, and knew or ought to have known that there would likely be insufficient assets in the estate to satisfy an award of costs in the event the trustee was unsuccessful in the litigation.
Those circumstances were all present here. The Trustee had no authority from the sole inspector to bring the motion, as the latter had resigned in 2013. The Estate had no money and the Trustee and its counsel were owed money in respect of their services. That situation had not changed when the Trustee brought its motion. The Trustee clearly knew when it brought the motion that there were no assets in the Estate to satisfy any cost award. Finally, the position of the Trustee on the motion was clearly not neutral. It was very much adversarial.
The Court ultimately ruled that the Bankrupt and Paul were each entitled to their costs of the motion on a partial indemnity basis against both the Estate and the Trustee personally, jointly and severally. The Court fixed the partial indemnity costs of the motion payable jointly and severally by the Estate and the Trustee for the Bankrupt at $15,000 and for Paul at $18,000.
Counsel: Heath P.L. Whiteley for the Applicant; Abba Chima for the Respondent Sewsankar Bishnu; Jameel Madhany for the Respondent Suruipaul Bishnu
Judge: Pattillo J.