Residential Warranty Co. of Canada Inc. (Bankrupt), Re, (2006) 417 A.R. 153 (CA)

• Judge: C,Paperny,Sulyma
• Neutral Citation: 2006 ABCA 293
• Citation: (2006), 417 A.R. 153 (CA),2006 ABCA 293,417 AR 153,(2006), 417 AR 153 (CA),417 A.R. 153
• Date: 05 September 2006
• Court: Court of Appeal (Alberta)

Residential Warranty Co. (Bankrupt), Re (2006), 417 A.R. 153 (CA);

        410 W.A.C. 153

MLB headnote and full text

Temp. Cite: [2007] A.R. TBEd. AU.067

Kingsway General Insurance Company (appellant/applicant) v. Deloitte & Touche Inc., Trustee in Bankruptcy of Residential Warranty Company of Canada Inc. and Residential Warranty Insurance Services Ltd. (respondent)

(0603-0093-AC; 2006 ABCA 293)

Indexed As: Residential Warranty Co. of Canada Inc. (Bankrupt), Re

Alberta Court of Appeal

Côté and Paperny, JJ.A., and Sulyma, J.(ad hoc)

October 10, 2006.

Summary:

The two bankrupt companies operated a home warranty business. Prior to the bankruptcy, Kingsway General Insurance Company, an insurance underwriter of policies brokered or administered by the bankrupt companies, sued the companies in British Columbia, alleging breach of contract, fraud, conversion, and breaches of trust and fiduciary duty. The companies were deemed bankrupt. Kingsway filed proofs of claim for over $11 million under trusts arising out of the British Columbia action. The trustee disputed the trust claim. Kingsway appealed the trustee's decision and applied to prohibit the trustee from using assets under its administration to compensate itself. The trustee applied for retrospective and prospective charges on the assets.

The Alberta Court of Queen's Bench, in a decision reported at 393 A.R. 340, dismissed Kingsway's application and granted the trustee a retrospective charge on the estate assets. A prospective charge was to be granted on the trustee filing a report confirming that the inspectors had approved the trustee's proposed actions. Kingsway appealed.

The Alberta Court of Appeal dismissed the appeal.

Bankruptcy - Topic 2773

Trustees - Compensation - Priority of - Kingsway General Insurance Company, an insurance underwriter, sued two companies who operated a home warranty business - The companies were deemed bankrupt - Kingsway filed proofs of claim encompassing the entire estates of both bankrupts under trusts arising out of the action - The trustee disputed the trust claims - Kingsway appealed and applied to prohibit the trustee from using estate assets to compensate itself - A case management judge invoked her inherent jurisdiction to grant the trustee retrospective and prospective charges on the estate assets - The Alberta Court of Appeal dismissed Kingsway's appeal - The court rejected Kingsway's argument that use of inherent jurisdiction to grant a charge on the property would be contrary to s. 67(1) of the Bankruptcy and Insolvency Act because property held in trust for others did not form part of the bankrupt's estate - Section 67 addressed the division of property among creditors, not what property formed the estate to be administered - Regardless, whether the property here was in fact trust property remained undetermined - Inherent jurisdiction existed to grant a charge on property subject to undetermined trust claims - See paragraphs 18 to 29.

Bankruptcy - Topic 2773

Trustees - Compensation - Priority of - Kingsway General Insurance Company, an insurance underwriter, sued two companies who operated a home warranty business - The companies were deemed bankrupt - Kingsway filed proofs of claim encompassing the entire estates of both bankrupts under trusts arising out of the action - The trustee disputed the trust claims - Kingsway appealed and applied to prohibit the trustee from using estate assets to compensate itself - A case management judge invoked her inherent jurisdiction to grant the trustee retrospective and prospective charges on the estate assets - The Alberta Court of Appeal dismissed Kingsway's appeal - The court rejected Kingsway's argument that the trustee should not be paid to "defeat" Kingsway's claim out of what Kingway alleged to be its property - None of Kingsway's trust claims were obvious and there were competing claims - The circumstances and centrality of the trust claims to the bankruptcies underscored the necessity of the trustee's involvement and payment of its fees from property subject to the disputed trusts - Even if Kingsway was ultimately successful in appealing the trustee's disallowance, the trustee had been administering the property with a likely benefit to Kingsway - See paragraphs 30 to 36.

Bankruptcy - Topic 2773

Trustees - Compensation - Priority of - Kingsway General Insurance Company, an insurance underwriter, sued two companies who operated a home warranty business - The companies were deemed bankrupt - Kingsway filed proofs of claim encompassing the entire estates of both bankrupts under trusts arising out of the action - The trustee disputed the trust claims - Kingsway appealed and applied to prohibit the trustee from using estate assets to compensate itself - A case management judge invoked her inherent jurisdiction to grant the trustee retrospective and prospective charges on the estate assets - The Alberta Court of Appeal dismissed Kingsway's appeal - The court set out factors to be considered in exercising the inherent jurisdiction to grant a charge on property subject to undetermined trust claims - These included: the claim's strength, the stage of the proceedings and the effect of the order on them, the need to maintain the bankruptcy process's integrity, whether realistic alternatives existed, the order's impact, anticipated time and costs involved, appropriate limits on the charges and the trustee's role in the determination process - Here, the case management judge recognized that the power should be used sparingly and had not erred in the exercise of her discretion - See paragraphs 37 to 40.

Bankruptcy - Topic 6741

Practice - Jurisdiction - General - [See first and third Bankruptcy - Topic 2773 ].

Courts - Topic 2004

Jurisdiction - General principles - Inherent jurisdiction (incl. parens patriae jurisdiction) - [See first and third Bankruptcy - Topic 2773 ].

Cases Noticed:

Murphy Oil Co. et al. v. Predator Corp. et al. (2006), 384 A.R. 251; 367 W.A.C. 251; 2006 ABCA 69, refd to. [para. 17].

Northstone Power Corp. v. R.J.K. Power Systems Ltd. et al. (2002), 317 A.R. 192; 284 W.A.C. 192; 36 C.B.R.(4th) 272; 2002 ABCA 201, refd to. [para. 17].

College Housing Cooperative Ltd. et al. v. Baxter Student Housing Ltd. et al., [1976] 2 S.C.R. 475; 5 N.R. 515, refd to. [para. 20].

Wasserman, Arsenault Ltd. et al. v. Sone et al. (2002), 157 O.A.C. 183; 33 C.B.R.(4th) 145 (C.A.), refd to. [para. 20].

Tlustie, Re (1923), 3 C.B.R. 654 (Ont. S.C.), refd to. [para. 21].

Canada (Minister of Indian Affairs and Northern Development) v. Curragh Inc. (1994), 27 C.B.R.(3d) 148 (Ont. Gen. Div.), refd to. [para. 21].

Olympia & York Development Developments Ltd. (Bankrupt), Re (1997), 27 O.T.C. 223; 18 C.B.R.(4th) 243 (Gen. Div.), refd to. [para. 21].

City Construction Co., Re (1961), 2 C.B.R.(N.S.) 245 (B.C.C.A.), refd to. [para. 21].

Ramgotra (Bankrupt), Re, [1996] 1 S.C.R. 325; 193 N.R. 186; 141 Sask.R. 81; 114 W.A.C. 81, refd to. [para. 24].

Ontario Council of the International Brotherhood of Painters and Allied Trades, Local 1590 v. Broome (Trustee of) (1986), 61 C.B.R.(N.S.) 233 (Ont. S.C. Master), dist. [para. 26].

Wilkinson (C.J.) Ford Mercury Sales Ltd., Re (1986), 60 C.B.R.(N.S.) 289 (Ont. S.C.), dist. [para. 26].

Gill (Bankrupt), Re, [2002] B.C.T.C. 1401; 37 C.B.R.(4th) 257; 2002 BCSC 1401, dist. [para. 28].

Beetown Honey Products Inc. (Bankrupt), Re, [2003] O.T.C. 866; 46 C.B.R.(4th) 195 (Sup. Ct.), affd. (2004), 3 C.B.R.(5th) 204 (C.A.), refd to. [para. 31].

Nakashidze, Re (1948), 29 C.B.R. 35 (Ont. S.C.), refd to. [para. 32].

Rideout Real Estate Ltd., Re (1957), 36 C.B.R. 111 (Ont. S.C.), refd to. [para. 32].

Kern Agencies Ltd., Re (No. 3) (1932), 13 C.B.R. 333 (Sask. K.B.), refd to. [para. 32].

NRS Rosewood Real Estate Ltd., Re (1992), 9 C.B.R.(3d) 163 (Ont. Gen. Div.), refd to. [para. 32].

Husky Oil Operations Ltd. v. Minister of National Revenue et al., [1995] 3 S.C.R. 453; 188 N.R. 1; 137 Sask.R. 81; 107 W.A.C. 81, refd to. [para. 39].

Counsel:

E.A. Dolden and B.D. Rhodes, for the appellant;

K.A. Rowan, for the respondent.

This appeal was heard on September 5, 2006, by Côté and Paperny, JJ.A., and Sulyma, J.(ad hoc), of the Alberta Court of Appeal. Paperny, J.A., delivered the following reasons for judgment for the court on October 10, 2006.