Canada: Global Royalties Limited v. Brook: Bankrupt Has No Right To Appeal Order Lifting Stay Of Proceedings

In his decision in Global Royalties Limited v. Brook, Chief Justice Strathy of the Ontario Court of Appeal explained that the Bankruptcy and Insolvency Act ("BIA") does not provide a bankrupt with a right to appeal an order lifting a stay of proceedings against him. Despite there being a multi-party bankruptcy, he rejected the submission that "the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings". He also refused to grant leave to appeal on the facts of this case.

Background

The plaintiffs-respondents commenced an action alleging that the bankrupt appellant-defendant, a former employee, had breached his fiduciary duties owed to them. The appellant submitted that the proceeding against him was invalid because s. 69.3 of the BIA stays proceedings against undischarged bankrupts. Justice Penny of the Superior Court held that the respondents' claims for injunctive and declaratory relief, as well as their claims for damages from the appellant's post-bankruptcy conduct, were not stayed pursuant to s. 69.3 of the BIA because they are not claims provable in bankruptcy. He further lifted the stay in respect of the claims for damages arising from the appellant's pre-bankruptcy conduct because of "sound reasons" for doing so.

No Right to Appeal

Chief Justice Strathy held that the appellant had no right to appeal the Order pursuant to s. 193(b) of the BIA. The order was not "likely to affect other cases of a similar nature in the bankruptcy proceedings" and any potential effects were speculative:

[18] Subsection 193(b) provides that an appeal lies to this court "if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings." [...]

[19] The governing authorities stress that s. 193(b) concerns "real disputes" likely to affect other cases raising the same or similar issues in the same bankruptcy proceedings: [...]

[20] Here, the appellant submitted that the crossclaims against him by the co-defendants raise similar issues of whether the stay of proceedings under the BIA ought to be lifted.

[21] In my view, this is a matter of pure speculation. Although counsel for the co-defendants was given notice of the motion to lift the stay, he did not appear on the motion and expressly disclaimed any intention to respond.

[22] In addition, the statement of defence and crossclaim pleads the relationship between the co-defendants and the appellant took place after the bankruptcy. It seems arguable then that the stay would not apply to the crossclaim in any event.

[23] Moreover, none of the grounds of appeal set out in the notice of appeal provide a basis to conclude that the order below would impact related cases in the bankruptcy.

Refusing Leave

Chief Justice Strathy also refused to grant leave to appeal. He began by recalling the test for leave to appeal under s. 193(e) of the BIA (described previously here), which requires considering whether the proposed appeal:

(a) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole;

(b) is prima facie meritorious; and

(c) would not unduly hinder the progress of the bankruptcy/insolvency proceedings.

The appellant argued that the requirement of "sound reasons" to lift a stay required clarification. Specifically, he argued that courts should assess the merits of a claim when considering lifting a stay. Chief Justice Strathy disagreed, summarizing his conclusion as follows:

[35] In my view, it has been settled law in this province, for at least 20 years, that on a motion to lift the stay the bankruptcy court is not required to look into the merits of the action [...] As this court noted in Re Ma, at para. 3, this does not mean that the merits of the action can never be relevant. If, for example, the defendant wishes to argue that the action is frivolous, vexatious, or otherwise has little prospect of success, it may well adduce evidence to that effect.

[36] I do not find that the proposed appeal raises an issue of general importance in bankruptcy and insolvency matters. Nor has the appellant satisfied me that the proposed appeal is prima facie meritorious. I, therefore, deny the appellant leave to appeal.

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