George Ernest Sillito (Bankruptcy Trustee) v. Her Majesty the Queen, [1994] 1 CTC 148

Agrios, J.:—The Minister of National Revenue (the ''Minister") appealed a conditional discharge order granted by the registrar in bankruptcy on February 3, 1993. This order provided for the discharge of the bankrupt, George Ernest Sillito on payment of $200 a month for 18 months or earlier in the event of the payment of the total sum of $3,600.

This Court allowed the appeal on March 2, 1993 granting a conditional discharge of the bankrupt upon payment of $500 a month for three years (or $18,000), subject to certain additional conditions.

This is one of the first appeals pursuant to paragraph 129(4) from a discharge order made by a registrar under paragraph 192(1 )(c) of the recently amended Bankruptcy and Insolvency Act. Paragraph 192(1 )(c) gives the registrar jurisdiction to hear opposed applications for the discharge of a bankrupt. The Minister has requested written reasons for future guidance, which I hereby provide.

Facts

The bankrupt, George Ernest Sillito ("Sillito") is a lawyer practising in northern Alberta. The report of the trustee lists $101,849 owed to secured creditors, $222,218 owed to preferred creditors and $29,542 owed to unsecured creditors. I am advised that the bankrupt made no remittance to Revenue Canada from 1987 to 1991 and at the time of this application owed in excess of $280,000 in back income tax. (I have assumed that interest since the date of the application makes up the difference in the Revenue Canada claim.)

The details of Mr. Sillito’s circumstances are set out in his four-page affidavit and were amplified in a very thorough presentation by his counsel. In summary, he is 44 years old, married and has seven children, six of whom still live with him. He graduated from the University of Alberta Law School in 1976 and confines his practice largely to criminal law, principally for clients in northern Alberta supported by Legal Aid. In the mid-1980s, he handled serious criminal cases causing him to travel extensively throughout northern Alberta and experience considerable stress. As a result he had problems with alcohol abuse which continued until he joined Alcoholics Anonymous in 1988. Since then he has not consumed alcohol. He has also undergone treatment for chronic depression. In recent years he has restricted his practice to less serious criminal cases and has therefore experienced a decrease in revenue. His approximate revenues from practising law from 1987 to 1991 were as follows: 1987—$63,588; 1988—$107,300; 1989— $148,800; 1990—$94,600; 1991—$81,200. After losing an income tax appeal and having difficulty meeting his obligations, he made an assignment in bankruptcy on October 28, 1991.

His counsel indicates that since his bankruptcy Mr. Sillito has lost virtually everything. He has been wiped out. His home was foreclosed and he must now rent a house for $1,500 a month. He owns no real property and his wife's assets and other personal belongings are worth less than $10,000. He has made no provision for his retirement. The materials before me also include a report from his psychologist, particulars of the foreclosure action on his home and a statement of monthly income and expenses. Counsel for the Minister noted that the monthly food costs fluctuate from $1,230 to approximately $1,600. It is noteworthy that 95 per cent of Mr. Sillito’s income is from Legal Aid (which recently has been in a crisis and may be undergoing changes which will affect Mr. Sillito’s income).

Grounds of appeal

The Minister submitted that the registrar erred in law and improperly exercised his discretion in granting the conditional discharge with the terms he imposed. The Minister submits that:

1. the total sum of $3,600 is, given the circumstances, inordinately low;

2. the trustee had recommended a significantly higher sum, namely $18,000 and the registrar failed to give sufficient weight to this recommendation;

3. the superintendent's guidelines regarding excess income earned by the bankrupt during the bankruptcy support higher monthly payments and once again the registrar failed to give appropriate consideration to these guidelines.

It is clear law that an appellate court ought not to disturb a judgment rendered in the exercise of judicial discretion "unless the learned judge, in arriving at his conclusion, has omitted the consideration of or misconstrued some fact or violated some principle of law”: Industrial Acceptance Corp. Ltd. v. Lalonde, [1952] 2 S.C.R. 109, [1952] 3 D.L.R. 348, at page 120 (D.L.R. 356), per Estey, J. of the Supreme Court of Canada quoted and applied by Smith, C.J.A. of the Alberta Supreme Court, Appellate Division in Links v. Robinson, [1971] 5 W.W.R. 531, 16 C.B.R. (N.S.) 180, also applied by the British Columbia Court of Appeal in Re Gillanders (1987), 66 C.B.R. (N.S.) 283 and Re Powell (1990), 78 C.B.R. (N.S.) 76.

The Minister pleaded that the registrar had erred in law. I make no finding in this regard one way or the other. Rather, this appeal turns on whether the registrar properly dealt with the evidence. Although the Minister did not expressly plead that the registrar had omitted the consideration of evidence or misconstrued some evidence, I am of the view, having regard to the issues raised by counsel for the Minister during oral argument, that this ground for appeal was implicit in his submissions.

In particular, the Minister placed great importance on the disparity between the conditions of discharge suggested by the trustee and those imposed by the registrar. I am of the view that the amount of the disparity between $18,000 and $3,600, calls into doubt whether the registrar properly considered the evidence upon which the trustee based his recommendation. In determining the appropriate amount to be paid as a condition for discharge the registrar must consider inter alia the realistic income of the bankrupt along with his reasonable needs. This information is available from the trustee’s report and would certainly have been addressed by the trustee in arriving at his recommendation.

Of additional use in evaluating this information are the guidelines established by the Superintendent. Although not having the force of statute (Westmore v. McAfee, [1988] 3 W.W.R. 593, 49 D.L.R. (4th) 401 (B.C.C.A.)), these guidelines provide a useful measure of what would be appropriate for the necessaries required to support the bankrupt and his family. A significant deviation from these guidelines, as seems to be the case here, calls into doubt again whether the registrar properly addressed the evidence before him.

I do not suggest that either the recommendations of the trustee or the guidelines of the superintendent ought to fetter the discretion of the registrar; rather, in the matter before me the inordinate disparity between the trustee's recommendation and the superintendent's guidelines on the one hand and the registrar's order on the other persuades me in the absence of reasons from the registrar, that the registrar may not have fully appreciated the nature of the evidence before him.

Given this finding, it is open to me to substitute my discretion for that of the registrar: Re Barrick (1980), 36 C.B.R. (N.S.) 286 (B.C.C.A.); Industrial Acceptance Corp. v. Lalonde, supra.

An overriding principle motivates our system of bankruptcy administration: to have due regard to the interests of the bankrupt and his creditors while protecting the interests of the public. Estey, J. recognized this is his much-quoted statement in Industrial Acceptance Corp. v. Lalonde, supra, at page 120 (D.L.R. 356):

The purpose and object of the Bankruptcy Act is to equitably distribute the assets of the debtor and to permit of his rehabilitation as a citizen, unfettered by past debts.

To aid me in implementing this principle, counsel for the Minister offered Re Scott (1987), 65 C.B.R. (N.S.) 306 and Re Chow (1989), 75 Sask. R. 197, 73 C.B.R. (N.S.) 225, the first being a decision of the Ontario Supreme Court in Bankruptcy and the latter the Saskatchewan Court of Queen's Bench in Bankruptcy. Both cases involved the discharge of bankrupt professionals with circumstances similar to that of Mr. Sillito. Of particular significance is the following passage from Re Johnson (1987), 62 C.B.R. (N.S.) 108 (Ont. S.C.) quoted by Barclay, J. in Re Chow at pages 229-30 (Sask. R. 200-01):

The remarkable feature of this particular application is the failure by the bankrupt to pay any significant amount towards income tax for the years 1983 and 1984 notwithstanding the substantial income earned in those years. While it is proper to arrange one's affairs to attract the minimum amount of tax, once tax has been assessed it is the duty of all Canadian taxpayers to pay the tax imposed. While family responsibilities are, of course, important, there is, apart from emergency medical expenses, no debt more important than the payment of taxes by persons enjoying a good income. If a taxpayer does not pay his fair share, the burden arising from that failure falls on the other members of the community. Most Canadians have their tax collected at source or pay what is owing when they file their return. They must provide for their personal expenses and savings from what is left over. . . .

It seems to me that, if he has the financial ability to do so, he should now make some substantial payment as a condition of his discharge in order to preserve the integrity of the bankruptcy system.

I agree with the propositions expressed above. From the evidence I find that Mr. Sillito is not in a position to make a substantial payment as a condition of his discharge. I am, however, mindful of his current circumstances including, as suggested by the Minister, that his two eldest children (ages 20 and 19 and earning $11,800 and $15,500) are able to assist in their share of the expenses. Having regard to all of the circumstances I am of the view that the appropriate sum is not $3,600 as ordered by the registrar but $18,000 as recommended by the trustee. Accordingly, based on the authorities submitted to me dealing with professional people who have failed to make provision for income tax and the conditional discharge as granted in those cases, I have granted the appeal.

I have made a further condition, however. Recognizing that there are some uncertainties facing the Legal Aid program and Mr. Sillito’s dependence on it, I have provided that should Mr. Sillito’s income be affected by these changes, that he may reapply to have the conditions of his discharge reviewed.

Appeal allowed.