Kel-Greg Homes Inc. (Bankrupt), Re, (2015) 365 N.S.R.(2d) 274 (SC)

• Judge: Rosinski, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: June 25, 2015
• Jurisdiction: Nova Scotia
• Citations: (2015), 365 N.S.R.(2d) 274 (SC);2015 NSSC 274

Kel-Greg Homes (Bankrupt), Re (2015), 365 N.S.R.(2d) 274 (SC);

    1151 A.P.R. 274

MLB headnote and full text

Temp. Cite: [2015] N.S.R.(2d) TBEd. OC.010

In the Matter of the Bankruptcy of Kel-Greg Homes Inc.

(Hfx. No. 418312; 2015 NSSC 274)

Indexed As: Kel-Greg Homes Inc. (Bankrupt), Re

Nova Scotia Supreme Court

In Bankruptcy and Insolvency

Rosinski, J.

October 2, 2015.

Summary:

Kel-Greg Homes Inc. was operating as a general contractor for residential housing projects. A number of contractors provided services and materials to the projects and remained unpaid. Lien claims were filed under ss. 6 and 9 of the Builders Lien Act (BLA). The BLA also created a statutory charge over hold-back monies, and a trust over monies received by or owed to the contractors. Kel-Greg had a single bank account through which trust and non-trust monies flowed. Kel-Greg became bankrupt. At the time of bankruptcy, the disputed monies included $50,483.96 (residual bank account balance), and $8,657.63 and $500 (amounts due to Kel-Greg from two of the projects). At issue was whether that money constituted property held "in trust" for the lien claimants pursuant to s. 67(1)(a) of the Bankruptcy and Insolvency Act (BIA). If it did, it was exempt from the property of the trustee in bankruptcy, and available for distribution among properly qualified lien claimants.

The Nova Scotia Supreme Court, In Bankruptcy and Insolvency, concluded that the money constituted trust funds exempt under s. 67(1)(a) of the BIA, and was not the property of the trustee.

Bankruptcy - Topic 488

Property of bankrupt - Exemptions or exclusions - Trust property - Kel-Greg Homes Inc. was operating as a general contractor for residential housing projects - A number of contractors provided services and materials to the projects and remained unpaid - Lien claims were filed under ss. 6 and 9 of the Builders Lien Act (BLA) - The BLA also created a trust over monies received by or owed to the contractors - Kel-Greg had a single bank account through which trust and non-trust monies flowed - Kel-Greg became bankrupt - At the time of bankruptcy, the disputed monies included $50,483.96 (residual bank account balance), and $8,657.63 and $500 (amounts due to Kel-Greg from two of the projects) - At issue was whether that money constituted property held "in trust" for the lien claimants (Bankruptcy and Insolvency Act (BIA), s. 67(1)(a)) - If so, it was exempt from the property of the trustee in bankruptcy, and available for distribution among properly qualified lien claimants - The Nova Scotia Supreme Court, In Bankruptcy and Insolvency, concluded that the $50,483.96 constituted trust funds exempt under s. 67(1)(a) of the BIA for two reasons - First, a portion of the $50,483.96 transferred by the trustee to its account from Kel-Greg's account was necessarily traceable as trust monies deriving from the $82,796.38 trust monies deposited by the owners of one of the projects on August 1, 2013 - On that date, Kel-Greg's account had a balance of $23,926.15 - The $82,796.38 was the only deposit before the trustee transferred $50,483.96 to its account on August 6, 2013 - $56,238.57 was expended in the interim - Therefore, even if all of the $56,238.57 were taken from the $82,796.38 in trust funds, at least $26,557.81 thereof remained as part of the $50,483.96 transferred to the trustee's account - Secondly, Kel-Greg, as a trustee, was presumed to have expended all of its bank account's non-trust monies before expending any trust monies - Kel-Greg presented no evidence identifying its own funds so as to rebut the presumption and the court had to presume that Kel-Greg expended $23,926.15 of its own monies and $32,312.42 of the $82,796.38 trust monies between August 1 and August 6, 2013 - Therefore, all of the remaining $50,483.96 were traceable as "trust monies" - Similarly, the $8,657.63 and the $500 maintained their trust character and were exempt under s. 67(1)(a) of the BIA.

Bankruptcy - Topic 488

Property of bankrupt - Exemptions or exclusions - Trust property - Kel-Greg Homes Inc. was operating as a general contractor for residential housing projects - A number of contractors provided services and materials to the projects and remained unpaid - Lien claims were filed under ss. 6 and 9 of the Builders Lien Act (BLA) - The BLA also created a trust over monies received by or owed to the contractors - Kel-Greg had a single bank account through which trust and non-trust monies flowed - Kel-Greg became bankrupt - At the time of bankruptcy, the disputed monies included $50,483.96 (residual bank account balance), and $8,657.63 and $500 (amounts due to Kel-Greg from two of the projects) - At issue was whether that money constituted property held "in trust" for the lien claimants (Bankruptcy and Insolvency Act (BIA), s. 67(1)(a)) - The lien claimants asserted that there was a presumption of compliance with s. 44(2)(B) of the BLA (i.e., that Kel-Greg spent its own monies entirely before it began to spend trust monies) - The Nova Scotia Supreme Court, In Bankruptcy and Insolvency, stated that generally if a trust was imposed by statute, persons in receipt of monies impressed with such a trust were deemed to have known of the trust - However, such legal presumption, by itself, did not determinatively assist the claimants in establishing that Kel-Greg complied with the spirit of s. 44(2)(B) - The claimants' argument could arguably rest on the rationale underlying the doctrine of "the presumption of regularity", but that presumption had steadfastly been applied only in cases of persons who had public functions to perform - A bankrupt in the pre-bankruptcy period was not such a person - A trustee under the BIA was arguably such a person - The court noted an unsuccessful attempt to apply the presumption to a monitor appointed under the Companies' Creditors' Arrangement Act in Winalta Inc., Re (2011, Alta. Q.B.) - However, there had been acceptance of the principle that if trustees co-mingled trust with non-trust funds, absent evidence to the contrary (as was the case here), they were presumed to have spent the non-trust funds first - The court concluded that it was bound to follow that principle - See paragraphs 64 to 78.

Evidence - Topic 2516

Special modes of proof - Presumptions - Regularity - Public officials - Acts of - [See second Bankruptcy - Topic 488 ].

Trusts - Topic 372

Creation of trust - Purpose of object - Certainty of objects - The Nova Scotia Supreme Court, In Bankruptcy and Insolvency, held that the jurisprudence dictated that there was still certainty of subject matter even when the trust funds were co-mingled among themselves and also with non-trust funds in one account, provided that the trust funds were traceable with reasonable certainty - Each case turned on its own particular facts regarding whether the trust monies could be traced to permit a conclusion that there was certainty of subject matter - See paragraphs 33 to 59.

Trusts - Topic 931

Trust property - Doctrine of tracing - [See first Bankruptcy - Topic 488 and Trusts - Topic 372 ].

Trusts - Topic 2725

The beneficiary - Rights of beneficiaries - Where funds mixed - [See both Bankruptcy - Topic 488 and Trusts - Topic 372 ].

Trusts - Topic 2768

The beneficiary - Remedies on breach - Tracing - When available - [See first Bankruptcy - Topic 488 ].

Cases Noticed:

Hallett Estate, Re; Knatchbull v. Hallett (1880), 13 Ch. D. 696 (C.A.), folld. [para. 14].

Bourgault's Estate v. Quebec (Deputy Minister of Revenue), [1980] 1 S.C.R. 35; 30 N.R. 24, refd to. [para. 29].

Deputy Minister of Revenue v. Rainville - see Bourgault's Estate v. Deputy Minister of Revenue of Quebec.

British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; 97 N.R. 61, appld. [para. 33].

R. v. Henry (D.B.) et al., [2005] 3 S.C.R. 609; 342 N.R. 259; 376 A.R. 1; 360 W.A.C. 1; 219 B.C.A.C. 1; 361 W.A.C. 1; 2005 SCC 76, refd to. [para. 35].

Bassano Growers Ltd. et al. v. Diamond S Produce Ltd. (Bankrupt) (1998), 216 A.R. 328; 175 W.A.C. 328; 1998 ABCA 198, refd to. [para. 51].

Bassano Growers Ltd. v. PriceWaterhouse Ltd. - see Bassano Growers Ltd. et al. v. Diamond S Produce Ltd. (Bankrupt).

TCT Logistics Inc. (Bankrupt), Re (2005), 194 O.A.C. 360; 74 O.R.(3d) 382 (C.A.), refd to. [para. 51].

GMAC Commercial Credit Corp. - Canada v. TCT Logistics Inc. - see TCT Logistics Inc. (Bankrupt), Re.

Graphicshoppe Ltd. (Bankrupt), Re (2005), 205 O.A.C. 113; 78 O.R.(3d) 401 (C.A.), refd to. [para. 51].

Royal Bank of Canada v. Atlas Block Co., 2014 ONSC 3062, refd to. [para. 51].

Iona Contractors Ltd. v. Guarantee Company of North America, [2015] A.R. TBEd. JL.079; 2015 ABCA 240, dist. [para. 51].

Olson (Stuart) Dominion Construction Ltd. v. Structal Heavy Steel, [2015] Man.R.(2d) TBEd. SE.028; 475 N.R. 117; 2015 SCC 43, refd to. [para. 55].

Air Canada v. M & L Travel Ltd., Martin and Valliant, [1993] 3 S.C.R. 787; 159 N.R. 1; 67 O.A.C. 1, refd to. [para. 65].

Troup (John M.M.) Ltd. v. Ontario (Attorney General), [1962] S.C.R. 487, refd to. [para. 65].

Citadel General Life Assurance Co. et al. v. Lloyd's Bank of Canada et al., [1997] 3 S.C.R. 805; 219 N.R. 323; 206 A.R. 321; 156 W.A.C. 321, refd to. [para. 65].

R. v. Molina (M.) (2008), 234 O.A.C. 384; 2008 ONCA 212, refd to. [para. 66].

Winalta Inc., Re (2011), 521 A.R. 1; 2011 ABQB 399, refd to. [para. 67].

Carter v. Long & Bisby (1896), 26 S.C.R. 430, refd to. [para. 68].

B.M.P. Global Distribution Inc. et al. v. Bank of Nova Scotia et al. (2009), 386 N.R. 296; 268 B.C.A.C. 1; 452 W.A.C. 1; 2009 SCC 15, refd to. [para. 69].

0409725 B.C. Ltd. (Bankrupt), Re, [2015] B.C.T.C. Uned. 1221; 2015 BCSC 1221, refd to. [para. 70].

Ruwenzori Enterprises Ltd. et al. v. Walji et al. (2006), 231 B.C.A.C. 166; 381 W.A.C. 166; 2006 BCCA 448, refd to. [para. 71].

Lennox Industries (Canada) Ltd. v. Minister of National Revenue (1987), 8 F.T.R. 124; 34 D.L.R.(4th) 297 (T.D.), refd to. [para. 72].

Waxman et al. v. Waxman et al., [2002] O.T.C. 443; 25 B.L.R.(3d) 1 (Sup. Ct.), refd to. [para. 72].

Brookfield Bridge Lending Fund Inc. v. Vanquish Oil & Gas Corp. et al. (2009), 454 A.R. 162; 455 W.A.C. 162; 2009 ABCA 99, refd to. [para. 72].

Counsel:

Gavin MacDonald, for the Trustee, BDO.

John Shanks, for Enfield Hardware Ltd.;

Adam Crane, for George Bergman Electric;

Glenn Jones, for Toby and Jill Steffin.

This matter was heard at Halifax, Nova Scotia, on June 25, 2015, by Rosinski, J., of the Nova Scotia Supreme Court, In Bankruptcy and Insolvency, who delivered the following judgment on October 2, 2015.