COURT FILE NO.: CV-20-3654 DATE: 20230501
SUPERIOR COURT OF JUSTICE – ONTARIO
7755 Hurontario Street, Brampton, ON L6W 4T6
RE: PCNIX Inc., Plaintiff AND: TECPARTNER Inc. and Edwin Masango, Defendants
BEFORE: The Honourable Justice Tzimas
COUNSEL: Adam Jarvis, for the Plaintiff Edwin Masango Self Represented Tecpartner Inc. did not participate.
HEARD: March 30, 2023
ENDORSEMENT
INTRODUCTION
[1] The plaintiff, PCNIx Inc., brought a motion for an order declaring that the judgment obtained against the defendants Edwin Masango and Tecpartner Inc. survives bankruptcy and that the stay of proceedings be lifted.
[2] The defendant Edwin opposed the motion. Apart from his concern that he allegedly never had a chance to defend the claim, he submitted that the judgment and the underlying claim do not satisfy the requirements of s. 178(1)(d) & (e) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3.
[3] The defendant Tecpartner Inc. did not participate in the motion. The motion was unopposed by the Trustee in Bankruptcy.
[4] In my review of this matter, I agree with the defendant. For the reasons that follow this motion is dismissed.
BACKGROUND
[5] The plaintiff commenced an action against the defendants on September 30, 2020, wherein it claimed damages against the defendants for breach of confidence, intentional interference with the plaintiff’s economic relations, breach of contract, and unjust enrichment.
[6] The statement of claim advanced the following allegations:
Para. 6: Edwin’s access to this confidential information and his relationships to the Plaintiff and the Plaintiff’s customers also made Edwin a fiduciary employee at common law. As a fiduciary employee, Edwin owes the Plaintiff a duty to not actively solicit the Plaintiff’s customers for a reasonable period of time following his resignation; and the duty not misuse confidential information.
Para. 7: At all material times, Edwin was aware of his contractual, fiduciary, and common law obligations to the Plaintiff.
[7] The defendants were noted in default on October 28, 2020. An uncontested trial was held on December 6, 2021. In granting judgment, the trial judge found:
Para. 6: I am further satisfied that there has been proven that Edwin Masango breached the confidence of the Plaintiff, arising out of Mr. Masango’s employment by the Plaintiff as an intern and his contractual duty, as set out in the internship agreement signed August 20, 2019, to preserve the confidentiality of information he received during his internship.
Para. 7: I am further satisfied that Mr. Masango, through the Defendant corporation Tecpartner Inc., engaged in intentional interference with economic relations, and theft of the Plaintiff’s intellectual property which he continues to use in the operation of his business in direct competition with the Plaintiff. I am further satisfied that he continues to do so.
Para. 11: I am further satisfied that the Plaintiff has proven its claim for $200,000 in unliquidated damages for the breach of confidence, intentional interference with economic relations, and theft of the Plaintiff’s intellectual property which he continues to use in the operation of his business in direct competition with the Plaintiff. I am further satisfied that he continues to do so.
[8] The defendant, Edwin Masango, was served with the Judgment and Notice of Examination in January 2022. The judgment debtor examination was set for February 24, 2022. Mr. Masango did not attend. In the months that followed, Mr. Masango made repeated representations that he intended to proceed with a motion to set aside the judgment. A motion by the Plaintiff brought on November 1, 2022 was adjourned to January 20, 2023 in response to Mr. Masango’s request for an opportunity to prepare and file motion materials to set aside the judgment.
[9] On November 14, 2022, David Sklar & Associates Inc. provided notice of Mr. Masango’s bankruptcy, bearing Toronto Court File 31-2884304.
ANALYSIS
[10] The only question for determination is whether the judgment survives bankruptcy. To do so the default judgment must amount to a debt within the meaning of s.178(1)(d) of the BIA. That section states:
178 (1) An order of discharge does not release the bankrupt from
(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;
(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim;
[11] In the context of a default judgment, a judge must determine the nature of the debt to decide whether it falls within the parameters of s.178(1)(d). In addition to a review of the causes of action pleaded in the action, the judge may look at the material filed that led to the judgment, including the facts pleaded in support of the action that led to the judgment debt and the findings of the trial judge, see Lawyers’ Professional Indemnity Company v. Rodriguez, 2018 ONCA 171 at paras. 5 and 30-35.
[12] In this case, in its statement of claim, the plaintiff described the nature of its relationship with Mr. Masanga and it outlined nature of the contractual breaches and the breaches of confidentiality. The plaintiff pleaded that Mr. Masango’s access to confidential information made him a “fiduciary employee at common law” resulting in fiduciary obligations to the plaintiff. However, nowhere in the pleading did the plaintiff allege that Mr. Masanga committed any “fraud, embezzlement, misappropriation, or defalcation” either as an employee simpliciter or an employee with fiduciary obligations.
[13] In her reasons for judgment, the trial judge did not characterize Mr. Masango as a “fiduciary employee” or find that any fiduciary relationship or fiduciary obligations resulted from Mr. Masango’s employment with the plaintiff. She very carefully and deliberately found contractual breaches and limited the defendant’s wrongdoing to contractual breaches and “the intentional interference with economic relations and theft of the Plaintiff’s intellectual property”. The reference to theft lacked any particulars to enable the plaintiff to argue now that the theft rose to the level of committing any fraud, embezzlement, misappropriate or defalcation. No facts were pleaded to allow for such a finding.
[14] Counsel for the plaintiff submitted that the debt in this case arose from the “misappropriation and defalcation while acting in a fiduciary capacity” and that the “debt or liability resulting from obtaining property (the “intellectual property”) or services by false pretences or fraudulent misrepresentation” amounted to a debt within the meaning of s.178(1)(d). But false pretenses or fraudulent misrepresentations were not pleaded. The statement of claim lacked any particulars to allow for such a finding. For example, there are no facts pleaded on what the “false pretenses” were or to whom the “fraudulent misrepresentations” were directed.
[15] Insofar as the counsel sought to rely on certain cases in support of his position, those cases are distinguishable. Counsel referred the court to M.O.S MortgageOne Solutions Ltd. v. Heidary, 2021 ONSC 1937, upheld by the Ontario Court of Appeal, see 2022 ONCA 561, for the proposition that a default judgment did not have to refer to the fraud to survive bankruptcy and that fraud would not have to be pleaded as a cause of action. However, what counsel neglected to notice was that judge’s express recognition that the factual allegations contained in the pleadings amounted to a description of a fraudulent scheme. In its review of the judge’s decision, the Court of appeal noted that it was open to the judge to find, “based on the pleaded factual allegations” that the impugned conduct fell within s. 178(1) of the BIA. In other words, facts were pleaded in the statement of claim in that case to permit the judge’s finding. In this instance, no facts were pleaded and the trial judge did not make any findings that would bring the judgment within the purview of s.178(1)(d) or (e) of the BIA.
[16] Similarly, counsel’s reliance on Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, for the proposition that the judgment in that case did not refer to s.178(1) but nonetheless survived the bankruptcy by operation of s. 178(1)(e) of the BIA, neglected the judge’s finding that the statement of claim contained particulars of a fraudulent scheme. The statement of claim before this court contains no allegations of a fraudulent scheme or related activities that would bring the judgment within the purview of either s.178(1)(d) or (e) of the BIA.
CONCLUSION
[17] In light of the foregoing, the motion for a declaration that the judgment obtained against Mr. Masango survive Mr. Masango’s bankruptcy is dismissed.
[18] As Mr. Masango did not seek any costs, no such order is made.
Tzimas J.
DATE: May 1, 2023