COURT OF APPEAL FOR ONTARIO DATE: 20231218 DOCKET: M54714 (COA-23-CV-1202)
Brown J.A. (Motions Judge)
In the Matter of the Bankruptcy of Sergio Grillone
Bankruptcy Application under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended
Counsel: Kenneth D. Kraft, Meredith Bacal and Mark A. Freake, for the moving party/respondent, Bluecore Capital Inc. Sergio Grillone, for the responding party/appellant, acting in person
Heard: December 13, 2023 by video conference
ENDORSEMENT
I. OVERVIEW
1Bluecore Capital Inc. (“Bluecore”), the respondent on this appeal, moves for an order lifting the stay of the bankruptcy order dated October 12, 2023 issued by Kimmel J. against the appellant, Sergio Grillone, (the “Bankruptcy Order”) following a five-day trial and a subsequent one-day motion for a mistrial. The Bankruptcy Order adjudged Mr. Grillone a bankrupt and appointed A. Farber & Partners Inc. as trustee of his estate. [1]
2Mr. Grillone is an experienced litigation lawyer who no longer operates a legal practice. He currently is under administrative suspension by the Law Society of Ontario. Mr. Grillone represented himself at trial.
3In December 2018, Bluecore entered into a loan agreement with Mr. Grillone and his law firm, a sole proprietorship called the Grillone Law Firm. The purpose of the loan was to provide litigation/disbursement funding to Mr. Grillone’s law practice. Mr. Grillone also signed a personal guarantee for the repayment of up to $1 million of the amounts owing under the loan agreement. As of the date of the bankruptcy application, Bluecore claimed to be owed the principal loan amount of approximately $1.332 million, plus accrued interest and fees.
4In granting the application for a bankruptcy order against Mr. Grillone, the trial judge made several key factual findings:
[115] The applicant has proven [the] Loan Agreement was executed by both Mr. Grillone and Bluecore as the “Borrower”. Its terms are clear and unambiguous.
[116] At trial, Bluecore’s bookkeeper, Mrs. Susan Lau, testified as to the outstanding Indebtedness at the time of the application and at the time of the trial.
[117] The applicant has been held to the strict standard of proving the outstanding debt that was owing to it by Mr. Grillone both as of the date of the application and as of the date of trial. The amount claimed to be owing when the bankruptcy application was commenced was not precisely calculated in the First Robson Affidavit but has now been, with regard to the undisputed terms of the Loan Agreement and the undisputed amounts advanced, amounts paid and interest payable. Bluecore has proven on a balance of probabilities that the debt owing to it under the Loan Agreement by Mr. Grillone both at the date of the bankruptcy application and the date of the trial was far more than $1,000.
[123] The alleged Act of Bankruptcy that Bluecore elected to proceed to trial on (described at the outset of these reasons) is that Mr. Grillone had, within the six months preceding the date of the filing of this application on September 29, 2021, “ceased to meet his liabilities as they have come due in failing to pay the above-noted sum [of $1,332,462.58] to the Applicant.”
[124] Facially, these facts have been proven by Bluecore on a balance of probabilities based on the evidence of Mr. Robson, who was responsible for collecting the Bluecore Loan once it went into default, and of the bookkeeper from Bluecore’s accounting firm who has tracked the amounts distributed to the Grillone Law Firm and the amounts repaid in respect of those advances and who has calculated the interest accruing based on the contractual rates of interest provided for in the Loan Agreement. This testimony establishes on a balance of probabilities the amount owing under the Loan Agreement to be more than the specific sum claimed (so, by definition, he also failed to pay the lesser amount claimed).
[164] Bluecore is a secured creditor and has not stated it is willing to give up its security for the benefit of the creditors in the event the bankruptcy order is made. Accordingly, the court must be satisfied that it has provided a satisfactory estimate of the value of its security.
[193] Mr. Robson has provided his best estimate of the value of the Bluecore Security, ranging from zero to $100,000. I find that to be sufficient to satisfy s. 43(2) of the BIA.
5The trial judge also concluded that Bluecore had demonstrated the existence of “special circumstances” that supported granting its single-creditor bankruptcy application: Reasons, at paras. 138-62.
6Mr. Grillone appealed the Bankruptcy Order by notice of appeal dated October 16, 2023. He separately sought leave to appeal the trial judge’s decision to dismiss his motion for a mistrial, which I describe later in these reasons. This court has directed that the motion for leave will be heard by the panel hearing Mr. Grillone’s appeal.
7Mr. Grillone continues to represent himself on this appeal.
8On November 1, 2023, Bluecore served a notice of motion to lift the automatic stay of the Bankruptcy Order pursuant to s. 195 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) or, alternatively, an order requiring Mr. Grillone to post security for costs of the appeal. In its factum filed on November 29, 2023, Bluecore clarified that it sought security for costs in the amount of $20,000.
9Although the parties agreed on December 13, 2023 as the hearing date for Bluecore’s motion as well as on a timetable for the delivery of motion materials, procedural skirmishing subsequently ensued between the parties. Those events culminated in a letter dated December 5, 2023 from Mr. Grillone to the court’s Executive Legal Officer (the “December 5 Letter”) requesting the appointment of a single judge to case manage the appeal and advising that he planned to seek an adjournment of the December 13 hearing.
10By letter dated December 8, 2023, the parties were advised that the Associate Chief Justice “directed that the appointment of an appeal management judge is not required.”
11At the hearing before me on December 13, Mr. Grillone sought to adjourn Bluecore’s motion for a month to enable him to file further responding materials. I denied his request and heard the motion. In the result, I grant an order lifting the stay of the Bankruptcy Order. As well, I order Mr. Grillone to post $30,000 as security for costs. My reasons for doing so are set out below.
II. ADJOURNMENT REQUEST
12My refusal to grant Mr. Grillone an adjournment of Bluecore’s motion was informed, in part, by the procedural history to date of his appeal as well as the litigation strategy he has adopted on this appeal.
Appeal procedural history
13Mr. Grillone served Bluecore with his notice of appeal on October 17, 2023. The Rules of Civil Procedure require an appellant to serve with his notice of appeal an appellant’s certificate respecting evidence: r. 61.05(1). Mr. Grillone did not do so. Indeed, the court’s records disclose that as of the date of the hearing of Bluecore’s motion, Mr. Grillone still had not done so.
14The Rules also require an appellant, within 30 days after filing a notice of appeal, to file proof that he has ordered a transcript of all oral evidence that the parties have not agreed to omit: r. 61.05(5). Mr. Grillone has not done so.
15While in his December 5 Letter Mr. Grillone wrote that “[t]he perfection of the appeal will follow the normal course”, the court’s records show that Mr. Grillone has not taken any steps to perfect his appeal in accordance with the Rules since filing his notice of appeal. That raises serious doubts as to whether Mr. Grillone’s appeal constitutes a serious request to review the reasons of the trial judge or merely a device to stall the enforcement of the Bankruptcy Order.
Litigation strategy on the appeal
16Bluecore served Mr. Grillone with its notice of motion to lift the stay on November 1, 2023. The email correspondence between the parties, which was filed in evidence on this motion, reveals that by November 2 they had agreed to a December 13 hearing date for Bluecore’s motion, as well as to a timetable for the filing of motion materials and cross-examination thereon. As Mr. Grillone wrote in his November 3, 2023 email: “I am fine with the timetable as is.”
17The timetable required Mr. Grillone to file responding materials by November 13, 2023. He did not file any materials by that date.
18He did conduct a full-day cross-examination of Mr. Nick Robson, a Bluecore representative, on November 23, 2023 on Mr. Robson’s affidavit in support of Bluecore’s lift stay motion. The timetable contemplated such a cross-examination. I have read the transcript, which runs to some 306 pages in length. Perhaps five pages of questioning dealt with issues relevant to Bluecore’s lift stay request; the rest amounted to a re-hash of past litigation and is of no relevance to this motion. A lack of focus on the material issues and a willingness to waste time characterized Mr. Grillone’s approach to the cross-examination.
19Instead of filing responding materials in accordance with the timetable, in his communications with opposing counsel and this court since November 2, 2023, Mr. Grillone has indicated that he wants to take a series of steps prior to the hearing of the motion and his appeal, including:
(a) The removal of Dentons as counsel for Bluecore (December 5 Letter);
(b) A motion against three of the Bluecore’s lawyers for a “show cause” hearing for their alleged breach of an order or direction made by the trial judge, a matter previously raised before the trial judge (November 2 email to opposing counsel);
(c) Requiring Bluecore’s lawyers to demonstrate that they “have not suborned the perjury of Nick Robson” (December 11, 2023 affidavit);
(d) Requiring Bluecore’s lawyers to provide an explanation as to why they disobeyed the trial judge’s direction regarding how the loan agreement was to be treated as an exhibit and what happened to “Exhibit A” to Mr. Robson’s initial verification affidavit. As put by Mr. Grillone in his December 11 affidavit:
Before the motion to lift the stay can go forward a determination must be made regarding [Bluecore’s lawyers’] possible contempt of Justice Kimmel’s trial order and a determination of the [Bluecore’s lawyers’] possible subordination of perjury.
(e) A motion to answer more than 50 refusals Mr. Grillone contends were made on his November 23 cross-examination of Mr. Robson (November 28 email to opposing counsel; December 11 affidavit);
(f) The opportunity to file further responding evidence on this motion to deal with answers given by Mr. Robson on his cross-examination. Preparation of such evidence would require Mr. Grillone to access documents concerning litigation with which he has been involved since 2012. He contends that this research process would require him to review each case and provide a proper explanation for it (December 5 Letter); and
(g) Requiring the other creditors who testified at the trial to disclose “the foundation” of their support of the application so that their evidence is “properly before the court” as “they should give evidence at the motion to lift the stay” (December 5 Letter).
20In his December 5 Letter, Mr. Grillone took the position that “before any further steps can be taken” in his appeal, the issues described as items (a) and (b) above ought to be determined.
21Notwithstanding his failure to file responding materials in accordance with the agreed upon timetable, shortly before the motion hearing date Mr. Grillone filed two responding affidavits: the above-noted December 11 affidavit and a supplementary affidavit sworn on December 12. On the morning of the hearing, he filed an “aide memoire”, which hyperlinked certain documents.
Analysis of adjournment request
22In her reasons, the trial judge described the litigation strategy Mr. Grillone employed in the court below:
[15] Mr. Grillone is an experienced litigation lawyer. While he claims not to have had experience in bankruptcy and insolvency matters, he has utilized his skill set as a litigation lawyer to research and become familiar with this area of the law and has made use of his skill set and the tools available to him to raise a multitude of objections to this bankruptcy application, both procedural and substantive. Mr. Grillone’s resources included the use of the court’s process to raise objections, bring motions, launch attacks personally and professionally against Bluecore and its counsel, and challenge the many creditors who have pursued him through the court. Mr. Grillone has put forth a valiant effort to avoid the bankruptcy order, and he has demanded that Bluecore be required to strictly comply with the requirements of the BIA.
[38] By the spring of 2022, it was apparent that this was going to be a hotly contested bankruptcy application and a trial of the contested issues was directed. Between November 2021 and January 2023 there were eighteen endorsements made by the court on case conferences, interlocutory motions, and scheduling (and re‑scheduling) conferences.
[39] As was noted in my February 9, 2023 pre-trial endorsement following a trial management conference: “There is a long procedural history to this matter. Mr. Grillone has sought many (more than seven) adjournments and stays of the bankruptcy hearing over the past year.”
[40] Approximately two weeks after the trial concluded, Mr. Grillone requested an urgent case conference and asked the court to schedule a fresh evidence motion, which was initially scheduled to be heard on May 18, 2023 with a timetable for the delivery of material for that motion put in place. On May 15, 2023, that motion had to be adjourned because Mr. Grillone delivered his motion record late, had still not delivered his factum, and instead had purported to serve a summons to witness on opposing counsel, which the court declared to be a nullity. The next available court date was not until July 11, 2023 and the fresh evidence motion was adjourned until then.
[41] Mr. Grillone requested a further urgent scheduling appointment that was convened on June 14, 2023, at which he advised that he wanted to schedule a motion for a mis-trial and that he was withdrawing his fresh evidence motion. It was agreed (subject to Bluecore’s reservation of its rights regarding the costs of the withdrawn fresh evidence motion) that the July 11, 2023 hearing date would be re-purposed for the mis-trial motion. The mis-trial motion was argued that day.
[42] In the meantime, the court’s decision in the bankruptcy trial was held in abeyance pending the motion for a mis-trial. The court indicated in its June 14, 2023 endorsement that the timing and sequencing of the two decisions (motion for mis-trial and, depending on the outcome of that, the trial decision) would be determined by the outcome of the July 11, 2023 motion. These reasons include the court’s decision on the mis-trial motion, which is the first of the issues the court must decide, and the trial.
23It is apparent from Mr. Grillone’s communications about this appeal with opposing counsel and this court, as well as from his failure to take the steps the Rules require to perfect his appeal, that he wishes to replicate at the appeal level his litigation strategy below of multiple case management conferences and motions. Such an appeal litigation strategy is misconceived and improper.
24An appeal is a completely different litigation creature than a first instance adjudication on the merits. An appeal is not a process designed to create an evidentiary record, save in the small number of cases that involve fresh evidence that meets the stringent requirements of the test in Palmer v. The Queen, [1980] 1 S.C.R. 759. Instead, an appeal takes the record created below, subjects it to panel review in accordance with the applicable standards of review, and may result in appellate intervention where a reversible error is identified in the decision below.
25Since an appeal essentially involves taking the record created below and packaging it for appellate consideration in the form prescribed in considerable detail by the Rules and the practice directions of this court, resort to motions in most civil appeals is unnecessary and wasteful. Most civil appeals involve only a handful of issues, so disputes about timelines and “packaging” of the record can and should be worked out by the parties through a process of reasonable discussion. Indeed, the rise in civil pre-hearing motions in this court over the past decade has been a most unfortunate development; there is no need for resort to this court to resolve most pre-hearing disagreements. And while appeal management conferences can play a useful role in complex, multi-party appeals, this is not such an appeal.
26In my view, Mr. Grillone’s request for an adjournment is not a proper one. By November 2, he had agreed to a timetable that would culminate in a hearing of the lift stay motion on December 13 and under which he agreed to file responding motion materials by November 13. He did not do so. That was his choice.
27He then cross-examined Mr. Robson on November 23. The combined effect of rr. 39.02(1) and (2) is that once a party to a motion cross-examines on an opposing affidavit, he cannot deliver further affidavits unless granted leave to do so. I saw no reason to grant leave. In his affidavit, Mr. Robson identified numerous pieces of litigation that named Mr. Grillone. Information about those lawsuits no doubt lies within the possession of Mr. Grillone. He elected not to file a responding affidavit that addressed the issue before cross-examining Mr. Robson. To grant leave to file a responding affidavit on that issue at this point of time, thereby necessitating an adjournment of the hearing, would make a mockery of the timetable the parties agreed to back on November 2, 2023.
28In any event, Mr. Grillone has filed two affidavits and an “aide memoire”, or mini-factum, without regard to the schedule the parties had agreed upon and without seeking leave of the court. His response was before the court. There was no need to adjourn the matter to enable Mr. Grillone to file yet more material.
29I concluded that the record showed that Mr. Grillone sought to resort to motions and case management to set aside a motion timetable he previously had agreed to and to initiate a process to complicate what is really a simple appeal. That is not a proper use of judicial time in an appellate court.
30Any prejudice that Mr. Grillone might suffer from not placing responding materials before the court on this motion is purely self-inflicted. He is an experienced litigator in Ontario courts. He knows the rules and the consequences of not complying with them.
31Finally, Mr. Robson deposed that Mr. Grillone has failed to satisfy two cost orders made by this court in favour of Bluecore: the $5,000 cost order of Roberts J.A. dated February 21, 2023; and the further $5,000 cost award made by a panel on June 19, 2023. Mr. Grillone submitted that he had some understanding with other counsel for Bluecore regarding those costs orders. Yet, Mr. Grillone did not file any evidence to support that assertion, and counsel for Bluecore on this motion stated he was not aware of any such arrangement. Accordingly, I am left with Mr. Robson’s evidence that the cost orders remain unsatisfied. I accept Mr. Robson’s evidence. It is not open to Mr. Grillone, on the one hand, to fail to satisfy cost orders made by this court yet, on the other hand, seek an indulgence from this court in the form of an adjournment of a motion brought by a party in whose favour those cost orders were made.
32In those circumstances, I was not prepared to grant Mr. Grillone an adjournment of the Bluecore motion, and I proceeded to hear argument on Bluecore’s motion.
33I should note that the day following the hearing Mr. Grillone emailed court staff to advise that he understood the Trustee had not been served with the motion materials. The court file also shows that Mr. Grillone did not serve the Trustee with his materials. Mr. Grillone contends that the Trustee should have been present at the hearing, and the Trustee’s absence might impact my decision on the merits of the motion. Since that time the court has not received any communication from the Trustee. Nor can I see what assistance the Trustee could have provided on the motion given that its appointment had been stayed by Mr. Grillone’s notice of appeal. [2]
III. REQUEST TO LIFT THE BIA S. 195 STAY
The applicable considerations for lifting the automatic stay
34Bluecore moves to lift the stay of the Bankruptcy Order under BIA s. 195, the relevant parts of which provide as follows:
[A]ll proceedings under an order or judgment appealed from shall be stayed until the appeal is disposed of, but the Court of Appeal or a judge thereof may vary or cancel the stay … if it appears that the appeal is not being prosecuted diligently, or for such other reason as the Court of Appeal or a judge thereof may deem proper. [Emphasis added.]
35An applicant that seeks to cancel a BIA s. 195 stay bears the burden of establishing compelling reasons to support a cancellation: After Eight Interiors Inc. v. Glenwood Homes Inc., 2006 ABCA 121, 391 A.R. 202, at para. 5. The BIA s. 195 jurisprudence identifies several factors courts should consider when dealing with a request to lift an automatic stay:
- The appellant’s litigation conduct, including whether the appellant is diligently prosecuting the appeal;
- The merits of the appeal;
- The relative prejudice to the parties of cancelling the stay. This typically involves applying a variation of the tripartite test in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 applied on stay applications, specifically whether: (i) there is a serious issue to be appealed; (ii) the applicants would suffer irreparable harm if the stay is not lifted; and (iii) the applicants would suffer greater harm than the respondents if the stay is not lifted;
- However, while all or part of the tripartite test may be relevant, the discretion granted by BIA s. 195 is broader. Accordingly, a contextual approach is appropriate that considers all the facts of the case, not merely those that engage the tripartite test, and the interests of justice generally.
See: After Eight, at paras. 5-6; Hillmount Capital Inc. v. Pizale, 2021 ONCA 364, 462 D.L.R. (4th) 228, at para. 44; Royal Bank of Canada v. Bodanis, 2020 ONCA 185, 78 C.B.R. (6th) 165, at para. 11; and Toronto Dominion Bank v. Amex Bank of Canada, 1996 ABCA 128, 181 A.R. 279, at paras. 10-11.
36I shall consider the evidence filed on this motion in light of those factors.
Lack of diligent prosecution
37I am not satisfied that Mr. Grillone is prosecuting his appeal diligently. As I noted earlier in these reasons, although the trial judge released her reasons two months ago, on October 12, 2023, Mr. Grillone has not taken the requisite initial steps to perfect by filing a certificate of evidence or proof that he has ordered the relevant transcripts.
38Instead, his correspondence to the court and his affidavit of December 11 identify collateral steps that he wants to take before he begins to perfect his appeal. His lengthy list of preliminary collateral steps leads me to conclude that Mr. Grillone has no present intention of pursuing his appeal diligently. Although an experienced litigation lawyer, Mr. Grillone does not seem willing to recognize that an appellate court engages in the “review and correction” of lower court decisions, not in a process of creating a new record that requires a new adjudication on the merits. In my assessment, Mr. Grillone wants to consume court resources and time in dealing with side-issues instead of reviewing the Bankruptcy Order below.
39His evident unwillingness to prosecute an appeal weighs heavily in favour of lifting the automatic stay.
40As well, Mr. Grillone now seeks to invoke the assistance of this court for his appeal while in default of the two earlier cost orders of this court identified above. It would be unjust to permit Mr. Grillone to prosecute an appeal under the protection of an automatic stay while failing to comply with earlier orders of this court.
The merits of the appeal
41Based on my review of the record, I have formed the view that Mr. Grillone seeks to advance very weak grounds of appeal. His grounds of appeal can be divided into two categories.
42First category: The first category consists of Grounds 2 through 9 and 15 to 17 of his notice of appeal. Those grounds seek, in effect, a retrial of all material findings the trial judge made in concluding that Mr. Grillone had committed an act of bankruptcy and that Bluecore had demonstrated a bankruptcy order should issue. Where the grounds allege errors of fact, for the most part the notice of appeal offers little insight into the specific factual errors the trial judge allegedly committed. His allegations about of the misapplication of statutory provisions or the “special circumstances” test are difficult to reconcile with the detailed reasoning provided by the trial judge on those issues. To my eye, based on the record before me, those grounds constitute very weak grounds of appeal.
43Second category: However, as I understand the appellant’s materials, the heart of his appeal lies elsewhere, in a procedural issue regarding the marking of an exhibit: Grounds 10 to 14 and 18 to 20 of his notice of appeal. As Mr. Grillone put the matter in his December 5 Letter:
As its core the principle [sic] grounds for Appeal is based on the Respondents lawyers, Ken Kraft, Mark Freake and Daniel Loberto (the “Kraft Team”), disobeying a key evidentiary ruling made during day 5 of the trial: the trial judge ordered a specific piece of documentary evidence to be entered as Exhibit #2 in the trial record (the “Trial Order”)…. Notwithstanding the Trial Order and the undertaking, the Kraft Team knowingly disobeyed the order and sent the Registrar (without advising the Appellant or Justice Kimmel) a different document.
44By way of background to this category of grounds of appeal, two versions of the loan agreement between Bluecore and Mr. Grillone emerged at trial: the so‑called Long and Short Version Loan Agreements.
45From what I can discern from para. 45 of the trial judge’s reasons, Bluecore’s initial affidavit in support of its bankruptcy application appended a copy of the loan agreement between the parties that did not include Schedules D and E to the agreement. This was the so-called Short Version Loan Agreement. Despite omitting the two schedules, the body of the Short Version identified the existence of the schedules in its “Index of Schedules”: Schedule D consisted of a “Schedule of Documents” and Schedule E identified the “Matters to be Funded”.
46At trial, when Bluecore’s counsel sought to prove the loan agreement through a representative of the company, Mr. Nick Robson, counsel used a longer version of the loan agreement that included the two schedules, the so-called Long Version Loan Agreement. As a result, at trial Mr. Robson incorrectly identified the Long Version Loan Agreement as the one attached to the initial affidavit in support of the bankruptcy application, resulting in the Long Version being marked as trial Exhibit 2.
47When this mistake came to light a few weeks after the trial’s conclusion, Mr. Grillone moved to declare a mistrial. As the trial judge explained at para. 46 of her reasons:
All of these allegations of misconduct are based on the fundamental premise that counsel for the applicant knowingly and intentionally misled the court and Mr. Grillone (and Mr. Robson, if he is not shown to have known) by stating that the Long Version Loan Agreement that included Schedules D and E was the same as the Short Version Loan Agreement that did not include these Schedules D and E. This alleged misconduct is said by Mr. Grillone to directly implicate the duty of good faith under s. 4.2 of the BIA.
48The trial judge rejected the appellant’s request for a mistrial based upon how Bluecore’s counsel dealt with the loan agreement at trial. She concluded that:
- The Short Version Loan Agreement was “included in error” as an exhibit to the initial affidavit; there was no spoliation of evidence;
- The error was not the product of any intention by Bluecore’s counsel to mislead the court;
- Bluecore was not advantaged at trial in any way by the error. As the trial judge explained at paras. 70, 106, and 196 of her reasons:
Nor has Mr. Grillone offered even a plausible theory for why Bluecore would have been assisted by misleading the court into believing that the Long Version Loan Agreement with Schedules D and E appended was the version attached to the First Robson Affidavit. The authenticity of the Long Version Loan Agreement was not in issue and there has been no valid basis upon which there could have been an objection to the Long Version Loan Agreement being entered into evidence at trial in addition to the Short Version Loan Agreement that was appended to the First Robson Affidavit. The Long Version Loan Agreement ultimately was entered into evidence, albeit having been mis-identified as the document at Exhibit A to the First Robson Affidavit.
There was only one Loan Agreement. That was the Long Version Loan Agreement, which is the basis for Mr. Grillone’s liability to Bluecore. He is defined, together with his sole proprietorship, the Grillone Law Firm, to be the “Borrower” under the Loan Agreement, and he also signed the Guarantee. Tendering the complete Long Version Loan Agreement with the appended Guarantee into evidence as trial Exhibit 2, taken together with Mr. Robson’s testimony and the testimony of Bluecore’s accountant, Ms. Lau, was sufficient to prove the contractual basis for Mr. Grillone’s liability to Bluecore that is at the heart of this bankruptcy application.
Mr. Grillone did not testify and the affidavits filed by him do not satisfy me that he was able to pay all of his debts, nor was that established through any of his cross-examinations of his creditors who testified. His bald assertion that he was meeting his lawful debts is unsubstantiated. His suggestion that his Statement of Affairs establishes that he had assets that far exceeded his Indebtedness to Bluecore is unsupported. That conclusion is dependent upon uncollected accounts receivables and disbursements and unbilled fees and disbursements about which he provides no information aside from the amounts paid into court. [Emphasis added.]
- While the trial judge did not condone the failure of Bluecore and its counsel to follow the proper steps for rectifying the misidentification of the exhibit or their failure to follow the court’s direction to file the proper version of the loan agreement, she concluded that declaring a mistrial was not warranted in the circumstances. The trial judge was “satisfied that Mr. Grillone had a full opportunity to present his case on the merits and that it can be fairly adjudicated notwithstanding these irregularities in the marking of trial Exhibit 2 and the failure to follow the court’s Direction.” She continued, at para. 99:
Not all evidentiary errors lead to mis-trial. This is not a matter of relaxing the rules of evidence or the burden of proof in the interests of expediency or efficiency, as Mr. Grillone contends. Where there has been no demonstration that the irregularity prejudiced Mr. Grillone’s opposition to this application, or was pursued in furtherance of an improper or ulterior motive on the part of the applicant, this is not an appropriate case in which to exercise the court’s discretion to declare a mis-trial.
- In the result, the trial judge dismissed Mr. Grillone’s motion for a mistrial but refused to award Bluecore any costs of the motion.
49Despite the extensive arguments fashioned by Mr. Grillone on this motion about how the Long and Short Version Loan Agreements were managed at trial, I see no contention on his part that the full version of the loan agreement he executed with Bluecore does not support the trial judge’s conclusion that he was indebted to Bluecore under the loan agreement, which he candidly admits signing. Put differently, there seems to be no dispute that both versions of the loan agreement – with or without the Schedules D and E – created an indebtedness on his part to Bluecore. Indeed, in the “Facts Briefly Stated” portion of his notice of appeal, Mr. Grillone does not identify any facts that might suggest the trial judge erred (let alone committed a palpable and overriding error) in finding that Mr. Grillone was indebted to Bluecore.
50Combined, the two categories of grounds of appeal advanced by Mr. Grillone strike me as very weak based on the record before me.
Relative prejudice
51There is no dispute that Mr. Grillone’s estate likely contains only two types of assets: approximately $800,000 in cash paid into court; and the potential net recoveries from several dozen lawsuits in which he is named. If the stay remains in place, Mr. Grillone would continue to manage those lawsuits, without any mechanism that would require him to report to his creditors the results of his management of those assets.
52I start my assessment of the relative prejudice to the parties of cancelling the automatic stay by situating Bluecore’s request to lift the automatic stay in the trial judge’s description of how Mr. Grillone deals with his creditors, including Bluecore.
53The trial judge heard evidence not only from Bluecore but also from other creditors of Mr. Grillone. As she stated at para. 150 of her reasons:
Bluecore was permitted to, and did, call as witnesses at trial some of the other creditors of Mr. Grillone. They testified about their frustrations and concerns regarding the multiplicity of claims and counterclaims and the need for a streamlined process that they are all hopeful can be achieved through a bankruptcy proceeding. There was evidence of at least three other significant creditor claims against Mr. Grillone, met in each instance by a counterclaim or counter-suit.
54The consequences of Mr. Grillone remaining in control of the extensive litigation in which he is embroiled, instead of appointing a trustee to act on behalf of all his creditors to maximize any potential recoveries in the lawsuits, was described by a representative of another creditor, Bridgepoint, and summarized by the trial judge at para. 155:
Mr. Pauwels [of Bridgepoint] expressed the reasoning succinctly to be (this is my paraphrasing from the notes of his testimony):
Because here we are many years later with incredible judicial resources dedicated to claims and counterclaims and multiple sets of counsel, this [bankruptcy] is the preferred procedure to deal with multiple creditors and proceedings. This situation requires the diligence and focus of professional trustee to manage and expedite all of these proceedings because we are not getting anywhere.
55Based on the evidence she heard, the trial judge characterized Mr. Grillone’s dealings with his creditors in the following terms, at paras. 159 and 160:
[I]t is not what has been adjudged to be owing to these creditors that is the point. It is the mere existence of these other claims and counterclaims … that is indicative of a course of litigious conduct adopted by Mr. Grillone in response to claims by his many creditors. Mr. Grillone has adopted a manner of dealing with his creditors and claims against him and the available assets to satisfy those claims that is litigious, consumes court time and costs for all involved, and creates a circumstance that in the court’s view requires that the processes of the BIA be set in motion.
[Mr. Grillone] has adopted an aggressive and litigious counter-attack in an attempt to avoid his contractual liability for the Indebtedness under both the Loan Agreement and the Guarantee and is apparently adopting the same approach with other creditors. I find that these add up to create a situation of special circumstances of a category 2 Valente type.
56Based on what the record before me discloses about Mr. Grillone’s litigation approach to this appeal, I have no doubt that if the automatic stay is not lifted Mr. Grillone will continue to pursue the aggressive (and wasteful) litigation approach described by the trial judge, to the prejudice of Bluecore and his other creditors. Indeed, during his November 23 cross-examination of Mr. Robson, Mr. Grillone advised, at p. 232 of the transcript, that he had recently settled one piece of litigation in which he was involved, demonstrating that he was continuing to deal with his assets following the making of the Bankruptcy Order.
57I see much merit in the trial judge’s assessment that, in the circumstances, the appointment of a trustee was required to ensure fairness not only to creditors who have claims against Mr. Grillone, but also to enable the assessment of the reasonableness of his counterclaims against his creditors. As she put the matter in paras. 162 and 210 of her reasons:
[A bankruptcy order] under s. 43(1) of the BIA is necessary to achieve an orderly distribution of Mr. Grillone’s estate to his creditors, including Bluecore, and to create a single forum in which the multiplicity of claims involving Mr. Grillone (by and against him) can be determined while ensuring no creditor obtains an unfair advantage over the others in the interim. This is in the best interests of the creditors of Mr. Grillone.
Mr. Robson (and Bluecore) is proceeding on the assumption that the process for creditors establishing claims to, and the determination of priorities and the eventual distribution of, any funds paid into court to Mr. Grillone’s credit (and any other identified liquid or realizable assets of Mr. Grillone) would be managed by a professional Trustee in Bankruptcy if one is appointed. So would the pursuit of any counterclaims on behalf of Mr. Grillone if determined to be in the interests of the estate and other stakeholders to do so.
58In his affidavit in support of the cancellation of the stay, Mr. Robson of Bluecore echoes the trial judge’s assessment of the circumstances. He deposes: “Without the stay being lifted, there will be no one to control what Mr. Grillone does with these claims, all to the detriment of his creditors. The (re)imposition of the bankruptcy trustee will protect all creditors and not prejudice Mr. Grillone while his appeal is being addressed.”
59Mr. Grillone filed two affidavits on this motion. Neither addressed the issue of the relative prejudice to the parties of cancelling the stay.
Conclusion
60Based on the record before me, I conclude that:
- Mr. Grillone’s grounds of appeal are very weak;
- To date, he has not prosecuted his appeal with diligence;
- Mr. Grillone has failed to satisfy past costs orders of this court;
- I have no confidence that Mr. Grillone intends to pursue his appeal with diligence. His litigation conduct to date gives every indication that he will attempt to convert an uncomplicated “review and correction” appeal into a series of collateral side-fights, with a view to delaying the hearing of the appeal and prolonging the automatic stay; and
- I have no doubt that Mr. Grillone would use the protection of the automatic stay to pursue his aggressive litigation against his creditors and to deprive his creditors of the benefit of any assets he might recover. In those circumstances, I have no hesitation in concluding that the relative prejudice to the parties strongly favours cancelling the stay.
61Consequently, I grant Bluecore’s motion and order that the automatic stay of the Bankruptcy Order under BIA s. 195 be lifted.
IV. SECURITY FOR COSTS
62As mentioned, Mr. Grillone has failed to pay Bluecore two cost awards totaling $10,000 made earlier this year by this court. In those circumstances, Bluecore is entitled to security for costs against Mr. Grillone pursuant to rr. 56.01(c) and 61.06(1)(b): Health Genetic Center Corp. v. New Scientist Magazine, 2019 ONCA 968, 59 C.P.C. (8th) 15, at para. 15. I fix the amount of security of costs at $30,000, based on the $10,000 in unpaid cost awards and Bluecore’s reasonable request of $20,000 in security for costs of the appeal, as supported by the bill of costs it submitted. Mr. Grillone must post such security within 30 days of the date of this order, failing which Bluecore may move to dismiss the appeal.
63Until Mr. Grillone pays into court the ordered security for costs, he cannot take any step in the appeal, except a motion for a panel review of this order under s. 7(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43. To be clear, until such security is posted Mr. Grillone cannot file or attempt to file any document in this court except for a motion for a panel review of this order.
64If Mr. Grillone posts such security, then he must proceed to perfect his appeal within 60 days thereafter, failing which Bluecore may move to dismiss his appeal.
V. DISPOSITION
65By way of summary, I grant Bluecore’s motion and make the following orders:
(a) The BIA s. 195 stay of the Bankruptcy Order of Kimmel J. made October 12, 2023 is cancelled;
(b) Within 30 days of the date of this order, Mr. Grillone shall pay into court security for costs of the appeal fixed in the amount of $30,000, failing which Bluecore may move to dismiss the appeal; and
(c) If Mr. Grillone pays such security for costs into court within 30 days of the date of this order, he must perfect his appeal within 60 days after posting of the security, failing which Bluecore may move to dismiss his appeal.
66The parties agree that the costs of this motion should be left for determination to the panel hearing Mr. Grillone’s appeal.
“David Brown J.A.”
1The motion judge noted at para. 238 of her reasons that the Trustee may have undergone a name change.
2I have read Mr. Grillone’s letter to the court dated December 18, 2023. In it Mr. Grillone questioned whether the Trustee appointed by the Superior Court of Justice should continue to act. If that truly is an issue, it is one that the Superior Court of Justice should decide, not this court on this motion.
