South Beach Homes Ltd. (Bankrupt), Re, 2010 SKQB 182

• Court: Court of Queen's Bench of Saskatchewan (Canada)
• Case Date: May 27, 2010
• Jurisdiction: Saskatchewan
• Citations: 2010 SKQB 182;(2010), 357 Sask.R. 82 (QB Reg.)

South Beach Homes (Bankrupt), Re (2010), 357 Sask.R. 82 (QB Reg.)

MLB headnote and full text

Temp. Cite: [2010] Sask.R. TBEd. JN.030

In The Matter Of the Proposal of South Beach Homes Ltd.

Mamczasz Electrical Ltd. (appellant) v. South Beach Homes Ltd. (respondent) and PricewaterhouseCoopers Inc. (respondent)

(Court No. 16767; Estate No. 23-1169979; 2010 SKQB 182)

Indexed As: South Beach Homes Ltd. (Bankrupt), Re

Saskatchewan Court of Queen's Bench

In Bankruptcy

Schwann, Registrar in Bankruptcy

May 27, 2010.

Summary:

In June 2006, South Beach Homes Ltd. entered into a services agreement with Mamczasz Electrical Ltd. (MEL) under which MEL provided managerial and general electrical services to South Beach for $85,000 per year. MEL was responsible for all expenses incurred, but was to be reimbursed plus a 20% mark up for all materials and supplies on invoicing. South Beach ceased operation in January 2008 and made a proposal to creditors under the Bankruptcy and Insolvency Act (BIA) several months later. MEL submitted a proof of claim for $207,653.25, which included $124,230.74 for managerial services. After initially accepting the claim for managerial services with interest for $133,489.20, the trustee subsequently disallowed the entire claim. MEL appealed under s. 135(4) of the BIA.

A Registrar of the Saskatchewan Court of Queen's Bench, In Bankruptcy and Insolvency, allowed the appeal in part. The trustee erred in disallowing the claim for managerial services because no invoice had been rendered. The appeal from the disallowance of the managerial services claim was allowed to the extent of $10,624. The court also found that the evidence filed in support of the materials, supplies and expenses claim was sufficient and reliable. That claim for $42,499.99 was allowed.

Bankruptcy - Topic 2765

Trustees - Powers of - Admission and disallowance of proofs of claim and proofs of security - In June 2006, South Beach Homes Ltd. entered into a services agreement with Mamczasz Electrical Ltd. (MEL) under which MEL provided managerial and general electrical services to South Beach for $85,000 per year - MEL was responsible for all expenses incurred, but was to be reimbursed plus a 20% mark up for all materials and supplies on invoicing - South Beach ceased operation in January 2008 and made a proposal to creditors under the Bankruptcy and Insolvency Act (BIA) several months later - MEL submitted a proof of claim for $207,653.25, which included $124,230.74 for managerial services - After initially accepting the claim for managerial services with interest for $133,489.20, the trustee subsequently disallowed the entire claim - MEL appealed under s. 135(4) of the BIA - At issue was whether the trustee's disallowance was a nullity by reason of the fact that a portion of the claim was initially admitted - A Registrar of the Saskatchewan Court of Queen's Bench, In Bankruptcy and Insolvency, indicated that, in the absence of any evidence of prejudice to the creditor, it was within the trustee's power to reconsider all or part of the claim - See paragraphs 50 to 54.

Bankruptcy - Topic 2765

Trustees - Powers of - Admission and disallowance of proofs of claim and proofs of security - [See Bankruptcy - Topic 6885.1 ].

Bankruptcy - Topic 3626

Creditors - General - Claims - General - What constitutes a provable claim - In June 2006, South Beach Homes Ltd. entered into a services agreement with Mamczasz Electrical Ltd. (MEL) under which MEL provided managerial and general electrical services to South Beach for $85,000 per year - MEL was responsible for all expenses incurred, but was to be reimbursed plus a 20% mark up for all materials and supplies on invoicing - South Beach ceased operation in January 2008 and made a proposal to creditors under the Bankruptcy and Insolvency Act (BIA) several months later - MEL submitted a proof of claim for $207,653.25, which included $124,230.74 for managerial services - After initially accepting the claim for managerial services with interest for $133,489.20, the trustee subsequently disallowed the entire claim - MEL appealed under s. 135(4) of the BIA - A Registrar of the Saskatchewan Court of Queen's Bench, In Bankruptcy and Insolvency, allowed the appeal in part - The trustee erred in disallowing the claim for managerial services because no invoice had been rendered - While the services agreement was not a model of good drafting, the amount of compensation was expressed clearly and unequivocally - The absence of an invoice did not extinguish South Beach's obligation to pay - However, no claim could exist for services rendered after South Beach ceased operations - No services could be rendered after South Beach ceased operating - The fact that the agreement had an unexpired term did not mean that MEL had a right of compensation for services it would have provided - The appeal from the disallowance of the managerial services claim was allowed to the extent of $10,624 - The court also found that the evidence filed in support of the materials, supplies and expenses claim was sufficient and reliable - That claim for $42,499.99 was allowed - See paragraphs 55 to 87.

Bankruptcy - Topic 3639

Creditors - General - Claims - General - Disallowance of (incl. notice of) - [See first Bankruptcy - Topic 2765 and Bankruptcy - Topic 3626 ].

Bankruptcy - Topic 3781

Creditors - General - Claims - Evidence and proof - General - [See Bankruptcy - Topic 6885.1 ].

Bankruptcy - Topic 6885.1

Practice - Appeals - From trustee's decision - In June 2006, South Beach Homes Ltd. entered into a services agreement with Mamczasz Electrical Ltd. (MEL) under which MEL provided managerial and general electrical services to South Beach for $85,000 per year - MEL was responsible for all expenses incurred, but was to be reimbursed plus a 20% mark up for all materials and supplies on invoicing - South Beach ceased operation in January 2008 and made a proposal to creditors under the Bankruptcy and Insolvency Act (BIA) several months later - MEL submitted a proof of claim for $207,653.25, which included $124,230.74 for managerial services - After initially accepting the claim for managerial services with interest for $133,489.20, the trustee subsequently disallowed the entire claim - MEL appealed under s. 135(4) of the BIA - At issue was the nature of a s. 135 appeal and the onus of proof - A Registrar of the Saskatchewan Court of Queen's Bench, In Bankruptcy and Insolvency, determined that the appeal was to proceed on a de novo basis - The fact sensitive nature of the issues favoured a de novo examination of the material - This conclusion was further influenced by the absence of a discernible "record" and by the plethora of affidavit material filed by both sides - MEL bore the onus of establishing its claim - MEL had to provide sufficient evidence so as to enable the trustee to make an informed decision on the validity of the proposed claim - That evidence had to be "relevant and probative" - If that test was met, the claim was provable - However, if the trustee had suspicions, the obligation shifted to the trustee to investigate further - Disallowing a claim based on a hunch or suspicion was not enough - See paragraphs 29 to 49.

Cases Noticed:

Eskasoni Fisheries Ltd. (Bankrupt), Re (2000), 187 N.S.R.(2d) 363; 585 A.P.R. 363; 16 C.B.R.(4th) 173 (S.C. Bktcy. Registrar), refd to. [para. 30].

Port Chevrolet Oldsmobile Ltd. (Bankrupt), Re (2004), 193 B.C.A.C. 114; 316 W.A.C. 114; 49 C.B.R.(4th) 146; 2004 BCCA 37, refd to. [para. 30].

Galaxy Sports Inc. (Bankrupt), Re (2004), 200 B.C.A.C. 184; 327 W.A.C. 184; 1 C.B.R.(5th) 20; 2004 BCCA 284, refd to. [para. 30].

Erdman (Bankrupt), Re (2005), 276 Sask.R. 10; 18 C.B.R.(5th) 97; 2005 SKQB 515 (Bktcy. Registrar), refd to. [para. 30].

Johnson v. Erdman - see Erdman (Bankrupt), Re.

Foreman (Bankrupt), Re (2009), 349 Sask.R. 183; 2009 SKQB 476 (Bktcy. Registrar), refd to. [para. 31].

Able Automotive Ltd. v. Cameron-Okolita Inc. - see Foreman (Bankrupt), Re.

San Juan Resources Inc. (Bankrupt), Re (2009), 467 A.R. 391; 52 C.B.R.(5th) 97; 2009 ABQB 55 (Bktcy. Registrar), refd to. [para. 31].

Lacey (J.J.) Insurance Ltd. (Bankrupt), Re (2008), 274 Nfld. & P.E.I.R. 314; 837 A.P.R. 314; 41 C.B.R.(5th) 137; 2008 NLTD 9, refd to. [para. 31].

Lloyd's Non-Marine Underwriters v. Lacey (J.J.) Insurance Ltd. - see Lacey (J.J.) Insurance Ltd. (Bankrupt), Re.

Pyne (Bankrupt), Re (2009), 354 Sask.R. 1; 2009 SKQB 458 (Bktcy. Registrar), refd to. [para. 31].

Business Development Bank of Canada v. Pinder Bueckert & Associates Inc. - see Pyne (Bankrupt), Re.

Flewitt v. Agravoice Productions Ltd. (1986), 61 C.B.R.(N.S.) 280 (Man. Q.B.), refd to. [para. 37].

Toronto Permanent Furniture Showrooms Co., Re (1960), 1 C.B.R.(N.S.) 16 (Ont. S.C.), refd to. [para. 40].

Norris (Bankrupt), Re (1988), 67 C.B.R.(N.S.) 246 (Ont. S.C.), revd. (1989), 34 O.A.C. 304; 75 C.B.R.(N.S.) 97 (C.A.), refd to. [para. 44].

HDYC Holdings Ltd. (Bankrupt) et al., Re, [1995] B.C.T.C. Uned. C40; 35 C.B.R.(3d) 294 (S.C.), refd to. [para. 46].

Royal Bank of Canada v. Drummie (Bankrupt) (2004), 272 N.B.R.(2d) 314; 715 A.P.R. 314; 49 C.B.R.(4th) 90; 2004 NBQB 35 (Bktcy. Registrar), refd to. [para. 52].

Drummie, Re - see Royal Bank of Canada v. Drummie (Bankrupt).

Dyrland (Bankrupt), Re (2008), 459 A.R. 118; 47 C.B.R.(5th) 243; 2008 ABQB 356, refd to. [para. 52].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (5th Ed. 2006), pp. 531, 532 [para. 58].

Honsberger, John D., and DaRe, Vern W., Bankruptcy in Canada (4th Ed. 2009), pp. 390 [para. 36]; 409 [para. 47].

Houlden, Lloyd W., and Morawetz, Geoffrey B., Bankruptcy and Insolvency Law of Canada (4th Ed.) (Looseleaf), vol. 2, p. 5-181 [paras. 41, 46].

Wood, Roderick J., Bankruptcy and Insolvency Law (2009), p. 243 [para. 40].

Counsel:

Barry Wilcox, for Mamczasz Electrical Ltd., the appellant;

David Gerecke, for PricewaterhouseCoopers, the trustee.

This appeal was heard by Schwann, Registrar, of the Saskatchewan Court of Queen's Bench, In Bankruptcy and Insolvency, who delivered the following judgment on May 27, 2010.