COURT OF APPEAL FOR ONTARIO

CITATION: R. v. Henry-Osbourne, 2021 ONCA
    561

DATE: 20210806

DOCKET: C66568

Tulloch, Roberts and Trotter JJ.A.

BETWEEN

Her Majesty the Queen

Respondent

and

Lynston Henry-Osbourne

Appellant

Jeffery Couse, for the appellant

David Quayat, for the respondent

Heard: May 14, 2021 by video
    conference

On appeal
    from the convictions entered by Justice Wailan Low the Superior Court of
    Justice on September 26, 2017, and from the ruling on entrapment dated November
    7, 2017 with reasons reported at 2017 ONSC 6714.

Roberts
    J.A.:

Overview

[1]

The appellant appeals the dismissal of his
    application for a stay of his convictions for trafficking heroin to an
    undercover police officer on three different occasions in the course of
    dial-a-dope operations, and for the possession of the proceeds of crime from
    trafficking. The appellant maintains that the trial judge erred in failing to
    find that he was entrapped by the police into committing the offences that
    formed the basis for his convictions.

[2]

At issue in this appeal is whether the
    application of the Supreme Courts analytical framework on the law of
    entrapment in
R. v. Ahmad
,
2020
    SCC 11, 445 D.L.R. (4th) 1,
to the circumstances of
    this case would have led to a stay of the convictions. For the reasons that
    follow, I say it would not and would dismiss the appeal.

(i)

Guilty pleas and convictions

[3]

On September 26, 2017, following a re-election
    to a trial before a judge alone and pursuant to an agreed statement of fact,
    the appellant pled guilty to four counts of an eight-count indictment. The four
    remaining counts were withdrawn at the Crowns request.

[4]

The basic factual underpinnings for the convictions
    were founded on the following agreed statement of fact:

On May 9, 2015, the [Toronto Drug Squad] entered
    into a drug investigation. A now retired officer Tony Canepa negotiated the
    purchase of a gram of heroin with an individual referred to as Prince for
    $200. Tony Canepa attended the area as directed and met Prince, who was later
    identified as Mr. Henry-Osborne. Tony Canepa gave Mr. Henry-Osbourne $200 in
    marked police buy money and in return received a quantity of heroin, later
    determined to weigh 1.08 grams.

On May 11, 2015 Tony Canepa called Prince
    again and entered into another drug related conversation. Prince agreed to
    sell a gram of heroin for $200 directing the officer to meet him in the area of
    Jane Street and Sheppard Avenue, Toronto. Tony Canepa attended the area as
    directed and met Mr. Henry-Osbourne. Tony Canepa gave Mr. Henry-Osborne $200 in
    marked police buy money and in return received a quantity of heroin, later
    determined to weigh 1.06 grams.

On July 11, 2015
    Tony Canepa called Prince again and entered into another drug related
    conversation with Prince. Prince agreed to sell 6.5 grams of heroin for
    $1000 directing the officer to meet him in the area of Jane Street and Sheppard
    Avenue, Toronto. Tony Canepa attended the area as directed and met Mr.
    Henry-Osbourne. Tony Canepa gave Mr. Henry-Osborne $1000 in marked police buy
    money and in return received a quantity of heroin, later determined to weigh
    6.5 grams. Mr. Henry-Osbourne was subsequently arrested. The $1000 of police
    buy money and a telephone was found on him during a search incident to arrest.
    The police confirmed the phone in his possession was assigned to phone number
    416.302.4105 that the police had used to contact Prince previously.

[5]

The trial judge found the appellant guilty on
    three counts of trafficking heroin and one count of possession of the proceeds
    of crime from trafficking.

(ii)

Application for a stay of the convictions

[6]

On September 26 and 27, 2017 the appellant
    brought an application before the trial judge to stay his convictions on the
    ground that he was entrapped into the criminal conduct underlying the guilty
    pleas.

[7]

The evidence on the application consisted of the
    agreed statement of fact and the
viva voce
evidence of the undercover
    officer, Tony Canepa, who had retired by the time of the application. Officer
    Canepa testified about the information that he had received prior to calling
    the appellant, and the conversations and text exchanges that he had with the
    appellant and others in the course of the heroin purchases. I examine those
    conversations and texts in further detail later in these reasons.

[8]

The trial judge applied the following test for
    entrapment under
R. v. Mack
, [1988] 2 S.C.R. 903, at p. 959, which she
    identified as the governing jurisprudence at that time:

There is,
    therefore, entrapment when: (a) the authorities provide an opportunity to
    persons to commit an offence without reasonable suspicion or acting
mala
    fides
or, (b) having a reasonable suspicion or acting in the course of a
bona fide
inquiry, they go beyond providing an opportunity and induce
    the commission of an offence.

[9]

The trial judge concluded that there was no
    evidence of the undercover officer offering an inducement and that the conduct
    of the investigation did not constitute random virtue testing because it was
    focused on one individual possessing several articulated physical
    characteristics and three specific patterns of conduct: the use of the style
    Prince, the use of a specific telephone number, and dealing in heroin. She
    also found that there was no evidence that the undercover police officer was
    not acting
bona fide
in investigating the tip that led to the
    telephone calls.

[10]

The trial judge made no specific finding as to
    whether Officer Canepa had a reasonable suspicion to believe the appellant was
    involved in drug trafficking before presenting him with an opportunity to
    commit a crime because she determined that the reasonable suspicion standard
    articulated under the first branch of the
Mack
test was inapplicable
    in a dial-a-dope context involving the
bona fide
investigation of a
    tip. The trial judge reasoned as follows:

In the context
of
dial-a-dope
operations,
    many
undercover investigations will start
with a tip
only,
and
for
that reason,
it will not
be possible to
say that
the
police
    start out with a
reasonable
suspicion
. The police nevertheless
have
a
duty to
investigate,
and in the dial-a-dope context,

investi
g
ation requires
a
call
to
the target
number
to de
te
rmine
whether
the
    tip can be
confirmed.

[11]

The trial judges reasoning on this point was
    tied to her holding that an opportunity to offend existed as soon as police
    placed a call using drug-coded language to the targeted phone number. She interpreted
Mack
to mean that:

an opportunity to
    offend [i.e. a drug-coded phone call] may properly be extended to the target of
    a
bona fide
investigation if it is in the course of and for the
    purposes of the investigation whether the information in the possession of the
    police at the time of the offer rises to the level of a reasonable suspicion or
    is only at a level of a mere suspicion.

[12]

On that basis, the trial judge found that the
    appellant had not been entrapped by the police and dismissed the appellants
    stay application. On February 9, 2018, the appellant received a global sentence
    of 3 years, 2 months and 27 days, which he does not seek to appeal separately
    from the convictions.

Issues and the Parties Positions

[13]

The appellants principal submission is that the
    trial judge erred in applying the wrong test for entrapment. Specifically, the
    appellant submits that the
t
rial judge erred in law by applying a
bona fide

investigation test rather than the reasonable
    suspicion test required under the Supreme Courts most recent articulation of
    the test for entrapment in
Ahmad
. The appellant maintains that, like in
R. v. Williams
, the
    companion case to
Ahmad
, the brief conversations and texts between the appellant
    and the undercover officer did not afford a sufficient basis to ground a
    reasonable suspicion.

[14]

The Crown submits that while the trial judge did not have the
    benefit of the Supreme Courts guidance in
Ahmad
,
    the trial judges jurisprudential instinct and factual findings were nevertheless
    correct. According to the Crown, the circumstances of the present case are
    almost identical to those in
Ahmad
. Applying
Ahmad
to the circumstances of the present case, the Crown
    argues, still leads to the trial judges conclusion that there was no
    entrapment.

Analysis

(a)

Ahmad
analytical
    framework

[15]

As this court very recently acknowledged in
R.
    v. Ramelson
, 2021 ONCA 328, appeal as of right filed [2021] S.C.C.A No.
    137, at para. 34,
Ahmad
did not fundamentally change the law of
    entrapment as it stood under
Mack
and
R. v. Barnes
, [1991] 1
    S.C.R. 449. See also:
R. v. Ghotra
, 2020 ONCA 373, at paras. 16 to 19.
    However, the majority in
Ahmad
provided important clarifications on how
    to apply the law of entrapment in the context of dial-a-dope operations,
    particularly with respect to the assessment of reasonable suspicion.

[16]

In the context of a dial-a-dope investigation, police
    may provide an opportunity to commit a crime only upon forming a reasonable
    suspicion that the person answering the phone is engaged in drug trafficking:
Ahmad
,
    at para. 44. The majority in
Ahmad
was careful to emphasize at para.
    20 that a
bona fide
investigation is not a separate and freestanding
    way to entrap an individual. Rather, an investigation is
bona fide
where the police have reached a threshold of reasonable suspicion and they have
    a genuine purpose of investigating crime. Ultimately, the entrapment analysis focuses
    on whether the police had formed a reasonable suspicion when they created an
    opportunity to commit a crime:

The reasons in
Mack
make clear that a
bona fide
inquiry into a location is premised upon
    and tethered to reasonable suspicion. An investigation is
bona fide

    where the police have a reasonable suspicion over a location or area, as well
    as a genuine purpose of investigating and repressing crime.
A bona fide investigation is not a separate and freestanding
    way for police to entrap an individual, but a means of expressing the threshold
    of reasonable suspicion in a location. The offer of an opportunity to commit a
    crime must always be based upon a reasonable suspicion of particular criminal
    activity
, whether by a person, in a place defined with sufficient precision,
    or a combination of both. [Emphasis added.]

[17]

The Supreme Court also made clear in
Ahmad
that the police can develop reasonable suspicion either before placing a call
    to a suspected drug line or in the course of a conversation with the target:
Ahmad
,
    at para. 54. If the police do not have reasonable suspicion before a call is
    made, it must be developed during the call but before an opportunity to commit
    a crime is presented to the target:
Ahmad
, at para. 69. The Court
    explained at para. 66 what is meant by an opportunity to commit a crime:

[P]olice can make
    exploratory requests of the target, including asking whether they sell drugs,
    without providing an opportunity to traffic in illegal drugs. An opportunity
    has been provided only when the terms of the deal have narrowed to the point
    that the request is for a specific type of drug and, therefore the target can
    commit an offence by simply agreeing to provide what the officer has requested.
    [Citations omitted.]

(b)

Trial judges approach

[18]

Viewed through the lens of
Ahmad
, the
    trial judges approach was flawed in that she did not make a specific finding
    as to whether the police had formed a reasonable suspicion at the moment the
    offer to buy drugs was made. As already noted, she made no distinction between
    reasonable suspicion and mere suspicion so long as the investigation was
bona
    fide
.

[19]

The trial judge relied on investigative
bona
    fides
as a separate means by which to justify the undercover officers
    offer to purchase drugs. However,
Ahmad
makes clear that investigative
bona fides
will not supplant an absence of a reasonable suspicion at
    the moment police make a concrete offer to buy drugs.

[20]

The trial judge should have considered whether,
    in the context of a
bona fide
investigation, the officer had a
    reasonable suspicion that the appellant was engaged in drug trafficking before
    he placed his order to purchase drugs.

(c)

Ahmad
analytical
    framework applied

[21]

The primary issue in this appeal is therefore
    whether a proper application of the
Ahmad
analytical framework would
    have led to a different result. In my view, it would not. For the reasons that
    follow, I conclude that the trial judges factual findings were unaffected by
    her analytical approach and that her ultimate conclusion that there was no entrapment
    was correct.

[22]

The appellant submits that the outcome would
    have been different under
Ahmad
because the police did not have a
    reasonable suspicion that the appellant was trafficking heroin for the
    following three reasons:

a.       The appellant was targeted based on a
    bald, uncorroborated tip of unknown reliability, credibility and recency.

b.       The undercover officer did not
    adequately corroborate the tip during his telephone call with the appellant
    prior to asking him to traffic heroin.

c.       Despite
    the appellant declining to commit the offence or partake in drug subculture
    language, the undercover officer continued to pursue the investigation.

[23]

I am not persuaded by these submissions.

[24]

Because it is a contextualized, individualized,
    and fact-driven inquiry, the determination of reasonable suspicion requires a careful
    examination of the evidence and an assessment of the entire constellation of
    objectively discernable facts:
Ahmad
, at paras. 46 and 48. As a
    result, simply comparing the circumstances of this case to those in
Ahmad
,
    where no entrapment was found, or in
Williams
, where it was, is not
    dispositive of the issue. The circumstances of the present case differ because
    they comprehend not one conversation but a series of telephone conversations
    and text exchanges that culminated in the offer and purchase of heroin. It is
    therefore necessary to examine all the relevant circumstances to determine if
    the appellant was entrapped.

[25]

While the undercover officer may not have had a
    reasonable suspicion before first calling the appellant, he formed a reasonable
    suspicion during the initial telephone call, which was strengthened by the
    subsequent text and telephone exchanges, and prior to offering the appellant
    the opportunity to traffic heroin by requesting a specific quantity of a
    particular drug.

[26]

Prior to making the initial call, Officer Canepa
    had been advised by Detective Brons that an individual named Prince was
    trafficking heroin using a specific telephone number. Detective Brons gave a
    physical description of Prince. He instructed Officer Canepa to call Prince
    at a specific telephone number, 416-302-4105, and to purchase heroin with
    police buy money, using the drop name Paul.

[27]

Officer Canepa telephoned the number he had been
    given and the following conversation ensued:

Male: Hello.

Officer Canepa: Prince?

Male: Yeah.

Officer Canepa: Can I come see you?

Male: Where did you get my number from?

Officer Canepa: Paul, White guy from St. Claire
    [sic] and Dufferin.

Male: I dont know who you are.

Officer Canepa: Its Sal. I got your number
    from Paul. Do you know Paul?

Male: Yeah. What are you looking for?

Officer Canepa: A GR of H.

Male: I dont know what .

[28]

The line disconnected at that point and Officer
    Canepa tried twice to reach the appellant without success. Officer Canepa then
    received a text message from the same telephone number:

416-302-4105: Who this?

Officer Canepa: Sal. Can I come check you?

416-302-4105: I dont know what youre talking
    about.

Officer Canepa: No
    problem then sorry.

[29]

Officer Canepa testified that he thought that
    the investigation wasnt going anywhere or that the deal was dead at that
    point. However, a few minutes later, he received a telephone call from an
    unknown number and had the following telephone conversation with a different
    male individual:

Officer Canepa: Hello?

Male: Is this Sal?

Officer Canepa: Who is this?

Male: Paul  Do I know you?

Officer Canepa: I dont know.

Male: Prince says I gave you this number.

Officer Canepa: I told Prince I got a number from a guy by the
    name of Paul from St. Claire and Dufferin.

Male: What does Paul look like?

Officer Canepa: White, chubby.

Male: I dont know who you are.

Officer Canepa: Im sure youre not the only Paul around.

Male: Okay.

[30]

A
    few minutes later, Officer Canepa received a text from 416-302-4105, the number
    he had initially called to reach Prince, and had the following exchange:

416-302-4105: How you got this number?

416-302-4105: ?

Officer Canepa: Paul at St. Claire and Dufferin.

416-302-4105: Where you from?

Officer Canepa: St. Clair and
    Dufferin

[31]

About
    four hours later, Officer Canepa received a call from the same number, 416-302-4105,
    and had the following conversation:

Officer Canepa: Hello.

Male: Hey, whats going on?

Officer Canepa: Not much.

Male: Listen  I have to check you. Are you a friend of Nick?

Officer Canepa: Yeah.

Male: Okay. What do you need?

Officer Canepa: One.

Male: A Full one.

Officer Canepa: How much?

Male: Okay, let me call you back in two minutes and tell you
    where to meet me.

Officer Canepa: Okay.

[32]

Following
    this last conversation, Officer Canepa purchased heroin from the appellant on
    the three occasions that formed the basis for the guilty pleas, and on two
    other occasions from individuals whom Prince had sent to complete the
    transactions for him.

[33]

In
    my view, reasonable suspicion existed before the undercover police officer requested
    a specific quantity or type of drug from the appellant during their initial
    call. In any event, having regard to the entirety of the communications leading
    up to Officer Canepas first heroin purchase from the appellant, it is clear
    that reasonable suspicion to believe that the appellant was engaged in drug
    trafficking existed before the appellant again offered to sell him drugs and Officer
    Canepa placed his order for One.

[34]

Before
    asking the appellant for A GR of H in their initial conversation, Officer
    Canepa had already obtained confirmation from the appellant that he was
    Prince, that he was connected to the number that was given for him, and that
    he knew Paul. Officer Canepa also made exploratory requests, engaging in
    drug-coded language, asking the appellant if he could come see him, which Officer
    Canepa testified meant that he was asking if he could purchase drugs from him. Understanding
    Officer Canepas coded request, the appellant then exhibited the kind of
    caution that, as Officer Canepa also testified, is typical of drug dealers who
    are concerned that they may be communicating with an undercover police officer.
    Once he was satisfied that Officer Canepa had obtained his telephone number
    from a trusted source, the drop name Paul, the appellant himself used drug-coded
    language, asking the undercover officer what he was looking for, namely, what
    drugs he wanted to purchase. It was in response to the appellants invitation
    that Officer Canepa placed his order for A GR of H.

[35]

After
    Officer Canepa dropped the inquiry following the exchange with the male who said
    he did not know who he was, the appellant renewed communications with Officer
    Canepa for the express purpose of having to check him, again exhibiting the
    typical wariness of drug dealers against dealing with undercover police. Having
    satisfied himself that the connection was legitimate, the appellant then reiterated
    his offer to sell drugs to Officer Canepa, asking What do you need?,
    drug-coded language asking what drugs he wished to purchase. It was in response
    to this repeated offer to purchase that Officer Canepa asked for One, again,
    drug-coded language which the appellant understood because he indicated he
    would call Officer Canepa back to tell him where to meet him.

[36]

As
    the trial judge correctly found, these circumstances did not constitute prohibited
    random virtue-testing, which the law of entrapment seeks to protect against
    because it violates the principle that it is wrong for the police to
    manufacture crime and prey on the weakness of human nature to entice
    individuals into offending:
Ahmad
, at paras.
    27-28. In the circumstances of this case, it cannot be said that the appellant
    was tempted into committing a crime when he otherwise would not have:
Ahmad
, at para. 28. Rather, after several conversations
    and careful probes to satisfy himself of the callers legitimacy as a drug
    purchaser, the appellant made an offer to sell drugs to Officer Canepa, which
    was accepted. Except for the initial call to Prince, all other communications
    were initiated by Prince, or by the other male individual who contacted
    Officer Canepa. As Officer Canepa formed a reasonable suspicion about the
    appellants trafficking activities before he created opportunities for the
    appellant to break the law, his actions fell well within the boundaries set by
    the Supreme Court in
Ahmad
.

[37]

The onus rests on the appellant to establish entrapment on a balance
    of probabilities:
Ghotra
, at para. 18, citing
Ahmad
, at para.
    31. In my view, he has failed to meet this onus.
I see no basis for a
    finding of entrapment in this case and would uphold the trial judges ultimate
    conclusion that there was none.

Disposition

[38]

For these reasons, I would dismiss the appeal.

Released: August 6, 2021 M.T.

L.B. Roberts
    J.A.

I
    agree M. Tulloch J.A.

I
    agree Gary Trotter J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Teitler v. Dale, 2021 ONCA 577

DATE: 20210819

DOCKET: M52684

van
    Rensburg J.A. (Motion Judge)

BETWEEN

Elise
    Teitler

Applicant (Responding Party)

and

Lawrence
    Dale

Respondent (Moving Party)

Lawrence M. Dale, acting in person

Martha McCarthy, for the responding
    party

Heard: August 5, 2021 by videoconference

REASONS
    FOR DECISION

[1]

The moving party, Lawrence Dale, seeks an
    extension of time to appeal the vexatious litigant order of Diamond J. dated
    July 5, 2019.

[2]

The application judges order was made in two
    proceedings: FS-15-400682, a family law proceeding commenced by Ms. Teitler in
    2015
[1]
, and CV-19-00618979-0000, a proceeding
    commenced by Ms. Teitler by application pursuant to s.140 of the
Courts of
    Justice Act
, R.S.O. 1990, c. C.43.

[3]

Diamond J.s order found Mr. Dale to be in
    contempt of certain provisions of eight orders of the Superior Court in the
    family law proceedings, struck out his Answer in those proceedings, and
    permitted Ms. Teitler to schedule a date for an uncontested trial. The order,
    at paras. 4 and 5, also declared Mr. Dale to be a vexatious litigant and precluded
    Mr. Dale from continuing in the family law proceeding and from continuing or instituting
    other proceedings without leave of a judge of the Superior Court of Justice,
    with the exception of CV-09-374829, which is an action between Mr. Dale and the
    Toronto Real Estate Board.

[4]

The uncontested trial in the family law
    proceedings took place on September 27, 2020 before Kiteley J., and resulted in
    a final order respecting child and spousal support and parenting of the
    parties children, and a restraining order, each dated December 17, 2020.

[5]

Until recently, Mr. Dale did not appeal or seek
    leave to appeal any part of Diamond J.s order.

[6]

If he is granted an extension of time to appeal,
    Mr. Dale seeks a stay. Among other things, he contends that he wants to bring
    proceedings involving the children and to appeal the order of Kiteley J.

Extension of Time

[7]

This court can extend time to appeal under r.
    3.02 of the
Rules of Civil Procedure
when it considers it just to do
    so. The onus is on the moving party to establish the grounds for an extension. While
    each case depends on its own circumstances, the following factors are relevant:
    (1) whether the moving party formed an intention to appeal within the relevant
    period (i.e. 30 days from the date of the order); (2) the length of, and
    explanation for, the delay in appealing; (3) prejudice to the responding party;
    and (4) the merits of the proposed appeal. The overarching principle is whether
    the justice of the case requires the extension of time:
Howard v. Martin
,
    2014 ONCA 309, at para. 26. Where, as here, the order affects children, the
    justice of the case is reflected in the best interests of the children:
Denomme
    v. McArthur
, 2013 ONCA 694, at para. 7.

[8]

Mr. Dale contends that the fact that court staff
    would not accept what he attempted to file with this court, which he says was a
    mistake, should be determinative of this motion. In the alternative, he asserts
    that he has met each element of the test set out above, and that the overall
    justice of the case strongly favours an extension of time.

[9]

I have concluded that it is not in the interests
    of justice to grant the requested extension of time.

[10]

I begin by observing that Mr. Dale did not put
    proper evidence before this court. His affidavits dated July 26, 2021 and
    August 3, 2021 are not sworn or affirmed before a commissioner of oaths, which
    Mr. Dale explains is because of the COVID situation. There is nothing in the  Consolidated
    Practice Direction Regarding Proceedings in the Court of Appeal During the
    COVID-19 Pandemic or the
Rules of Civil Procedure
that would exempt
    Mr. Dale from the requirement of providing a properly sworn or affirmed
    affidavit. Although Mr. Dale is self-represented in these proceedings, he was
    qualified as a lawyer and he is an experienced litigant. I do not accept his
    explanation for failing to provide evidence in the proper form. Although I
    could have dismissed his motion on this basis alone, I am dismissing the motion
    after considering the relevant factors in light of the record before me,
    including the unsworn affidavits.

[11]

The first factor is whether Mr. Dale had a
bona
    fide
intention to appeal within the relevant time. The 30 days to appeal
    ran from the date of the order (July 5, 2019). Contrary to Mr. Dales
    submission, the time did not run from the date the order was issued and entered
    (October 1, 2019):
Byers (Litigation Guardian of) v. Pentex Print Master
    Industries Inc
.
(2003), 62 O.R. (3d) 647 (C.A.), at para. 31.

[12]

I do not believe Mr. Dales assertion that he
    had the intention to appeal the order of Diamond J. within 30 days of the date
    the order was made, or even, allowing for some delay in the order coming to his
    attention, within 30 days of when he knew about the order (which he says was in
    August 2019, although the responding party has provided evidence that the
    endorsement of Diamond J. was sent to one of the email addresses he had
    provided to the court on July 8, 2019). If he had the intention to appeal at
    the time, I would have expected Mr. Dale to have served a notice of appeal or to
    have had some other contemporaneous communication with Ms. Teitlers counsel to
    advise that he was seeking to appeal the vexatious litigant order. The absence
    of this kind of evidence is telling. It is more likely, as I will explain, that
    Mr. Dale only formed the intention to appeal the vexatious litigant order after
    he attempted to appeal Kiteley J.s order and was informed by the court that he
    required leave of a Superior Court judge to do so. This was more than a year
    after Mr. Dale had been declared a vexatious litigant.

[13]

I turn to the next factor: the length of and
    explanation for Mr. Dales delay in seeking an extension of time.

[14]

This motion was brought some two years after the
    order Mr. Dale is seeking to appeal. Mr. Dale claims that he is not responsible
    for any of the delay; rather, he blames the Court of Appeal staff for the delay.
    Without indicating precisely when, Mr. Dale asserts that he immediately
    contacted the Court of Appeal intake office to bring his motion to extend the
    time for filing the notice of appeal, but that court staff told him they would
    not accept any filing of his notice of motion because he is a vexatious
    litigant. He says that court staff maintained this position until recently. Mr.
    Dale also states that he was prevented from bringing his motion because only
    urgent matters could be brought to this court as a result of the COVID-19
    pandemic.

[15]

I do not accept Mr. Dales explanation for the
    lengthy delay of more than two years between the order he seeks to appeal and
    his motion to extend time to appeal: essentially that court staff and the
    pandemic prevented him from proceeding with his motion.

[16]

First, there is nothing to substantiate Mr.
    Dales assertion that court staff prevented him from bringing a motion to extend
    time to appeal the vexatious litigant order from the time the order was made,
    and for the following 20 months. In oral argument Mr. Dale explained the
    absence of any emails or other written evidence during this period by asserting
    that all of his communications with the court were verbal. I simply do not
    believe Mr. Dale on this point.

[17]

Mr. Dale has reproduced portions of an email
    exchange with court staff on January 21 and 22, 2021. The emails make it clear
    that he had tried to file a notice of appeal from the final order of Kiteley J.,
    and was prevented from doing so without an order of a Superior Court judge due
    to the vexatious litigant order. He took the position that he was entitled to
    appeal the order notwithstanding the vexatious litigant order, which is wrong
    at law. While a vexatious litigant is entitled to appeal the order declaring
    him vexatious without leave, he is not permitted to appeal any other decision
    or order without leave of a Superior Court judge:
Kallaba v. Bylykbashi
(2006),
    265 D.L.R. (4th) 320, at paras 29-33, leave to appeal refused, [2006] S.C.C.A.
    No. 144. It appears that when the court refused to accept his notice of appeal
    for filing, Mr. Dale realized that he would need to successfully appeal the
    order of Diamond J., if he were to appeal the order of Kiteley J. without an
    order of a Superior Court judge. This occurred in January 2021.

[18]

Mr. Dale relied on  an email exchange with court
    staff on July 27, 2021. On that occasion a staff member refused his filing
    because he was a vexatious litigant. Mr. Dale sorted out the misunderstanding
    with the Deputy Registrar, and an hour later he received an email confirming he
    could file his motion. As Mr. Dale emphasized in his oral argument, he is a persistent
    litigant. If, as he claims, he had been prevented by the court from filing a
    motion to extend time to appeal the vexatious litigant order since the fall of
    2019, no doubt he would have sorted out the issue, as he quickly did in July of
    this year.

[19]

Mr. Dale also relies on the COVID-19 pandemic to
    explain his delay in moving for an extension of time. Contrary to Mr. Dales claim
    that he was told that he could not bring his motion because the court was
    accepting only urgent matters, this court continued to sit on appeals and
    motions in 2021, including motions to extend time to appeal. The timelines for
    serving and filing documents in this court were extended between March 16, 2020
    and July 15, 2020, and regular timelines were reinstated effective July 16,
    2020. There is nothing in the courts COVID Practice Directions that would have
    prevented Mr. Dale from pursuing a motion to extend time to appeal the vexatious
    litigant order.

[20]

Mr. Dale has not provided a reasonable
    explanation for his lengthy delay in seeking an extension of time to appeal the
    vexatious litigant order.

[21]

I turn to consider the merits of the appeal. Compelling
    merits may tip the balance in cases where, as here, other factors militate
    against an extension of time: see
Howard
, at para. 36.

[22]

Mr. Dales principal ground of appeal is that he
    was denied a fair hearing, due process and natural justice when the vexatious
    litigant order was granted in the context of a combined motion and application
    hearing. He also asserts that the application judge erred in law and fact because
    the underlying facts do not support the vexatious litigant finding. I will
    consider each ground in turn.

[23]

With respect to the procedure on a vexatious
    litigant application Mr. Dale relies on two cases:
Lukezic v. Royal Bank of
    Canada
, 2012 ONCA 350 and
Kallaba
.
In
Lukezic

this court agreed with the dissenting reasons of Lang J.A. in
Kallaba

that a vexatious litigant order shall only be made on application. Mr. Dale
    says that, although an application was issued, in substance what was heard was
    not an application. Essentially, I understand his argument to be one of
    procedural fairness. He points to para. 16 of
Lukezic
where the court
    stated:

an application provides the procedure best
    suited to the determination of whether a litigant is vexatious. In large
    measure this is because of the due process protections which that procedure
    accords to the person targeted, such as personal service, adjudication by a
    judge, a directed trial of an issue if necessary, and the right of appeal
    without the need for leave.

[24]

Mr. Dale was afforded all of the due process
    protections referred to in this passage. While a due process argument might
    be made in another case on a different record, I cannot see any prospect of it
    succeeding in this case. Mr. Dale had notice that a vexatious litigant order
    was sought, and it was pursued by application. Although he had arranged the court
    attendance and knew its purpose, Mr. Dale did not attend when Akbarali J.
    provided directions for the hearing of the application together with Ms. Teitlers
    motion for contempt and to strike his Answer. As the case management judge, Akbarali
    J. was familiar with the proceedings and the parties and she made an order that
    was entirely within her discretion. She set a timetable for the delivery of the
    materials and for the hearing by Diamond J., who had been appointed as the
    judge to hear motions in the family law proceedings. Mr. Dale complied with the
    timetable when he delivered his responding materials on time. He attended court
    on the appointed date, however he left the hearing after his request for an
    adjournment was denied. As Diamond J. explained, Mr. Dale sought an adjournment
    in order to bring a motion that was based on a conspiracy theory and that he
    had threatened to bring for months, if not arguably, years.

[25]

Mr. Dales draft notice of appeal also asserts
    that Diamond J. erred in law and fact in making the vexatious litigant order. However,
    Mr. Dale did not press this argument in the motion before me, except to suggest
    that Diamond J. was wrong to rely on previous orders of Faieta J. and Akbarali
    J. Mr. Dale in fact made numerous attempts to appeal or set aside various
    orders in the family law proceedings, including the orders of Faieta J. as the
    previous case management judge:
Dale v. Teitler
, 2018 ONSC 6861 (Div.
    Ct.). Diamond J. made it clear that, although he had no reason to doubt the correctness
    or appropriateness of Akbarali J.s findings of fact, he had reviewed the
    Continuing Record, and had reached the same conclusions. Diamond J. referred to
    Mr. Dales avoidance of his court-ordered obligations, his pursuit of
    unattainable remedies based on a conspiracy theory that stretch[ed] the boundaries
    of reality, his commencement of civil and criminal proceedings against Ms.
    Teitler, her lawyers, judges and other professionals, the motions he had
    brought and abandoned, his attempts to re-litigate issues that had been decided
    against him, and ultimately his total disregard for the Court and its
    resources: at paras. 43, 44. Diamond J.s reasons, which are detailed and
    comprehensive, reveal no reversible error.

[26]

Since I have concluded that the proposed appeal
    has no arguable merit, this factor weighs against granting an extension of
    time.

[27]

Finally, I turn to consider prejudice to Ms.
    Teitler and the children, which informs my consideration of the justice of the
    case. Mr. Dale contends that there will be little prejudice to Ms. Teitler
    because he is willing not to deal with property and support issues. His willingness
    not to deal with such issues is a hollow offer: Mr. Dale is in default of the
    outstanding orders for support and equalization. He has paid very little child
    support in the last five years. The child support arrears are significant.

[28]

I accept Ms. Teitlers submission that to permit
    Mr. Dale to proceed at this stage with his appeal would severely prejudice her
    interests and those of the children. In addition to the outstanding support and
    equalization payment obligations, Mr. Dale is in default of numerous costs
    awards. If Mr. Dales appeal proceeds, she will have to incur further legal
    costs, without hope of recovering such costs from Mr. Dale. As for the
    children, although Mr. Dale has not complied with many of the orders in the
    family law proceeding, Ms. Teitler describes the current situation as relatively
    stable, and not disregulated. And, as Ms. Teitlers counsel pointed out, there
    is a path forward that is available to Mr. Dale in relation to the children
    he could comply with the provisions of the orders of Faieta J. dated August 31,
    2018 and Kiteley J. dated December 17, 2020 respecting the children.

[29]

For these reasons the extension of time is
    refused.

Stay Pending Appeal

[30]

Having refused the extension of time for Mr.
    Dale to appeal the vexatious litigant order, it is unnecessary to address the
    question of a stay. I will briefly explain why I would have dismissed the
    motion for a stay if I had granted the extension.

[31]

A stay of proceedings is a discretionary order
    made when the court is persuaded that (1) the appeal has arguable merit; (2)
    there would be irreparable harm to the moving party if the stay were refused;
    and (3) the balance of convenience favours a stay. Again, the overarching
    consideration is whether the interests of justice call for a stay:
BTR
    Global Opportunity Trading Limited v. RBC Dexia Investor Services Trust
,
    2011 ONCA 620, at para. 16.

[32]

I have already determined that the proposed
    appeal is without merit. Mr. Dale has put forward no evidence that would
    persuade me that there would be irreparable harm if the stay were refused. I
    accept the evidence that a stay would be harmful to the children and to Ms.
    Teitler. The balance of convenience in any event weighs heavily against a stay.
    The record confirms that Mr. Dale has engaged in meritless and vexatious
    litigation, while at the same time disregarding the procedures of the court. He
    has ignored court orders respecting parenting and support issues, including orders
    restricting his contact with the children. To stay the vexatious litigant order
    pending appeal would only permit and encourage Mr. Dale to continue such
    harmful conduct while an appeal is pursued.

Disposition

[33]

For these reasons the motion is dismissed. Ms.
    Teitler is entitled to her costs. She has asked for the opportunity to make
    written submissions. The court will receive costs submissions as follows: from
    the responding party on or before August 27, 2021, and from the moving party on
    or before September 3, 2021, with no right of reply. Costs submissions shall be
    limited to three pages per side, exclusive of the moving partys bill of costs.

K. van Rensburg J.A.

[1]
FS-15-400682 is subject to a sealing order in the
Superior
    Court made December 17, 2020 by Kiteley J.


COURT OF APPEAL FOR ONTARIO

CITATION:
Advanced Farm Technologies-JA v. Yung Soon Farm Inc., 2021
    ONCA 569

DATE: 20210817

DOCKET: C68506

Feldman, Paciocco and Coroza
    JJ.A.

BETWEEN

Advanced Farm Technologies-JA, Limited, carrying on business as
    Advanced Farm Technologies, JA. Ltd., and Advanced Farm Technologies, Jamaica Ltd.

Plaintiff

(Respondent)

and

Yung Soon Farm Inc.
, Michael Chung, Walter Chung, and Stephen Chung

Defendants

(
Appellant
)

James Chow, for the appellant

Mahdi M. Hussein, for the respondent

Heard: March 9, 2021 by videoconference

On
    appeal from the order of Justice Janet Leiper of the Superior Court of Justice,
    dated June 19, 2020, with reasons at 2020 ONSC 3831.

Feldman J.A.:

[1]

The appellant was sued under the simplified procedure
    for failing to pay the agreed price of US$48,238.49 for papayas ordered and
    delivered. After having default judgment set aside, the appellant defended the
    action and instituted a counterclaim for $5,000,000 in damages for breach of
    contract and $1,000,000 in punitive damages, taking the action out of the simplified
    procedure. After that, the appellant effectively absented itself from the
    litigation, with the result that its defence and counterclaim were eventually struck
    out by the motion judge without leave to amend. The appellant appeals that
    decision.

[2]

The motion judges decision is well-supported by
    the record and the law. I would dismiss the appeal.

A.

History of the Action

[3]

The statement of claim was served on all parties
    in December 2017, no statement of defence was filed, and default judgment was obtained
    in January 2018. In August 2018, the defendants had the default judgment set
    aside on the condition that they pay costs and deliver a defence within 30 days.
    After the plaintiff discontinued its action against the individual directors, the
    appellant delivered its statement of defence along with a counterclaim for $5
    million for breach of contract and $1 million punitive damages, which had the
    effect of converting the action from the simplified procedure to the ordinary
    stream. After the plaintiff moved to strike portions of the appellants
    pleading, the appellant delivered an amended statement of defence and
    counterclaim in January 2019.

[4]

The plaintiff delivered its affidavit of
    documents on June 7, 2019, then made numerous attempts thereafter to move the
    litigation forward, with no response from appellants counsel except to cancel
    the scheduled examinations for discovery and to consent to the timetable
    imposed by Master Short. I am setting out the details, as did the motion judge,
    because understanding the full extent of the appellants conduct of the
    litigation is necessary to understand and review the decision of the motion
    judge to strike the defence and counterclaim. The following are the details:

a.

July 11, 2019:
Plaintiffs
    counsel's office wrote to appellants counsel in an attempt to schedule
    examinations for discovery. Counsel to the plaintiff advised appellant's
    counsel that, "We have tried contacting your office numerous times, and
    only reach your voicemail. You have not returned any of our recent
    voicemails."

b.

July 24, 2019:
Plaintiffs counsels office set dates for examination for discovery, as he had
    not heard from appellant's counsel nor had he received the appellants
    affidavit of documents.

c.

August 12, 2019:
Four days before the scheduled examinations for discovery, appellant's counsel
    advised that his client was unable to attend and asked the plaintiff to provide
    further dates. Appellants counsel did not advise when his client would provide
    its affidavit of documents.

d.

August 27, 2019:
Plaintiff's
    counsel made a further request for the appellant's affidavit of documents and
    provided available dates for examinations between September and October 2019.
    Plaintiff's counsel advised that if appellant's counsel did not respond, he
    would schedule a motion to compel the appellant's affidavit of documents and
    would issue a further notice of examination. Appellant's counsel did not
    respond to this correspondence.

e.

September 13, 2019:
Plaintiff's counsel unilaterally set an examination for discovery
    of the appellant for October 17, 2019 and sent correspondence to the appellant's
    counsel advising of this date. Appellant's counsel did not respond to this
    correspondence.

f.

September 23, 2019:
Plaintiff's counsel served a motion record on the appellant's
    counsel with a return date of October 2, 2019, seeking the appellant's
    affidavit of documents and an order for the appellant to attend the scheduled
    examination for discovery. The appellant filed no responding materials for this
    motion. Appellant's counsel did not respond to this correspondence.

g.

October 2, 2019:
The court imposed a timetable on consent,

and ordered costs of $1500
    payable to the plaintiff in 60 days. The order required the appellant to
    deliver its unsworn affidavit of documents by November 1, 2019. The appellant
    did not comply with the timetable. The appellant did not pay the costs ordered
    within 60 days.

h.

November 4, 2019:
Plaintiff's counsel sought to formalize the October 2, 2019 endorsement. In
    that letter, plaintiffs counsel sought the status of the appellant's affidavit
    of documents. Plaintiff's counsel also put appellants counsel on notice that he
    would move to strike the defence. Appellant's counsel did not respond to this
    correspondence.

i.

March 6, 2020:
Plaintiff's
    counsel enclosed a notice of examination in aid of execution seeking payment
    for the outstanding costs award from the October 2, 2019 motion. Plaintiff's
    counsel also sought dates for a motion to strike the appellant's defence for
    failing to abide by the terms of the October 2, 2019 endorsement. This letter
    asserted that, "It is clear that your client has no interest in litigating
    the action." Appellant's counsel did not respond to this correspondence.

j.

March 16, 2020:
Plaintiff's
    counsel wrote to inform appellant's counsel that due to the COVID-19 pandemic
    the court would not schedule its motion. Plaintiff's counsel sought a virtual
    mediation in accordance with Rule 24 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194
. Appellant's
    counsel did not respond to this correspondence.

k.

May 12, 2020:
Plaintiffs
    counsel informed appellant's counsel via email of the chambers appointment
    returnable on May 15, 2020. Appellant's counsel did not respond to this
    correspondence.

l.

May 13, 2020:
Plaintiffs counsel provided appellant's counsel with a proposed schedule for
    the litigation ahead of the chambers appointment. Appellant's counsel did not
    respond to this correspondence.

m.

May 15, 2020:
Myers
    J. convened a chambers appointment. Appellant's counsel did not attend. The
    motion to strike the defence was scheduled on that date and timelines were set
    for delivery of motion materials.

[5]

The order under appeal was made on a motion in
    writing dated June 15-19, 2020, which was scheduled by Myers J. at the May 15,
    2020 chambers appointment that appellants counsel did not attend. After the
    plaintiff had served its motion record and factum, on June 11, 2020, the
    appellant sent a cheque for the outstanding costs due to the plaintiff with a
    letter apologizing for the delay. Finally, on June 12, 2020, the appellant
    delivered its affidavit of documents with a letter that apologized for the
    delay, proposed mediation, and asked for the plaintiffs position on posting
    security for costs. An affidavit of an officer of the appellant stated that he
    believed the appellant had a strong case, and that the appellant intended to
    proceed expeditiously and would participate in mediation, but provided no
    explanation for any of the delays or for its failure to abide by the order of
    Master Short.

B.

The Motion Judges Analysis

[6]

The motion judge referred to Rule 60.12 of the
Rules
    of Civil Procedure
, which allows the court to sanction a party for failure
    to comply with an interlocutory court order, including by staying the
    proceeding, dismissing the proceeding, striking out a defence, or making such
    other order as is just.

[7]

The motion judge referred to the 2009 decision in
Dew Point Insulation Systems Incorporated v. JV Mechanical Limited
,
259 O.A.C. 179, where Bellamy J. summarized
    the purpose and approach to Rule 60.12 motions: to sanction repeated procedural
    breaches while bearing in mind that striking the defence is a last resort
    remedy to be used when there has been utter disregard for court orders or where
    there is prejudice to the other party. Applying those principles, the motion
    judge concluded that the appropriate remedy was to strike the defence and
    counterclaim, based on five aspects of the record.

1.       The
    appellant took no step to move the litigation forward without a court order.

2.       The
    appellant breached the consent order of Master Short by failing to deliver the
    affidavit of documents or the costs on time.

3.       The
    appellant did not remedy the breaches until after the plaintiff had scheduled a
    compliance motion, and delivered a motion record and factum.

4.       The
    appellant displayed a months long pattern of failing to respond to correspondence.

5.       The
    appellant asserted that the action was vexatious, yet it took no steps to deal
    with the action as such, and instead responded with a $6 million counterclaim
    that belied the suggestion that the claim was vexatious.

[8]

The motion judge acknowledged that the plaintiff
    was seeking an extreme remedy but concluded that it was warranted in all the
    circumstances. By ignoring Master Shorts order, the appellant showed an utter
    disregard for court orders in the overall context of this litigation, as outlined
    above.

C.

Issues

[9]

The appellants position on appeal is that the
    motion judge erred by: 1) failing to give the appellant a last chance to comply
    with court orders; 2) failing to acknowledge that by the return of the motion the
    appellant was no longer in breach of Master Shorts order; 3) failing to
    consider the merits of its defence; 4) failing to consider that the action was at
    the early stages and should have been decided on its merits; and 5) failing to
    consider that there was no evidence of prejudice to the plaintiff.

D.

Analysis

[10]

This court has recently had the opportunity to
    address the issue of when it is appropriate to strike a pleading under Rule
    30.08(2) of the
Rules of Civil Procedure
for non-compliance with document
    disclosure obligations in
Falcon Lumber Limited v. 2480375 Ontario Inc. (GN
    Mouldings and Doors)
, 2020 ONCA 310. In that case, the court summarized
    the applicable principles, at para. 57, as follows:

To summarize, several principles guide the
    exercise of a courts discretion to strike out a partys claim or defence under
    r. 30.08(2) for non-compliance with documentary disclosure and production
    obligations:

·

The remedy is not restricted to last resort
    situations, in the sense that it must be preceded by a party breaching a series
    of earlier orders that compelled better disclosure or production. However,
    courts usually want to ensure that a party has a reasonable opportunity to cure
    its non-compliance before striking out its pleading;

·

A court should consider a number of common sense
    factors including: (i) whether the partys failure is deliberate or
    inadvertent; (ii) whether the failure is clear and unequivocal; (iii) whether
    the defaulting party can provide a reasonable explanation for its default,
    coupled with a credible commitment to cure the default quickly; (iv) whether
    the substance of the default is material or minimal; (v) the extent to which
    the party remains in default at the time of the request to strike out its
    pleading; and (vi) the impact of the default on the ability of the court to do
    justice in the particular case;

·

The merits of a partys claim or defence may
    play only a limited role where breaches of disclosure and production
    obligations are alleged as one would reasonably expect a party with a strong
    claim or defence to comply promptly with its disclosure and production
    obligations;

·

In considering whether an order to strike out a
    pleading would constitute a proportional remedy in the circumstances, a court
    should consider:

o

the extent to which the defaulting partys
    conduct has increased the non-defaulting partys costs of litigating the
    action, including the proportionality of those increased costs to the amount
    actually in dispute in the proceeding; and

o

to what extent the defaulting partys failure to
    comply with its obligation to make automatic disclosure and production of
    documents has delayed the final adjudication of the case on its merits, taking
    into account the simplicity (or complexity) of the claim and the amount of
    money in dispute.

[11]

Because the default in this case involved the
    appellants failure to produce an affidavit of documents, the principles
    articulated by the court in
Falcon
are clearly relevant and should apply
    accordingly. In this case, the appellant also breached a court order, which
    adds significantly to the impugned conduct. In addition, counsel, on behalf of
    the appellant, failed to respond to normal communications from opposing counsel
    with no explanation.

[12]

With respect to the last resort issue raised
    by the appellant, there are a number of responses. First, as Brown J.A.
    explains in
Falcon
, a court may strike out a pleading if that is the
    remedy warranted by all the circumstances, as long as the party has had a
    reasonable opportunity to cure any non-compliance. Second, as the plaintiff points
    out, had the appellant attended the chambers appointment with Myers J., it
    would have had its last chance to comply with Master Shorts order before going
    to the motion where the pleading was struck. Third, in this case, the appellant
    shunned the many overtures made by plaintiffs counsel to comply and move
    forward with the litigation. Instead, the appellant ignored every overture
    after the consent order of Master Short.

[13]

With respect to taking into account the
    potential merit of the appellants defence, Brown J.A. points out that it plays
    only a limited role in the courts analysis because if a party has a strong
    position on the merits, one would expect them to produce their documents to
    demonstrate that strength.

[14]

In applying the common sense factors set out by
    Brown J.A.,

·

the appellants failure to comply with Master
    Shorts court order appears to have been deliberate as so many chances were
    given to comply and there has been no explanation for its inaction;

·

the appellants failure to comply is clear;

·

although there has now been very late compliance
    with Master Shorts order and a statement in its officers affidavit that the
    appellant intends to proceed expeditiously with the litigation, without an
    explanation for its prior inaction, there is no basis on which to accept its
    assurance;

·

the substance of the default was significant;

·

the appellant complied with Master Shorts order
    mere days before the motion to strike, meaning that the appellant was in
    default when the motion was commenced and even after the chambers appointment
    before Myers J.; and

·

the impact of the default was that the litigation
    could not proceed.

[15]

Further, there was clearly prejudice to the
    plaintiff, through the ongoing cost of chasing the appellant to fulfill its
    procedural obligations and to participate in the litigation, as required by the
Rules of Civil Procedure
.

[16]

Ultimately the motion judge concluded that the
    extreme remedy of striking the appellants pleadings was warranted, noting that
    she did not grant it lightly. She considered the appellants compliance with
    the order of Master Short, but noted that it was done on the last possible
    day. She also considered the steps taken by the plaintiff and the responses of
    the appellant in the overall context and concluded that the remedy requested
    by the plaintiff was the appropriate one.

[17]

The motion judge was entitled to conclude that
    notwithstanding the appellants eventual, months late delivery of the costs and
    affidavit of documents ordered by Master Short, its history of an overall
    failure to participate in the litigation process in accordance with the Rules
    called for the extreme remedy of striking the appellants statement of defence
    and counterclaim.  I see no error in the motion judges approach. I would not
    interfere with her decision.

E.

Conclusion

[18]

I would therefore dismiss the appeal with costs,
    fixed in the agreed amount of $10,000 inclusive of disbursements and HST.

Released: August 17, 2021 K.F.

K. Feldman J.A.

I agree. David M. Paciocco J.A.

I agree. S. Coroza J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: McEwen (Re), 2021 ONCA 566

DATE: 20210812

DOCKET: C67520

Juriansz, Huscroft and Jamal
    JJ.A.

In the
    Matter of the Bankruptcy of Robert Morris Jr. McEwen and Caroline Elizabeth
    McEwen, of the Town of Perth, in the County of Lanark, in the Province of
    Ontario

BETWEEN

Barbara
    Lynn Carroll by Her Litigation Guardian Shannon Luknowsky, Shannon Luknowsky,
    Jeffrey Carroll and Shannon Luknowsky as Executor for the Estate of Lorne
    Carroll

Plaintiffs
    (Respondents)

and

Robert
    McEwen and Caroline McEwen

Respondents

and

Traders General Insurance Company
,
    improperly described in Superior Court of Justice Court File Number
CV-17-00073740-0000 as Aviva Canada Inc.

Person Affected by an Order

Obtained
    on Motion Without Notice

(
Appellant
)

Harvey Chaiton and Alan Rachlin, for
    the appellant

Joseph Y. Obagi, for the respondents

Heard: May 14, 2021

On appeal from the order of Justice Stanley
    J. Kershman of the Superior Court of Justice, dated September 26, 2019, with
    reasons reported at 2019 ONSC 5593.

Juriansz J.A.
:

A.

INTRODUCTION

[1]

This appeal is brought by the defendant to an
    action assigned to the respondents by a trustee in bankruptcy under s. 38 of
    the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3 (BIA). As is
    often observed, the BIA is a complete code governing the bankruptcy process.
    Parliament enacted the BIA to provide summary and expeditious procedures to
    determine the questions that arise in bankruptcy with a minimum of cost. Generally,
    the defendant to a s. 38 assigned action lacks standing in the bankruptcy
    process to contest the s. 38 order and resulting assignment and thus avoid
    defending the assigned action. Where such defendants wish to avoid the risk and
    expense of responding to assigned lawsuits that they consider meritless, the
    civil rules of practice provide summary procedures to which they can resort.

[2]

In this case, Traders General Insurance Co. (Traders)
    appeals, with leave, from the order of Kershman J. dated September 26, 2019, dismissing
    its motion to set aside his order dated December 21, 2016, pursuant to s. 38 of
    the BIA, made in the bankruptcy of Robert McEwen and Caroline McEwen. The s. 38
    order authorized the respondents (the Carrolls) to commence an action against
    Traders for alleged bad faith in failing to settle the Carrolls personal
    injury claims against the McEwens within the policy limits. After the s. 38 order
    was made, the trustee assigned its interest in the action to the Carrolls, as
    contemplated by s. 38(2).

[3]

I conclude that Kershman J. correctly found Traders
    did not have standing to challenge the s. 38 order, and consequently, I would
    dismiss the appeal.

B.

Facts

(1)

The personal injury action

[4]

On March 28, 2009, Barbara Carroll was injured
    by a motor vehicle driven by Robert McEwen and owned by Caroline McEwen. The
    McEwens were insured by Traders
[1]
for $1 million. On March 25, 2011, the Carrolls commenced an action against the
    McEwens and their own insurers, Aviva Canada Inc. and Pilot Insurance Co. Some
    months later, on September 15, 2011, the McEwens filed for bankruptcy,
    automatically staying the Carrolls personal injury action. The sworn statement
    of affairs that the McEwens filed in their bankruptcy listed the Carrolls
    personal injury claim as an unsecured claim for $375,000.

[5]

On June 18, 2012, the McEwens received their
    automatic absolute discharge from their bankruptcy, and subsequently, the
    trustee was discharged.

[6]

On October 12, 2012, the Carrolls obtained an
    order lifting the stay of proceedings pursuant to s. 69.4 of the BIA, and granting
    leave to the Carrolls to continue to prosecute their claims against the
    bankrupts, ROBERT MCEWEN and CAROLINE MCEWEN.

[7]

The Carrolls claim they made an offer to settle
    the action within policy limits on the eve of the trial that began in September
    2015, and that the offer was not accepted by Traders. The trustee wrote to the
    McEwens counsel stating that the insurer, by refusing the offered settlement,
    had placed its own financial interests in priority to that of its insureds and
    accordingly was acting in bad faith. The trustee gave notice to Traders that
    in the event a Judgment is granted against Robert and Caroline McEwen for any
    sum greater than the limits of the liability policy, we hold Aviva fully liable
    for the excess amount.

[8]

After a six-week trial, the jury assessed Barbara
    Carrolls pain and suffering in the amount of $300,000 and her future care
    costs in the amount of $3,600,000. The jury also awarded family law damages in
    the amount of $43,000. The jury found Barbara Carroll 38 percent contributorily
    negligent for the accident. With pre-judgment interest included, the trial
    judges formal judgment, dated September 19, 2016, found the McEwens liable to
    the Carrolls in the amount of $2,610,744.32 plus costs and post-judgment
    interest. The formal judgment also ordered the Pilot Insurance Company to pay
    $1 million of the judgment pursuant to the provisions of the OPCF 44R endorsement
    in the Carrolls own automobile insurance policy. The trial judge included a
    paragraph in the judgment limiting the McEwens personal liability. The
    paragraph provided:

THIS COURT ORDERS AND AJUDGES that the
    judgment against the Defendants Robert McEwen and Caroline McEwen, personally,
    is limited to the limits of their insurance policy with the Aviva Insurance
    Company Canada in the amount of $1,000,000.00.

[9]

Finally, the trial judge made a conditional
    assignment order of Barbara Carrolls future statutory accident benefits in
    favour of the insurer if the insurer paid the trial judgment in full, even
    though it exceeded the limits of coverage. The trial judge fixed costs of the
    action in the amount of $375,000, a sweeping reduction from the amount claimed
    of $795,616.09 because of the behaviour of the Carrolls counsel relating to a
    settlement offer made by the insurance companies, the lack of benefit to the Carrolls
    in pursuing the trial, and the behaviour of the Carrolls counsel that extended
    the trial:
Carroll (Litigation guardian of) v. McEwen
,2016 ONSC 2075,
    37 C.B.R. (6th) 70. The Carrolls appeal of the assignment order and the costs
    award was unsuccessful:
Carroll v. McEwen
, 2018 ONCA 902, 143 O.R.
    (3d) 641.

(2)

Proof of claim and s. 38 order

[10]

On October 11, 2016, the Carrolls filed a proof
    of claim in the McEwens estate for the amount of $624,349.01, which was the
    amount awarded by the trial judgment in excess of insurance coverage. The
    Carrolls also asked the trustee to advance a bad faith claim against Traders
    for its refusal to settle the action within the policy limits before trial. The
    trustee, after consulting with the Office of the Superintendent of Bankruptcy regarding
    the scope of s. 41(10) of the BIA, which provides a discharged trustee may
    perform duties as may be incidental to the full administration of the estate,
    advised the Carrolls in writing that it would accept the proof of claim as
    filed, that it would not take any action against the McEwens insurers, and
    that it would consent to a s. 38 BIA order allowing the Carrolls to take the
    action in their own name.

(a)

Section 38

[11]

Section 38 of the BIA contemplates that the
    trustee may refuse or neglect to take a proceeding. Here, the trustee refused
    to take action with respect to any claim against Traders, stating the estate
    was without funds. In such situations s. 38 of the BIA allows a creditor to
    obtain a court order authorizing it to take the proceeding at its own expense
    and risk. Section 38(1) provides:

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.

[12]

Upon such an order being made, s. 38(2) provides
    that the trustee shall assign and transfer to the creditor all their right,
    title, and interest in the proceeding including any document in support thereof.
    Section 38(3) provides that any benefit derived from the proceeding belongs
    exclusively to the creditor who instituted the proceeding to the extent of
    their claim, and that any surplus belongs to the bankrupt estate.

(b)

The Carrolls motion for a s. 38 order

[13]

The Carrolls applied for a s. 38 order. The
    supporting material for their motion included a lawyers affidavit alleging
    that Traders had acted in bad faith leading up to the trial by refusing to
    settle the personal injury claim within the policy limits. The exhibits to the
    affidavit included the Masters order to continue, the Carrolls offer to settle
    the personal injury action, the trial judges judgment in the amount of
    $2,610,744.32, the Carrolls proof of claim, a letter from the trustee
    accepting the proof of claim, and the trustees consent to the s. 38 order.

[14]

The Carrolls served the motion materials on the trustee
    and the other creditors of the estate. They did not serve Traders. The motion
    came before Kershman J., who granted the s. 38 order on December 21, 2016. The
    next day the trustee assigned the bad faith claim to the Carrolls. On August
    25, 2017, the Carrolls issued the statement of claim against Aviva Canada, claiming
    damages for the breach of a duty of good faith in its dealings with the McEwens
    insurance coverage.

[15]

The statement of claim pleads that Aviva Canada provided
    the McEwens with liability insurance with policy limits of $1 million and that [t]he
    rights, interests and liabilities [of the McEwens]  under their policy of
    insurance were transferred to their trustee in bankruptcy. It goes on to plead
    that at the same time as Aviva Canada was defending the action against the
    McEwens, Aviva Canada (together with Pilot Insurance Company) was also the
    insurer of Barbara Carroll under her OPCF 44R Family Protection Endorsement with
    limits of $2 million. The theory of the bad faith action asserted in para. 16
    of the statement of claim, is that Aviva Canada improperly withheld the policy
    limits of the McEwens in an effort to leverage the settlement position and
    litigation strategy of Aviva Canada in its capacity as OPCF 44R insurer of
    Barbara Carroll.

[16]

In the action, the Carrolls claimed damages of $624,349.01,
    which is the amount of the judgment in excess of the McEwens insurance
    coverage, and punitive and exemplary damages of $1 million.

(c)

Traders motion to set aside the s. 38 order

[17]

Traders moved to set the s. 38 order aside, indicating
    it was improperly described as Aviva Canada Inc. in the Carrolls bad faith
    action. Traders motion, brought in the Superior Court of Justice in Bankruptcy
    and Insolvency, sought an order:

1)

reversing the decision of the trustee to allow the proof of claim
    filed by the Carrolls;

2)

setting aside the s. 38 order granting the Carrolls leave to
    commence proceedings against Traders; and

3)

setting aside the trustees assignment of the bad faith claim of
    action to the Carrolls.

[18]

The motion relied on ss. 37 and 187(5) of the
    BIA. Section 37 allows the bankrupt, any creditor, or an aggrieved person to
    apply to the court to confirm, reverse or modify an act or decision of the
    trustee. Section 187(5) allows the court to review, rescind or vary any order
    made by it under its bankruptcy jurisdiction.

[19]

Traders motion alleged:

1)

the Carrolls proof of claim was improper and filed in violation of
    the trial judges reasons and judgment in the personal injury action;

2)

the Trustee erred by accepting the Carrolls proof of claim;

3)

the bad faith claim was not property belonging to the McEwens on the
    date of bankruptcy and did not devolve on the McEwens before their discharges
    from bankruptcy;

4)

the Trustee had no interest in the bad faith claim and therefore could
    not consent to the s. 38 order and could not assign the bad faith claim to the Carrolls;

5)

the trustee could not consent to the s. 38 order and assign the bad
    faith claim after it had been discharged;

6)

the Carrolls had acted improperly in obtaining the s. 38 order without
    giving notice to Traders; and

7)

that the Carrolls failed to make full disclosure in their s. 38
    motion.

[20]

The motion was brought before Kershman J. who
    had granted the s. 38 order.

(3)

Kershman J.s decision

(a)

Standing

[21]

The motion judge dismissed Traders motion on
    the basis that it lacked standing to attack the trustees acceptance of the
    proof of claim and assignment of the bad faith action, and lacked standing to
    challenge the s. 38 order.

[22]

Kershman J. held that Traders had failed to put
    forward any basis on which it was an aggrieved party under s. 37 of the BIA
    for the purpose of reviewing the trustees decisions to accept the proof of
    claim and to assign the bad faith claim to the Carrolls. On appeal, Traders
    does not seek to rely on s. 37.

[23]

Kershman J. also held that Traders did not have
    standing to review the s. 38 order of the court. He recognized that
    Traders motion fell within an exception to the general rule that defendants
    have no standing to challenge a s. 38 order because Traders had alleged
    misrepresentations and non-disclosure by the Carrolls. However, he made
    findings of fact rejecting these allegations. Therefore, Traders fell within
    the general rule and had no standing to challenge the s. 38 order.

[24]

After he concluded Traders motion failed for
    lack of standing, Kershman J. recognized he had no jurisdiction to deal with
    Traders arguments but went on to address them anyway in consideration of the
    possibility that this Court is found to have otherwise erred in its standing
    analysis. He indicated he would have rejected all of Traders arguments and
    dismissed its motion, even if it had had standing.

C.

Issues ON APPEAL

[25]

The relief claimed on appeal is narrower than
    what was sought before the motion judge. The amended notice of appeal seeks to
    appeal only from the dismissal of Traders motion to set aside the s. 38 order
    granting leave to the Carrolls to commence the bad faith action against
    Traders. The amended notice of appeal does not seek to set aside the trustees
    acceptance of the Carrolls proof of claim and his assignment of the bad faith
    claim to the Carrolls. Traders factum on appeal is consistent with the amended
    notice of appeal. The request for relief in the factum requests only an order
    setting aside the s. 38 order.

[26]

On appeal, Traders raises three issues:

1)

Did the motion judge err in holding that Traders had no standing to challenge
    the s. 38 order?

2)

Should the s. 38 order be set aside because the Carrolls were not creditors
    of the McEwens?

3)

Should the s. 38 order be set aside because the bad faith claim was
    not property of the bankrupts and therefore could not be assigned by the
    trustee?

D.

Analysis

(1)

Traders had no standing to challenge the s. 38
    order

[27]

In order for Traders to advance its second and
    third issues, it must establish that the motion judge erred in holding that it
    had no standing to challenge the s. 38 order.

(a)

The general rule is that a proposed defendant
    has no standing to challenge a s. 38 order

[28]

The established and strict rule, subject to certain
    limited exceptions, is that a defendant to an action assigned under s. 38 has
    no standing to contest the assignment:
Shaw Estate v. Nicol Island
    Development Incorporated
, 2009 ONCA 276, 248 O.A.C. 35, at paras. 44-45. But
    for the exceptions, the proposed defendant to an intended action has no right
    to notice of the application for a s. 38 order, no right to be heard at the
    application, and no right to review or appeal the order if it is made:
Coroban
    Plastics Ltd., Re

(1994),
10 B.C.L.R. (3d) 52 (C.A.) (
sub nom Formula
    Atlantic Financial Corp. v. Attorney General of Canada
)
, at
    para. 8. The motion judge in
Formula Atlantic
, in explaining the defendants lack of
    standing, noted that a proposed defendants rights are not adversely affected
    by the
transfer from trustee to creditor of whatever
    right of action may exist: [t]he order  imposes no liability on the [proposed
    defendant] which did not previously exist, and leaves it free to assert in the
    action every defence it ever had: at para. 8.

[29]

In
Shaw
, at paras. 43-45, Cronk J.A. reviewed
    the jurisprudence that establishes the general rule against standing and the
    limited exceptions. Cronk J.A. explained that the reason for the limited
    exceptions is to ensure that the administration of justice and the integrity
    of the bankruptcy process had not been undermined: at para. 48. Thus, the
    defendant will be granted standing to contest a s. 38 order when there are
    allegations of abuse of process, non-disclosure, procedural irregularities,
    fraud and misrepresentation to the court: at para. 48. As well, where the s.
    38 order imposes obligations on the defendant to the assigned action, directs it
    to take specific steps in the litigation, or subjects it to costs, it will have
    standing to move to vary the order:
Shaw
, at para. 45.

[30]

The appropriate practice for a defendant
    claiming standing under the exceptions is to challenge the s. 38 order by
    bringing an application for review under s. 187(5) of the Act:
Shaw
,
    at para. 46. Section 187(5), however, does not give the defendant standing it
    does not otherwise have:
Formula Atlantic
, at para. 11. Unless an
    exception applies, the defendant to an action assigned under s. 38 cannot
    resort to s. 187(5) to attempt to review and rescind a s. 38 order authorizing
    a creditor to proceed with an action against it.

[31]

As noted already, in this court Traders does not
    contest the motion judges finding that there was no misrepresentation or lack
    of disclosure that would allow Traders standing. In this court Traders submits
    that the
Shaw
exceptions are not exhaustive. It submits the New
    Brunswick Court of Appeal recognized a different exception in
Isabelle v.
    Royal Bank of Canada
, 2008 NBCA 69, 336 N.B.R. (2d) 332. Traders submits that
Isabelle

stands for the proposition that a defendant has
    standing to challenge a s. 38 order on the basis of a discrete and genuine
    issue of law that if decided in favour of the potential defendant would avoid
    the need to defend a lawsuit that never should have been commenced in the first
    place:
Isabelle
, at para. 39.

(b)

Isabelle
does not
    change the law

[32]

In my view Traders misconstrues what was said in
Isabelle
. On my reading, the New Brunswick Court of Appeal did not
    intend to create a new exception to the general rule that a proposed defendant has
    no standing to challenge a s. 38 order.
Isabelle
had nothing to do with
    standing to challenge a s. 38 order that has been issued.
Isabelle
addressed
    standing at the s. 38 motion itself.
Isabelle

established that where
    a proposed defendant is also a creditor, and thus has notice of another
    creditors s. 38 motion, a motion judge has a narrow discretion to grant that
    proposed defendant standing on the s. 38 motion if it raises a discrete and
    genuine issue of law that if decided in favour of the potential defendant might
    well avoid the need to defend a lawsuit that should never have been commenced
    in the first place: at para. 39 The circumstances of this case are different.

[33]

The issue in
Isabelle

was
    whether a bank, which was both the proposed defendant to the s. 38 assigned
    action
and a creditor
, should have been granted intervener status to
    oppose another creditors s. 38 motion. The proposed defendant had received the
    notice of motion because it was also a creditor. The court said a proposed defendant
    that is also a creditor was entitled to participate in the s. 38 proceedings for
    the limited purpose of preserving his or her right to share rateably in the
    spoils of the action: at para. 33. The court also recognized that a motion
    judge, when hearing a s. 38 motion, retained a narrow discretion to grant a proposed
    defendant who is also a creditor standing to raise a determinative discrete and
    genuine of law: at paras. 5, 39.

[34]

In my view, it is a mistake to divorce the
    court's comments from the context of the case and understand them as generally
    applicable. The courts comment in
Isabelle

applies only to a
    proposed defendant who happens to be at the s. 38 hearing because it is also a
    creditor. The court was not suggesting that a party named as a defendant in a s.
    38 order could be granted standing to move to set aside the order
after
it had been made.

[35]

It may well be more efficient to allow a
    defendant, who is participating in the s. 38 motion as a creditor, to raise a
    decisive discrete and genuine issue of law in opposing the motion, but there is
    no economy in allowing a defendant to commence a s. 187(5) process to review
    and rescind the s. 38 order after it has been made rather than raising the
    alleged decisive issues on a summary judgment motion in the assigned lawsuit
    itself.
Isabelle

alluded to the situation in which the proposed
    defendant had not been given notice of the s. 38 motion and suggested, then
    presumably the potential defendant has the right to raise the issue on a
    preliminary motion once the lawsuit is filed: at para. 38.

[36]

In my view,
Isabelle

provides no
    support for the contention that a defendant has the right to standing to review
    an issued s. 38 order, under s. 187(5), on the basis of a determinative discrete
    and genuine issue of law.

[37]

I conclude that Traders, having abandoned its
    allegations of misrepresentation and lack of disclosure, does not have standing
    to challenge the motion judges grant of the s. 38 order.

E.

Conclusion and Discussion

[38]

The conclusion that Traders has no standing to
    challenge the s. 38 order dictates that the appeal be dismissed, and this court
    is without jurisdiction to determine the other issues raised. The motion judge
    went on to address Traders other arguments in consideration of the
    possibility that this Court is found to have otherwise erred in its standing
    analysis. I will follow the same approach.

(1)

The s. 38 order should not be set aside on the
    basis that the Carrolls were not creditors of the McEwens

[39]

Traders argues that the Carrolls were not
    creditors of the bankrupt and therefore a s. 38 order could not be made
    authorizing them to proceed with the action. The wording of s. 38 makes clear
    that an order can only be made in favour of a creditor.

[40]

To support this argument, Traders submits: 1) the
    stay of proceedings against the McEwens had been lifted solely to enable the
    Carrolls to access the McEwens' insurance proceeds; 2) the trial judge had
    specifically limited the judgment against the McEwens to the limits of their
    insurance policy; and 3) the most the Carrolls could realize of the damages
    awarded was the amount of their liability and underinsured insurance coverage.

[41]

Traders submissions presume that whether the
    Carrolls were creditors was a discrete and genuine issue of law that would be
    determinative. That presumption is incorrect. The question whether the Carrolls
    were creditors of the bankrupt estate is a question of fact before the s. 38
    motion judge. Cronk J.A. in
Shaw
, at para. 60, said, For the purpose of
    a s. 38 motion, the court need only be satisfied on a balance of probabilities
    that the applicant is a creditor of the bankrupt: at para. 60. See also
DeGroote
    v. Canadian Imperial Bank of Commerce
(1996), 45 C.B.R. (3d) 132 (Ont.
    Gen. Div.), at para. 7, aff'd (1998), 37 O.R. (3d) 651 (C.A.), leave to appeal
    to S.C.C. refused, [1998] S.C.C.A. No. 149;
Alfano v. KPMG Inc
.
(1999), 7 C.B.R. (4th) 47 (Ont. Gen. Div.); and
Polar Products Inc. v.
    Hongkong Bank of Canada
(1992), 14 C.B.R. (3d) 225 (B.C.S.C.).

[42]

On appeal, a s. 38 motion judges conclusion
    that the applicant is a creditor would be reviewed as a finding of fact. For
    example, in
Shaw
, Cronk J.A. was satisfied there was some evidence the
    applicant was a creditor: at para. 62. In
Shaw
, there was an affidavit
    before the motion judge that the applicant was a creditor, and though the
    applicants proof of claim was not part of the affidavit, the bankrupts sworn
    statement of creditors and liabilities, in which he acknowledged the
    [applicant] as one of his unpaid creditors at the date of bankruptcy, was
    attached as an exhibit to the affidavit: at para. 61.

[43]

In this case, there was evidence before the
    motion judge that the Carrolls claim had been included on the McEwens sworn statement
    of affairs filed on the date of bankruptcy; that the Carrolls had a judgment
    against the McEwens in the amount of $2,610,744.32; and that their proof of
    claim for the damages in excess of the limits of the insurance policy had been
    accepted by the trustee (a determination of the trustee that is not contested
    on appeal). Based on this evidence, it is my view the motion judge could have
    been satisfied the Carrolls were creditors for the purpose of s. 38.

(2)

The s. 38 order should not be set aside on the
    basis that the bad faith claim was not property of the bankrupt

[44]

The second argument Traders makes is that the
    bad faith claim is not property of the bankrupts because it did not devolve on
    them before they were discharged as required by s. 67(1)(c) of the BIA.

[45]

Traders relies on this courts decision in
Dundas
    v. Zürich Canada
, 2012 ONCA 181, 109 O.R. (3d) 521
.
In that case
    the court held an action against an insurer for breach of its duty of good
    faith was not a claim under the insurance contract; rather, it was an
    extra-contractual claim that did not arise until the insurers liability to
    indemnify the insured was established. Traders argues that in this case its
    liability to indemnify the McEwens was not established until more than three
    years after the McEwens were discharged from bankruptcy in June 2012. Traders
    liability to indemnify the McEwens was established at the earliest when the
    jury rendered its verdict on October 30, 2015, or more likely when the trial
    judgment was issued on September 19, 2016. Traders argues that since the bad
    faith cause of action did not arise until after discharge it could not be property
    that devolved on the McEwens before their discharge. Thus, Traders submits the
    bad faith claim did not vest in the trustee and the trustee was unable to
    assign it.

[46]

The issue may raise a question of law that could
    be determinative, but it is not one that the s. 38 motion judge had to decide. This
    court has held, where the trustee consents to the s. 38 order, that the merits
    of the action are irrelevant at the s. 38 motion:
Dominion Trustco Corp.,
    Re

(1997), 50 C.B.R. (3d) 84 (Ont. C.A.).

[47]

The reasons of the court are admittedly brief, but
    the court made clear it approved of the reasoning of the motion judge in that
    case. Cameron J. in that case,
Dominion Trustco Corp., Re
(1997), 45
    C.B.R. (3d) 25 (Ont. Gen. Div.), said, at paras. 12-13:

The purpose of s. 38 is to enable the creditors to protect
    their own interests where the Trustee declines, for economic or other reasons,
    or neglects to do so.
The merits of the
    action have nothing to do with this purpose
.

If this was not a bankruptcy situation, there is nothing to
    prevent the holder of a right of action assigning it to another without regard
    to the merits of the right of action.
The
    fact that the assignor is a bankrupt should not give the proposed defendant a
    right to attack the authorization based on the merits of the cause of action
.

[48]

He opined, at para. 11, that the merit of the
    action was an issue for the trial of the action itself:

an issue for the courts of the jurisdiction
    hearing the action. If this was a condition, the proposed defendant would, by
    way of appeal from a s. 38 order, have two opportunities to attack the proposed
    action on the basis that it is without sufficient merit to justify bringing the
    action. This makes no sense to me in the context of the BIA. It is better left
    for determination under the laws of the jurisdiction in which the proceedings
    will be brought.

[49]

Cameron J. did recognize that there may be a
    need for a s. 38 motion judge to inquire into the merits when the trustee
    opposes the granting of the order:
Jolub Construction Limited, Re
(1993), 21 C.B.R. (3d) 313 (Ont. Gen. Div.).

[50]

In upholding Cameron J.s decision this court stated
    that
the registrar who granted the s. 38 order did not
    have a duty to be assured that there was substance in a claim which is going
    forward by consent of the Trustee:

Dominion
    Trustco
, at para. 1.

[51]

The Alberta Court of Appeal is the only other
    court of appeal to consider
Dominion Trustco. In Smith v.
    Pricewaterhousecoopers Inc
.
, 2013 ABCA 288, the Alberta Court of Appeal
    distinguished
Dominion Trustco
on the basis that the motion in
Dominion
    Trustco
proceeded with the consent of the trustee: at para. 21. In
Smith
,
the trustee had not consented and the court, citing a long line of authority,
    described establishing a
prima facie
case or showing the claim is not
frivolous or vexatious or
obviously
    spurious as a requirement for issuing a s. 38 order: at para. 19.

[52]

In
Davidson (Re)
, 2021 ONCA 135, 86 C.B.R. (6th) 1, this court followed
Smith

without
    citing
Dominion Trustco
. However, that was a case in which the s. 38 motion was made
    without the trustees consent.

[53]

Houlden and Morawetz, citing
Zammit, Re
(1998), 3 C.B.R. (4th) 191
    (Ont. Gen. Div.), a decision that followed
Dominion
    Trustco
, say, in Ontario, an applicant for a s.
    38 order does not have to present a
prima facie
case: Lloyd W. Houlden, Geoffrey B. Morawetz & Dr. Janis P.
    Sarra,
Bankruptcy and Insolvency Law of Canada
, 4th ed (Toronto: Thomson Reuters Canada, 2009, loose-leaf) Bankruptcy
    and Insolvency Act, at §86 (WL). That is so, at least in a case in which the
    trustee consents to the s. 38 order.

[54]

The s. 38 order, in this case, was issued with
    the trustee's consent. Thus, even if Traders had general standing
in the bankruptcy process to contest the s. 38 order, its argument that
    the trustee had no property interest in the bad faith action would fail as it
    relates to the merits of the proposed action.

[55]

Taking the analysis one step further, even if
    the assessment of the merits of the proposed action was a prerequisite of the
    issuance of a s. 38 order, the bad faith claim, in this case, meets the not spurious
    standard. Upon the McEwens bankruptcy, their liability for the motor vehicle
    accident was transferred to the trustee and the bankrupt estate became liable
    for the damages caused by the accident. The McEwens contract of insurance was also
    transferred to the trustee and the bankrupt estate became the insured and
    entitled to the proceeds of the insurance to satisfy the estates liability to
    the Carrolls:
Mercure v. Marquette & Fils Inc
.
, [1977] 1 S.C.R. 547, at p. 553;
Perron-Malenfant v. Malenfant (Trustee of)
, [1999] 3 S.C.R. 375, at para. 14. An insurer generally has the
    duty to deal with an insured with the utmost good faith and the insured has a
    right of action for any breach of that duty. As the insured was the bankrupt
    estate, the trustee could take action to remedy any breach of the alleged duty
    of good faith.

[56]

Any argument that the bad faith claim is not
    property of the estate would have to be decided conclusively on a summary
    judgment motion in the action itself.
In
Holley v.
    Gifford Smith Ltd
, 26 D.L.R. (4th) 230 (Ont. C.A.), this court explained that defendants to
    actions assigned under s. 38 should generally pursue their efforts to avoid
    defending against the action in the civil trial court rather than in bankruptcy
    court. This and other arguments to defeat the action could not constitute a
    collateral attack on the s. 38 order as long as they leave the order in place.

[57]

As was pointed out in
Formula Atlantic
, at para. 8, the
    effect of a s. 38 order is to transfer from trustee to creditor
whatever
    right of action may exist
 (Emphasis added). The motion judge, in that case,
    went on to observe, "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: at para. 8. The Carrolls, as assignees,
    stand in the shoes of the trustee:
Shaw
, at para. 72;
Indcondo Building Corp.
    v. Sloan
, 2012 ONCA 502, 91 C.B.R. (5th) 324, at
    para. 29. If the trustee has no property interest in the bad faith claim, then
    neither do the Carrolls and their action would be dismissed on a summary
    judgment motion.

F.

DISPOSITION AND Costs

[58]

I would dismiss the appeal and would fix costs in
    favour of the respondent in the amount of $22,500 all inclusive as counsel have
    agreed.  I am not persuaded there is any basis for revisiting the costs awarded
    on the appellants applications for leave.

Released: RSJ August 12, 2021

R.G.
    Juriansz J.A.

I
    agree. Grant Huscroft J.A.

I
    agree. M. Jamal J.A.

[1]

The statement of the claim in the assigned action, the s. 38
    order, and the trustees assignment and correspondence all refer to the
    McEwens insurer as Aviva Canada or Aviva Canada Inc. In the style of its
    motion to set aside the s. 38 order, Traders indicates it was improperly
    described as Aviva Canada Inc. in the bad faith action. The McEwens insurance
    policy was not included in the record. The cause of the confusion, or the
    relationship between Aviva Canada and Traders, if any, was not explained at the
    appeal.