Royal Bank of Canada v. North American Life Assurance Co., [1996] 1 S.C.R. 325 (1996)

Royal Bank of Canada v. North

American Life Assurance Co., [1996] 1 S.C.R. 325

Royal Bank of Canada Appellant v.

North American Life Assurance Company and

Balvir Singh Ramgotra Respondents

Indexed as: Royal Bank of Canada v. North American Life Assurance Co.

File No.: 24316.

1995: November 8; 1996: February 22.

Present: La Forest, L'Heureux-Dubé, Sopinka, Gonthier, McLachlin, Iacobucci and Major JJ.

on appeal from the court of appeal for saskatchewan

Bankruptcy -- Settlement of funds -- RRSP transferred in good faith to RRIF (insurance annuity) for benefit of third party -- Settlements made up to five years prior to bankruptcy void against trustee in bankruptcy if interest of settlor in property did not pass on settlement -- RRIFs normally exempt from claims of bankrupt's creditors -- Bankruptcy declared within five years of transfer -- Whether transfer to RRIF a settlement -- If so, whether or not settlement void against trustee in bankruptcy -- If so, whether or not funds in RRIF available to satisfy claims of creditors notwithstanding exempt status of RRIF -- Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, ss. 67, 91 -- The Saskatchewan Insurance Act, R.S.S. 1978, c. S-26, ss. 2(kk), 158.

In June 1990, respondent Ramgotra transferred the funds from his RRSPs into a RRIF managed by respondent insurance company. His wife was designated beneficiary under the RRIF and payments began that August. Circumstances related to relocation of respondent's medical practice led him to make an assignment into bankruptcy in February 1992. On his absolute discharge from bankruptcy in January 1993, his only assets were his clothing and household contents, and the RRIF. While the RRSPs would have been subject to his creditors' claims, the RRIF constituted a life insurance annuity and was therefore exempt from their claims on the basis of s. 67(1)(b) (property divisible among creditors on bankruptcy does not include property exempt from seizure under provincial law) of the Bankruptcy and Insolvency Act (BIA), when read in conjunction with ss. 2(kk)(vii) (life insurance includes annuities) and 158(2) (life insurance money and contract is exempt from seisure where a spouse is designated beneficiary) of The Saskatchewan Insurance Act. The trustee in bankruptcy applied for a declaration that the transfer of the RRSP funds into the RRIF was void, pursuant to s. 91(2) of the BIA, which declares, in part, that "settlements" made one to five years prior to bankruptcy are void against the trustee if "the interest of the settlor in the property did not pass" upon settlement. The trustee's application was dismissed at trial because the transfer of the RRSP funds into the RRIF had been made in good faith and not for the purpose of defeating the claims of his creditors. Appellant's appeal to the Saskatchewan Court of Appeal was dismissed. The issues here were: (1) whether the transaction was a settlement within the meaning of s. 91 BIA; (2) if so, whether the settlement was void against the trustee in bankruptcy under the second branch of s. 91(2); and, (3) if so, whether the funds in the RRIF were available to satisfy the claims of the creditors despite the RRIF's exempt status under s. 67(1)(b).

Held: The appeal should be dismissed.

When respondent Ramgotra transferred the funds from his two RRSPs into an RRIF designating his wife as beneficiary, the funds became exempt from execution or seizure by reason of s. 67(1)(b) BIA, when read in conjunction with ss. 2(kk)(vii) and 158(2) of The Saskatchewan Insurance Act. Even if the beneficiary designation was a settlement within s. 91 BIA, and was void against the trustee in bankruptcy pursuant to the second branch of s. 91(2), the RRIF remained exempt from the claims of respondent Ramgotra's creditors and, in particular, the appellant.

Jurisprudential consensus has emerged that the designation of a beneficiary under a life insurance policy constitutes a s. 91 settlement. Respondent Ramgotra effected a settlement triggering s. 91.

Sections 67(1)(b) and 91 BIA are not in conflict. The two provisions can be reconciled by giving effect to their distinct terms, and by recognizing their distinct roles in bankruptcy. Section 91 dictates that certain settled property will fall back i...

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