Down (Bankrupt) et al., Re, [2000] B.C.T.C. 855 (SC)

• Jurisdiction: British Columbia
• Judge: Brenner
• Neutral Citation: 2000 BCSC 1148
• Subject Matter: ACTIONS,BANKRUPTCY
• Citation: [2000] B.C.T.C. 855 (SC),2000 BCSC 1148
• Date: 28 July 2000
• Court: Supreme Court of British Columbia (Canada)

Down (Bankrupt), Re, [2000] B.C.T.C. 855 (SC)

MLB headnote and full text

Temp. Cite: [2000] B.C.T.C. TBEd. AU.082

In the Matter Of the Bankruptcies of James Blair Down, Trevor Graham Street and Fraser Barkley Barnes including those names listed in Schedule "A" All of the City of Vancouver, in the Province of British Columbia;

And In the Matter Of Section 46 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended.

(188266/7/8VA98; 2000 BCSC 1148)

Indexed As: Down (Bankrupt) et al., Re

British Columbia Supreme Court

Vancouver

Brenner, C.J.S.C.

July 28, 2000.

Summary:

The Interclaim group of companies was in the business of acquiring and enforcing complex, multi-jurisdictional judgments, claims and debts. Down et al. were allegedly involved in a mass-marketing business which sold foreign-issued government lottery tickets. Many persons allegedly suffered financial losses as a result of the operations of this business. Interclaim entered into written agreements with the lottery ticket purchasers, acquiring the right to use the purchasers' names in a bankruptcy proceeding against Down et al. in consideration of a share in the profits. Interclaim, in its own name and on behalf of 15 lottery ticket purchasers (as co-petitioners) petitioned for a receiving order in bankruptcy against Down et al. Interclaim obtained an ex parte order appointing an interim receiver, who was, inter alia, to gather in and take possession of the assets of Down et al. Down et al. applied to set aside the interim order.

The British Columbia Supreme Court, in Bankruptcy, in a decision reported in 16 B.C.T.C. 354, allowed the application of Down et al. and dismissed Interclaim's petition in its entirety on the ground that Interclaim's arrangement violated the rule against champerty and maintenance. Interclaim applied for a declaration or direction that leave was not required to appeal the dismissal. Interclaim also sought an order confirming that pending their intended appeal, an automatic stay of proceedings was in place pursuant to s. 195 of the Bankruptcy and Insolvency Act or, alternatively, an order granting a stay under s. 18 of the Court of Appeal Act.

The British Columbia Court of Appeal, per Newbury, J.A., in a decision reported in 129 B.C.A.C. 132; 210 W.A.C. 132, granted the application, stayed the proceedings and directed that the status quo existing immediately before the dismissal be restored, without prejudice.

The British Columbia Supreme Court, in the following decision, ruled on the balance of the remaining grounds for dismissal of the interim order. The court held that Interclaim was not using the Bankruptcy and Insolvency Act for an improper purpose. Interclaim's conduct did not contravene s. 202(1)(f) of that Act and, even assuming a breach, the court could not attach civil consequences to that contravention by setting aside the order. The common law doctrine "ex turpi causa non oritur actio" could not be used in bankruptcy proceedings to import such a consequence. The court held that Interclaim did not establish a prima facie case that a receiving order would issue against Down et al. once the petition was heard, and that an interim receiving order was required to protect the estate for all creditors from a real danger of dissipation of assets. The claims of Interclaim were "contingent claims" rather than "debts", even under U.S. law. The unpaid accounts assigned to Interclaim were not the trade debts of Down et al., but rather of companies he controlled. Interclaim failed to establish that Down et al. committed any acts of bankruptcy within the six months next preceeding the filing of the petition. Down et al. could not satisfy the court that he was able to pay his debts pursuant to s. 43(7) of the Act. Lastly, Interclaim could only prove that there was a real danger of asset dissipation under s. 46(1) of the Act. In the result, the Supreme Court granted the application to set aside the interim receiving order.

Actions - Topic 1704

Cause of action - Bars - Ex turpi causa non oritur actio - See paragraphs 48 to 52.

Bankruptcy - Topic 705

Acts of bankruptcy - What constitutes - See paragraphs 119 to 138.

Bankruptcy - Topic 742

Acts of bankruptcy - Ceasing to meet liabilities - What constitutes - See paragraphs 131 to 138.

Bankruptcy - Topic 781

Acts of bankruptcy - Execution unsatisfied - General - See paragraphs 123 to 128.

Bankruptcy - Topic 1721

Interim receiver - Appointment - Grounds - See paragraphs 53 to 56.

Bankruptcy - Topic 1730

Interim receiver - Appointment - Setting aside - Grounds - See paragraphs 13 to 52, 59 to 159.

Cases Noticed:

Fredrickson v. Insurance Corp. of British Columbia (1986), 28 D.L.R.(4th) 414 (B.C.C.A.), affd. [1988] 1 S.C.R. 1089; 86 N.R. 48, refd to. [para. 1].

Interclaim Holdings Ltd. et al. v. Down et al. (1999), 250 A.R. 94; 213 W.A.C. 94 (C.A.), refd to. [para. 9].

Laserworks Computer Services Inc. (Bankrupt), Re (1998), 165 N.S.R.(2d) 296; 495 A.P.R. 296; 37 B.L.R.(2d) 226 (C.A.), consd. [para. 15].

De La Hooke, Re (1934), 15 C.B.R. 485 (Ont. S.C.), consd. [para. 17].

Pappy's Good Eats Ltd., Re (1985), 56 C.B.R.(N.S.) 304 (Ont. S.C.), consd. [para. 18].

R. v. Ratelle (B) et Ste-Marie (M.) (1994), 64 Q.A.C. 272; 92 C.C.C.(3d) 176 (C.A.), leave to appeal refused (1995), 188 N.R. 396; 94 C.C.C.(3d) vii (S.C.C.), consd. [para. 24].

R. v. Bank of Montreal (1985), 58 C.B.R.(N.S.) 45 (Man. Q.B.), revd. (1986), 40 Man.R.(2d) 157; 60 C.B.R.(N.S.) 169 (C.A.), refd to. [para. 34].

Quinn, Re (1988), 68 C.B.R.(N.S.) 301 (Ont. S.C. Master), consd. [para. 34].

R. (ex rel. Emery) v. Roy (1923), 4 C.B.R. 90 (Alta. C.A.), refd to. [para. 34].

Ord, Wallington & Co., Re (1968), 12 C.B.R.(N.S.) 89 (Ont. S.C.), refd to. [para. 39].

Paterson, Re (1945), 26 C.B.R. 109 (Ont. S.C.), refd to. [para. 39].

Adelman, Re (1945), 26 C.B.R. 152 (Ont. S.C.), refd to. [para. 39].

Meyers Estate et al. v. Freeholders Oil Co., [1960] S.C.R. 761, consd. [para. 42].

Ames v. Investo-Plan Ltd., [1973] 5 W.W.R. 451 (B.C.C.A.), refd to. [para. 45].

Westward Farms Ltd. and Deniau v. Cadieux et al., [1981] 3 W.W.R. 673; 9 Man.R.(2d) 96 (Q.B.), refd to. [para. 45].

Hall v. Hebert, [1993] 2 S.C.R. 159; 152 N.R. 321; 26 B.C.A.C. 161; 44 W.A.C. 161, refd to. [para. 48].

Gendron v. Supply and Services Union of the Public Service Alliance of Canada, Local 50057 et al., [1990] 1 S.C.R. 1298; 109 N.R. 321; 66 Man.R.(2d) 81, refd to. [para. 51].

First Avenue Research Corp. v. Donar Chemicals Ltd. et al. (1987), 11 B.C.L.R.(2d) 136 (S.C.), consd. [para. 67].

LG&E Natural Canada Inc. v. Alberta Resources Inc. (1997), 224 A.R. 201 (Q.B. Bktcy.), refd to. [para. 88].

CIR v. Wilcox (1946), 327 U.S. 404, consd. [para. 98].

Simon & Schuster v. Members of the New York State Crime Victims Board (1991), 502 U.S. 105, refd to. [para. 99].

B.G. Preeco 1 (Pacific Coast) Ltd. v. Bon Street Holdings Ltd. (1989), 37 B.C.L.R.(2d) 258 (C.A.), consd. [para. 111].

Burke v. Burke (1987), 47 Man.R.(2d) 216; 8 R.F.L.(3d) 393 (Q.B. Fam. Div.), refd to. [para. 132].

Hydro Electric Power Commission (Ont.) v. Albright, [1923] 2 D.L.R. 578; 64 S.C.R. 306, leave to appeal refused [1923] 2 D.L.R. 599 (P.C.), refd to. [para. 135].

L.A.T. Macdonald Enterprises Ltd., Re (1982), 42 C.B.R.(N.S.) 17 (Ont. S.C.), refd to. [para. 149].

Imperial Broadloom Co., Re (1978), 29 C.B.R.(N.S.) 113 (Ont. H.C.), refd to. [para. 150].

Authors and Works Noticed:

Bennett, Frank, Bankruptcy, p. 68 [para. 54].

Houlden, Lloyd W., and Morawetz, Carl H., Bankruptcy and Insolvency Law of Canada (3rd Ed. 1993), p. 2-71 [para. 56].

Counsel:

J.R. Sandrelli, P. Leask, Q.C., L.K. Bayne, R.W. Grant and C.J. Ramsay, for the petitioner, Interclaim Holdings Ltd.;

D.I. Knowles and M.I. Buttery, for the interim receiver, Arthur Anderson;

M.D. Andrews, R.A. Millar and D.J. Martin, for James Blair Down;

R.P. Clark, Q.C., and J.A. Dawson, for Fraser Barkley Barnes;

J.R. Esson, for Trevor Graham Street;

P.M. Bolton, Q.C., for Scarlett Manson Angus;

C.J. Tobias, for the Attorney General of Canada;

T.R. Mitchell-Banks, for the Attorney General of British Columbia;

H. Shapray, Q.C., and B. Cramer, for the Renoir Group.

This application was heard before Brenner, C.J.S.C., of the British Columbia Supreme Court, at Vancouver, British Columbia, on January 24-28, February 21-22, March 13-16, April 10-12 and May 1-3, 2000. The decision of Brenner, C.J.S.C., was filed on July 28, 2000.

Please note: The following judgment has not been edited.