In Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc., the Court clarified that for a debt to survive bankruptcy under ss. 178(1)(e) of the Bankruptcy and Insolvency Act, the debt claimed by the creditor in the bankruptcy must have arisen as a result of property or services obtained by the bankrupt by way of false pretences or fraudulent misrepresentation. The debt in this case arose out of the misappropriation of the creditor’s trade secrets and confidential information. While such conduct may have been morally or commercially reprehensible, it fell short of the definition in ss. 178(1)(e), and therefore the debt did not survive bankruptcy.

The second decision, Fontaine v. Canada (Attorney General), is yet another decision in the ongoing dispute regarding the residential school class action settlement.

Wishing you all a healthy, happy and prosperous New Year!

John Polyzogopoulos
Blaney McMurtry LLP
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Table of Contents

Civil Decisions

Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc., 2021 ONCA 925

Keywords: Bankruptcy and Insolvency, Proposals, Assignments in Bankruptcy, Automatic Stay of Proceedings, Lifting of Stay, Debts Surviving Bankruptcy, Property or Services Obtained by False Pretences or Fraudulent Misrepresentation, Statutory Interpretation, Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 69(1), 69.3(1), 69.4 & 178(1)(e), Criminal Code, R.S.C. 1985, c. C-46, ss. 361 & 362, Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. et al, 2018 ONSC 5206, Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, Therrien (Re), 2001 SCC 35, Celanese Canada Inc. v. Murray Demolition Corp., [2010] O.J. No. 6347 (S.C.), H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117, Szeto (Re), 2014 BCSC 1563, Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, 65 C.B.R. (6th) 109, Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. et al. (1999), 123 O.A.C. 288 (C.A.), Cruise Connections Canada v. Szeto, 2015 BCCA 363, Montréal (City) v. Deloitte Restructuring Inc., 2021 SCC 53, Ste. Rose & District Cattle Feeders Co-op v. Geisel, 2010 MBCA 52, Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, Simone v. Daley (1999), 43 O.R. (3d) 511, Fiorito v. Wiggins, 2017 ONCA 765, Elmer Driedger, Construction of Statutes, 2nd ed. (Toronto, Ont.: Butterworths, 1983)

Fontaine v. Canada (Attorney General), 2021 ONCA 931

Keywords: Civil Procedure, Appeals, Extension of Time, Mootness, Courts of Justice Act, R.S.O. 1990, c. C. 43, ss. 7(3) & 7(5), Obermueller v. Kenfinch Cooperative Housing Inc., 2016 ONCA 21, Willenbrecht v. Willenbrecht (1999), 120 O.A.C. 274, Borowski v. Canada (Attorney General), [1989] 1 S.C.R. 342, Doucet-Boudreau v. Nova Scotia (Minister of Education), 2003 SCC 62

CIVIL DECISIONS

Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc.,2021 ONCA 925

[Strathy C.J.O., Zarnett J.A. and Wilton-Siegel J. (ad hoc)]

Counsel:

I. Klaiman, for the appellant

C. Hammond, for the respondent

Keywords: Bankruptcy and Insolvency, Proposals, Assignments in Bankruptcy, Automatic Stay of Proceedings, Lifting of Stay, Debts Surviving Bankruptcy, Property or Services Obtained by False Pretences or Fraudulent Misrepresentation, Statutory Interpretation, Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 69(1), 69.3(1), 69.4 & 178(1)(e), Criminal Code, R.S.C. 1985, c. C-46, ss. 361 & 362, Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. et al, 2018 ONSC 5206, Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, Therrien (Re), 2001 SCC 35, Celanese Canada Inc. v. Murray Demolition Corp., [2010] O.J. No. 6347 (S.C.), H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117, Szeto (Re), 2014 BCSC 1563, Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, 65 C.B.R. (6th) 109, Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. et al. (1999), 123 O.A.C. 288 (C.A.), Cruise Connections Canada v. Szeto, 2015 BCCA 363, Montréal (City) v. Deloitte Restructuring Inc., 2021 SCC 53, Ste. Rose & District Cattle Feeders Co-op v. Geisel, 2010 MBCA 52, Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, Simone v. Daley (1999), 43 O.R. (3d) 511, Fiorito v. Wiggins, 2017 ONCA 765, Elmer Driedger, Construction of Statutes, 2nd ed. (Toronto, Ont.: Butterworths, 1983)

facts:

The respondent successfully sued the appellant, and others, for misappropriating the respondent’s trade secrets and confidential information. The amount of the damages and the granting of other relief was to be determined at a subsequent hearing. However, before that could occur, the appellant made a proposal to his creditors under the Bankruptcy and Insolvency Act (the “BIA”), which automatically stayed the proceedings. The proposal was rejected by a majority of those creditors; the appellant was, as a consequence, deemed to have made an assignment into bankruptcy, continuing the stay.
In the decision under appeal, the motion judge declared that the debt or liability under the trial judgment arose from the appellant having obtained property or services by false pretences, and thus would survive the appellant’s discharge from bankruptcy. He also declared that the stay that the BIA imposed on proceedings or enforcement steps against a bankrupt did not apply to the respondent’s claims against the appellant.

issues:

(1) Did the motion judge err in finding that the liability under the trial judgment comes within s. 178(1)(e) of the BIA?

(2) Did the motion judge err in declaring that the stay of proceedings in s. 69 of the BIA did not apply to the respondent’s claim against the appellant?

holding:

Appeal allowed.

reasoning:

(1) Yes.

An exception to a discharge of bankruptcy, under s. 178(1)(e) of the BIA, is “any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation”. That kind of debt or liability is not released, and thus remains enforceable against the debtor post-bankruptcy. At the core of the concept of false pretences is the making of a deceitful statement – that is, a statement that is false to the knowledge of its maker (including through wilful blindness or recklessness). For s. 178(1)(e) to apply, the debt or liability to the creditor must have resulted from the bankrupt having obtained property or services by making such a statement.

The motion judge erred in two interrelated ways in deciding that s. 178(1)(e) applied in this case. First, the nature and substance of the liability of the appellant reflected in the trial judgment, lying during the proceedings (examination for discovery) is not one that arose from such a statement. Although the liability arose from morally unacceptable conduct of the appellant, that was insufficient to fit it within the exception.

For the court, this issue was a question of statutory interpretation. Legislation is to be interpreted by conducting a “textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole”. The fundamental principle is that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”. Reading the text of s. 178(1)(e) with the benefit of the definition of false pretences in the Criminal Code illuminates its core concept: it only applies to a debt or liability that has arisen from one or more deceitful statements, by the debtor or for which the debtor is responsible, on the basis of which the debtor obtained services or property. It does not apply to other kinds of lying or wrongdoing, no matter how morally objectionable, that do not have these basic characteristics.

Reading s. 178(1) as a whole reinforces the view that s. 178(1)(e) refers to specific types of wrongdoing, within specific parameters. Rather than legislating a catchall of debts arising from morally objectionable conduct, the BIA identifies categories of specific wrongful conduct that gives rise to debts that are not released, and specifies the criteria to be applied. In doing so, Parliament must be taken to have intended that only these specific categories, on the specific terms identified, will be given this effect, even though other forms of morally objectionable conduct giving rise to debts can easily be imagined.

The purpose of s. 178(1) and the legislation as a whole support reading s. 178(1)(e) as applying to debts or liabilities that result from the obtaining of property by the deceitful means of false statements. It does not support reading the subsection as applying to any conduct without those attributes that a court might characterize as morally objectionable or that prevents a debtor being described as honest but unfortunate.
Second, the motion judge erred in focusing on the morally objectionable nature of the appellant’s conduct in participating in the misappropriation of the respondent’s trade secrets and confidential information, elevating that to a kind of implied deceit that could be present in any objectionable commercial behaviour, but without relating the conduct to the specific requirements of s. 178(1)(e). The section applies to certain specific conduct that is morally objectionable; it does not equate all morally objectionable commercial conduct with false pretences.

(2) Yes.

Section 69(1) of the BIA stays any action or execution proceedings against a debtor in respect of a claim provable in bankruptcy on the filing of a notice of intention to make a proposal. Section 69.3(1) imposes a stay, on the same terms, upon bankruptcy. Section 69.4 permits the court to make an order that the stay no longer operates, subject to any qualifications the court considers proper. An order under s. 69.4 of the BIA declaring that a stay no longer operates is discretionary, however, here the premise of the motion judge’s order was the erroneous legal conclusion that s. 178(1)(e) applied to the appellant’s liability for the respondent’s claims. The declaration that the stay does not apply at all to the proceedings in the action as against the appellant or to enforcement of any judgment against the appellant cannot stand.

Fontaine v. Canada (Attorney General), 2021 ONCA 931

[van Rensburg and Roberts JJ.A. and Tzimas J. (ad hoc)]

Counsel:

F. K. Brunning and M. Swinwood, for the moving parties Dr. E. M. and IAP Claimants T-00185, S-20774 and S-16753

B. Thompson, for the responding party the Attorney General of Canada

Keywords: Civil Procedure, Appeals, Extension of Time, Mootness, Courts of Justice Act, R.S.O. 1990, c. C. 43, ss. 7(3) & 7(5), Obermueller v. Kenfinch Cooperative Housing Inc., 2016 ONCA 21, Willenbrecht v. Willenbrecht (1999), 120 O.A.C. 274, Borowski v. Canada (Attorney General), [1989] 1 S.C.R. 342, Doucet-Boudreau v. Nova Scotia (Minister of Education), 2003 SCC 62

facts:

The moving parties brought a motion to review an order of Strathy C.J.O. dated August 19, 2021, dismissing their motion to extend time to perfect their appeal. The motion was opposed by the respondent, the Attorney General of Canada (“Canada”).

The moving parties are survivors of the St. Anne’s Indian Residential Schools (“IRS”) in Fort Albany, Ontario. Their proposed appeal arises in the context of the Indian Residential Schools Settlement Agreement (the “IRSSA”), a court-supervised class action settlement agreement entered into between Canada, church defendants and plaintiff representatives in 2006. A component of the IRSSA was the independent assessment process (the “IAP”) for the adjudication of abuse claims, which has been supervised by the courts. With the completion of all IAP claims across the country, the IAP was concluded on March 31, 2021. The order under appeal is dated April 20, 2021 (the “Independent Review Order”). The order was made by Perell J. as Ontario Supervising Judge under the IRSSA in the context of a Request for Directions (“RFD”) by Canada. Canada’s RFD sought an order appointing an independent special advisor to conduct an independent review of IAP claims of the St. Anne’s IRS claimants that were settled before Canada provided additional disclosure pursuant to certain disclosure orders made by the Ontario Supervising Judge on January 14, 2014, and June 23, 2015.

The Independent Review Order directed an independent review of certain concluded claims of former St. Anne’s IRS students. The order appointed the Honourable Ian Pitfield, who had previously been appointed by the supervising courts for other purposes under the IRSSA, as ISA to conduct the review. The order required the ISA to make a report that contains his findings, conclusions and recommendations, and for the report to be provided to the court as a sealed document, and to Canada.

In August 2021, the moving parties brought a motion seeking an extension of time to perfect their appeal from the Independent Review Order. The motion judge dismissed the motion to extend time.

issues:

(1) Was the Independent Review Order final or interlocutory?

(2) If the Independent Review Order is final, does the justice of the case warrant an extension of time?

holding:

Motion dismissed.

reasoning:

(1) & (2)

As a result of developments after the hearing of the review motion, it was not unnecessary to determine whether the motion judge erred in concluding that the Independent Review Order was an interlocutory order. On a motion for an extension of time to appeal or to perfect an appeal, it is appropriate for the court to consider whether the appeal is moot. The onus is on the party seeking to permit a moot appeal to proceed to demonstrate why the court should depart from its usual practice of refusing to hear moot appeals. The Court concluded that the appeal was moot and there were no grounds for the exercise of the court’s discretion to hear the appeal.

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