IN THE SUPREME COURT OF NOVA SCOTIA Citation: Pricewaterhouse Coopers Inc. v. County Realty Ltd., 2006 NSSC 132 Date: 20060421 Docket: S.SN. 256803 Registry: Sydney Between: Pricewaterhouse Coopers Inc., Trustee in Bankruptcy of Alternative Sports Limited v. County Realty Limited, body corporate, incorporated under the laws of the Province of Nova Scotia Defendant Judge: The Honourable Justice Walter R.E. Goodfellow Heard: February 21 and March 31, 2006, in Sydney, Nova Scotia Counsel: Gail Rudderham Chernin, Q.C., for the plaintiff Gary J. Corsano and Robert F. Risk, for the defendant By the Court: [1] Pricewaterhouse Coopers Inc. (hereinafter “Pricewaterhouse”) received voluntary assignment for bankruptcy by the directors of Alternative Sports Limited on September 9, 2005. This assignment was approved by the Superintendent of Bankruptcy on September 12, 2005, appointing Pricewaterhouse and, specifically, Rita Anderson as Trustee in bankruptcy. [2] Pricewaterhouse retained Allan Henderson as a contractual agent to value and liquidate the assets in favour of the creditors of Alternative Sports Limited pursuant to the Bankruptcy and Insolvency Act and when he attended at the premises at 216 Charlotte Street, Sydney, Nova Scotia, he found that the inventory was being loaded into a van and he was unable to gain possession of the assets. Mr. Henderson called Rita Anderson who attended on September 12, 2005. [3] In the affidavit of Irving Warner, President of County Realty Limited, Warner acknowledges in paragraph 10 that he was present at the premises on September 12, 2005 when Rita Anderson attended: “she spoke with my employee, Archie Snow, in my presence, and advised him that Alternative Sports was bankrupt and that the inventory was seized.” [4] Mr. Warner had instructed his staff to remove the inventory to another location owned by County Realty Limited, namely, 308 Charlotte Street, Sydney, Nova Scotia, and his employees Archie Snow, Steve Moseychuck and Mark MacDonald began to carry out his instructions before the trustee arrived [5] County Realty Limited refused to turn over the inventory and an application was made for an interim injunction. A consent order dated the 22nd of February, 2006 was granted, directing that Pricewaterhouse would take possession of the assets which have given rise to the action for the purposes of completing an inventory and liquidating the assets in accordance with the normal duties and powers of the Trustee pursuant to the Bankruptcy and Insolvency Act. The order provided the Trustee’s entitlement to receive reasonable fees, expenses and disbursements directly associated with the removal and relocation of the assets. The taking of the inventory and its liquidation, with detailed inventory and results of the liquidation, when completed, to be filed with the court. This order was continued. This application for summary judgment which was first heard on February 21, 2006 was continued on March 31, 2006. [6] Civil Procedure Rule 13.01 is as follows: Application for summary judgment 13.01 After the close of pleadings, any party may apply to the court for judgment on the ground that: (a) there is no arguable issue to be tried with respect to the claim or any part thereof; (b) there is no arguable issue to be tried with respect to the defence or any part thereof; or (c) the only arguable issue to be tried is as to the amount of any damages claimed. [Amend. 31/05/02] [7] Section 16(3) of the Bankruptcy and Insolvency Act, R.S. 1985, c. B-3, states: The trustee shall, as soon as possible, take possession of the deeds, books, records and documents and all property of the bankrupt and make an inventory, and for the purpose of making an inventory the trustee is entitled to enter, subject to subsection (3.1), on any premises on which the deeds, books, records, documents or property of the bankrupt may be, notwithstanding that they may be in the possession of sheriff, secured creditor or other claimant thereto. [8] Section 20(3) of the Tenancies and Distress for Rent Act, R.S.N.S., 1989, c. 464 states: Where voluntary assignment of his property for the benefit of his creditors, or an authorized assignment under the Bankruptcy Act (Canada) is made by tenant, or where under the Bankruptcy Act (Canada) petition is presented to the court praying tenant by adjudged bankrupt and that receiving order be made against him, there shall be no right of the landlord to distrain or complete his distress for rent except for such rent as has accrued due during the three months immediately preceding such assignment, authorized assignment or petition, provided that where petition for receiving order or for the winding up of an incorporated company is dismissed or withdrawn or for any other reason is not granted the rights of the landlord affected by this subsection shall be deemed not to have been so affected. [9] Section 20 of the Tenancies and Distress for Rent Act works in conjunction with section 73 of the Bankruptcy and Insolvency Act in that it is clear that the landlord loses its distress rights on the bankruptcy of the tenant. The landlord has no right to distrain or to complete his distrain for rent as his only right is to claim as preferred creditor for arrears for rent for period of three months immediately preceding the bankruptcy and following the bankruptcy if entitled thereto under the lease and pursuant to section 136 of the Bankruptcy and Insolvency Act regarding the scheme of distribution. TEST FOR SUMMARY JUDGMENT: [10] The test for summary judgment in Nova Scotia is well established. In Canadian Imperial Bank of Commerce v. Tench (1990), 1990 CanLII 2451 (NS CA), 97 N.S.R. (2d) 325 (C.A.), Macdonald, J.A. stated at paragraph 9: The law is clear that plaintiff is entitled to obtain summary judgment if he can prove his claim clearly and if the defendant is unable to set up bona fide defence or raise an arguable issue to be tried see Bank of Nova Scotia v. Dombrowski (1977), 23 N.S.R. (2d) 532; 32 A.P.R. 532... Under the circumstances of this case, if the allegations contained in the statement of defence are correct, they would afford an answer to the bank’s claim. [11] In D.E. Son Fisheries Ltd. v. Goreham (2003), 2003 NSCA 93 (CanLII), 217 N.S.R. (2d) 199, (N.S.C.A.), Cromwell, J.A. stated at para. 2: Summary judgment may be granted to plaintiff if the plaintiff can prove the claim clearly and the defendant is unable to set up bona fide defence or raise an issue against the claim which ought to be tried. Bank of Nova Scotia and Simpson (Robert) Eastern v. Dombrowski (1978), 23 N.S.R. (2d) 523, 31 A.P.R. 532 (C.A.) At 537; Oceanus Marine Inc. v. Saunders (1996), 1996 CanLII 5309 (NS CA), 153 N.S.R. (2d) 267, 450 A.P.R. 267 (C.A.) at para 15. [12] There is no meaningful difference between an “arguable” issue and “genuine” or “bona fide” issue: see Roscoe, J.A. in United Gulf Developments Ltd. V. Iskandar, 2004 NSCA 35, (N.S.C.A.) (CanLII). [13] The position taken by County Realty Limited in its pleadings and evidence is first, that it has set out the pleading requirements taken as correct establish lease between County Realty Limited and Trevor Muller. In other words, that landlord tenant relationship existed between County Realty Limited and Trevor Muller. [14] County Realty Limited also takes exception to the conduct of Pricewaterhouse and in particular, Rita Henderson, as trustee in bankruptcy of Alternative Sports Limited. The affidavit evidence and documentation provided by the trustee in bankruptcy to County Realty Limited establishes prima facie valid appointment as trustee leaving the sole issue before me as to whether or not County Realty Limited has disclosed sufficient facts to place an arguable issue before the court. Gruchy, J. stated well, the defendant’s position in Prenor Trust Company v. Gupta (S.B.) Investments Limited (1991), 1991 CanLII 4509 (NS SC), 105 N.S.R. (2d) 251 (T.D.) quoting the often cited case of Featherstonhaugh v. Featherstonhaugh, 1939 CanLII 311 (ON CA), [1939] D.L.R. 262 (Ont. C.A.) Robertson, C.J. O., stated at paragraph 23: The Defendant needs to show the nature of his Defence and to disclose such facts as may be deemed sufficient to enable him to defend, and it is upon his success or failure in doing so that the fate of the motion must turn. In sense, the usual role is reversed for this special purpose, and the burden of proof, such as it is, lies upon the Defendant and not upon the Plaintiff. Gruchy, J. goes on to state in paragraph 25 as follows: It is clear from reading of Rule 13 and of the cases above cited, an onus rests upon the Defendants to bring forth sufficient facts which would conclude that bona fide Defence or issue exists which ought to be tried. [15] turn now to review that which is advanced by County Realty Limited. The affidavit of Mr. Warner alleges his approval of a rental of the premises to Trevor Muller personally and goes on to acknowledge that no lease agreement was ever signed. Attached to the affidavit of his Agent, Archie Snow, is the legal account from the law firm of LaFosse MacLeod dated October 27, 2005 and number of the entries in that account are acknowledged to be relevant to this action, as follows: Aug-22-05 Office conference with Trevor Muller re: offer to lease. Aug-23-05 preparation of draft lease. Telephone conference with Archie Snow. Extensive revisions to draft lease as per Archie Snow’s instructions. Preparation of personal guarantee for Trevor Muller and Catherine Muller. Aug-24-05 letter to Trevor Muller highlighting areas of the enclosed lease. Telephone conference with Trevor Muller. Aug-25-05 telephone call to Trevor Muller to advise his documents re still here. Voice-mail to Archie Snow providing update. Aug-26-05 telephone conference with Trevor Muller. Clause by clause review of changes he wants to lease. Telephone call to Archie Snow to discuss Mr. Muller’s changes. Telephone call to Trevor Muller advising that Archie Snow would contact him directly. Aug-31-05 telephone call from Archie Snow advising that Mr. Muller has retained Mr. Beaton and lease must be signed tomorrow. Fax to Wayne Beaton, Q.C. Sep-01-05 telephone call to Archie Snow. Advised him have not heard back from Wayne Beaton on Trevor Muller. Sept-06-05 telephone call from Archie Snow [16] The legal bill goes on to recite September 12th, telephone conference County’s Solicitor had with Rita Anderson and Mr. Warner personally. [17] County Realty Limited’s solicitors prepared draft lease and the parties are listed as follows: THIS INDENTURE made this day of August, A.D. 2005. BETWEEN: COUNTY REALTY LIMITED, company incorporated under the laws of Nova Scotia; (hereinafter referred to as the “Lessor”) and ALTERNATIVE SPORTS LIMITED, company incorporated under the laws of Nova Scotia; (hereinafter referred to as the “Lessee”) and TREVOR CLARENCE SCOTT MULLER (hereinafter referred to as the “First Guarantor”) and CATHERINE MULLER (hereinafter referred to as the “Second Guarantor”) WHEREAS the demised premises are to be used by the Lessee for commercial purposes, AND WHEREAS the First Guarantor and Second Guarantor each agree to guarantee the obligations of the Lessee under this Indenture, [18] The proposed term is set out as follows: II LEASE TERM TO HAVE AND HOLD the Demised Premises unto the Lessee for the term of one (1) year, commencing on the 1st day of September, A.D. 2005, and thenceforth fully to be completed and ended on the 31st day of August, A.D. 2006, unless the Lease is sooner terminated or later extended as provided herein. [19] The evidence advanced by Archie Snow in Cross-examination of his affidavit includes the following: Page 8... Q. O.k., but the important thing is, it’s the very next day after meeting with Trevor Muller it’s one day later, the very next day and he refers to an August 22 office conference with Trevor Muller re offer to lease so, he has met with Trevor Muller on the 22nd for an offer to lease, the very next day, preparation of draft lease, talks with you, extensive revisions, preparation of guarantees. So, are you telling me that that didn’t have to do with that lease? A. Mr. MacNeil was never instructed to prepare lease forms. County Realty and A.K.W. Homes, we do have our copy of lease forms. We asked Mr. MacNeil to prepare an offer to lease form with Mr. Muller. Q. So, you didn’t ask John MacNeil to prepare personal guarantees to attach to lease? A. No, we had conversations of the personal guarantees after Mr. Muller, believe, declined to even enter into an agreement, of any which way, shape or form. Q. O.k., that came later? A. That came later, yes. Q. That came later. We’re now at the point where you have the offer to lease and you’ve prepared draft? A. Yes, of the offer to lease form. Page 11 and 12... Q. So, what’s your version? A. Well, Mr. MacNeil called me and told me that Mr. Muller would not sign off on the lease, or something of the sort. My memory is pretty vague, as was on vacation and voice mails...as you can fully respect. Um, he...it seems that John MacNeil was telling me that Mr. Muller was orchestrating the lease, not us as County Realty. Q. So, why did you get billed for it? A. That’s good question and actually, that’s an ongoing issue in itself. Um, this whole bill is an issue with LaFosse MacLeod and Mr. Warner as going forward from today. Um, actually, the lease changes that he wanted to the lease...he wanted many revisions to un, the lease form, but not to our knowledge. Our knowledge was offer to lease, which basically states that he’s going to promise to take possession of property and pay deposit. From that point forward then we would, we would consider lease with Muller from that point forward, however, that never ever became, and where it came into the lease, the drafting of changes to lease, don’t know where that came from. didn’t give instructions for lease to be prepared that’s what I’m saying. Q. Explain to me what you think the difference is between an offer to lease and lease? What are the differences? A. Um, pre-determined possession date of the property with deposit. A. An offer to lease form one pager, if you will, stating that Mr. Muller will take possession of the property on certain date, for certain amount of money. A. Ah, once that is completed and we will enter into lease with Mr. Muller. That was never done and why would ask him to prepare lease without first having an offer to lease form is pretty much not what I’ve been taught. Q. So basically, your explanation is, the offer to lease is precedent to the lease? Q. But you can enter lease without an offer to lease? A. Not in our practice, we don’t. Q. Are you suggesting you didn’t know she was Trustee in Bankruptcy? A. Oh, knew she was Trustee in Bankruptcies. Page 20... Q. O.k. and when you name the parties...if you name company, do you prefer to have personal guarantee of the person? If there’s company that’s leasing from you, do you ask for personal guarantee? A. Ah, no, not necessarily. This particular case, was instructed by John MacNeil, through again, voice mail, that personal guarantee might be in order with Mr. Muller. Q. O.K. and that would be because if you have Mr. Muller personally named as lessee, then you can sue him personally if he defaults, but if you have his company names, you can’t sue him personally, unless he personally guarantees. So, personal guarantee gives you him as the lessee? A. That’s correct. Page 24... THE COURT: So, there’s no agreement at that stage as to the term? ARCHIE SNOW: Yes My Lord, that’s correct. [20] Mr. Snow gives evidence with respect to the invoices dealing with the change of locks at 216 Charlotte Street, and at this point simply interject from the affidavit of Mr. Warner the date Mr. Muller put inventory into the 216 Charlotte St. Was around the 5th of August and Warner states in para. 13. THAT with respect of Paragraph of the Affidavit of Allan Henderson, when Muller failed to pay his rent for the month of August 2005 had the locks changed on the Premises on August 18, 2005. Muller was given the new keys prior to September 2005. Muller continued to fail to pay his rent, and on September 1, 2005, had the locks for the Premises rekeyed. did not have the locks changed between September 8, 2005 and September 12, 2005. Attached hereto as Exhibit “A” are invoices from Bidart Locksmithing and Security with respect to the locks at the Premises. [21] Returning now to the affidavit of Mr. Snow: A. But, where the lease, draft copies of it came from, in terms of how they were drafter, can’t say that gave direction for that. It looks to me, from the bill, and again, can’t really say it’s true that Muller un, was instructing him to get his own legal counsel because he was kind of directing our legal counsel which is not really what was supposed to happen. Q. Hmm, hmm, which he did. Which he did and then he’s given instructions that... let’s even say that it’s an offer to lease. Let’s give you the offer to lease. Let’s say it was an offer to lease, as opposed to lease. Did you give instructions that it should be signed tomorrow? In other words, September 1st? guess. That’s what it looks like. musta give direction that we wanted it signed, sealed, delivered by September 1st, guess. Q. O.k., and then on September 1, John MacNeil places telephone call to you to advise you he has not heard back from Wayne Beaton on Trevor Muller. So, at this point, day by day, you’re concerned, you want something on paper, in writing and you’ve checking with lawyer to see has it been done yet? Q. This is the day the Trustee went down to the premises, September 12th to take possession of the inventory. Yes. Q. And at that point, you called the lawyer? A. Yes. Q. And the lawyer calls Rita Anderson? A. Yes. Q. And the lawyer calls Irving Warner. You put this into evidence. Would you care to tell us what that was about? A. Telephone call from me to John MacNeil; telephone conference with Rita Anderson don’t know what that entails, un, it didn’t include me. Ah, telephone conference with Irving Warner again, that did not include me. Um, and an office conference with LeeAnne MacLeod assume that would have been between John MacNeil and LeeAnne MacLeod? Q. Correct? A. Um, and left voice message for Irving Warner. Again, that did not include me, so the telephone call from me at the beginning of the day was to instruct John MacNeil at...probably Mrs. Anderson arrived on our scene. Q. O.k. Can you elaborate on that? A. Um, left that with Mr. Warner at that time. [22] It is also clear from Mr. Snow’s evidence that no deposit was paid by Muller and no agreement was ever reached with respect to the term of the proposed lease. Mr. Warner’s evidence on expansion of his affidavit made it clear that what was being sought was an offer to lease. He acknowledges no lease was entered into, he wasn’t sure what the term was to be either three or five years, that normally, no one would get in possession without signing lease. He was also upset after changing the locks on the 18th of August, there was apparently another set of locks given and he clearly instructed Archie Snow to get that set of keys back. Warner also denies some of the entries on the bill he received from the law firm of LaFosse MacLeod and says that it is an issue, but acknowledged that he paid it in timely fashion. [23] In determining whether or not the defendant has raised an arguable issue, have limited myself to the evidence advanced by County Realty Limited and have not made any determinations as to credibility in reaching the conclusion that the fundamentals of relationship of landlord tenant have not been advanced by County Realty. There are no facts advanced of agreement as to the term, none as to agreement as to when the lease would commence, no deposit, no consensus on the terms of any lease arrangement. The facts based on the evidence by County Realty Limited, Muller very clearly was only intended to be a guarantor and the lease prepared by County Realty Limited along with the evidence of Snow and the statement of legal fees strongly advances Muller’s position that he was only a guarantor and never intended to be a tenant. [24] The evidence advanced by County Realty is overwhelming that the basic facts required to show consensus on the fundamentals of lease do not exist. The mere statement by the defendant, that particular relationship exists does not constitute meeting the onus on the defendant to bring forth sufficient facts upon which the court could conclude that an arguable issue exists which ought to be tried. [25] Pricewaterhouse Coopers Inc. are entitled to summary judgement including a declaration with respect to the inventory and the existing order shall continue with damages to be determined and assessed in due course. [26] Counsel are entitled to be heard on costs and simply want to add at this stage that had found summary judgement was not established, would have denied County Realty Limited it’s costs because of the manner in which it conducted itself, although did not deal with credibility in making my determination on the issue of summary judgement. Credibility relating to how party conducts itself is relevant to the issue of costs. have no doubt that when Warner referred to having sold the inventory for $5,000. that whatever context he put it in, his intent clearly was to mislead the Trustee. Similarly, his explanation that his employees when they removed part of the inventory in the white van, drove out towards Gabarus, somewhere more than 15 miles from the place on Charlotte Street where they were supposed to be relocating the inventory. Mr. Warner suggests this was just lark and that, simply do not accept, it was clearly part and parcel of his attempt of County Realty Limited to mislead the Trustee and avoid the repossession.
When the trustee attended at the premises of the bankrupt, he found the bankrupt's inventory being loaded into a van by the landlord; after obtaining a consent order which allowed it to take possession of the assets for the purposes of compiling an inventory, the trustee brought an application for summary judgment against the landlord. Application for summary judgment granted. The evidence showed that only an offer to lease had been made, with no lease agreement ever having actually been signed, and that the individual with whom the landlord had dealt was only intended to be a guarantor and never a tenant.