Registrar C.A. No. 128144 NOVA SCOTIA COURT OF APPEAL Freeman, Bateman and Flinn, JJ.A. BETWEEN: FREDERICK W.F. BLACK and KRUPP MaK MASCHINENBAU GmbH body corporate, and KRUPP MaK DIESEL INC., body corporate Respondents the appellant appeared in person Thomas M. MacDonald for the Respondent Appeal Heard: October 9, 1996 Judgment Delivered: October 22, 1996 THE COURT: Appeal dismissed with costs to the respondents in the amount of $1500.00 inclusive of disbursements per reasons for judgment of Bateman, J.A.; Freeman and Flinn, JJ.A. concurring. BATEMAN, J.A.: Mr. Black appeals the Order of Justice Michael MacDonald of the Supreme Court dated April 30, 1996, dismissing a motion to strike the plaintiffs' (respondents') Originating Notice and Statement of Claim. Background: The respondent companies claim that they are creditors of bankrupt company, NsC Diesel Power Inc. The appellant was the shareholder, chief officer and controlling mind of that company. On August 10, 1994, Associate Chief Justice Palmeter granted an Order (issued September 7, 1994) pursuant to s. 38 of the Bankruptcy and Insolvency Act, as amended. That Order was granted upon the motion of the respondents herein (Krupp) who sought leave of the court to initiate an action against the appellant, as is required by s. 38. The appellant unsuccessfully applied for an Order of this court declaring the s. 38 Order, along with other Orders granted by Palmeter, A.C.J., "nullity". The decision of Pugsley, J.A., in Chambers, on this issue, is dated October 26, 1994. The appellant by way of application purported to appeal that decision to the Chief Justice, who, by decision dated November 24, 1994, dismissed the application. On September 28, 1995, the respondents commenced the action in the Supreme Court against the appellant, seeking, inter alia, damages for the appellant's alleged fraudulent actions as the controlling mind of NsC Diesel Power Incorporated. Justice Michael MacDonald was assigned to case manage that action. By Originating Notice (Application) dated January 9, 1996, Mr. Black applied to the Court for an Order declaring that Associate Chief Justice Palmeter was without jurisdiction to grant the s. 38 Order; that the respondents' action be dismissed or stayed in that Nova Scotia is not the forum conveniens; and that the action should be dismissed as the Nova Scotia courts are not impartial. That application was heard by the case management judge. In decision dated February 9, 1996, Justice MacDonald found that the Order of Palmeter, A.C.J. remained valid Order of the Supreme Court. He declined to dismiss or stay the proceeding, as the balance of convenience strongly favoured the continuance of the action in Nova Scotia. He found, as well, that there was no material before him demonstrating bias or to support reasonable apprehension of bias on the part of Nova Scotia judges. Mr. Black's application was dismissed. It is from that Order that Mr. Black appeals. Issues: The appellant states the following grounds of appeal: 1. THAT the learned Chambers Judge erred in law, insofar as he failed to consider and apply the provisions of the Bankruptcy and Insolvency Act R.S.C. 1985, c. B-3 as amended, sec. 38 to the facts of the cases; and failed to consider the prejudicial and damaging effects of the order sought to be rescinded; 2. THAT the learned Chambers Judge erred in law, insofar as he failed to consider matters respecting the roles, and the rights, of the applicant as defined in the Constitution Act, 1982 R.S.C. 1985, c. 11 (U.K.), specifically s. 1., 7., 15. (1), 24(1), 32(1)(a) (b), and 52.(1) and the Canadian Bill of Rights, and specifically s. 1(a) 2(d); 3. THAT the learned Chambers Judge failed to remove himself as he was unable to act in an impartial and unbiased judicial man (sic) 4. THAT the learned Chambers Judge erred in law, insofar as he failed to consider evidence in the file. He seeks the following relief: 1. THAT the Decision of Justice MacDonald be reversed and an order granted rescinding the Order of the Court in Bankruptcy dated September 7, 1994 and striking the plaintiffs' originating notice and statement of claims in action S.H. No. 120859; 2. THAT the Court award costs, of the motions in the Courts below and on appeal, to the appellant payable forthwith; Mr. Black has not appealed Justice MacDonald's finding that Nova Scotia is the forum conveniens. Grounds 2, and are argued in the context of the allegations of bias and failure to consider the evidence. The issues on this appeal are, therefore, the challenge to the s. 38 Order; the allegations of bias; and the judge's, alleged, failure to consider the evidence. Analysis: (i) Bankruptcy and Insolvency Act s. 38 Order: Section 38(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, provides: (1) Where creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct. creditor is "a person having claim, preferred, secured or unsecured, provable as claim under" the Act. It was Mr. Black's submission before MacDonald, J. that Chief Justice Palmeter was without jurisdiction to issue the s. 38 Order because the respondents are not "creditors" of the bankrupt company, NsC Diesel Power Incorporated, a status essential to the granting of the Order. The threshold issue before us is whether MacDonald, J. had jurisdiction, in the proceeding before him, to strike the respondents' Statement of Claim on the basis that, as submitted by Mr. Black, Palmeter, A.C.J. was wrong in granting the s. 38 Order. Mr. Black, on this jurisdictional issue, submits that MacDonald, J. wrongly refused to exercise jurisdiction or, alternatively, that he did exercise jurisdiction, in that he reviewed, in a limited way, the merits of the decision of Palmeter, A.C.J., but erred in the result. A review of the transcripts of the pre-hearing conference and of the hearing reveals that MacDonald, J. was of the firm view that he did not, in the context of the application before him, have jurisdiction to review the s. 38 Order. Mr. Black, however, insisted upon advancing this argument in his submissions to the judge. MacDonald, J. wrote in his decision: At the Section 38 hearing, Palmeter, A.C.J. had before him affidavit evidence confirming that the plaintiffs were creditors of the bankrupt estate. The plaintiffs' request for standing was supported by the trustee. The defendant has applied to the Nova Scotia Court of Appeal, without success, to have Palmeter, A.C.J.'s order declared nullity. It remains valid order of this Court. As such, this Court has jurisdiction to hear the plaintiffs' claim. This aspect of the defendant's application, therefore, fails. (emphasis added) Mr. Black submits that the above passage confirms that MacDonald, J., notwithstanding the reservations he expressed, did assume jurisdiction to review the Order of Palmeter, A.C.J. and in so doing should have received and considered the substantial volume of material submitted by Mr. Black on the issue of whether Krupp was creditor of NsC Diesel. He further submits that MacDonald, J. was clearly wrong when or if he concluded that prima facie case that Krupp was creditor had been made out before Palmeter, A.C.J. disagree with the interpretation Mr. Black places upon the remarks of MacDonald, J. The judge did no more than confirm that the Order of Palmeter, A.C.J., not having been declared nullity in this court in the proceeding before Pugsley, J.A., remained valid court Order. In the alternative, even should we accept Mr. Black's submission that MacDonald, J. assumed jurisdiction, with which submission disagree, we must nevertheless consider whether he had such jurisdiction. If he did not have jurisdiction to review the s. 38 Order, he was correct in not receiving the evidence purportedly impugning its validity. The record confirms that Justice MacDonald was correct when he noted that Associate Chief Justice Palmeter had before him evidence that the respondents were creditors of the bankrupt estate. In particular, Axel Kettmann of Hamburg Germany, lawyer employed by the respondents, in paragraph of his Affidavit of June 21, 1994, deposes that the respondents Krupp "are creditors of the estate of the bankrupt NsC Diesel Power Incorporated and have filed Proofs of Claim together with supporting documentation with respect to the bankruptcy". This evidence was unchallenged. Indeed, the trustee in bankruptcy supported the respondents' s. 38 application. Mr. Black's submission that there was no evidence before Palmeter, A.C.J. that Krupp were creditors of the bankrupt estate is in error. Mr. Black's complaint is therefore restricted to the sufficiency and reliability of that evidence. He wished to have an opportunity, in the proceeding before MacDonald, J., to attack the evidence of Axel Kettman and tender contrary evidence. It is settled law that an affected party, here Mr. Black, has no standing in s. 38 application. The transcript of the proceeding before Palmeter, A.C.J., reveals that, while Mr. Black did not have standing on that motion, he was permitted to appear and make limited representations. He asserted, as he did here and before MacDonald, J., that there was no evidence that the respondents were creditors of the bankrupt estate. There was discussion on that issue with representations on behalf of the Superintendent of Bankruptcy as well as the solicitor for the respondents. The judge was satisfied that prima facie case had been made out. All of this is, however, irrelevant to the question of the jurisdiction of MacDonald, J. to review the s. 38 Order. In support of his position that Justice MacDonald possessed jurisdiction to review the Order, Mr. Black has cited Toyota Canada Inc. v. Imperial Richmond Holdings Ltd. (1993), 10 AIta.L.R. (3d) 127 (Q.B.). In that case, which is not binding upon this court, the judge who had granted s. 38 Order ruled that the affected party, had standing to appear before him to challenge the Order on the basis of alleged procedural irregularities. The situation before this court is not analogous. Mr. Black is seeking to challenge the finding of fact by Palmeter, A.C.J., that, for the purposes of the s. 38 application, the respondents are creditors of the bankrupt estate. factual finding is distinct from procedural irregularity. Had there been no evidence before Palmeter, A.C.J. that the respondents were creditors of the bankrupt estate, then there may have been procedural error in the granting of the Order and we would have to consider whether the Toyota case applied, so as to give Mr. Black standing to challenge the s. 38 Order and, if so, in what form of proceeding that challenge could be made. Mr. Black cites, as well, B.N.R. Holdings Ltd. v. Royal Bank (1992), 1992 CanLII 1093 (BC CA), 16 C.B.R. (3d) 72 (B.C.C.A.). In that case an action was commenced by creditors of the undischarged bankrupt company, without benefit of s. 38 Order, long after the trustee had been discharged and the company struck from the register of companies. Six years after the commencement of the action the defendant applied for dismissal of the proceeding for want of prosecution or, in the alternative, to have the statement of claim struck. After various interim applications, the chambers judge, inter alia, ordered that the trustee be reappointed and granted an Order pursuant to s. 38 permitting the creditors to bring the action. The issue before the court of appeal was whether leave pursuant to s. 38 could be granted nunc pro tunc. The court held that, as no cause of action existed until leave of the court was granted, the existing action could not be authorized retrospectively. Mr. Black is of the view that in this case the Court of Appeal assumed the jurisdiction to review the s. 38 Order of the chambers judge and, thus, we have jurisdiction to review the s. 38 Order, as did MacDonald, J. B.N.R. is not analogous to the situation before us. In B.N.R. the chambers judge was granting an original s. 38 Order, not reviewing his own Order or that of another judge. The Court of Appeal was not reviewing whether the conditions precedent to the granting of s. 38 Order had been met nor the validity of the s. 38 Order, per se, but, rather, determining whether an action, commenced without leave could be retrospectively revived. B.N.R. does not bear upon the jurisdiction of MacDonald, J. to review the s. 38 Order. Mr. Black refers, as well, to Construction Co. v. Reid (1985), 1985 CanLII 616 (BC SC), 56 C.B.R. (N.S.) 232 (B.C.S.C.). There the chambers judge held that the defendants, in an action commenced by creditors pursuant to an Order under s. 20 of the Bankruptcy Act, did have status to bring an action for declaration that the proceedings were nullity and void ab initio on the ground that the proceedings were authorized by an Order of the registrar rather than by an Order of judge of the bankruptcy court. Again, this case is unhelpful to Mr. Black. There is distinction between an application challenging an action on the basis that it is nullity, due to failure to meet mandatory statutory conditions, and challenge to the factual findings made by judge in the process of granting the Order. Indeed, in Paris, J. wrote at p. 5: Finally, objection is taken that the material before the registrar was inadequate to justify the making of the order. It is questionable in my mind to what extent judge in my position can review the decision of the court or registrar authorizing the proceedings. But, in any event, there was before the registrar clear, uncontradicted allegation, under oath, of fraudulent preference and dispositions by the bankrupt in favour of the defendants. In my view, that was certainly sufficient to warrant an order. (emphasis added) Mr. Black cited Toronto Dominion Bank v. Alex L. Clark Limited (1992), 22 C.B.R. (3d) (O.C.J.,Gen.Div.). There an applicant for s. 38 Order failed to satisfy the judge of his status as creditor. That case is relevant only to the question of the sufficiency of the evidence before the judge on the s. 38 application. It is not helpful on the issue of MacDonald, J.'s jurisdiction to review the Order. In short, none of the authorities put forward by Mr. Black are supportive of his position. Re Coroban Plastics Ltd. (1994), 1994 CanLII 1135 (BC CA), 34 C.B.R. (3d) 50 (B.C.C.A., in Chambers) is, in my view, dispositive of this issue. There, the affected party sought leave to appeal the granting of s. 38 Order. After thorough review of the authorities, Taylor, J.A. wrote at p. 54: These decisions, taken together, seem to me to establish clearly that on s. 38 application, such as that which resulted in the present order, neither the bankrupt nor any other proposed defendant in the intended action has right either to notice or to be heard on the application, and that neither the bankrupt nor any other proposed defendant will have standing to appeal any order made on such an application, provided that it goes no further than to authorize action to be brought this being for the reason that their rights will not be affected by s. 38 order so long as it goes no further than that. The effect of the order is to transfer from trustee to creditor whatever right of action may exist much, no doubt, as chose in action may be contractually transferred from one party to another, without adversely affecting the debtor. The order in this case imposes no liability on the appellant which did not previously exist, and leaves it free to assert in the action every defence it ever had. (emphasis added) And at p.55: After hearing the application invited the assistance of counsel with respect to two decisions, Wilson v. The Queen, 1983 CanLII 35 (SCC), [1983] S.C.R. 594, and Caisse Populaire Vanier Ltée v. Bales (1991), 1991 CanLII 7294 (ON SC), O.R. (3d) 456 (Gen. Div.), which were not referred to in argument. am obliged to them for their written responses to this request. Wilson v. The Queen sets out the principle that, absent fraud or new evidence, it is not possible to attack an order in proceedings other than those whose specific purpose is the reversal, variation or nullification of that order. In Caisse Populaire Vanier Ltée v. Bales it was held that challenging the validity of s. 38 order in the proceeding commenced pursuant to the order would amount to such collateral attack, and is therefore impermissible. (emphasis added) The appellant's attempt to challenge the validity of the s. 38 Order, in the proceeding before MacDonald, J. was a collateral attack. His application could therefore not succeed. Section 187(5) provides procedure for limited review of an Order granted pursuant to the Bankruptcy and Insolvency Act. The subsection permits court to "review, rescind or vary any Order made by it under its bankruptcy jurisdiction". would make no finding as to whether non-party to the s. 38 proceeding can seek review under this section. Taylor, J.A., remarked in Coroban, supra, at p. 55, "such provision cannot invoke any wider test for standing than would otherwise apply". Suffice to say, the application before MacDonald, J. was not made pursuant to s. 187(5). It is Civil Procedure Rule 14.25 that governs the striking of Statement of Claim. Mr. Black's application before MacDonald, J. was not made pursuant to this Rule, which provides: 14.25 (1) The court may at any stage of proceeding order any pleading, affidavit or statement of facts, or anything therein, to be struck out or amended on the ground that, (a) it discloses no reasonable cause of action or defence; (b) it is false, scandalous, frivolous or vexatious; (c) it may prejudice, embarrass or delay the fair trial of the proceeding; (d) it is otherwise an abuse of the process of the court; and may order the proceeding to be stayed or dismissed or judgment to be entered accordingly. (2) Unless the court otherwise orders, no evidence shall be admissible by affidavit or otherwise on an application under paragraph (1)(a). As was held by this court in Sherman v. Giles (1994), 1994 CanLII 3964 (NS CA), 137 N.S.R. (2d) 52, affidavit evidence is not admissible to prove or disprove allegations of fact in an application to strike pursuant to this Rule. It was confirmed in that case that the allegations of fact, as set out in the Statement of Claim, must be taken to be true. The Statement of Claim asserted that the respondents are creditors of the bankrupt estate. Had Mr. Black advanced his application under this Rule, which, in any event he did not, he could not have succeeded. Accordingly, I would find that this ground of appeal fails. (ii) Bias: In addition to the claim that was before MacDonald, J., that the courts in Nova Scotia are biased in this matter, the appellant alleges on this appeal, that MacDonald, J. acted with bias in his handling of the application. This latter allegation is set out at paragraphs 42 and 43 of Mr. Black's factum: It is respectfully submitted that Justice MacDonald did not wish to have to deal with the jurisdiction and the correctness of the Order of Palmeter ACJ., as the Associate Chief Justice is and was responsible for the duties as assigned to the Associate Chief Justice by the Chief Justice of the Supreme Court being "...the assignment of judicial duties." and both the Chief Justice and the Associate Chief Justice had precedence over Justice MacDonald. It is respectfully submitted that Justice MacDonald, when he knew that the correctness of the Order of Palmeter ACJ. would be tested on the Application to be heard on February 9, 1996, should have removed himself as he would not be able to deal with the application in an impartial and unbiased manner without personal prejudice to himself in the pursuit of his own judicial career. Mr. Black submits that MacDonald, J. was aware that Palmeter, A.C.J., did not have evidence before him that Krupp was creditor, therefore one is inevitably led to the conclusion that MacDonald, J. could only have refused to overturn the s. 38 Order because he feared repercussions. This allegation is preposterous and completely unsupported by the record. There was evidence before Palmeter, A.C.J. that the respondents were creditors. MacDonald, J. did not have jurisdiction to review the s. 38 Order. There is nothing in the extensive record before this court to indicate that MacDonald, J. acted other than in an impartial and fair manner in considering the application before him. On the issue of bias in the Nova Scotia courts, generally, MacDonald, J. was correct in his finding that the appellant's submission before him had no merit. I would dismiss this ground of appeal. (iii) Failure to Consider the Evidence: Mr. Black further alleges that MacDonald, J. erred in that he failed to consider the evidence before him. It was the appellant's view that his evidence was compelling and determinative. That the trial judge was of different view, however, does not lead to the conclusion that he did not consider the evidence. Having reviewed the record to the extent necessary, am satisfied that MacDonald, J. properly considered the admissible and relevant evidence before him. As he did not have jurisdiction to review the s. 38 Order, he was correct in limiting the evidence submitted by Mr. Black to the degree that he did. I would dismiss this ground of appeal. Fresh Evidence: Mr. Black sought to tender fresh evidence at the hearing in the form of an Affidavit of several persons which he maintains is relevant to the relationship between the trustee of the bankrupt NsC Diesel and Krupp and to the status of Krupp as creditor. In view of my finding that MacDonald, J. did not have jurisdiction to review the s. 38 Order, the affidavit is not relevant to an issue before us. It is thus unnecessary to determine if it meets the stringent test for the receipt of fresh evidence as set out in Thies v. Thies (1992), 1992 CanLII 2590 (NS CA), 110 N.S.R. (2d) 177 (N.S.C.A.). The affidavit should not be received. Disposition: I would dismiss the appeal with costs to the respondents in the amount of $1500.00 inclusive of disbursements. Bateman, J.A. Concurred in: Freeman, J.A. Flinn, J.A. CANADA C.A. No.128144 PROVINCE OF NOVA SCOTIA IN THE NOVA SCOTIA COURT OF APPEAL 1995 S.H.No.120859 IN THE SUPREME COURT OF NOVA SCOTIA BETWEEN: KRUPP MaK MASCHINENBAU GmbH body corporate, and KRUPP MaK DIESEL, INC., body corporate PLAINTIFFS/ RESPONDENTS and FREDERICK W.L. BLACK APPELLANT HEARD BEFORE: The Honourable Justice J. Micheal MacDonald PLACE HEARD: Halifax, Nova Scotia DATE HEARD: February 9, 1996 COUNSEL: Frederick W.L. Black, the Defendant/Appellant, Thomas M. Macdonald, Esq., for the Plaintiffs/Respondents Richard J. Melanson, Esq., for the Plaintiffs/Respondents CASE ON APPEAL C.A. No.128144 NOVA SCOTIA COURT OF APPEAL BETWEEN: FREDERICK W.L. BLACK and KRUPP MaK MASCHINENBAU GmbH, body corporate, and KRUPP MaK DIESEL, INC. respondents REASONS FOR JUDGMENT BY: BATEMAN, J.A.
The respondents were granted an order by a Chambers judge pursuant to s. 38(1) of the Bankruptcy Act which authorized them to commence a fraud action against the appellant, a bankrupt. In making his ruling, the Chambers judge found that the respondents were creditors of the bankrupt estate for the purposes of s. 38(1). The respondents subsequently commenced an action against the appellant. The appellant applied to the judge assigned to oversee the case management of the action for an order striking the Statement of Claim on the basis that the respondents were not creditors of the bankrupt estate and, therefore, should not have been granted the order authorizing the commencement of the action. The case management judge held that he did not have the jurisdiction to inquire into the merit of the s. 38 order. He dismissed the action. The appellant appealed. Dismissing the appeal with costs, that the case management judge did not err. The appellant could not collaterally attack the s. 38 order by challenging a factual finding made in the granting of the order.