When a creditor’s claim is based on a judgment against the bankrupt, can a trustee in bankruptcy ever disallow the claim? Recently this issue was reviewed by the BC Supreme Court in Jones (Edward), Re.
CRA assessed Jones for taxes of $350,000, based on his alleged drug trafficking earnings, and this assessment was eventually turned into a judgment of the federal court. Jones was unsuccessful in his appeals of this assessment because of a narrow technical error: he had failed to serve CRA with the necessary objection within the 90-day period required by the legislation. Following his bankruptcy, the trustee in bankruptcy disallowed CRA’s claim, on the basis that the original CRA assessment relied on evidence eventually thrown out in related criminal proceedings, and that Jones’ objections to the assessment were never dealt with on the merits.
Was the trustee entitled to look behind the judgment (and assessment) in this manner? As a general rule, proofs of claim based on judgments should be accepted by the trustee in bankruptcy. An accepted exception to this is where the judgment can be shown to be obtained through fraud or collusion. Are there any other exceptions?
After reviewing the authorities, the court decided that there is a further exception based on a “miscarriage of justice”, but that such an exception is very narrow. It can never allow a trustee to in effect make a collateral attack on the judgment after all appeals have been pursued and exhausted, which was what the trustee was attempting to do here. The trustee’s disallowance of CRA’s claim was overturned and the claim was accepted.