Re Taylor Ventures Ltd. (Claim of Dextras)

2011 BCSC 236 Re Taylor Ventures Ltd. (Claim of Dextras)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Re Taylor Ventures Ltd. (Claim of Dextras), 2011 BCSC 236 Date: 20110304 Docket: A980224 Registry: Vancouver In Bankruptcy In the Matter of the Bankruptcy of Taylor Ventures Ltd. Before: The Honourable Mr. Justice Burnyeat Reasons for Judgment (In Chambers) Appearing on own behalf and on behalf of Dextras Engineering & Construction Ltd.: Mr. Ken Dextras Counsel for the Trustee: D.H. Clarke Place and Date of Hearing: Vancouver, B.C. February 23, 2011 Place and Date of Judgment: Vancouver, B.C. March 4, 2011 [1] Mr. Dextras applies for an order that Abakhan & Associates Inc., trustee of the Estate of Taylor Ventures Ltd., a bankrupt ("Trustee") pay to him the current interim distribution of $6,100.66 and any further distributions payable from the Estate of Taylor Ventures Ltd. ("TVL"). That application is opposed by the Trustee on the basis that the Trustee seeks to set off against Dextras Engineering & Construction Ltd. ("Dextras") three Certificates of Costs obtained and that Mr. Dextras as the assignee of the interest of Dextras is not in a position to claim that he is not bound by the ability of the Trustee to set off the amount of the Certificates of Costs against any distribution paid by the Trustee in favour of the claims originally advanced by Dextras.

BACKGROUND [2] TVL was in the business of selling investments in real property and of developing real property. Dextras provided engineering services to TVL relating to various development projects. Dextras claimed to be entitled to be paid fees concerning one of the properties being developed TVL and claimed to be entitled to a builders lien against one of those properties. Mr. Dextras was the principal and majority shareholder in Dextras. Mr. Dextras was also an investor in TVL. [3] Dextras filed a Proof of Claim as a secured creditor in the bankruptcy of TVL. When the Trustee disallowed the claim, Dextras appealed the disallowance. At the same time, Dextras sought to prove a claim of builders lien by way of a summary trial pursuant to Rule 18A of the Rules of Court. The applications were heard August 17, 2001 and March 28, 2002 and were dismissed with costs awarded against Dextras on a Party and Party (Scale 3) basis. [4] The claims of Dextras in the Estate of TVL were assigned by Dextras to Mr. Dextras on October 27, 2003. [5] Pursuant to orders made in three actions, the Trustee arranged for the assessment of the costs that had been awarded against Dextras. In three March 1, 2004 Certificates of Costs, costs were assessed against Dextras in the amounts of $4,095.90 (action No. S046674), $2,661.11 (action No. 11-185695), and $7,432.76 (action No. A980224). [6] On June 18,

2009, the Inspectors of TVL authorized the issuance of an interim dividend to the unsecured creditors of TVL. The dividend ordinarily available to Dextras would be $6,100.66. Mr. Dextras, as the assignee of the interests of Dextras, claims that the dividend should be paid to him. The position of the Trustee is set out in a January 11, 2001 letter to Mr. Dextras where the Trustee states in part: The legal processes that gave rise to the Certificates of Costs [totalling $14,194.77] occurred prior to the transfer of the TVL claim from Dextras to Ken Dextras. Further, these costs arose directly as a result of the administration of the TVL bankruptcy and the legal processes surrounding the Dextras claims. The Trustee takes the position that it is entitled to the right of offset for the Certificates of Costs against any distribution paid by the Trustee in favour of the Dextras claims, irrespective of the receiving party. As a result, the $6,100.66 distribution will be retained by the Trustee in full.

CASE AUTHORITIES AND DISCUSSION [7] The right to a dividend only becomes available when the Trustee is directed by the inspectors of the Estate to pay a dividend and it is only at that time that a trustee is obliged to pay a dividend: s. 148(1) of the Bankruptcy and Insolvency Act, R.S.C. 1992, c. 27 (B.I.A.). Until a dividend is declared, no creditor has an interest in the funds in the hands of a trustee. Pursuant to s. 148(3) of the B.I.A., no action for a dividend lies against a trustee and the only right that a creditor has is to receive a dividend in due course once a dividend has been authorized by the inspectors: Re Cohen (1956), 36 C.B.R. 21 (Alta. C.A.). [8] It is clear that Dextras was in a position to assign its right to a dividend to Mr. Dextras: Re Hattle's Feed Mill Limited (1975), 20 C.B.R. (n.s.) 229 (Ont. S.C.). While the assignment by Dextras to Mr. Dextras is a valid equitable assignment, the completed assignment only takes effect when the dividend is declared. In this regard, I adopt the following statement made by Henry J. in Re Hattle's: In my view, this is a chose in action (within the broad definition set out in the judgment of Morden, J.A., in DiGuilo v. Boland, [1958] O.R. 385 at p. 394, 13 D.L.R. (2d) 510 at p. 513 [affirmed [1961] S.C.R. vii], that is capable of assignment when it comes into existence. It comes into being when the trustee is directed by the inspectors to pay the dividend and the assignment, if otherwise valid, takes effect and is binding on the property upon that event occurring. Although it was an incomplete assignment before that event occurred, it then became a completed assignment, which can be enforced in equity: Cheshire and Fifoot's Law of Contract, 8th ed. (1972), p.

499. At the time of the execution of the instrument, the right to any dividend was a future right and the assignment was an equitable assignment. (at p. 231) [9] The assignee of an equitable interest, even for valuable consideration, takes subject to all equities and infirmities of the title of the assignor. The assignee can be in no better position than the assignor was prior to the assignment. In this context, "all equities" includes any available defence, set off or counterclaim which the person subject to the obligation is entitled to raise to oppose the claim of a person entitled to the assigned benefit. The effect of an assignment of an equitable interest is that any defence, set off or counterclaim is equally available against the assignee. [10] It is the duty of the Trustee to diligently pursue all assets of TVL. One of those assets is the costs assessed against Dextras. It would be other than in accordance with the BIA that a party as a creditor could assign that interest to avoid the ability of a trustee to set off monies owing to the Estate against monies owed by the Estate. The ability to continue to set off a debt against a corporate entity despite the fact that the corporate entity has assigned its interest to the principal of the corporate entity goes to the very root of the claim of the Trustee. It would be manifestly unjust to allow Mr. Dextras to require a

payment of a dividend without taking into account the claim that the Trustee has for assessed costs. [11] Where, as a result of court proceedings, a creditor is indebted to the trustee for costs, a trustee has the right to deduct the costs from the amount of the dividend ordinarily payable to that creditor: Re Gilliland (1933), 14 C.B.R. 492 (Ont. S.C.). If the ability to receive the dividend had not been assigned by Dextras to Mr. Dextras, the Trustee on behalf of the Estate of TVL would have been in a position to deduct the costs assessed against the amount of the dividend prior to it being payable to Dextras. Because the amount owing by Dextras was in excess of the dividend that had been authorized by the inspectors, no dividend would have been payable out of the Estate to Dextras. [12] The right of set off is not eliminated by virtue of the fact that Dextras assigned his interest and eventually receiving a dividend: Re Mayne, [1907] 2 K.B.

899. In Re Mayne, Bigham J. dealt with a motion on behalf of the trustee of the estate of the bankrupt for a declaration that he was entitled to retain the dividend which would ordinarily be payable to a creditor (Lady Oxenden), so that the costs of the trustee could be partially recovered. Lady Oxenden had assigned the whole of her interest in the estate of the bankrupt to her solicitors to secure the fees she owed to them. The assignees argued that the costs could not be set off against the anticipated dividend. In this regard, Bigham J. concluded: Lady Oxenden only assigned whatever might be due to her from the bankrupt's estate, and it now appears that she owes the estate more than is due to her from it. All that the trustee owes is the difference, if any, between the dividend payable on the amount proved to be owing to Lady Oxenden and the costs given against her. The trustee is entitled to retain the dividend, or so much of it as is required to meet the costs. (at p. 1087) [13] The Trustee is in a position to retain the dividend ordinarily payable to Dextras and apply that sum against the balance owing by Dextras to the Trustee arising out of the three Certificates of Costs totalling $14,1094.77. If future dividends ordinarily payable to Dextras satisfy in full the balance owing under the three Certificates of Costs, then any further dividend will be payable to Mr.

Dextras pursuant to the October 27, 2003 assignment between Dextras and Mr. Dextras. [14] The Trustee will be entitled to its costs of today as against Mr. Dextras, with those costs payable on a Party and Party (Scale B) basis. In order to avoid the necessity of an assessment of those costs before the Registrar, I award costs pursuant to Rule 14‑1(15)(b) of the Rules of Court in the amount of $475.00 inclusive of costs, disbursements and government taxes. That amount is payable forthwith by Mr. Dextras. If that amount is not paid and there is a dividend from the Estate available to Mr. Dextras in due course, then the Trustee is in a position to set off the $475.00 against any dividend that would ordinarily be payable to Mr. Dextras. _"Burnyeat J."_ Mr. Justice Burnyeat