SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY. Citation: Carey (Re), 2018 NSSC 264

Transcription

1 SUPREME COURT OF NOVA SCOTIA IN BANKRUPTCY AND INSOLVENCY Citation: Carey (Re), 2018 NSSC 264 In the Matter of: The bankruptcy of Mitchell Scott Carey Date: Docket: No Registry: Halifax Judge: Heard: Final Written Submissions: Raffi A. Balmanoukian, Registrar October 19, 2018, in Halifax, Nova Scotia October 19, 2018 Counsel: Stan Hopkins, for the Applicant trustee, S.W. Hopkins & Associates Inc. Robert Mroz, for the objecting creditor, the Facility Association Mitchell Scott Carey, appearing personally

2 Page 2 Balmanoukian, Registrar: [1] Remembrance Day, 2011, was likely the worst day in Mitchell Carey s life. It was, unfortunately, the last day of Michael Crouse s. [2] The day before, November 10, Mr. Carey purchased a motor vehicle. It was his first. It was a private sale. The vendor, so far as Mr. Carey recalls, removed the vehicle s license plates. It did not have a temporary permit. [3] It also did not have insurance. [4] Mr. Carey was 18 years old at the time. His graduated license prohibited him from driving after midnight for non-vocational purposes. [5] None of this interfered with him driving at approximately 3:00 am on November 11, under poor weather and driving conditions. Mr. Carey lost control and his vehicle collided with a tree. Mr. Crouse, his passenger, was badly injured and expired shortly thereafter. [6] Mr. Carey was charged with driving without insurance, and for violating his driving restrictions. He incurred over $2000 in fines, which were paid by his grandfather.

3 Page 3 [7] His troubles did not end there. He was sued by the deceased s parents in their capacity as Mr. Crouse s personal representatives. Mr. Carey did not respond to the action. [8] The Facility Association ( Facility ) is a creation of statute, specifically the Insurance Act, RSNS 1989, c It is a fund financed by all auto insurance companies operating in Nova Scotia, through mandatory premiums paid on all auto insurance policies issued in the Province. It pays (within the statutory limits) the damages caused by the negligence of uninsured motorists in Nova Scotia. [9] As such, the Facility stepped in to the litigation. It paid for the ultimate settlement with the Crouse estate in 2013, which was $60,000 all-inclusive. It obtained an assignment of the judgment, and thus became a creditor of Mr. Carey. [10] The Facility wrote to Mr. Carey on July 25, 2012 respecting the action. It warned him that he was personally liable for any ultimate payout; it also warned him that failure to make payment arrangements would result in a driver s license suspension. Mr. Carey admitted receiving this letter, but did not read or did not recall reading the warning about driver s license suspension. [11] In April, 2016, the Facility conducted a discovery in aid of execution of Mr. Carey. It is fair to say that his attendance at this discovery, under subpoena, was

4 Page 4 Mr. Carey s first real response to the litigation. The upshot of his discovery evidence was that he was of modest means and without meaningful assets. [12] On June 23, 2016, Mr. Carey made an assignment in bankruptcy. His evidence at the discharge hearing was upon realizing the $60,000 judgment against him and the execution order that had been put in motion, he needed to explore his options. His evidence was that his girlfriend Googled, either at her initiative or at his request, and found Mr. Hopkins firm. [13] There were only two listed creditors worth talking about the Facility, and a small apprenticeship loan (another $760 in commercial lenders were listed, and $556 to the Canada Revenue Agency). The apprenticeship loan, to Mr. Carey s knowledge at the time, is not discharged by the bankruptcy (and is not discharged now). The Facility, therefore, is the sole meaningful creditor and the sole reason for the assignment in bankruptcy. [14] Mr. Carey has no assets that are subject to distribution in a bankruptcy. He did have minor tax refunds and credits which, coupled with voluntary payments (which were actually paid by Mr. Carey s aunt) bring the estate s total receipts to $3,

5 Page 5 [15] His household income during the bankruptcy period pursuant to s (a) of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 (the BIA ) did not result in payments of any surplus income into the estate pursuant to the Superintendent s Standards established under directive 11-R2. [16] He is now a new parent. The current household income is below the Superintendent s Standards for a family of three; this may change with the arrival of the Universal Child Care Benefit or other programs, but this is not in evidence before me. Suffice it to say that any surplus would be modest at best. [17] Mr. Carey now seeks his discharge. The Facility Association objects. It seeks a conditional order for all or, in the alternative, a substantial portion of the $60,000 debt. [18] Mr. Hopkins essentially laid out the financial facts and left it to the bankrupt and the objecting creditor to litigate the appropriate disposition of the discharge application. [19] Mr. Carey gave evidence on his own behalf. I have referred to parts of it already. He admitted he knew he was driving an uninsured and unlicensed vehicle. He said that he planned on getting insurance after his purchase, but for whatever reason, he agreed to his friend s request to provide transportation under

6 these circumstances, in the middle of the night, in poor weather conditions. The results were tragic and fatal. Page 6 [20] He admitted he did little to address the legal implications at hand until examined in aid of execution, and paid little attention to the correspondence alerting him to his liability, until these steps were taken. Then, his near-immediate step was to Google for a trustee, whereupon Mr. Hopkins was the first name that came up. [21] Moving to the present, he testified that he continues his electrical apprenticeship, and hopes to remain with his employer after certification. He remains without a driver s license or vehicle, and relies on his partner and others for motor transportation. This interferes with but does not prevent his work as an apprentice electrician. His employer, apparently, is quite accommodating. [22] As I have noted, he is a new parent. His household income for Superintendent s purposes (that is, essentially, pay less statutory deductions) is now $2,476 against the Superintendent s Standard of $3,293. As noted, that may change as child benefit programs kick in and, of course, as Mr. Carey completes his apprenticeship and, hopefully, achieves his Red Seal certification.

7 Page 7 THE LAW [23] The Facility is correct that when one or more facts is established under s. 173 of the BIA, I cannot grant an absolute discharge. In such instances, I must exercise one of the remedies outlined in s. 172(2) BIA namely to refuse, suspend, or attach conditions to the discharge. Such provisions may be nominal such as suspension for a day or payment of a dollar or substantive up to and including payment of the full debt, outright refusal of the discharge, or other onerous provisions. These will vary as the facts of the case, the administration of justice, and the integrity of the insolvency process require. [24] The Facility submits that the s. 173 facts in this instance are those in subs. 173(1)(a) and (n) namely, that the bankrupt does not have distributable assets worth at least 50% of unsecured liabilities and that this situation has not arisen from circumstances for which the bankrupt cannot justly be held responsible (173(1)(a)); or that the bankrupt could have made a viable proposal instead of effecting an assignment in bankruptcy (173(1)(n)). Filing a Proposal [25] I believe I can dispose of the second assertion fairly quickly. It is true that Mr. Carey could have made a proposal; almost any creditor can. It must however

8 Page 8 be viable to come within the meaning of 173(1)(n). The Facility submits that its very accommodating payment regime as low as $50 a month means that Mr. Carey could have made arrangements under a proposal rather than choosing bankruptcy. [26] Maybe so. However, nowhere does it appear in the correspondence to Mr. Carey regardless of how much or little attention he paid to it that such a comparatively nominal starting point may have been available to him, and nowhere is it in evidence that such a payment for less than the full principal amount of the judgment would be acceptable ($60,000 without interest at $50 a month would extend over 100 years). I note that proposals must be performed over no more than five years (s (5) BIA); at $50 a month, even if known to Mr. Carey, a $3000 payment after accounting for administrator s fees and disbursements, and the Superintendent s Levy, would have yielded nothing or next to nothing to the Facility; even if these were over and above, I find it incredulous to believe that the majority creditor would accept something under five cents on the dollar. [27] In this regard, I agree with the comments of Registrar Cregan in a case cited by the Facility, Re George 2008 NSSC 304; although the judgment in that case was nearly two million dollars as opposed to the $60,000 at issue here, I believe his view of proposal vs. bankruptcy at para. 17 are equally apt:

9 Page 9 As to (n), Mr. George has little, if anything, which could be called income. Considering the amount of the judgment and considering the attitude of the WCB in dealing with him at the discovery and in the cross examination, I think it is very doubtful that he could have put forth a proposal which would both be accepted by the WCB and be performed by him. [28] I should add that in finding this quote apt, I found no attitude by the Facility that was inappropriate either from the transcript of the discovery in aid of execution, or at the discharge hearing before me. I am speaking in terms of a young man with income at the edge of the Superintendent s Standards being able to make a viable proposal to extinguish a $60,000 judgment over five years under any credible scenario. Pennies on the dollar, in this case, cannot be said to be viable in the absence of evidence to the contrary. [29] To the same effect is another case cited by the Facility, Re Byrne, 2012 NSSC 23. Registrar Cregan quickly disposed of the notion that the bankrupt, who was 15 at the time he incurred at $180,000 judgment in favour of the Facility and went bankrupt at 23 with income of $1600 per month and the judgment (by then over $200,000) constituting almost all of the liability, could have made a viable proposal. Fifty cents on the dollar [30] This assertion, pursuant to s. 173(1)(a), is of much greater utility to the Facility. It reads:

10 Page (1) The facts referred to in section 172 are: (a) the assets of the bankrupt are not of a value equal to fifty cents on the dollar on the amount of the bankrupt s unsecured liabilities, unless the bankrupt satisfies the court that the fact that the assets are not of a value equal to fifty cents on the dollar on the amount of the bankrupt s unsecured liabilities has arisen from circumstances for which the bankrupt cannot justly be held responsible; [emphasis added] [31] Again, for clarity, when a BIA s. 173 fact is established, I cannot issue an absolute discharge; I must refuse, suspend, or attach conditions as provided for in BIA s. 172(3). [32] It is obvious and uncontested that Mr. Carey s distributable assets do not amount to 50% of his unsecured liabilities. The issue is then whether they have arisen from circumstances for which the bankrupt cannot justly be held responsible. [33] The burden of establishing the exception that is, that the bankrupt cannot justly be held responsible for a shortfall of over 50% - is on the bankrupt: Samson v. Alliance Nationale (1935), 17 CBR 304 (Que. CA), applied in Re George, supra. [34] I have no hesitation in finding that Mr. Carey has not brought himself within this exception. He knew he was driving an uninsured vehicle, new to him, in the middle of the night, and in poor weather conditions to boot.

11 Page 11 [35] Re George, supra, summarizes the leading case on the point, namely Kozack v. Richter [1974] SCR 832, and its analysis in this jurisdiction, as follows: [21] What have the courts said about justly being held responsible for debts? The leading case in this context is Kozack v Richter, 1973 CanLII 166 (SCC), 20 C.B.R. (N.S.) 223, a decision of the Supreme Court of Canada. The debt of approximately $14, resulted from a motor vehicle accident caused by the wilful and wanton misconduct of the bankrupt. [22] Pigeon J. adopted the following position expressed in a number of earlier cases, namely that:... the Act was never intended to enable a judgment debtor to get rid of a judgment for damages and with no other purpose to serve than the convenience and comfort of the debtor. (paragraph 6) [23] The court determined that the bankrupt would have to pay approximately half the judgment before being discharged, notwithstanding that he was a wage earner with a family with limited income. In paragraph 5, Pigeon J. said, referring to Section 172:... I cannot agree that the proper application of the provisions above quoted should result in a plaintiff making no recovery for personal injuries caused by gross negligence. It would mean that motorists in respondent s situation would be able to tell such a claimant: There is no use suing me, if you lose you will have to pay the costs, if you win I will make an assignment in bankruptcy and you will get nothing. [24] A number of cases have followed Kozack. Phillips, Re, 2002 NSSC 60 (CanLII), 32 C.B.R. (4 th ) 294 (N.S., Registrar Hill) concerned a bankrupt who was involved in an accident while driving without insurance. Judgment Recovery (N.S.) Limited paid the claim and took judgment against him. Two years later he was involved in an accident causing serious injury to a passenger. He then had neither license to drive nor insurance. Again Judgment Recovery paid the claim and took judgment against him.

12 Page 12 [25] In this decision Registrar Hill noted a decision of Goodfellow J. of this court, Diamond, Re, 2002 NSSC 31 (CanLII), which confirmed the applicability of Kozack in Nova Scotia for circumstances of this nature. Registrar Hill also referred to an earlier case he had decided, Re Edwards, [1992] N.S. J. No. 294 and quoted in paragraph 8 the following from his earlier case: It seems that some of the cases state that where the bankrupt does not have the means to pay or some future prospects of meeting the terms of a conditional order such an order should not be made. The proposition is that the Court should not focus entirely on the bankrupt s tortuous conduct, but must consider his financial and other relevant circumstances. There are other cases that might be said to stand for the proposition that a conditional order should be made even absent the ability to pay where an assignment has been made to avoid payment of a judgment or debt arising from tortuous conduct. and added in paragraph 9 the following: In my view, I should not allow the statute to be used as a mechanism to avoid responsibility for what clearly was irresponsible conduct. At the same time, it is appropriate to keep in mind the rehabilitative purpose of the legislation. No two cases will be identical, and the court will need to find a correct balance between these competing principles in each case. [Emphasis added by me throughout] [36] From the above, and from other single or single major creditor decisions I have reviewed, I derive the following principles: 1. An assignment which, as a primary motive, seeks to avoid responsibility and liability for a wrongful act or omission should be viewed with circumspection. 2. When that act or omission has a taint of moral turpitude, the discharge should reflect specific or general denunciation and that a bankrupt may not simply skate away from the consequences.

13 Page Along the same vein, when the liability arises because of the failure of the bankrupt to adhere to a general legal obligation of public interest such as driving without minimum liability insurance bankruptcy should not be the proverbial clearing house enabling that failure to be without impact upon the bankrupt. 4. That said, a single unfortunate and if I may say so, stupid mistake in youth should not have financial consequences to the bankrupt for the rest of his/her life, nor prevent him/her from reasonable personal and financial rehabilitation. This is not a Court of sackcloth and ashes. 5. While the financial circumstances of the debtor will be the primary consideration of what is a just disposition in cases such as this, it will not be the only one. The need for denunciation will be balanced with the approach taken by the bankrupt to the matter at hand. 6. A discharge order which provides for payment in recognition that the bankruptcy process is not to serve the convenience and comfort of the debtor (Kozack, supra) should be notable and not nominal, but at the same time should be reasonably serviceable by the debtor and not

14 Page 14 debilitating. It should not be what is convenient, but what is just and capable of performance. [37] This list is not exhaustive. The principles of debtor rehabilitation, creditor (and in cases such as this, public) protection, and systemic integrity will be brought to bear in each application on its own particular facts. The tortious scofflaw will stand on a different footing than, for example, the person who consensually borrows a car with a contemporary, but invalid, insurance card sitting on the dash. [38] In my opinion, the George case involves greater turpitude than in the case at bar. The bankrupt was driving without permission; there was circumstantial evidence that alcohol may have been involved. The damages were catastrophic. The court ordered consent to judgment in the amount of $100,000. [39] Kozack, supra, ordered a consent to judgment for approximately 50% of the judgment amount, notwithstanding a general inability to pay. It cited cases ranging from 25% to 50% of the liability, depending on the circumstances at hand. [40] In Re Phillips, 2002 NSSC 60, Registrar Hill ordered a $24,000 payment on a $200,000 judgment in favour of Judgment Recover (NS) Limited the predecessor to the Facility. In doing so, he stated:

15 Page 15 In my view, I should not allow the statute to be used as a mechanism to avoid responsibility for what clearly was irresponsible conduct. At the same time, it is appropriate to keep in mind the rehabilitative purpose of the legislation. No two cases will be identical, and the court will need to find a correct balance between these competing principles in each case. In cases involving Judgment Recovery matters are further contemplated because nothing I can order here will prevent Judgment Recovery continuing to stand in the way of Mr. Phillips being able to obtain a driver s licence. Mr. Phillips discharge shall be conditional upon payment of the sum of $24,000 without interest payable at $ per month. I have exercised the broad discretion I have to fix an amount having in mind that to order payment to the estate of an amount equal to 50% of the judgment in favour of Judgment Recovery would be to ensure it could never be paid. It makes more sense to impose a still significant burden, but one that Mr. Phillips if he has the will can still meet while maintaining his family. [emphasis added] [41] In Re Byrne, supra, the bankrupt was ordered to pay $5000 towards an estate whose liabilities of slightly over $200,000 were almost entirely comprised of a Facility judgment. As I have noted, the debtor was an adolescent notably younger than Mr. Carey and was found to be without the same degree of moral turpitude as in the caselaw analyzed. APPLICATION TO THE CASE AT BAR [42] So then what of Mr. Carey? [43] In this instance, Mr. Carey did little or nothing until he stared down the barrel of a judgment. He did not respond to the Facility s lawyers warning, nor the action. He made no attempt to make payment arrangements, even minimally

16 Page 16 (Mr. Kulik s affidavit refers to these being potentially as low as $50/month). His only action was to declare bankruptcy, with one meaningful creditor who is subject to extinguishment. His fines, and even his bankruptcy fees, were paid by relatives. [44] Although I was unimpressed that the financial and legal consequences of his acts have made a meaningful impression upon Mr. Carey his principal request to the Court was that he be able to proceed to get his license back, a matter over which this Court has no jurisdiction he is still a young man and the Facility is quite correct that he should not have to wear this forever, if he complies with an appropriate discharge order. [45] To the Facility, an appropriate order is one that would have Mr. Carey pay all or most of the judgment, presumably also with statutory interest. I do not agree that this, either, is appropriate. It addresses neither debtor rehabilitation nor system integrity in a proportionate manner. [46] Mr. Carey is still a young man. His chosen profession involves substantial responsibility for the lives and safety of those who use the properties in which he will work. I hope that this decision segues to his approach to his career.

17 Page 17 [47] In reviewing all of these factors, and in exercising my discretion, I believe a payment to the estate of $15,000 (which, for certainty, has no impact on the legal status of the student loan from time to time) is appropriate. [48] I rarely issue orders conditional upon consent to judgment that is, the bankrupt obtains his discharge but with the residuum of the judgment over him. Although the bankrupt does not currently have family income in excess of the Superintendent s Standards, that will not be the case for the time that one may reasonably expect Mr. Carey, from his own resources, to pay this amount. I also do not believe that it will bring to bear the seriousness of the nature of the debt or address the quasi-public nature of the payment made by the Facility. [49] I will therefore issue an order under s. 68 of the BIA and, if requested by Counsel, that Order may further call for garnishment in an amount applicable pursuant to the provincial Civil Procedure Rules (and in particular, Rule 79.08). [50] The $15,000 conditional order will not bear interest. Naturally, it may be paid in whole or in part at any time, and when fully paid Mr. Carey will have his absolute discharge, subject to subs. 178(1) BIA. [51] As noted above, this Court has no jurisdiction to address any license reinstatement, or the conditions under which that would take place.

18 Page 18 [52] As the objecting creditor is the only creditor of note whose debt is affected by the bankruptcy, and as the Trustee did not take a partisan role in the proceedings, I do not believe an award of costs would add anything to this decision. In any event, none were sought. Conclusion [53] Mr. Carey s discharge will be conditional upon payment to the estate of $15,000, and I will include a provision pursuant to s. 68 allowing for garnishment and other means of collection available at law. All future income tax refunds, Affordable Living Tax Credits, and the like will be vested in and paid to the estate, until the $15,000 is paid in full. It is my understanding that BIA Rule 59 will preclude payment into the estate of GST credits, but Mr. Carey would do well to turn those over as they accrue to accelerate the payment of this Order. Balmanoukian, R.