In considering whether an
appeal from a trustee’s disallowance of a proof of claim is a true
appeal or a hearing de novo, the
Ontario Superior Court of Justice in Bankruptcy and Insolvency decided that the appeal
may proceed as a hearing de
novo in circumstances where an
injustice would result if
restricted to the record—but
that otherwise the appeal
should proceed based on the
record before the trustee.
In Charlestown Residential
School (Re),  O.J. No.
3140 (Ont. Reg.), Wayne Dunster retired on June 30, 2004,
after serving for 31 years as
executive director of the
School. The school agreed to
pay Dunster an annual gratuitous allowance while he was
alive which was secured by a
The school made the gratuit-
ous payments until April 3,
2009, when it made an assign-
ment in bankruptcy.
The school listed Dunster in
its statement of affairs with a
contingent claim of $210,000.
Dunster filed a proof of claim
for $397,130.24 supported by a
Canada Life life expectancy
chart, his agreement with the
school and the promissory note.
The trustee in bankruptcy disallowed Dunster’s claim because
the obligation to pay the allowance was gratuitous and there
was no termination date. The
trustee also relied on the Ontario
Employment Standards Act,
2000 and common law to assess
Dunster’s entitlement to reasonable notice for the termination of
his employment. Dunster
appealed the disallowance.
As a preliminary matter,
Deputy Registrar Janet Mills
considered whether the appeal
was a true appeal or a hearing
de novo. To resolve this issue,
Deputy Registrar Mills reviewed
three lines of decisions:
nthose following Eskasoni
Fisheries Ltd. (Re), 
N.S.J. No. 122, holding that the
appeal was a hearing de novo;
nthose following Galaxy
Sports Inc. (Re),  B.C.J.
No. 1008, holding that the
appeal is a true appeal; and
n;San Juan Resources Inc. (Re),
 A.J. No. 79, which tried
to reconcile the two lines.
Deputy Registrar Mills found
the third approach compelling.
She held that the appeal should
be a hearing de novo in circumstances where an injustice
would result if restricted to the
record, but otherwise ought to
proceed based on the record
before the trustee.
What this means for
trustees and creditors
Deputy Registrar Mills’ deci-
sion affects how both trustees
and creditors should approach a
proof of claim. Creditors must
treat the proof of claim as the
only chance to prove the bank-
rupt’s liability. Trustees must
assess proofs of claim judiciously.
Creditors need to watch limitation periods
Continued From Page 14
bankruptcy trustee is a predecessor in interest, then is the bankrupt himself not the ultimate
predecessor? Judging a limitation period from when the bankrupt committed an impugned
act would clearly be an absurd
result, but unfortunately this
issue was not addressed by the
Court of Appeal.
In Indcondo, the appeal
court relied on the assignment
stipulated by s. 38 of the BIA as
the basis for applying s. 12 of
the LA. This articulation of s.
38 as just an assignment of the
bankruptcy trustee’s interest
marks a departure from Traders
Finance Corp. v. Levesque,
 S.C.R. 83, in which the
Supreme Court of Canada held
that the creditor’s right to a
proceeding under what is now
s. 38 of the BIA is conferred by
law and the assignment of
interest referred to in s. 38 is
not the foundation or a precon-
dition to the commencement of
an action by a creditor.
Michael Nowina specializes
in insolvency and commercial
litigation with Baker &
McKenzie LLP in Toronto.
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ing liability and damages for libel
and slander. Trustees must recog-
nize when they lack expertise and
consult with experts.
Once the trustee has all the
relevant information and has
consulted with all necessary
experts, the trustee should prepare reasons for its decision. For
the appeal to be a true appeal, the
court has to consider the trustee’s
reasons for disallowing a claim.
In the past, if the trustee was
uncertain or there were insufficient assets in an estate to justify
a lengthy analysis, the trustee
could disallow the claim and wait
for the creditor to appeal. This is
no longer an option. The trustee
now has to consider the situation
and make a decision.
School places responsibility on
both trustees and creditors to
ensure that claims are assessed
properly. To overcome the concern that justice will be sacrificed
to expediency, both creditors and
trustees must be diligent in fulfilling their roles. n
Wojtek Jaskiewicz is a member
of the Insolvency and Corporate
Restructuring Practice and Com-
mercial Litigation Practice at
Pallett Valo in Mississauga, Ont.
He handles matters involving
contractual disputes, fraud and
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in Canada, 2nd Edition
Kevin P. McElcheran, LL.B.
$150 + tax
Approx. 400 Pages
Hardcover | March 2011
Choose the Best Legal Option
On September 18, 2009, major changes came into effect
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• Explanation of the distinction between amendments that codify
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• New chapter on the recognition of international insolvency
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• Footnotes directing you to online forms of orders and other
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