IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20110829

Docket: S133590

Registry:
New Westminster

Between:

Nina Louise
Moffoot

Plaintiff

And

E. Sands &
Associates Inc., Karen Wright,

Royal Bank of
Canada, Bank of Montreal, Amarjit Singh Dhindsa,

Dhindsa Law
Corporation, Barry E. Dinning,

Jagdeep Singh
Maan, James West,

CMIC Mortgage
Investment Corporation,

Schuman Holdings
& Investments Ltd.

Wendy Whiting
Enterprises Inc.,

George Rakhra,

387737 Canada Inc.
dba Home Loans Canada,

Ravi Bachra,

Homelife Glenayre
Realty (Chilliwack) Ltd., and

Greg Newberry

Defendants

Before:
The Honourable Mr. Justice N. Brown

Reasons for Judgment

I.      
Applications

[1]            
The parties brought cross-applications.

[2]            
The Bank of Montreal, supported by the other defendants, applies for
these orders:

·      
the claim of the plaintiff be struck as an abuse of process, or
in the alternative dismissed, with costs; and,

·      
in the alternative, the plaintiff post security for costs in an
amount determined by the court.

[3]            
The plaintiff applies for these orders:

·      
leave to pursue action against the trustee, E. Sands &
Associates Inc. and Karen Wright, the bankruptcy estate manager under section
215 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c B-3 [the Act];

·      
an order compelling the defendant trustee to comply with the
provisions of the Act to allow her to continue in their own right with
this action; and,

·      
alternatively, an order directing the trustee to convey its
interest in this action to her.

[4]            
Pending a ruling on the application brought by the Bank of Montreal, the
plaintiff’ adjourned her application for leave to pursue action against the
trustee.

II.     Background

[5]            
April 12, 2010, the plaintiff was assigned into bankruptcy and E. Sands
& Associates was appointed trustee of her estate [the Trustee].

[6]            
November 12, 2010, the plaintiff and another person, Marilyn Lorraine
Smith, filed a notice of claim [first action]. In that action, the plaintiffs
variously alleged against Bank of Montreal and other defendants, directly or
vicariously, breach of fiduciary duty, conspiracy, and breach of contract,
fraudulent and negligent misrepresentation. She also alleges personal injury allegedly
caused by the defendant’s actions.

[7]            
The trustee did not assign the plaintiff the right to file the first
civil claim before the plaintiff commenced it, as required by s. 40 of the Act.

[8]            
February 24, 2011, Bank of Montreal, alleging the plaintiff did not have
capacity to file the claim, therefore making it a nullity, asked Master
Caldwell to dismiss the first action. He granted the application, struck out
the plaintiff’s claim and stayed the rest of the first action until she filed
an amended notice of the claim. Bank of Montreal was awarded costs.

[9]            
March 9, 2011, the plaintiff filed a second civil claim that contained
essentially the same allegations made in the first. In the second civil claim,
however, the plaintiff added the trustee. She alleged that by his failing to
pursue the first action or assign it to the plaintiff, the trustee had been
negligent and had breached his fiduciary duty to the plaintiff.

[10]        
The claimant says the trustee had also not assigned his right to
commence the second civil claim to the plaintiff and neither had the trustee disclaimed
his right to the claims set out in it.

III.   Relevant
Statutes

[11]        
The sections of the Act referred to at the hearing are sections 38, 40,
69, 70 and 215. Section 40 is the most important of these.

A.   
Section 38

Proceeding by creditor when trustee refuses to act

38. (1) Where a creditor requests the trustee to take any
proceeding that in his opinion would be for the benefit of the estate of a
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.

Transfer to creditor

(2) On an order under subsection (1) being made, the trustee
shall assign and transfer to the creditor all his right, title and interest in
the chose in action or subject-matter of the proceeding, including any document
in support thereof.

Benefits belong to creditor

(3) Any benefit derived from a proceeding taken pursuant to
subsection (1), to the extent of his claim and the costs, belongs exclusively
to the creditor instituting the proceeding, and the surplus, if any, belongs to
the estate.

Trustee may institute proceeding

(4) Where, before an order is made under subsection (1), the
trustee, with the permission of the inspectors, signifies to the court his
readiness to institute the proceeding for the benefit of the creditors, the
order shall fix the time within which he shall do so, and in that case the
benefit derived from the proceeding, if instituted within the time so fixed,
belongs to the estate.

B.   
Section 40

40. (1) Any property of a bankrupt that is listed in the
statement of affairs referred to in paragraph 158(d) or otherwise disclosed to
the trustee before the bankrupt’s discharge and that is found incapable of
realization must be returned to the bankrupt before the trustee’s application
for discharge, but if inspectors have been appointed, the trustee may do so
only with their permission.

Final disposition of property

(2) Where a trustee is unable to dispose of any property as
provided in this section, the court may make such order as it may consider
necessary.

C.   
Section 67

Property of bankrupt

67. (1) The property of a bankrupt divisible among his
creditors shall not comprise

but it shall comprise

(c) all property wherever situated of the bankrupt at
the date of the bankruptcy or that may be acquired by or devolve on the
bankrupt before their discharge

D.    Section
187(9)

…

Court not subject to be restrained

(2) The courts are not subject to be restrained in the
execution of their powers under this Act by the order of any other court.

Power of judge in chambers

(3) Subject to this Act and to the General Rules, the judge
of a court may exercise in chambers the whole or any part of his jurisdiction.

…

Formal defect not to invalidate proceedings

(9) No proceeding in bankruptcy shall be invalidated by any
formal defect or by any irregularity, unless the court before which an
objection is made to the proceeding is of opinion that substantial injustice
has been caused by the defect or irregularity and that the injustice cannot be
remedied by any order of that court.

Proceedings taken in wrong court

(10) Nothing in this section invalidates any proceedings by
reason of their having been commenced, taken or carried on in the wrong court,
but the court may at any time transfer the proceedings to the proper court.

E.    
Section 215

No action against Superintendent, etc., without leave of court

215. Except by leave of the court, no action lies
against the Superintendent, an official receiver, an interim receiver or a
trustee with respect to any report made under, or any action taken pursuant to,
this Act

F.     Essence
of underlying suit

[12]        
The plaintiff worked as a senior cook and supervisor and earned a modest
income. She owned a property near Hope, B. C.

[13]        
Her suit centres on the core claims that Jagdeep Mann, Ravi Bachra and
James West took dishonest advantage of her business naivety. She says they
manipulated and pressured her to engage in various financial real property
dealings; beginning with refinancing her home and the unauthorized registering
of a line of credit against it. The dealings asserted also involved their
making of a false credit application, buying other property in the plaintiff’s
name, then mortgaging it—and other various dealings and manipulations that led
to foreclosures, her bankruptcy, and the loss of her home. The plaintiff says
the scope of the various alleged property dealings and their related borrowings
far exceeded her credit worthiness and understanding. The allegations in her
pleadings and affidavits are extensive and specific. Without so finding, it
would be fair to say, at least, that they raise triable issues.

[14]        
Some defendants, such as the Royal Bank, were named as defendants based
on their alleged vicarious responsibility for the actions of a defendant
employed by the bank at a material time.

G.    Bank
of Montreal’s basic position

[15]        
Bank of Montreal says both civil claims involve property that, upon the
plaintiff’s assignment into bankruptcy, vested in the trustee: s. 71 of the Act.
And, where a bankrupt starts a civil claim involving property vested in the
trustee, the claim will be dismissed: Clark v. Francis (2006), 25 C.B.R.
(5^th) 81 (Ont. C.A.).

[16]        
The Trustee has not authorized the plaintiff’s commencement of the
second action or declaimed interest in it: Wright v. Guardian Insurance Co.
of Canada (1995), 36 C.B.R. (3d) 251 (B.C.S.C.)

[17]        
The plaintiff has not complied with s. 40(2) of the Act either. It is
therefore a nullity and void ab initio: Solomon v. Education Fund
Services Inc. (2006), 26 C.B.R. (5^th) 266 (Ont. S.C.J.) [Solomon].

[18]        
Regarding security for costs, Bank of Montreal says the case is
difficult and complicated, the pleadings prolix and containing allegations of
fraud. The plaintiff is impecunious and has failed to pay costs previously
ordered, which also militates in favour of an order: Kam v. Triffo, 2007
BCSC 1851.

H.    Plaintiff’s
basic position

[19]        
Plaintiff’s counsel says it was, to him, “mindboggling” the trustee was
taking the position that he had no record of telephone discussions with him
regarding the lawsuit; and, he says his telephone records will support the
plaintiff’s position that counsel discussed the plaintiff’s commencing of the
lawsuit with the trustee’s blessing. Counsel further told the court that the designated
trustee, Mr. Chow, advised him the only thing he was going to do to assign the
lawsuit had been set out in his February 9, 2011, letter to him.

[20]        
Counsel also advised the court he had a telephone discussion with Mr.
Chow about the second civil claim and the plaintiff’s claim against him. In
their discussion, counsel said, the trustee said he had done nothing wrong,
that he had assigned the interest in his February 9, 2011, letter and that was
where his obligations ended.

[21]        
Counsel’s position at the hearing was precarious, which he acknowledged.
When he spoke, he had not obtained, let alone exhibited, telephone records or had
yet filed an affidavit substantiating his allegations, which he would be unable
to speak to anyway. Counsel and the trustee are officers of the court. I could
not decide the application based on an allegation by one officer of the court
that another officer of the court had not correctly stated the facts. The
plaintiff did not apply to adjourn to obtain documentation, but because the
decision turns on other considerations as well, I would not have granted one.

[22]        
The plaintiff criticized, as well, the trustee’s having stated in an email
reply to Bank of Montreal’s solicitor that he had not been discharged as
trustee yet. Given the issues here, I do not see anything turning on that. The
trustee obviously had authority assign before his discharge, and as discussed
in Daemore v. Von Windheim, 2011 BCSC 437 [Daemore], he could
assign, in some circumstances, after his discharge.

[23]        
The plaintiff correctly points out that because the trustee knew the
nature of her first civil claim, he already knew the nature of her second
claim. So, she says, given the trustee had already notified the creditors
(regarding the first claim), and given the creditors had shown no interest in
it, and given he had assigned it to her in his February 9, 2011, letter,
nothing further was required of him to complete the assignment. But it is not
that straightforward. It is true that should the trustee, for some reason, have
decided against confirming his earlier assignment of his interest in the civil
claim, the existence of his earlier assignment would be evidence adducible on
the issue of what order the court could consider under s. 40(2). I cannot see,
however, how a judge could take the earlier assignment as an assignment of a
second civil claim, especially one wherein the trustee finds himself a
defendant—and while ignoring the plaintiff’s failure to seek leave to bring
suit under s. 215 of the Act.

[24]        
The plaintiff submits that because it is not a creditor, Bank of
Montreal cannot challenge the assignment on the basis proper formalities had
not been complied with: Thompson v. Coulombe, [1984] Q.J. No 11 (C.A.) [Thompson],
para. 16. The question here is not one of proper administrative formalities being
complied with.  Bank of Montreal challenges the capacity of the plaintiff to
bring action because she had not complied with the essential requirements of
the Act.

[25]        
The plaintiff says that from the plaintiff’s standpoint, there is no
irregularity, and, if there was any irregularity, the trustee is responsible
for it. What the plaintiff overlooks, however, is that the onus lies on her to
cure an irregularity rooted in the civil claim’s inception. And, as Bank of
Montreal points out, while it is true the March 29 trustee letter does not say that
she should apply under s. 40(2), that is the responsibility of the plaintiff.

I.      
Timeline of events relating to notice

[26]        
This is a timeline of basic events:

J.     Further
submissions and discussion

[27]        
Bank of Montreal says a conclusion about whether the trustee received
the December 22, 2010, letter sent by the plaintiff is not needed because the
key point is the trustee knowing nothing about it before the plaintiff’s
discharge. Because s. 40(1) allows return only of property known to the trustee
before bankrupt’s discharge, the civil claim cannot, therefore, fall within the
terms of the section.

[28]        
Bank of Montreal says the authorities state the plaintiff could have
applied under s. 40(2), because it allows the court to make such order as it
may consider necessary where a trustee is unable to dispose of a property.
After the bankrupt has commenced their civil claim, they could still apply
under s. 40(2), but not, Bank of Montreal says, after a party has brought an
application to strike their pleadings; neither can they bring it in response to
an application to strike the claim.

[29]        
Bank of Montreal further points out that its solicitor wrote plaintiff’s
counsel on March 15, 2011, about costs the plaintiff owed still because of the
Master’s striking of her first civil claim. The letter also gave notice Bank of
Montreal objected to the second civil claim, for reasons identical to those that
had earlier led Master Caldwell to strike the plaintiff’s first civil claim.
Bank of Montreal further points out that the Trustee stated in his affidavit
that he had spoken to plaintiff’s counsel on March 17, 2011, advising him then
to prepare the necessary documents to “effectuate the assignment.”

[30]        
Bank of Montreal relies as well on the trustee’s March 21, 2011, reply
to a question put to him by Bank of Montreal’s solicitor, as fully set out
above, in essence saying the trustee had not disclaimed interest in the plaintiff’s
second civil claim.

[31]        
Bank of Montreal submits the trustee has kept his position that his
February 9, 2011, letter stating “…we assign the estate’s interest in this
action to the bankrupt,” is not enough to complete the assignment validly.
Further steps needed included preparing (unspecified) “paper work” but which
certainly would include an application under s. 40(2) of the Act—in
effect, bringing it from within the bankruptcy proceeding. Bank of Montreal
says, therefore, the trustee had not validly assigned the civil claim, the
plaintiff lacked capacity to bring it when she did, and the court should strike
it.

Daemore v. Von
Windheim

[32]        
Bank of Montreal referred to Daemore, a recent family case
decision of Verhoeven J., which counsel said succinctly stands in for several
others he had planned to refer to establish guiding principles. Both Bank of
Montreal and the plaintiff contend the case lends their position support.

[33]        
Briefly, these are the facts. Daemore and Von Windheim were
divorced. Daemore, the husband, had been imprisoned for two years following his
separation from Windheim in 1995. That year, the wife sold the matrimonial
home. Deamore contended she agreed to hold 40% of the proceeds in trust for
him, which would be worth $400,000. He alleged she used the money to purchase
other property that had been placed in the name of her brother, the other named
respondent. Daemore commenced a family action in 1998, but none of its
pleadings or orders were in evidence before Verhoeven J. In 2003, Daemore started
up another action, this time claiming damages for breach of a contract and a
trust interest in the property. In 2008, he filed an assignment into
bankruptcy. He did not list in his statement of affairs his 40% claim relating
to the sale of the matrimonial home.

[34]        
Then, in 2010, Daemore discontinued the 2003 action and started another
family law proceeding, claiming a divorce, spousal support and an interest in
the home titled to Von Windheim’s brother. The Von Windheims, i.e. Daemore’s former
wife and her brother, then applied to strike Daemore’s property claims in the
2010 family action, asserting they had vested in the Daemore’s trustee in
bankruptcy and the trustee had never validly re-assigned them to him.

[35]        
In response to the respondent’s application, Daemore produced an
“Irrevocable Assignment” signed by the Trustee and dated February 14, 2010. He
also produced a letter from the Trustee confirming: Daemore had received his
absolute discharge from bankruptcy on June 4, 2009; that on May 7, 2010, the
trustee received his discharge; and that later, Daemore had advised the Trustee
of his 2010 family action. The trustee also confirmed he had never been aware
of it. Had he been, however, the trustee stated it is unlikely he would have
pursued it further because the bankrupt estate had no funds available to do so.
The likely result would have that the trustee would have assigned the action
back to the bankrupt Daemore on his discharge: Daemore, para 18.

[36]        
Beginning at para. 18, Verhoeven J. summarizes some of the basic legal
principles:

·      
Upon a bankruptcy, the property of the bankrupt vests in the
trustee in bankruptcy. The bankrupt ceases to have any capacity to deal with
his or her property under s. 71 of the Act.

·      
For this purpose, the property of the bankrupt includes choses in
action: Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701,
1997 CanLII 332 at para. 43.

·      
Property does not automatically re-invest upon the discharge of
the bankrupt and the trustee: Thompson at para. 10 MLA Northern
Contracting Ltd. v. LeBrun (2007), 39 C.B.R. (5^th) 95,  at para.
65 (S.C.J.), aff’d 2008 ONCA 339, 41 C.B.R. (5^th) 168 .

[37]        
Verhoeven J. concluded that when Daemore, started his May 2010
proceedings, he had no capacity to bring them. He then addressed two lines of
authority that conflicted over the effects of the discharged bankrupt’s
incapacity on the validity of the proceedings and over whether the claim was a
nullity incapable of being cured, or capable of cure as an irregularity. He
considered cases finding them a nullity and incapable of being cured: Long
v. Brisson (1992), 13 C.B.R. (3d) 181, (C.A.); Solomon at
para. 28.

[38]        
He then noted Thompson, paras. 11-16, , where the Quebec
Court of Appeal held the bankrupt’s failure to obtain re-assignment of a
property that was the subject matter of a lawsuit was a mere irregularity,
“capable of being remedied by subsequent reassignment by the trustee or by
court order:” Daemore, para 21, citing Thompson. Verhoeven J.
went on to state at para. 21:

[21]      However, with respect to an action commenced by a
discharged bankrupt, the failure of the bankrupt to obtain re-assignment of the
property which is the subject matter of the action prior to commencing the
action is merely an irregularity, capable of being remedied by a subsequent
re-assignment by the trustee or by court order: Thompson, supra,
paras. 11-16. Rothman J.A. on behalf of the Quebec Court of Appeal in Thompson
held that the bankrupt has an interest in the subject matter of the suit,
by virtue of his right to have unrealizable assets returned to him by the
trustee. He distinguished a Quebec Superior Court decision, Better Built
Furniture v. Kerlen Factors Ltd., [1977] Que. S.C. 480, [1977] C.S. 480, on
the ground that in that case the bankrupt who took the action had not been
discharged, the lack of capacity had not been remedied, and could not have been
remedied (at para. 18).

[22]      In Thompson, supra, Rothman J.A.
relied on Foldy v. D’Amico (1979), 104 D.L.R. (3d) 102, 1979 CarswellOnt
223 (H.C.J.) [Foldy cited to CarswellOnt], in which Walsh J. held that a
trustee could execute a reassignment even after his discharge, pursuant to his
authority under what is now s. 41(10) of the BIA. Although distinguished
in part, Thompson was applied in the B.C. case of G. Elmitt
Construction Ltd. v. Kaplan (1992), 1 C.L.R. (2d) 219, 1992 CarswellBC 827
(S.C.) [G. Elmitt cited to CarswellBC], a decision of Melnick J.

[23]      I note that in G.
Elmitt, supra, the defendant’s arguments concerning
lack of capacity on the part of the plaintiff due to a bankruptcy were heard at
trial, where the trustee, identified as Mr. Bottom, appears to have testified.

[39]        
Verhoeven J. distinguished Solomon’s view that an action
commenced by a discharged bankrupt was a nullity because in Solomon there
had been no re-assignment to the bankrupt, because it did not distinguish between
discharged and undischarged bankrupts and because it did not refer to Thompson.
He concluded:

[25]      In principle, I see no injustice in allowing a
discharged bankrupt to pursue claims which the trustee has expressly disclaimed
an interest in pursuing and has re-assigned to the former bankrupt, provided
the re-assignment is valid in all respects. Arguments relating to the timing of
the re-assignment are technical objections not going to the merits.

[26]      Therefore, the key
issue here is simply whether Mr. Daemore now has the capacity to maintain the
action. In my view, the caselaw reflects reluctance on the part of the courts
to allow a defendant to defeat a claim on purely technical grounds. I prefer
and apply the reasoning in Thompson, supra, which in turn was applied,
in part at least, by this Court in G. Elmitt, supra, at para. 22.
I conclude that the failure of Mr. Daemore to obtain the re-assignment prior to
commencement of the action was an irregularity capable of being cured by obtaining
a valid re-assignment from the trustee

[40]        
I agree with Verhoeven J.’s conclusion, who at para. 26 noted the
reluctance of the courts to allow the defeat of a claim on technical grounds.
He concluded at para. 26 that Daemore’s failure to obtain a reassignment before
commencement of the action was an irregularity capable of being cured by a
valid re-assignment by the Trustee.

[41]        
In Daemore, the respondent wife and her brother argued the
re-assignment was invalid because the trustee had been discharged. However, as
noted, Thompson, relying on Foldy v. D’Amico (1979), 104 D.L.R.
(3d) 102 (Ont. H. Crt. J.), held a Trustee could execute a reassignment under
s. 40(10) of the Act, even after their discharge. As for the plaintiff’s
case here, the trustee states he had not yet been discharged, so that
distinction does not even arise.

[42]        
Another reason given by the respondent wife and her brother in Daemore
was that Daemore had deceived the Trustee. Verhoeven J. found he had
insufficient evidence to assess the validity of the Trustee’s re-assignment and
dismissed the application. In this case, however, I have no evidence to base
any finding of deceit by the plaintiff. The Trustee gave notice to the
creditors of the first claim and upon their expressing no interest in it,
assigned the claim to the plaintiff. Save for the addition of the trustee as a
defendant in the civil claim, the claims in it are identical to those in the
first. None of the defendants criticized the trustee’s decision to assign the
first action to the plaintiff.

[43]        
Bank of Montreal mentioned Ishmael v. Langtry (1994), 36 C.B.R.
(4^th) 251 (Man. Master) [Ishmael], for the proposition that
if there is not clear evidence of a valid assignment then the statement of
claim must be struck. Ishmael is a brief decision. But it simply states
that if a proper assignment is made, then the discharged bankrupt has the
status to maintain an action on matters occurring before the bankruptcy. In Ishmael,
the bankrupt commenced an action just before his automatic discharge, so he was
still an undischarged bankrupt. The trustees had no knowledge at all of the
action, it had never been disclosed to the creditors, and there was no evidence
whatsoever of a proper assignment.

[44]        
Daemore is more to the point. There, the court saw no injustice
in freeing a discharged bankrupt to pursue their claims, provided the
assignment is valid in all respects, para. 25.

[45]        
Judge Verhoeven noted that the current wording of s. 40(1) differs from
what it was before September 18, 2009. Under the current wording, if the
property has been listed in the statement of affairs or otherwise disclosed to
the trustee prior to the discharge of the bankrupt, and is found incapable
of realization, it must be returned to the bankrupt. But if a trustee is
unable to dispose of any property as provided in s. 40(1), under s. 40(2), the
court “may make such order as it may consider necessary.” Verhoeven J. noted
that if the bankrupt has not disclosed before their discharge, they must apply
to the court under s. 40(2). Still, the trustee could still assign it to the
bankrupt, so long as they give the creditors proper notice and the creditors or
any inspectors do not object. But if the bankrupt started their civil claim
before their discharge, they must apply for an order to cure the defect
inherent in their lack of capacity. The presence of the assignment then becomes
a factor the judge could consider when deciding whether it ought to cure the
defect. I also agree with the submission of counsel for Bank of Montreal that
whatever might be the trustee’s opinion about whether the lawsuit was capable
of realization, it would not prevent the plaintiff’s applying under s. 40(2)
for an assignment.

[46]        
Bank of Montreal submits that when the trustee said in his February 9,
2011, letter, “therefore, we assign the estate’s interest in this action to the
bankrupt,” this did not complete the assignment process. He said the plaintiff
had to prepare “the paperwork” to complete a valid transfer back to her. He
points to conversations the trustee said he had with plaintiff’s counsel about
proceeding with “the paperwork.” But what further trustee paperwork was
required to complete a valid assignment was not stated. But I cannot see
completion of further forms the trustee might have used diminishing the substance
of his  February 9, 2011, unconditional written assignment of his interest in
the civil claim to the plaintiff.

[47]        
That said, the difficulty for the plaintiff remains, however, that she
had commenced her first claim in November 2010, well before the trustee’s
letter assigning his ownership as trustee to the plaintiff. The plaintiff had
an interest in that claim but lacked legal capacity to start it, and only a court
order could cure that defect – after a review of steps and proceedings taken to
the date of the application. The plaintiff could have applied under s. 40 for
an order; and I agree with the conclusion of Verhoeven J. in Daemore that
arguments relating to the timing of the assignment are technical objections not
going to the merits.

[48]        
The plaintiff has to apply under s. 40(2) to cure the defect of her
incapacity. This is not an incidental step. The court must control its own
process, which includes ensuring all litigants have legal capacity and that any
steps taken by litigants lacking capacity have not prejudiced the defendants,
the integrity of the proceeding and the interests of the trustee in bankruptcy
and the creditors. These and other circumstances may influence whether the
defect of plaintiff’s incapacity is curable and whether they should be allowed
to continue with their claim and on what conditions. Until then, the trustee
holds the civil claim for the benefit of the plaintiff’s creditors.

[49]        
I disagree with Bank of Montreal’s submission that once it had filed an
application to strike, it is automatically too late for the court to cure a
defect. I saw no case saying so. The notion the court’s capacity to decide a
point turns on which party is first with their application has a Kafkaesque
quality about it. The order in which parties bring applications is a technical
procedural issue that may affect matters relating to the hearing, but not the
court’s inherent jurisdiction to decide a point on its merits. It runs counter
as well to Parliament’s stated general intention that bankruptcy irregularities
be considered from a curative standpoint where it possible to do so. This is
conveyed, for example, in the language of s. 187(9) which, while not directly
on point, provides that “no proceeding in bankruptcy shall be invalidated by
any formal defect or by any irregularity, unless the court before which an
objection is made to the proceeding is of opinion that substantial injustice
has been caused by the defect or irregularity and that the injustice cannot be
remedied by any order of that court.” Subsection 10 states that nothing in s.
187 invalidates by “any reason of their having been commenced, taken or carried
on in the wrong court, but the court may at any time transfer the proceedings
to the proper court.”

[50]        
Thus far, however, this has been a discussion related to an assignment
made in relation to the first action. Although the second civil claim is nearly
identical to the first, except for the inclusion of the trustee and Ms. Wright
as parties, the trustee’s February 9, 2011, assignment could not conceivably
apply to the second civil claim after his own joinder as party. The trustee is
an officer of the court. Section 215 states no action lies against the trustee
with respect to any report made under, or any action taken pursuant to, the Act
without leave of the court. The trustee cannot assign a right of action against
himself. The creditors will have received no notice of the nonfeasance alleged
against the trustee of the bankrupt’s property.

[51]        
Further, even were I to consider the second civil claim with an
assumpotion that the allegations of against the trustee had been struck, the
trustee made his February 9, 2011, assignment in relation to the first civil
claim.

[52]        
As matters stand, and all the other questions aside, the claim against
the trustee and Ms. Wright must be struck, and they are, with costs.

[53]        
The recast second civil claim, however, would stand still without valid
assignment, the plaintiff without capacity, and the claim incapable of calling for
any response from the defendants or the court.

[54]        
The plaintiff could have avoided this litigation wreckage had counsel
obtained from the trustee a valid confirmation of the assignment of the second
civil claim (absent the claim against the trustee). But the plaintiff would
still have to apply under s. 40 for court approval. The wreckage might similarly
have been avoided had the plaintiff applied, either before issuing the second
civil claim, or soon after it, seeking an order from the court allowing her to
continue.

[55]        
I see my duty now as seeing if I can, in light of recast pleadings – that
is, absent the inclusion of the trustee and Wright claims – remedy the defect
of the plaintiff’s incapacity in a way that does not leave in its wake prejudice
to the defendants, trustee and creditors. The trustee has already clearly
expressed an intention to assign to her the initial plaintiff’s civil claim
against the defendants. The plaintiff has a legitimate subservient residual interest
in the claim. The trustee has given the creditors proper notice of the
substance of the civil claim and they have not expressed interest in it nor
raised any objection to an assignment by the trustee to the plaintiff. The
trustee has stated he wanted additional documents completed in order to
“effectuate” the assignment. The only prejudice I can see stemming from orders
that would cure the defect is costs thrown away.

[56]        
As for security for costs, I do not see the authorities cited by the
Bank of Montreal assist the defendants at this juncture. If the plaintiff had
to pay security for costs, it would defeat her claims entirely because she
could no longer proceed with her claim. This does not rule out a later
application with materials that would encompass more information about the
merits of the plaintiff’s claim and the defences raised.

[57]        
In the circumstances, I make the following orders:

a)       The
claims against Karen Wright and the trustee are struck, with costs fixed at
$500.

b)       Further
proceedings in the plaintiff’s second civil claim, action No. S133590 are provisionally
stayed, subject to the following order and completion of the following steps by
the plaintiff:

(i)       paragraphs
67 through 76 of Part 1, and paragraph F.1 through 7 of Part 2 are struck, and
the trustee and Karen Wright are removed as defendants;

(ii)      the
plaintiff shall provide the trustee with a thus amended version of the civil
claim, reflecting the said provisional amendments and may request re-assignment
on the basis thereof;

(iii)      the
plaintiff is at liberty to request from the trustee a specific reassignment of
the plaintiff’s proposed civil claim in action No. S133590, as amended by this
order;

(iv)     this
order does not require the trustee to give further notice to the creditors of
what will be the requested reassignment;

(v)      upon
completion of the foregoing, and of any other steps required by the trustee to
complete a valid re-assignment, the plaintiff is at liberty to apply in
bankruptcy for an order granting her leave under the Act to set aside this
provisional stay of proceedings and for leave to proceed with her civil claim
No. S133590, as amended by this order. If the trustee eventually refuses or is
unable to make a reassignment, the plaintiff remains still at liberty to apply
under s. 40(2) of the Act for leave to set aside this provisional stay of
proceedings and to proceed with her civil claim.

d)       The defendants are entitled to
their costs of this application, fixed at $1,000 in total, payable in any event
of the cause. I saw no necessity in having all the parties attend. If the
plaintiff does not receive said leave to set aside this provisional stay of
proceedings and to proceed with her civil claim, costs of this application are
payable forthwith. If she does receive leave, they become costs in the cause,
payable in any event of it, but not forthwith.

“N.
Brown J.”