DIGEST
OF RECENT DECISIONS FROM CANADA’S COURTS
Michael Hamilton, LL.B. E-mail: jandm@hfx.eastlink.ca
BANKRUPTCY
& INSOLVENCY
ASSIGNMENTS – Appellant bank
demonstrated sufficient indebtedness
to justify a bankruptcy order against
respondent.
Appeal from the dismissal of appellant
bank’s application for a bankruptcy order.
Respondent owed a mortgage debt of
$237,474 to the bank, including $37,000 for
back taxes, which the bank paid. The Canada Revenue Agency (CRA) had a claim for
unpaid GST in the amount of $175,000, for
which it claimed a super priority over the
bank’s mortgage under the Excise Tax Act.
The application judge held that the bank
failed to show that it had at least $1,000 of
unsecured indebtedness. The bank had
chosen not to offer any evidence on efforts to
sell the security and had filed its application
after receiving an appraisal valuing the
property at $230,000. It chose to estimate
the value at $200,000 without explanation.
The application judge held that the estimate
was absurdly low and was not made in good
faith. He further found that the bank had
not established that the value of the property
was at least $1,000 less than the debt owed
by respondent.
HELD: Appeal allowed. The order was
set aside and the application was allowed.
Taking into consideration the amount of
the debt owing to the CRA and its priority,
the bank was an unsecured creditor. The
relevant date for valuing a security was
both the date of the application and the
date that the application was heard. Payments made to reduce indebtedness to the
applicant creditor after the date of the
application and before the date of the hearing would thus be taken into consideration
in determining the amount of unsecured
debt. Here, there were none. The valuation
was not a sham.
CIBC Mortgages Inc. v. Chartrand,
[2010] O.J. No. 2613, Ont. C.A., per
Weiler, Blair and Rouleau JJ.A., June
21/10. Digest No. 3012-001 (Approx. 5 pp.)
CLAIMS – Court dismissed a motion
by a union seeking priority for severance
and termination payments for employees.
Motion for an order directing the
employer to satisfy obligations regarding
severance and notice of termination payments in accordance with collective agreements. In October 2006 an initial order
granted the employer protection under the
Companies’ Creditors Arrangement Act
(CCAA). In September and November 2009,
the employer announced employee layoffs.
The employees were not paid any severance
after they were laid off and some employees
were also owed money in lieu of notice of
termination. The union took the position
that the employees provided post-filing services and were entitled to severance and
termination payments in accordance with
the collective agreements. The employer
took the position that the employees’ severance entitlements were not converted into
post-filing obligations simply because they
had provided services following the date of
the initial order.
HELD: Motion dismissed. Termination
and severance payments were unsecured
claims and s. 33 of the CCAA did not alter
priorities or status. While terminated
employees were entitled to such payments,
the obligation to make those payments was
not immediate. Rather, the obligation was
stayed and subject to a compromise. There
was no statutory justification for giving the
employees priority over secured creditors.
Re Canwest Global Communications
Corp., [2010] O.J. No. 2544, Ont. S.C.J.,
Pepall J., June 14/10. Digest No. 3012-
002 (Approx. 10 pp.)
CLAIMS – Canada Revenue Agency
was entitled to collect funds from a bank-
rupt corporation pursuant to a jeopardy
order obtained before the bankruptcy.
Appeal by the trustee in bankruptcy from
the dismissal of its application for order directing the Canada Revenue Agency (CRA)
to return funds seized or to set those funds
off against any dividend owing to the CRA.
The CRA argued that it was owed a dividend
of $489,330. In 2006, the CRA reassessed
the now-bankrupt corporation and found
that it owed $1,273,452. The CRA obtained
the maximum allowable under the large
corporation provisions of the Income Tax
Act, $621,415. The CRA then brought an ex
parte motion in Federal Court and obtained
a jeopardy order. With the jeopardy order, it
seized a further $707,278. The corporation
then declared bankruptcy and the CRA submitted a claim for $746,962 owing in unpaid
CPP and EI premiums, GST, penalties and
interest. The bankrupt’s estate made three
interim distributions and the CRA received
nothing. Based on proof of claim, it should
have received a distribution of $489,330.
The trustee argued that the jeopardy order
was ill founded and that the estate was owed
$63,706 in GST refunds. The CRA argued
that the jeopardy order was properly
obtained and was not subject to review by
this court. The application judge held that
the jeopardy order was properly obtained
and completely executed before the bankruptcy. Under s. 70(1) of the Bankruptcy
and Insolvency Act the order could stand.
HELD: Appeal dismissed. The trustee’s
motion constituted a collateral attack on the
jeopardy order. The order authorized the
collection of the amount assessed owing.
The assessment of tax owing was immediately owing and payable when the notice of
assessment was sent. The filing of the notice
of objection by the taxpayer provided the
taxpayer with at least a 90-day grace period
during which time the CRA was precluded
from taking collection proceedings. That
temporary stay ended when the jeopardy
order was issued authorizing the CRA to
proceed with collection, which it did. The
payment was fully executed in March 2007.
Re I. Waxman & Sons Ltd., [2010] O.J.
No. 2585, Ont. C.A., per MacFarland J.A.
(MacPherson J.A. concurring), reasons
concurring by Goudge J.A., June 17/10.
Digest No. 3012-003 (Approx. 11 pp.)
LEAVE TO COMMENCE ACTION –
Appellant bank was refused leave to com-
mence an action against respondent
alleging that he had incurred a debt by
false pretences or fraud.
CHARTER OF RIGHTS
& FREEDOMS
ARBITRARY DETENTION – New
trial ordered on the issue of whether
respondent had been arbitrarily detained
by a police officer during a stop for a traf-
fic violation.
Appeal from acquittal of respondent on
charges of drug possession for the purpose of
trafficking. Respondent was stopped for a
traffic violation. The officer who stopped
him had a hunch that something illegal was
going on, but had no grounds to detain
respondent. The officer testified that he told
respondent that he was free to leave, but
asked him to answer some questions any-
way. After some conversation, the officer
asked respondent if he would let him search
his car. Again, he claimed he told respondent
that he was free to refuse to consent.
Respondent denied being so advised and
claimed that he felt compelled to agree to the
search. Respondent eventually opened the
trunk of his car and gestured to items in the
trunk which contained significant amounts
of marijuana, cocaine and cash. Respondent
was arrested and handcuffed to the police
car. He was then advised of his rights for the
first time. The trial judge found that respond-
ent was arbitrarily detained. He found that
the officer conducted an unreasonable
search of respondent’s vehicle, and that
respondent did not consent to the search.
The judge also found that the officer
breached respondent’s right to be informed
of his rights and the reason for his detention
as soon as the conversation between the pair
turned to one of investigation. The evidence
was excluded because its admission would
have brought the administration of justice
into disrepute. Respondent was acquitted.
SEARCH AND SEIZURE – Court
upheld the validity of a search of accused’s
vehicle during a highway spot check.
Appeal from a decision that police conduct did not amount to an abuse of their
statutory stop and search powers so as to
render evidence inadmissible under ss. 8 or
9 of the Charter. Accused were pulled over
by an RCMP officer in a spot check under
the Highways and Transportation Act
(HTA) (Sask.). It emerged that the truck’s
registration was not pro-rated to include the
province and the appropriate fuel sticker
had expired. Those were provincial offences.
The officer asked whether he could inspect
the trailer and accused agreed. It was empty.
He advised accused that he would be
inspecting the interior of the tractor without
seeking consent for the search and immediately found a small duffle bag. The duffle bag
contained $115,000 bundled in small
denominations. The officer immediately
placed the accused under arrest for possession of the proceeds of crime. Police back-up
was summoned and upon further inspection
of the trailer, the officers discovered a hidden
compartment containing 392 pounds of
cannabis marijuana valued at between
$1,100,000 and $1,500,000. At no time did
the police obtain a search warrant. Accused
were charged with trafficking, possession of
marijuana for the purposes of trafficking,
and possession of proceeds of crime in excess
of $5,000. The trial judge held that the war-rantless searches were unreasonable and the
evidence of the money and the marijuana
was excluded. Accused were acquitted. The
Court of Appeal overturned that decision
and ordered a new trial. Accused appealed.
