Background
Douglas Grozelle operated what the court found to be a Ponzi scheme. His bankruptcy trustee, Grant Thornton Limited, obtained a declaration that certain investment returns paid to a group of investors constituted fraudulent conveyances, giving rise to a clawback order. The investors — a collection of individuals and corporations who had received those returns — brought a cross-motion for directions addressing procedural matters: the appropriate methodology for determining clawback claims, identifying net winners and losers, and concerns about administration of the bankruptcy estate.
The supervising judge, Myers J., dismissed the investors’ cross-motion and ordered costs of $180,000 against them. The investors appealed the underlying clawback order and subsequently sought to amend their notice of appeal to also challenge the costs order. That amendment motion came before Roberts J.A. sitting as a single judge in chambers.
Before deciding whether to permit the amendment, Roberts J.A. had to resolve two threshold questions: whether the $180,000 costs order was governed by the appeal provisions of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (BIA) rather than the Courts of Justice Act, R.S.O. 1990, c. C.43 (CJA), and if so, whether the investors required leave to appeal under s. 193(e) of the BIA.
The Court’s Holding
Roberts J.A. held that the costs order was made under the BIA and that leave to appeal was therefore required under s. 193(e). The governing principle is that appellate jurisdiction is determined by the substance of the order: because Myers J. made the costs order pursuant to authority conferred by s. 197(1) of the BIA in the context of bankruptcy proceedings, the BIA’s appeal regime applies as a matter of federal paramountcy, regardless of any concurrent authority under the CJA.
The court further held that no automatic right of appeal existed under s. 193(c) of the BIA. Applying the established narrow construction of that provision, Roberts J.A. confirmed that s. 193(c) does not reach orders that are purely procedural, do not implicate the value of the debtor’s property, or do not result in a loss to the estate. A costs order requiring investors to reimburse the trustee for responding to an unsuccessful motion falls squarely within that exclusion.
Turning to whether leave should be granted under s. 193(e), Roberts J.A. applied the three-part test from Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, and denied leave on all grounds: the appeal raised no issue of general importance to insolvency practice; it lacked prima facie merit given the high deference owed to discretionary costs awards; and granting leave would impede the efficient administration of the bankrupt estate by forcing the trustee to expend scarce resources on a meritless challenge. The motion was dismissed.
Key Takeaways
- Where a costs order arises from bankruptcy proceedings and is made under authority conferred by the BIA, the BIA’s appeal regime governs — not provincial legislation — by virtue of federal paramountcy, even if the provincial court also had concurrent authority to make the order.
- Costs orders in bankruptcy are procedural in nature and do not engage the automatic right of appeal under s. 193(c) of the BIA; leave under s. 193(e) is required.
- A single judge in chambers has full jurisdiction to hear and decide motions for leave to appeal under s. 193(e); deferring the issue to an appeal panel is permissible but not mandatory, and doing so without justification only adds delay and cost.
- The high appellate deference owed to discretionary costs awards makes it difficult to satisfy the prima facie merit criterion for leave — an applicant must show an error in principle or that the order was plainly wrong.
Why It Matters
This decision reinforces the BIA’s primacy in controlling the appeal pathway for all orders — including costs orders — made in the context of bankruptcy proceedings. Investors or other parties who lose motions in bankruptcy court and face adverse costs awards cannot treat those awards as automatically appealable; they must obtain leave, and the threshold is demanding. The ruling discourages tactical use of appeals to delay the administration of bankruptcy estates, particularly where a trustee’s resources are limited.
For practitioners advising creditors or investors caught up in insolvency proceedings — including victims of fraud schemes seeking to resist clawback claims — the case is a reminder that procedural skirmishes carry real cost risk, and that costs orders made along the way will be difficult to disturb on appeal without a clear error in principle.