McAteer v. Billes et al., (2007) 409 A.R. 143 (CA)

• Judge: Picard, Fruman and Ritter, JJ.A.
• Court: Court of Appeal (Alberta)
• Case Date: Thursday March 15, 2007
• Citations: (2007), 409 A.R. 143 (CA);2007 ABCA 137

McAteer v. Billes (2007), 409 A.R. 143 (CA);

      402 W.A.C. 143

MLB headnote and full text

Temp. Cite: [2007] A.R. TBEd. JN.001

Paul Murray McAteer (appellant/respondent) v. Martha G. Billes, Marlore Enterprises Ltd. (formerly Newmat Drilling (Western) Ltd.), and the Muriel G. Billes Estate Trust for Owen G. Billes by its Trustee (The "Estate Trustee")

(respondents/applicants)

(0601-0029-AC; 2007 ABCA 137)

Indexed As: McAteer v. Billes et al.

Alberta Court of Appeal

Picard, Fruman and Ritter, JJ.A.

March 15, 2007.

Summary:

McAteer, Billes and Mason (as trustee for her and McAteer's children) were shareholders in a company. The company obtained loans from Newmat Drilling (Western) Ltd. (Newmat) and from an estate trust. Billes was a trustee of the trust and an indirect 49% owner and director of Newmat. McAteer provided an unsecured personal guarantee for the Newmat loan. To secure the loans McAteer provided an officer's certificate, falsely certifying that there was no impediment to the company borrowing from the lenders and granting security. Ultimately, the value of the company's shares declined. Newmat called in its loan and enforced the security. The company's assets were insufficient to satisfy the outstanding debt and the company was placed into receivership. Newmat sought payment from McAteer pursuant to the guarantee. Four actions ensued.

The Alberta Court of Queen's Bench, in a decision reported at 307 A.R. 1, held that proper disclosure was not made to Mason of Billes' interests in the Trust and Newmat loans. However, McAteer had undertaken to Billes to provide Mason with full and proper disclosure and obtain her consent in accordance with the unanimous shareholder agreement and the Alberta Business Corporations Act, and represented to Billes that he had done so. The court held that the loans were valid. The court allowed an oppression claim by Mason based on the lack of disclosure and McAteer and Billes having derived a personal benefit from the Newmat loan. The court awarded Mason $440,000, interest and solicitor and client costs, jointly and severally against Billes and McAteer. The court allowed a third party claim by Billes against McAteer based on fraudulent misrepresentation and ordered McAteer to completely indemnify Billes for her liability in the Mason action and to pay Billes' solicitor-client costs. Newmat was granted judgment under the McAteer guarantee. The court dismissed all other claims by the plaintiffs and defendants. Billes paid Mason the amount of the judgment. McAteer made an assignment in bankruptcy. Billes, Newmat and the estate trust brought a motion to have Billes' indemnification judgment and the Newmat guarantee declared debts that would not be released when McAteer was discharged from bankruptcy.

A chambers judge allowed the motion. McAteer appealed

The Alberta Court of Appeal dismissed the appeal with respect to the indemnification judgment and allowed the appeal with respect to the guarantee.

Bankruptcy - Topic 8983

Discharge of debtor - Liabilities not released by discharge - Act of defalcation or misappropriation in fiduciary capacity - McAteer, Billes and Mason (as trustee for her and McAteer's children) were shareholders in a company - The company obtained a loan from Newmat Drilling (Western) Ltd. (Newmat) - Billes was an indirect 49% owner and director of Newmat - McAteer provided an officer's certificate falsely certifying that there was no impediment to the company borrowing from the lenders and granting security - Ultimately, the value of the company shares declined - Newmat called in its loan and enforced the security - The company's assets were insufficient to satisfy the outstanding debt and the company was placed into receivership - Newmat obtained judgment against McAteer on the guarantee - McAteer made an assignment in bankruptcy - Billes, Newmat and the estate trust brought a motion to, inter alia, have the guarantee declared a debt that would not be released when McAteer was discharged from bankruptcy - A chambers judge granted the declaration where, inter alia, the guarantee satisfied s. 178(1)(d) of the Bankruptcy and Insolvency Act - Section 178(1)(d) provided that a debt survived bankruptcy if it arose "out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity"- The Alberta Court of Appeal set aside the declaration - Section 178(1)(d) did not apply - There was no basis to conclude that McAteer's debt under the guarantee arose out of fraud, embezzlement, misappropriation or defalcation - Moreover, the trial reasons did not support a finding that McAteer was acting in a fiduciary capacity in his dealings with Newmat on the guarantee - See paragraphs 22 to 27.

Bankruptcy - Topic 8984

Discharge of debtor - Liabilities not released by discharge - Debt arising from embezzlement while acting in a fiduciary capacity - [See Bankruptcy - Topic 8983].

Bankruptcy - Topic 8987

Discharge of debtor - Liabilities not released by discharge - Act of fraud of debtor - [See Bankruptcy - Topic 8983].

Bankruptcy - Topic 8987

Discharge of debtor - Liabilities not released by discharge - Act of fraud of debtor - McAteer, Billes and Mason (as trustee for her and McAteer's children) were shareholders in a company - The company obtained loans from Newmat Drilling (Western) Ltd. (Newmat) and from an estate trust - Billes was a trustee of the trust and an indirect 49% owner and director of Newmat - Ultimately, the value of the company shares declined - Newmat called in its loan and enforced the security - The company's assets were insufficient to satisfy the outstanding debt and the company was placed into receivership - Four actions ensued - The trial judge held that proper disclosure was not made to Mason of Billes' interests in the loans - However, McAteer had undertaken to Billes to provide Mason with full and proper disclosure and obtain her consent and represented to Billes that he had done so - The court awarded Mason $440,000, interest and solicitor and client costs, jointly and severally against Billes and McAteer - The court ordered McAteer to completely indemnify Billes for her liability to Mason where Billes' liability arose as a result of McAteer's fraudulent misrepresentation - McAteer declared bankruptcy - A Chambers judge declared that, inter alia, the indemnification judgment was a debt that would not be released when McAteer was discharged from bankruptcy (Bankruptcy and Insolvency Act, ss. 178(1)(d) and 178(1)(e)) - Under s. 178(1)(e), a debt survived bankruptcy if it was incurred "for obtaining property by false pretences or fraudulent misrepresentation" - The Alberta Court of Appeal, without considering s. 178(1)(d), held that the indemnification judgment came squarely within s. 178(1)(e) and survived the bankruptcy - The court rejected an alternative assertion that the indemnification judgment should be limited to the $440,000 - The principal, interest and costs all flowed from McAteer's fraudulent misrepresentation - There was no basis for a reduction under s. 178(1) - See paragraphs 16 to 18.

Bankruptcy - Topic 8987

Discharge of debtor - Liabilities not released by discharge - Act of fraud of debtor - McAteer, Billes and Mason (as trustee for her and McAteer's children) were shareholders in a company - The company obtained loans from Newmat Drilling (Western) Ltd. (Newmat) and from an estate trust - Billes was a trustee of the trust and an indirect 49% owner and director of Newmat - Ultimately, the value of the company shares declined - Newmat called in its loan and enforced the security - The company's assets were insufficient to satisfy the outstanding debt and the company was placed into receivership - Four actions ensued - The trial judge held that proper disclosure was not made to Mason of Billes' interests in the loans - However, McAteer had undertaken to Billes to provide Mason with full and proper disclosure and obtain her consent and represented to Billes that he had done so - The court awarded Mason $440,000, interest and solicitor and client costs, jointly and severally against Billes and McAteer - The court ordered McAteer to completely indemnify Billes for her liability to Mason where Billes' liability arose as a result of McAteer's fraudulent misrepresentation - McAteer declared bankruptcy - A Chambers judge declared that, inter alia, the indemnification judgment was a debt that would not be released when McAteer was discharged from bankruptcy (Bankruptcy and Insolvency Act, ss. 178(1)(d) and 178(1)(e)) - McAteer appealed, asserting that s. 178(1) should not be applied as the survival of this $1.3 million debt would effectively preclude him from financial rehabilitation - McAteer asserted that the bankruptcy scheme was intended to benefit honest, but unfortunate debtors - The Alberta Court of Appeal affirmed the declaration - Fairness to creditors was also an important consideration - Sections 178(1)(d) and 178(1)(e) were narrow, and applied only when there was a finding of fraud, misrepresentation or other reprehensible conduct that was clearly linked to a bankrupt's debt - Liabilities that came within s. 178(1) were not released to ensure that dishonest debtors did not benefit from their dishonesty - The indemnity judgment was such a debt - See paragraph 28.

Bankruptcy - Topic 8987

Discharge of debtor - Liabilities not released by discharge - Act of fraud of debtor - McAteer, Billes and Mason (as trustee for her and McAteer's children) were shareholders in a company - The company obtained a loan from Newmat Drilling (Western) Ltd. (Newmat) - Billes was an indirect 49% owner and director of Newmat - McAteer provided an officer's certificate falsely certifying that there was no impediment to the company borrowing from the lenders and granting security - Ultimately, the value of the company shares declined - Newmat called in its loan and enforced the security - The company's assets were insufficient to satisfy the outstanding debt and the company was placed into receivership - Newmat obtained judgment against McAteer on the guarantee - McAteer made an assignment in bankruptcy - Billes, Newmat and the estate trust brought a motion to have the guarantee declared a debt that would not be released when McAteer was discharged from bankruptcy - A chambers judge applied, inter alia, s. 178(1)(e) of the Bankruptcy and Insolvency Act and held that the guarantee survived the bankruptcy where McAteer had made a fraudulent misrepresentation to obtain the loan - The Alberta Court of Appeal set aside the declaration - The officer's certificate related to the loan, not the guarantee - More fundamentally, Newmat's loss arose from inadequate security, not the misrepresentation - There was no link between the debt and the fraudulent misrepresentation as required by s. 178(1)(e) - See paragraphs 19 to 21.

Cases Noticed:

Metropolitan Life Insurance Co. v. Hover (1999), 237 A.R. 30; 197 W.A.C. 30; 1999 ABCA 123, refd to. [para. 14].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 14].

Morgan v. Demers (1986), 71 A.R. 244 (C.A.), refd to. [para. 15].

Berthold v. McLellan (1994), 19 Alta. L.R.(3d) 28 (C.A.), refd to. [para. 15].

Maisonneuve v. Dalpe-Charron (1987), 64 C.B.R.(N.S.) 64 (Ont. H.C.), refd to. [para. 16].

McAteer v. Billes et al. (2006), 397 A.R. 365; 384 W.A.C. 365; 2006 ABCA 312, refd to. [para. 16].

Saskatchewan Wheat Pool v. Ewing Lake Farms Ltd. et al. (1998), 231 A.R. 3 (Q.B.), refd to. [para. 22].

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 24].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 25].

Peoples Department Stores Inc. (Bankrupt) v. Wise, [2004] 3 S.C.R. 461; 326 N.R. 267; 2004 SCC 68, refd to. [para. 25].

Bank of Montreal v. Giannotti - see Giannotti (Bankrupt), Re.

Giannotti (Bankrupt), Re (2000), 138 O.A.C. 316; 51 O.R.(3d) 544 (C.A.), refd to. [para. 28].

Counsel:

V.J. Danielson, for the appellant;

J.T. Eamon, Q.C., for the respondents.

This appeal was heard on March 15, 2007, by Picard, Fruman and Ritter, JJ.A., of the Alberta Court of Appeal. The following memorandum of judgment of the court was delivered orally by Fruman, J.A., on March 15, 2007, and filed at Calgary, Alberta, on June 1, 2007.