In RE:Shelson, the Ontario Court of Appeal considered who had the right to deal with a cause of action after the bankrupt was discharged. Dr. Shelson had commenced a claim against, among others, Gowling Lafleur Henderson LLP, alleging breach of contract, negligence, negligent misrepresentaion and breach of fiduciary duty arising out of the failure of a limited partnership investment. He subsequently became a bankrupt, and the cause of action became vested in his Trustee.
The Trustee did not realize on the cause of action. Dr. Shelson was subsequently discharged and continued with the claim. The defendants later raised the issue of whether he had any right to continue with the action. Following full disclosure, the Trustee, now aware of the ongoing action, solicited offers for the action. The high bidder was Gowlings. By buying the cause of action, they could discontinue it.
This sale was challenged by Dr. Shelson and issue made its way up to the Court of Appeal. The Court held that the asset was not realized during the bankruptcy and, on discharge, it ought to have been returned to Dr. Shelson. As such, the Trustee could not later solicit offers to sell. The discharged bankrupt could continue his action.
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