Canadian Appeals Monitor Information and Commentary on Upcoming and Recent Appeal Court Decisions

The Second Opinion: Does Seven Minutes Matter? It Does in Marathons, Flight Schedules…and if You Are Commencing an Appeal

A Commentary on Recent Legal Developments by the Opinions Group of McCarthy Tétrault LLP

Posted in Bankruptcy and Debt, Procedure, The Second Opinion
Kirsten Thompson

The BC Court of Appeal  was recently invited to turn back time, by a mere 7 minutes, for the purpose of saving an appeal. At stake in Temple Consulting Group Ltd. v. Abakhan & Associates Inc., 2013 BCCA 119 was the $500,000 claim of a creditor against the bankrupt estate of Steven Friedland, a B.C. man banned from trading after admitting to illegally raising more than $12 million in an alleged Ponzi scheme.

In declining to turn back the clock, the Court observed that this case “may be an illustration of the adage: what can go wrong, will go wrong”. In addressing the issue of the 7 minutes, the Court also provided an excellent tour of the kind of procedural law that keeps lawyers awake  at night: service of material under the Bankruptcy and Insolvency Act (“BIA”); the relationship between the B.C. Supreme Court Civil Rules (“Civil Rules”), the BIA and the Bankruptcy and Insolvency General Rules (“General Rules”); the admissibility of fresh evidence; when an appeal is properly commenced, whether a court should re-open an appeal; and, if so, whether the previous decision of that court should be revised.

Background

In its simplest terms, the appeal considered whether it is necessary to file as well as serve a notice of appeal within 30 days from the decision of a trustee in bankruptcy disallowing a claim under s. 135 of BIA. Under the old Civil Rules, service was sufficient; under the new Civil Rules which came into effect on July 1, 2010, both were required.

Temple filed a proof of claim with the Trustee, claiming to be a secured creditor of the bankrupts. The Trustee disallowed the claim and on July 18, 2011, the Trustee issued and served on Temple’s solicitors a Notice of Disallowance rejecting Temple’s secured claim but recognizing that Temple was an unsecured creditor.

The secured/unsecured distinction was significant. Temple was the only creditor of the bankrupt that claimed to be a secured creditor.  If Temple succeeded on the application, the unsecured creditors would receive nothing.  Conversely, if Temple failed, it would share in the distribution of the estate as one of roughly 135 unsecured creditors, recovering  approximately 10 cents on each dollar.

On July 19, 2011, Temple’s solicitors acknowledged that they had been served with the Notice of Disallowance on the previous day and informed the Trustee that Temple intended to file an appeal within the mandatory 30 days.

On August 17, 2011, 30 days after they had been served with the Notice of Disallowance, Temple’s solicitors delivered an unfiled notice of application to the Trustee’s solicitors. That same day, the Trustee’s solicitors acknowledged delivery of the unfiled material by email.

Temple’s solicitor was not aware when he delivered the unfiled Notice of Appeal that the Civil Rules require that a notice must also be filed with the court, mistakenly following the practice under the former Civil Rules.

Sometime after 4:00 p.m. on that same day, a staff member alerted Temple’s solicitor that he had made an error. Temple’s solicitor e-mailed the Trustee’s solicitor stating he would fix the error and intended to file the Notice of Appeal first thing the following morning.

The solicitors for the Trustee did not see or respond to the e-mail until the following morning.  At 9:03 a.m. on August 18, 2011, the solicitors for the Trustee noted the appeal might be out of time and would be seeking direction from the court.

Chambers

The chambers judge, in pondering the matter, turned to consider Dorval Air Transport Ltd., (Re) (1962), 4 C.B.R. (N.S.) 105 (Que. Q.B.) and Pachal’s Beverages Ltd. (Re) (1972), 31 D.L.R. (3d) 620 (Sask. Q.B.).  The former is a decision of the Quebec Queen’s Bench on appeal that held that failure to file an appeal with the court was fatal.  The latter, a decision of the Saskatchewan Queen’s Bench, reached the exact opposite conclusion.

The judge referred to the decision in Re Computime Canada Ltd. (1974), 19 C.B.R. (N.S.) 52 (B.C.S.C.) which stated that the substantive right of appeal is exercised when an appeal is filed and served.  The chambers judge also noted the decision of the Ontario Court of Appeal in Re Stein (1976), 67 D.L.R. (3d) 588 (Ont. C.A.), which applied Computime.

In the view of the chambers judge, the weight of judicial authority and the judgment of the court in Computime Canada Ltd. supported the proposition that in order to appeal from the Trustee’s decision to the court in accordance with the General Rules, a creditor must serve and file  its application within 30 days of service of the Notice of Disallowance.  A creditor who does so has exercised its right to appeal to the court.

He then addressed whether the failure of the appellant to file within the prescribed 30 days could be remedied under s. 187(9) of the BIA as a procedural defect.  The judge concluded it could not because it was not a “formal defect or irregularity”.  It was his view that the specific requirement in s. 135(4) that an extension of time be sought within the prescribed 30-day period prevailed over the general provision in s. 187(9).

Appeal

With $500,000 at stake, the client understandably appealed.  On September 26, 2012, the Court of Appeal released its decision dismissing the appeal on much the same basis as the chambers judge.

But the story doesn’t end there.

Some months later, on November 6, 2012, counsel for Temple on the appeal, who was not counsel at the time the Notice of Disallowance was served, realized that the Trustee’s Notice of Disallowance had been served electronically on then counsel for Temple at 4:07 p.m. on July 18, 2011.  These seven minutes were crucial because under the Civil Rules, material filed after 4:00 p.m. is deemed delivered the following business day (in this case, July 19, 2011).  If that were the case, time did not start running against Temple until next day, July 19, 2001,  and Temple’s appeal, which was filed on August 18, 2011, would have been filed within the required 30 days.

At the time appeal counsel wrote to advise the Court of this discovery, the Court’s order had not been entered.  Temple therefore sought a reconsideration of the September 26, 2012 decision. The cornerstone of Temple’s application for a reconsideration of the Court’s decision was fresh evidence.

The Court stated that reconsidering a decision involves a two-step process: first, should the appeal be re-opened in order to consider a position advanced by a party; second, if so, should the decision be reconsidered, that is, changed. The Court noted that the tendered fresh evidence went to the central issue on this appeal and held that the appeal should be re-opened to the extent of considering whether to admit the fresh evidence.

The next question pertained to the fresh evidence itself. The Court stated the test for the admission of fresh evidence iterated in Palmer v. The Queen, 1979 CanLII 8 (SCC). The evidence in question must be relevant; credible, reasonably expected to have affected the result, and been undiscoverable by due diligence at the time of the trial.

The Court  found that it was clear that Temple could not satisfy the due diligence criterion.  The information was available to it before the application was heard in Supreme Court. In addition, in both the BC Supreme Court and in the Court of Appeal, timing of the service of the Notice of Disallowance had been a key issue.

The Court was also not satisfied that if admitted, the evidence would be determinative. Even if evidence that the notice were served electronically at 4:07 p.m. on July 18, 2011 was admitted, it would be necessary to consider the effect of the BIA General Rules and the Civil Rules, the relationship between those rules, the case law related to service and the exchanges between counsel.

Finally, in light of the multiple proceedings, the two-year delay for creditors,  and ancillary procedural issues, the Court found that admission of the fresh evidence was not in the interests of justice.

Temple’s application for a reconsideration of the Court’s decision of September 26, 2012 was dismissed, and time marches on.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.