Smith v. PricewaterhouseCoopers Inc. et al., (2013) 556 A.R. 245

• Judge: Rowbotham, J.A.
• Court: Court of Appeal (Alberta)
• Case Date: August 14, 2013
• Citations: (2013), 556 A.R. 245;2013 ABCA 288

Smith v. PricewaterhouseCoopers Inc. (2013), 556 A.R. 245; 584 W.A.C. 245 (CA)

MLB headnote and full text

Temp. Cite: [2013] A.R. TBEd. AU.083

William Franklin Smith (applicant) v. PricewaterhouseCoopers Inc. and Servus Credit Union Ltd. (respondents)

(1301-0046-AC; 2013 ABCA 288)

Indexed As: Smith v. PricewaterhouseCoopers Inc. et al.

Alberta Court of Appeal

Rowbotham, J.A.

August 22, 2013.

Summary:

Smith was the founder of Caliber Systems Inc. Caliber entered into a credit facility with Servus. Caliber assigned into bankruptcy. First priority went to a creditor other than Servus. Servus sought to make up the shortfall in what was owed to it through a guarantee provided by Smith. Smith sought to commence an action against Servus on behalf of Caliber. Caliber's trustee did not consent. Smith applied under s. 38(1) of the Bankruptcy and Insolvency Act for leave to commence the action. The application was dismissed. Smith sought leave to appeal.

The Alberta Court of Appeal, per Rowbotham, J.A., dismissed the application.

Bankruptcy - Topic 6472

Administration of estate - Actions by bankrupt - Application by third party for leave to commence action in name of bankrupt - Smith was the founder of Caliber Systems Inc. - Caliber entered into a credit facility with Servus - Caliber assigned into bankruptcy - First priority went to a creditor other than Servus - Servus sought to make up the shortfall in what was owed to it through a guarantee provided by Smith - Smith sought to commence an action against Servus on behalf of Caliber - Caliber's trustee did not consent - Smith applied under s. 38(1) of the Bankruptcy and Insolvency Act for leave to commence the action - The application was dismissed - Smith sought leave to appeal - The Alberta Court of Appeal, per Rowbotham, J.A., held that Smith did not have an appeal as of right - Leave was required - See paragraphs 9 and 10.

Bankruptcy - Topic 6472

Administration of estate - Actions by bankrupt - Application by third party for leave to commence action in name of bankrupt - Smith was the founder of Caliber Systems Inc. - Caliber entered into a credit facility with Servus - Caliber assigned into bankruptcy - First priority went to a creditor other than Servus - Servus sought to make up the shortfall in what was owed to it through a guarantee provided by Smith - Smith sought to commence an action against Servus on behalf of Caliber - Caliber's trustee did not consent - Smith's application under s. 38(1) of the Bankruptcy and Insolvency Act for leave to commence the action was dismissed - Smith sought leave to appeal - The Alberta Court of Appeal, per Rowbotham, J.A., dismissed the application - The court rejected Smith's assertion that the clarification of the test to be applied to applications under s. 38(1) was of significance to the bankruptcy practice - The test did not require clarification - The issue here was the application of the test, which was significant in the bankruptcy, but was not of significance to the practice - See paragraph 14.

Bankruptcy - Topic 6472

Administration of estate - Actions by bankrupt - Application by third party for leave to commence action in name of bankrupt - Smith was the founder of Caliber Systems Inc. - Caliber entered into a credit facility with Servus - Caliber assigned into bankruptcy - First priority went to a creditor other than Servus - Servus sought to make up the shortfall in what was owed to it through a guarantee provided by Smith - Smith sought to commence an action against Servus on behalf of Caliber - Caliber's trustee did not consent - Smith's application under s. 38(1) of the Bankruptcy and Insolvency Act for leave to commence the action was dismissed - Smith sought leave to appeal - The Alberta Court of Appeal, per Rowbotham, J.A., dismissed the application - The issue was whether there was threshold merit to the application - Smith bore the onus to demonstrate that his proposed action was not obviously spurious - This onus necessarily required him to demonstrate, through evidence, at least the barest merit to the claim - The court rejected Smith's assertion that the bankruptcy judge had erred in permitting the defendants to adduce evidence - Nor had the bankruptcy judge held Smith to a more onerous standard of proof than was required - A bankruptcy judge's decision under s. 38(1) was discretionary, attracting deference on appeal - The bankruptcy judge had articulated the proper test and had found the proposed action to be spurious - The decision was not contrary to law or an abuse of power and did not involve any obvious errors - See paragraphs 15 to 33.

Bankruptcy - Topic 6472

Administration of estate - Actions by bankrupt - Application by third party for leave to commence action in name of bankrupt - Smith was the founder of Caliber Systems Inc. - Caliber entered into a credit facility with Servus - Caliber assigned into bankruptcy - First priority went to a creditor other than Servus - Servus sought to make up the shortfall in what was owed to it through a guarantee provided by Smith - Smith sought to commence an action against Servus on behalf of Caliber - Caliber's trustee did not consent - Smith's application under s. 38(1) of the Bankruptcy and Insolvency Act for leave to commence the action was dismissed - Smith sought leave to appeal, asserting, inter alia, that the bankruptcy judge had erred in hearing submissions and admitting evidence from the trustee - The Alberta Court of Appeal, per Rowbotham, J.A., dismissed the application - There did not appear to be any authority for the proposition that considering a trustee's submissions on a s. 38(1) application could amount to an error in law - What the authorities did say was that a trustee should not oppose a creditor's s. 38(1) application where it was clear that the proposed action was not frivolous and vexatious - At the very least, it was arguable that Smith's claim was frivolous - The bankruptcy judge's ultimate conclusion that Smith's proposed action was obviously spurious supported the reasonableness of the trustee's decision to oppose the application - See paragraphs 39 to 42.

Bankruptcy - Topic 6722

Practice - Parties - Status or standing - Smith was the founder of Caliber Systems Inc. - Caliber entered into a credit facility with Servus - Caliber assigned into bankruptcy - First priority went to a creditor other than Servus - Servus sought to make up the shortfall in what was owed to it through a guarantee provided by Smith - Smith sought to commence an action against Servus on behalf of Caliber - Caliber's trustee did not consent - Smith's application under s. 38(1) of the Bankruptcy and Insolvency Act for leave to commence the action was dismissed - Smith sought leave to appeal, asserting, inter alia, that the bankruptcy judge had erred in granting standing on the application to Servus - The Alberta Court of Appeal, per Rowbotham, J.A., dismissed the application - There was no prima facie merit to this ground of appeal - The grant of standing to Servus was within the ambit of the existing exceptions to the general rule denying standing to proposed defendants to oppose s. 38(1) applications - The bankruptcy judge was concerned about material omissions in Smith's affidavit - There were also irregularities in the proceedings - See paragraphs 34 to 38.

Bankruptcy - Topic 6888

Practice - Appeals - Leave to appeal - [See all Bankruptcy - Topic 6472 ].

Cases Noticed:

Catalina Exploration & Development Ltd., Re; Elis and Catalina Exploration & Development Ltd. v. Hutchinson (1981), 27 A.R. 1; 14 Alta. L.R.(2d) 268 (C.A.), refd to. [para. 9].

Elias v. Hutchinson - see Catalina Exploration & Development Ltd., Re; Elis and Catalina Exploration & Development Ltd. v. Hutchinson.

Simonelli (Bankrupt), Re (2003), 320 A.R. 330; 288 W.A.C. 330; 2003 ABCA 47, refd to. [para. 9].

Plancher Héritage ltée/Heritage Flooring Ltd. (Bankrupt), Re (2008), 336 N.B.R.(2d) 332; 862 A.P.R. 332; 299 D.L.R.(4th) 727; 2008 NBCA 69, refd to. [para. 9].

Isabelle v. Royal Bank of Canada - see Plancher Héritage ltée/Heritage Flooring Ltd. (Bankrupt), Re.

Edo (Canada) Ltd. (Bankrupt), Re (1997), 206 A.R. 295; 156 W.A.C. 295 (C.A.), refd to. [para. 11].

Alternative Fuel Systems Inc. v. Edo (Canada) Ltd. - see Edo (Canada) Ltd. (Bankrupt), Re.

Dykun v. Odishaw, [1998] A.R. Uned. 213; 7 C.B.R.(4th) 151 (C.A.), refd to. [para. 11].

Jolub Construction Ltd., Re (1993), 21 C.B.R.(3d) 313 (Ont. Gen. Div.), refd to. [para. 18].

Polar Products Inc. et al. v. Hongkong Bank of Canada et al., [1992] B.C.T.C. Uned. 991; 14 C.B.R.(3d) 225 (S.C.), refd to. [para. 19].

Nesi Energy Marketing Canada Inc., Re (1998), 233 A.R. 347; 1998 ABQB 912, refd to. [para. 19].

Alberta (Treasury Branches) v. Chocolaterie Bernard Callebaut Partnership et al., [2012] A.R. Uned. 275; 2012 ABQB 245, refd to. [para. 19].

Dominion Trustco Corp., Re (1998), 50 C.B.R.(3d) 84 (Ont. C.A.), refd to. [para. 21].

Bank of Montreal v. Tolo-Pacific Consolidated Industries Corp. et al., [2012] B.C.T.C. Uned. 1785; 97 C.B.R.(5th) 56; 2012 BCSC 1785, refd to. [para. 28].

J. & W. Investments Ltd. v. Black (1963), 38 D.L.R.(2d) 251 (B.C.C.A.), refd to. [para. 28].

HSBC Bank Canada v. Kupritz et al., [2011] B.C.T.C. Uned. 788; 2011 BCSC 788, refd to. [para. 28].

Alberta (Treasury Branches) v. New Hatchwear Co. et al. (2012), 551 A.R. 176; 2012 ABQB 788, refd to. [para. 28].

Formula Atlantic Financial Corp. v. Canada (Attorney General) et al. (1994), 52 B.C.A.C. 214; 86 W.A.C. 214; 10 B.C.L.R.(3d) 52 (C.A.), refd to. [para. 34].

Tirecraft Group Inc., Re (2009), 470 A.R. 113; 2009 ABQB 281, refd to. [para. 34].

Shaw Estate v. Nicol Island Development Inc. et al. (2009), 248 O.A.C. 35; 2009 ONCA 276, refd to. [para. 34].

Mutual Trust Co. v. Scott, Pichelli & Graci Ltd., [1999] O.T.C. 246; 11 C.B.R.(4th) 54 (Sup. Ct. Bktcy.), refd to. [para. 40].

Authors and Works Noticed:

Halsbury's Laws of Canada (1st Ed. 2009), v. 62(c), para. HBI-200 [para. 40].

Houlden, Lloyd W., and Morawetz, Geoffrey B., Bankruptcy and Insolvency Law of Canada (Looseleaf), p. 1-236.1 [para. 19].

Houlden, Lloyd W., and Morawetz, Geoffrey B., Bankruptcy and Insolvency Law of Canada (4th Ed.) (Looseleaf), p. 1-204 [para. 40].

Counsel:

J.G. Hanley, for the applicant;

H.A. Gorman, for the respondent, PricewaterhouseCoopers Inc.;

R. Gurofsky, for the respondent, Servus Credit Union Ltd.

This application was heard on August 14, 2013, by Rowbotham, J.A., of the Alberta Court of Appeal, who delivered the following reasons for decision on August 22, 2013.