Valastiak v. Valastiak, (2010) 283 B.C.A.C. 204 (CA)

• Judge: Finch, C.J.B.C., Prowse and Frankel, JJ.A.
• Court: Court of Appeal (British Columbia)
• Case Date: December 08, 2009
• Jurisdiction: British Columbia
• Citations: (2010), 283 B.C.A.C. 204 (CA);2010 BCCA 71

Valastiak v. Valastiak (2010), 283 B.C.A.C. 204 (CA);

    480 W.A.C. 204

MLB headnote and full text

Temp. Cite: [2010] B.C.A.C. TBEd. FE.032

Betty Ann Valastiak (plaintiff/appellant) v. Vladimir Valastiak (defendant/respondent)

(CA036945; 2010 BCCA 71)

Indexed As: Valastiak v. Valastiak

British Columbia Court of Appeal

Finch, C.J.B.C., Prowse and Frankel, JJ.A.

February 11, 2010.

Summary:

Prior to their divorce, the parties operated a restaurant business through a corporation. In the divorce proceedings, Stromberg-Stein, J., held that the wife should be compensated for the loss of that asset, which was caused by the defendant's mismanagement of the business. Stromberg-Stein, J., made a $30,000 compensation order in the wife's favour under s. 66(2) of the Family Relations Act. The husband made an assignment into bankruptcy. The wife applied for an order that the $30,000 judgment survived the bankruptcy under s. 178(1)(d) of the Bankruptcy and Insolvency Act (BIA) ("debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity").

The British Columbia Supreme Court, in a decision reported at [2009] B.C.T.C. Uned. 204, dismissed the application. The wife appealed.

The British Columbia Court of Appeal allowed the appeal and ordered under s. 178(1)(d) of the BIA that the husband's discharge from bankruptcy did not release him from his liability to satisfy the amount owing on the compensation order.

Bankruptcy - Topic 8983

Discharge of debtor - Liabilities not released by discharge - Act of defalcation or misappropriation in fiduciary capacity - Prior to their divorce, the parties operated a restaurant business through a corporation - In the divorce proceedings, Stromberg-Stein, J., held that the wife should be compensated for the loss of that asset, which was caused by the defendant's mismanagement of the business - Stromberg-Stein, J., made a $30,000 compensation order in the wife's favour under s. 66(2) of the Family Relations Act - The husband made an assignment into bankruptcy - The wife applied for an order that the $30,000 judgment survived the bankruptcy under s. 178(1)(d) of the Bankruptcy and Insolvency Act (BIA) ("debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity") - The chambers judge dismissed the application - The chambers judge held that the facts as found by Stromberg-Stein, J., supported the conclusion that the husband had misappropriated funds - However, the chambers judge held that the wife failed to establish that the husband misappropriated funds while he was acting in a fiduciary capacity in relation to her - The wife appealed - The British Columbia Court of Appeal allowed the appeal - The court held that the husband held 50% of the shares in the family business on a resulting trust for the wife and that this was one of those exceptional cases where the director of a company (the husband) owed a fiduciary duty to the wife as a beneficial shareholder of the company - As the husband's misappropriation of funds occurred while he stood in a fiduciary relation to the wife, her right to recover on the compensation order was protected by s. 178(1)(d) of the BIA.

Bankruptcy - Topic 8983

Discharge of debtor - Liabilities not released by discharge - Act of defalcation or misappropriation in fiduciary capacity - Prior to their divorce, the parties operated a restaurant business through a corporation - In the divorce proceedings, Stromberg-Stein, J., held that the wife should be compensated for the loss of that asset, which was caused by the defendant's mismanagement of the business - Stromberg-Stein, J., made a $30,000 compensation order in the wife's favour under s. 66(2) of the Family Relations Act - The husband made an assignment into bankruptcy - The wife applied for an order that the $30,000 judgment survived the bankruptcy under s. 178(1)(d) of the Bankruptcy and Insolvency Act (BIA) ("debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity") - The British Columbia Court of Appeal affirmed the chambers judge's conclusion that the husband had misappropriated funds from the restaurant business - The court construed "misappropriation" in its ordinary sense to connote some element of wrongdoing, improper conduct or improper accounting - The husband's impermissible use of the corporate account for personal purposes constituted a wrongful use and was therefore misappropriation - See paragraphs 22 to 35.

Company Law - Topic 4262

Directors - Duties - General principles - Fiduciary duty - [See first Bankruptcy - Topic 8983 ].

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - [See first Bankruptcy - Topic 8983 ].

Equity - Topic 3615

Fiduciary or confidential relationships - General principles - Spousal or family relationships (incl. closely held companies) - [See first Bankruptcy - Topic 8983 ].

Equity - Topic 3646

Fiduciary or confidential relationships - Breach of fiduciary relationship - By director or officer of company - [See first Bankruptcy - Topic 8983 ].

Words and Phrases

Misappropriation - The British Columbia Court of Appeal considered the meaning of this word in s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 - See paragraphs 22 to 35.

Cases Noticed:

Smith v. Henderson et al. (1992), 10 B.C.A.C. 249; 21 W.A.C. 249; 64 B.C.L.R.(2d) 144 (C.A.), consd. [para. 22].

Simone v. Daley et al. (1999), 118 O.A.C. 54; 43 O.R.(3d) 511 (C.A.), refd to. [para. 28].

Janco v. Vereecken (1982), 40 B.C.L.R. 106 (C.A.), refd to. [para. 30].

Kitnikone (Bankrupt), Re (1999), 23 B.C.T.C. 313 (S.C. Bktcy.), refd to. [para. 30].

Winfield v. Lomas, [2008] B.C.T.C. Uned. E68; 2008 BCSC 1636, refd to. [para. 39].

Balic v. Balic (2006), 228 B.C.A.C. 250; 376 W.A.C. 250; 2006 BCCA 335, refd to. [para. 45].

Malcolm v. Transtec Holdings Ltd. et al. (2001), 150 B.C.A.C. 20; 245 W.A.C. 20; 2001 BCCA 161, refd to. [para. 46].

Pelling et al. v. Pelling et al. (1981), 130 D.L.R.(3d) 761 (B.C.S.C.), refd to. [para. 47].

Coleman v. Myers, [1977] 2 N.Z.L.R. 225 (C.A.), refd to. [para. 49].

Dusik v. Newton (1985), 62 B.C.L.R. 1 (C.A.), refd to. [para. 49].

Statutes Noticed:

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect. 178(1)(d) [para. 2].

Authors and Works Noticed:

Houlden, Lloyd W., and Morawetz, Geoffrey B., Bankruptcy and Insolvency Law of Canada (4th Ed. 2009), pp. 6-232 [para. 38]; 6-258 [para. 30].

McGuinness, Kevin P., Canadian Business Corporations Law (2nd Ed. 2007), p. 999 [para. 49].

Ng, Michael, Fiduciary Duties: Obligations of Loyalty and Faithfulness (2007 Looseleaf), para. 5.20.10 [para. 46].

Waters, Donovan W.M., The Law of Trusts in Canada (3rd Ed. 2005), p. 363 [para. 43].

Counsel:

A. Morrison, for the appellant;

J. Hittrich, for the respondent.

This appeal was heard on December 8, 2009, at Vancouver, B.C., before Finch, C.J.B.C., Prowse and Frankel, JJ.A., of the British Columbia Court of Appeal. The following judgment of the Court of Appeal was delivered by Finch, C.J.B.C., on February 11, 2010.