Date: 20081121
Docket: T-290-08
Citation: 2008 FC 1306
Ottawa, Ontario, November 21,
2008
PRESENT: The Honourable Mr. Justice Mandamin
BETWEEN:
STEPHEN
ANTHONY EDELL
Plaintiff
and
HER MAJESTY THE QUEEN (Canada
Revenue Agency),
THE SUPERINTENDENT OF BANKRUPTCY
and RISMAN & ZYSMAN INC.
Defendants
REASONS FOR JUDGMENT AND JUDGMENT
[1] This
proceeding is an action commenced by the Plaintiff, Stephen Edell, against
Canada Revenue Agency (CRA), the Superintendent of Bankruptcy (the
Superintendent), and Risman & Zysman (the Trustee) for, among other things:
an order requiring the CRA to accept his proposal pursuant to the provisions of
the Bankruptcy and Insolvency Act, R.S.C. 1985 c. B-3 (the Act), a stay
of the deemed bankruptcy under s.57 of the Act, and damages.
[2] The Plaintiff
alleges that the CRA acted in a malicious manner with reckless disregard for
commercial reasonableness, for the recommendation of the Trustee, and for its
duties as a public agency. He alleges that he has incurred damages and will
continue to incur damages due to the unlawful conduct of the CRA.
[3] The Plaintiff
also named the Superintendent and Trustee as Defendants for the stated purpose
of providing them with notice of the proceedings and ensuring they would be
bound by orders of the Court.
[4] The CRA and
the Superintendent filed motions on June 2 and 3, 2008, respectively, to strike
the Plaintiff’s Statement of Claim because it does not disclose a reasonable cause of
action.
[5] The Plaintiff
also filed a motion on June 20, 2008 seeking an interim stay of the deemed
assignment into bankruptcy pending final determination of this action on its
merits and also seeking Court directions concerning his payment obligations during
the course of the action.
Issue
[6] The main
issues to be determined in the three motions are:
a. Is it plain
and obvious that the Plaintiff’s Claim discloses no reasonable cause of action?
b. Should a stay
of the deemed assignment provision section 57 of the Act be issued by this
Court.
Background
[7] The Plaintiff is indebted
to the CRA for outstanding income taxes (inclusive of interests and penalties)
and Goods and Services taxes. On
January 24, 2008, the Plaintiff made a formal proposal (the Proposal) pursuant
to section 50 of the
Act listing. CRA was his sole creditor.
[8] The Plaintiff proposed to
settle the debt he owed to the CRA for a payment of $75,000.00 over four years;
a sum that was less that his total indebtedness to the CRA. In making the
Proposal, the Plaintiff had the assistance of the Trustee, who recommended that
the CRA accept the Proposal.
[9] The meeting of creditors
stipulated by the Act was scheduled for February 20, 2008. The CRA
delivered its Proofs of Claim and its Voting Letter setting out its vote
against the Proposal on February 18, 2008. As a result of the vote against by
the CRA, the Proposal failed.
[10]
By
operation of section 57(a) of the Act, the Plaintiff was deemed to have
made an assignment in bankruptcy. The section states:
57.
Where the creditors
refuse a proposal in respect of an insolvent person,
(a)
the insolvent person is deemed to have thereupon made an assignment;
Submissions
[11]
The
Plaintiff alleges that the failure of the CRA to accept his Proposal was
unlawful, contrary to its duties as a public official, and a violation of public
policy. He submits that the CRA is required to conduct its affairs and exercise its
discretion in a commercially reasonable manner, in good faith and in the public
interest. He submits
that the CRA owes a higher and more objective standard of care than other
creditors because it must act in the public interest.
[12]
The
Defendant Superintendent submits that the Act is a complete code for dealing
with bankruptcy and insolvency matters, and that the Superintendent is
responsible for supervising the administration of all estates and matters the
Act applies to.
[13]
The
Defendant Superintendent notes that under section 183(a) of the Act the Ontario
Superior Court of Justice has jurisdiction at law and in equity to exercise
original, auxiliary and ancillary jurisdiction in bankruptcy and in other
proceedings in this province. Accordingly, it argues that the Federal Court
does not have jurisdiction to hear this case because the jurisdiction lies
exclusively with the Ontario Superior Court of Justice.
[14]
Furthermore,
the Defendant Superintendent submits that pursuant to section 71 of the Act,
once an assignment in bankruptcy has been filed, the bankrupt ceases to have
any capacity to dispose of or deal with their property. Pursuant to section
181 of the Act, if the debtor does not believe that the assignment into
bankruptcy ought to be filed they can apply to the court with jurisdiction to
have the bankruptcy annulled.
[15]
There
is no authority under the Act to stay the deemed assignment into
bankruptcy. Rather, the bankrupt can apply to have the bankruptcy annulled, or
bring its concerns to the official receiver for adjudication. The Defendant Superintendent
argues that the bankrupt no longer has any right to bring an action in damages.
[16]
Finally,
the Defendant Superintendent argues that the Plaintiff must first seek leave
from the Ontario Superior Court of Justice to bring an action against the
Superintendent and the Trustee as required by section 215 of the Act.
[17]
The
Defendant CRA submits that there is no stay available to the Plaintiff against
the operation of statute, that there is no cause of action in tort or
negligence, and there are no damages that were suffered by the Plaintiff.
Furthermore, the Defendant CRA submits that the only way to challenge the Defendant
CRA’s decision is by judicial review, which the Plaintiff chose not to do.
[18]
The
Defendant CRA submits that there is no provision in the Act to stay the effect
of section 57 and that, while the Federal Courts Act, R.S., 1985, c. F-7 permits this
Court to stay proceedings, it contains no provision authorizing it to stay the
effect of statutory provisions. Even the Ontario Superior Court of Justice,
which has exclusive jurisdiction in bankruptcy matters, cannot exercise that
jurisdiction if it conflicts with the provisions of the Act.
[19]
The
Defendant CRA submits that it has done nothing unlawful in voting down the
Proposal. Rather, it carried out its duties in accordance with the Act. The
CRA filed its Proofs of Claim and voted on the Proposal using the Voting Letter
as it was permitted to do under the Act. The Act does not require:
creditors to attend the meeting; to enter into negotiations; or to accept the
Trustee’s recommendation. Therefore, the Defendant CRA submits that it cannot
be liable for any damages suffered by the Plaintiff under the tort of public
misfeasance.
[20]
The
Defendant CRA submits that it did not act negligently in declining the
Plaintiff’s Proposal. For the CRA to have a duty of care to the Plaintiff
giving rise to negligence there would have to be a sufficiently close
relationship between the parties, and no public policy reason to limit or
negate the duty owed to him. The Defendant CRA submits that there is no duty
of care owed to an individual proponent who seeks to compromise his tax debt to
the CRA.
[21]
Furthermore,
if the Court was to find a proximate relationship and a duty of care owed to
the debtor by the creditor, the Defendant CRA submits that it would run
contrary to the scheme for proposals set out in the Act by adding a duty of care
that was not mandated by Parliament when it enacted the proposal provisions.
[22]
The
Plaintiff acknowledges that according to the Act once a creditor rejects a
proposal the debtor is deemed assignment into bankruptcy. Accordingly, the
Plaintiff has sought an order that this deemed assignment be stayed until this action
is determined. The Plaintiff claims that an assignment into bankruptcy would
be prejudicial to both the interests of the Plaintiff and the public.
Analysis
Motion to Strike by the
Defendant Superintendent
[23]
Rule
221(1) of the Federal Court Rules, SOR/98-106 (the Rules) is
situated in Part 4 which governs actions. It states:
221. (1) On motion, the Court may, at
any time, order that a pleading, or anything contained therein, be struck out,
with or without leave to amend, on the ground that it
(a) discloses no reasonable cause of
action or defence, as the case may be,
. . .
(f)
is
otherwise an abuse of the process of the Court,
and
may order the action be dismissed or judgment entered accordingly.
[24]
Under
Rule 2 pleading “means a document in a proceeding in which a claim is
initiated, defined, defended or answered.” Accordingly, a Statement of Claim may be
struck when it discloses no reasonable cause of action or when it is an abuse
of process.
[25]
In
Odhavji Estate v. Woodhouse, 2003 SCC 69, Justice Iacobucci stated at
paragraph 15, that the test for striking out a claim was: the facts are taken
as pleaded, then, it must be determined whether it is “plain and obvious” that
the action must fail. He stated: “It is only if the statement of claim is
certain to fail because it contains a “radical defect” that the plaintiff
should be driven from the judgment.”
[26]
A
statement of claim that pleads a cause of action that is beyond the court’s
jurisdiction is an abuse of its process. Weider v. Beco Industries Ltd.,
[1976] 2 F.C. 739, at paragraph 4.
[27]
The
Federal Court is a statutory court without inherent jurisdiction. Its
jurisdiction is derived from either the Federal Courts Act or another
federal statute. Section 17(1) of the Federal Courts Act provides that
the Federal Court has concurrent original jurisdiction in all cases where
relief is claimed against the Crown. However, section 17(6) limits that
jurisdiction. It reads:
17(6) If an Act of Parliament confers
jurisdiction in respect of a matter on a court constituted or established by or
under a law of a province, the Federal Court has no jurisdiction to
entertain any proceeding in respect of the same matter unless the Act expressly
confers the jurisdiction on that court. (underlining added)
The general provisions of the Federal
Courts Act cannot confer jurisdiction where the federal legislation confers
jurisdiction on a provincial court unless expressly empowered under that
particular legislation.
[28]
The
Bankruptcy and Insolvency Act is a federal statute enacted by Parliament
as a complete code for bankruptcy and insolvency matters: Kalau v. Dahl,
[1985] A.J.
No. 572, at paragraph 9. Section 183(a) of the Act confers
jurisdiction in bankruptcy matters to the Ontario Superior Court of Justice.
That section states:
183(1) The
following courts are invested with such jurisdiction at law and
in equity as will enable them to exercise original, auxiliary and ancillary
jurisdiction in bankruptcy and in other proceedings authorized by this Act
during their respective terms, as they are now, or may be hereafter, held, and
in vacation and in chambers (underlining added):
(a) in the Province of Ontario, the Superior Court of Justice;
[29]
The
sole jurisdictional exception carved out for the Federal Court is that of
judicial review of a decision of the Superintendent made in respect of a disciplinary
hearing into the conduct of a trustee. Section 14.02 (5) states:
A decision of the Superintendent given pursuant to subsection
(4) is deemed to be a decision of a federal board, commission or other tribunal
that may be reviewed and set aside pursuant to the Federal Courts Act.
(underlining added)
[30]
I
conclude that the legislation is clear that the Federal Court is without
jurisdiction to consider the Plaintiff’s request for orders concerning the Act
provisions because that jurisdiction rests with the Ontario Superior Court of
Justice.
[31]
There
are other difficulties with the Plaintiff’s action in respect of the bankruptcy
aspect of his claim.
[32]
The
Plaintiff names the Superintendent and the Trustee so that they will have
notice of these proceedings and in order that they will be bound by a decision
of this Court. However, section 215 of the Act explicitly provides that no action
lies against the Superintendent or the trustee without leave of the court that
has jurisdiction in bankruptcy matters: the Ontario Superior Court of Justice.
[33]
The
Act, being a complete code dealing with bankruptcy and insolvency, has
provisions addressing the very issues the Plaintiff is raising in this action.
A court may not rely on its inherent power to make an order negating the
unambiguous expression of Parliament’s will in a legislative enactment. Baxter
Student Housing Ltd. V. College Housing Co-operative Ltd., [1976] 2 S.C.R. 475, at page 243. The Plaintiff must look to the
Act to resolve his issues.
[34]
The
Act provides for two alternative routes for seeking relief:
(a)
if a party
had concerns regarding the propriety of a vote cast by a creditor that results
in a deemed assignment, the party may bring the concerns to the official
receiver for adjudication as per section 51(3) of the Act; or
(b)
if the
party believes the assignment into bankruptcy should not have been made, they
can apply to the Ontario Superior Court of Justice, for an annulment of the
bankruptcy under section 181(1) of the Act.
[35]
The
Plaintiff has not followed either course of action available to him. By not
doing so, I find the Plaintiff has not availed himself of the remedies under the
Act.
Motion to Strike by the
Defendant CRA
[36]
The
Plaintiff alleges that the CRA’s failure to accept his Proposal or to negotiate
in good faith to amend the terms of the Proposal is unlawful, and contrary to
the terms of its duties as a public official and a violation of public policy.
The formulation suggests an allegation in the tort of public misfeasance, also
known as “abuse of public office”. The Plaintiff must then show that the CRA:
engaged in deliberate and unlawful conduct; knew that its actions were unlawful;
and knew that the actions would likely harm the Plaintiff. Odhavji
at paragraph 23.
[37]
The
Plaintiff has not identified any unlawful or deliberate conduct of the CRA
other than the rejection of the recommended Proposal without explanation. The Act
provides the procedure by which a creditor may respond to or reject a proposal;
the CRA followed this procedure. The Act does not require the CRA to provide
an explanation for its decision. Without more, the action by the CRA was
lawful when considered in the context of the Act.
[38]
The
Plaintiff also resorted to the language that arises in the tort of negligence.
For negligence, he must show that the CRA: owed him a duty of care; breached
the standard of care by its actions; foresaw the harm its actions would lead to;
and caused the Plaintiff to suffer injury or damages.
[39]
Under
the Act, the CRA stands in the same position as any creditor. It is entitled
to evaluate the Proposal as any debtor would. It is not under any legal duty
to accept less than the debt that it is owed. If anything, the CRA has an
obligation to the Government of Canada to collect on income tax and goods and
services taxes owed to the government. The CRA, as a debtor, does not owe a duty
to the Plaintiff.
[40]
The
Plaintiff contends that in voting against his Proposal, the CRA acted “in a
high-handed, arbitrary and capricious manner … in a reckless disregard for the
interests of reasonableness and the lawful exercise of its discretion”. In
his submissions he states:
“It is also well-established law that a
public authority exercising a judicial or quasi-judicial or decision-making
power has a mandatory obligation to furnish the interested person with written
reasons for its decision.”
[41]
It
is clear the Plaintiff is focussed on the CRA’s decision as the source of the harm
that he alleges. The Plaintiff’s choice of proceeding prompts me to consider
the Federal Court of Appeal decision in Grenier v. Canada, 2005 FCA 348.
[42]
In
Grenier, Justice Létourneau, at paragraph 20, held that a litigant who
disputes a federal agency’s decision was not free to choose between an action
and judicial review. A decision made by a federal agency retains its legal
force and authority and is judicially operative as long as it has not been
invalidated. The Federal Court of Appeal decided that it was necessary that a
decision of a federal agency be first attacked by way of judicial review before
bringing an action in damages.
[43]
The
Plaintiff has brought an action in damages by which he seeks to challenge the
decision of the CRA not to accept his Proposal in the bankruptcy proceeding.
He has chosen an impermissible course of action. However, I express no opinion
whether a decision by the CRA in relation to a proposal under the Act may be
challenged by way of judicial review instead of by the processes provided for
in the legislation.
Motion for an Interim
Stay by the Plaintiff
[44]
The
Plaintiff seeks a stay of section 57(a) of the Act deeming the Plaintiff into
bankruptcy. The Plaintiff does not identify any factual basis, statutory
provision or legal authority for a court to stay the operation of section 57(a)
of the Act.
[45]
It
has been decided that the Act does not give authority for a court to stay the
operation of a receiving order or an assignment on either an interim or
permanent basis. Kalau at paragraph 11. In my view, the same is true
for deemed assignments into bankruptcy pursuant to section 57(a) of the Act.
Conclusion
[46]
I
find that it is plain and obvious that the Statement of Claim discloses no
reasonable cause of action for the following reasons:
(a) the Federal
Court does not have jurisdiction to deal with this action pursuant to section
183(1) of the Act;
(b) the Plaintiff
did not obtain leave of the Superior Court of Ontario to bring the action against
the Superintendent and the Trustee;
(c) the Plaintiff
did not follow the procedure set out by Parliament in the Act to deal with his
dispute arising out of the rejection of his Proposal by the CRA;
(d) the Plaintiff
failed to allege material facts that would sustain his claim for damages in
tort;
(e) the
Plaintiff did not proceed in the manner mandated by the Federal Court of Appeal
in Grenier, namely, first conducting an application for judicial review
before commencing an action for damages.
[47]
Therefore,
I conclude that the Statement of Claim must be struck. I further conclude that
the Plaintiff’s application for an interim stay of section 57(a) is also to be dismissed.
Costs
[48]
Since
all three motions were heard at one hearing and the issues overlapped, the order
for costs will be awarded in respect of a single motion.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that:
1.
The
Statement of Claim is struck out.
2.
The
Plaintiff’s application for a stay of the operation of section 57(a) of the Bankruptcy
and Insolvency Act is dismissed.
3.
The
Defendants Superintendent and the Defendant CRA are
awarded costs in their respective motions.
“Leonard
S. Mandamin”
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