Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., carrying on business as Ajay Amazing Technologies Inc., et al. Mendlowitz & Associates Inc. as Trustee of the Estate of Chiang, a Bankrupt, et al. v. Chiang et al.

[Indexed as: Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc.]

Ontario Reports

Court of Appeal for Ontario,

Hoy A.C.J.O., Cronk and Watt JJ.A.

June 24, 2015

126 O.R. (3d) 81 | 2015 ONCA 465

Case Summary

Bankruptcy and insolvency — Discharge — Exceptions — Fiduciaries — Section 178(1)(d) of Bankruptcy and Insolvency Act applying only if bankrupt owes fiduciary duty to creditor who is seeking declaration that debt survived bankrupt's discharge — That bankrupt owed fiduciary duty to third party and infringed it in manner set out in s. 178(1)(d) not being sufficient to entitle claiming creditor to declaration — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178(1) (d).

The plaintiff obtained judgment against JC and others in California for damages for breaches of a settlement agreement and amounts owing on unpaid invoices. The California court specifically found that, while JC owed a fiduciary duty to another company and breached that duty, he owned no fiduciary duty to the plaintiff. JC then filed an assignment in bankruptcy in Ontario. The plaintiff filed a proof of claim in JC's bankruptcy based on the California judgment and commenced proceedings in Ontario to enforce that judgment in which it sought a declaration that JC's debt under the California judgment would survive his discharge from bankruptcy under s. 178(1)(d) of the Bankruptcy and Insolvency Act ("BIA"). The trial judge held that s. 178(1) (d) applies only if the bankrupt owed a fiduciary duty to the creditor who seeks to obtain declaratory relief under s. 178(1)(d) and that it could not be invoked by the plaintiff as JC owed no fiduciary duty to it. The plaintiff appealed, arguing that s. 178(1)(d) applies to any debt or liability arising out of a bankrupt's wrongdoing of the type envisaged by the section -- fraud, embezzlement, misappropriation or defalcation -- so long as the bankrupt was in a fiduciary relationship with someone when the debt arose through the bankrupt's wrongful activity.

Held, the appeal should be dismissed.

The trial judge did not err in his interpretation of s. 178(1)(d). The key purpose of the BIA is to enable insolvent debtors to make a fresh start and resume a productive role in society. The exceptions set out in s. 178(1) of the BIA are to be construed narrowly and applied only in clear cases. A creditor cannot bring its claim within the exception set out in s. 178(1)(d) when that claim arose out of the bankrupt's breach of a fiduciary duty to a third party. To hold otherwise would expand the reach of s. 178(1) (d) well beyond what it exists to protect: the relationship between a vulnerable creditor and a fiduciary debtor.

Simone v. Daley (1999), 1999 3208 (ON CA), 43 O.R. (3d) 511, [1999] O.J. No. 571, 170 D.L.R. (4th) 215, 118 O.A.C. 54, 8 C.BR. (4th) 143, 24 R.P.R. (3d) 1, 86 A.C.W.S. (3d) 271 (C.A.); Valastiak v. Valastiak, [2010] B.C.J. No. 233, 2010 BCCA 71, 63 C.B.R. (5th) 188, 3 B.C.L.R. (5th) 1, 283 B.C.A.C. 204, [2010] 7 W.W.R. 50, 186 A.C.W.S. (3d) 22, revg [2009] B.C.J. No. 292, 2009 BCSC 204, 64 R.F.L. (6th) 335, 53 C.B.R (5th) 181, consd [page82 ]

Other cases referred to

Bank of Montreal v. Giannotti (2000), 2000 16928 (ON CA), 51 O.R. (3d) 544, [2000] O.J. No. 4272, 197 D.L.R. (4th) 266, 138 O.A.C. 316, 21 C.B.R. (4th) 199, 104 A.C.W.S. (3d) 26 (C.A.); Canada Mortgage and Housing Corp. v. Gray (2014), 119 O.R. (3d) 710, [2014] O.J. No. 1480, 2014 ONCA 236, 317 O.A.C. 286, 11 C.B.R. (6th) 324, 238 A.C.W.S. (3d) 807; Canada (Superintendent of Bankruptcy) v. 407 ETR Concession Co. (2013), 118 O.R. (3d) 161, [2013] O.J. No. 5837, 2013 ONCA 769, 314 O.A.C. 152, 369 D.L.R. (4th) 385, 7 C.B.R. (6th) 167, 53 M.V.R. (6th) 169, 235 A.C.W.S. (3d) 378 [Leave to appeal to S.C.C. granted [2014] S.C.C.A. No. 25, 2014 23006]; Chiang (Trustee of) v. Chiang (2009), 93 O.R. (3d) 483, [2009] O.J. No. 41, 2009 ONCA 3, 78 C.P.C. (6th) 110, 305 D.L.R. (4th) 655, 49 C.B.R. (5th) 1, 257 O.A.C. 64, 174 A.C.W.S. (3d) 105; Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, [1987] S.C.J. No. 49, 42 D.L.R. (4th) 81, 78 N.R. 40, 23 O.A.C. 84, 42 C.C.L.T. 1, [1988] 1 C.N.L.R. 152 p, 9 R.F.L. (3d) 225, 6 A.C.W.S. (3d) 263; Galambos v. Perez, [2009] 3 S.C.R. 247, [2009] S.C.J. No. 48, 2009 SCC 48, 276 B.C.A.C. 272, 312 D.L.R. (4th) 220, [2009] 12 W.W.R. 193, EYB 2009-165240, J.E. 2009-1938, 394 N.R. 209, 70 C.C.L.T. (3d) 167, 182 A.C.W.S. (3d) 488; Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, [1994] S.C.J. No. 84, 117 D.L.R. (4th) 161, 171 N.R. 245, [1994] 9 W.W.R. 609, J.E. 94-1560, 49 B.C.A.C. 1, 97 B.C.L.R. (2d) 1, 16 B.L.R. (2d) 1, 6 C.C.L.S. 1, 22 C.C.L.T. (2d) 1, 57 C.P.R. (3d) 1, 95 D.T.C. 5135, 5 E.T.R. (2d) 1, 50 A.C.W.S. (3d) 469; Husky Oil Operations Ltd. v. M.N.R., 1995 69 (SCC), [1995] 3 S.C.R. 453, [1995] S.C.J. No. 77, 128 D.L.R. (4th) 1, 188 N.R. 1, [1995] 10 W.W.R. 161, J.E. 95-1945, 137 Sask. R. 81, 35 C.B.R. (3d) 1, 24 C.L.R. (2d) 131, 58 A.C.W.S. (3d) 182; Jerrard v. Peacock, 1985 1148 (AB KB), [1985] A.J. No. 513, 37 Alta. L.R. (2d) 197, 61 A.R. 161, 57 C.B.R. (N.S.) 54, 32 A.C.W.S. (2d) 99 (Master); McAteer v. Billes, [2007] A.J. No. 593, 2007 ABCA 137, 75 Alta. L.R. (4th) 129, 409 A.R. 143, 34 C.B.R. (5th) 1, 159 A.C.W.S. (3d) 328 [Leave to appeal to S.C.C. refused [2007] S.C.C.A. No. 342]; Mendlowitz & Associates Inc. v. Chiang, [2015] O.J. No. 538, 2015 ONSC 571, 22 C.B.R. (6th) 209, 119 W.C.B. (2d) 362, 249 A.C.W.S. (3d) 779 (S.C.J.); Schreyer v. Schreyer, [2011] 2 S.C.R. 605, [2011] S.C.J. No. 35, 2011 SCC 35, 268 Man. R. (2d) 154, 418 N.R. 61, EYB 2011-193073, 2011EXP-2202, J.E. 2011-1208, 334 D.L.R. (4th) 1, [2011] 8 W.W.R. 413, 78 C.B.R. (5th) 1, 1 R.F.L. (7th) 1

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 [as am.], ss. 172(2) [as am.], 173 [as am.], (1) [as am.], (k), 178 [as am.], (1) [as am.], (d), (e), (2)

APPEAL from the judgment of Marrocco J., [2012] O.J. No. 3202, 2012 ONSC 3922 (S.C.J.) in enforcement proceedings.

Scott C. Hutchison, Matthew R. Gourlay and Sherif M. Foda, for appellant Korea Data Systems (USA), Inc.

J. Thomas Curry and Constanza Pauchulo, for respondent Jay Tien Chiang.

Catherine Francis and Mark A. Freake, for Mendlowitz & Associates Inc., in its capacity as trustee of the estate of Jay Tien Chiang, a bankrupt.

No one appearing for the respondent Christina Chiang. [page83 ]

The judgment of the court was delivered by

[1] CRONK J.A.: — The Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA") is a comprehensive code relating to insolvent persons. It seeks to achieve twin goals: the equitable distribution of a bankrupt's assets among the bankrupt estate's creditors and the financial rehabilitation of insolvent individuals: Husky Oil Operations Ltd. v. M.N.R., 1995 69 (SCC), [1995] 3 S.C.R. 453, [1995] S.C.J. No. 77, at para. 7; Canada (Superintendent of Bankruptcy) v. 407 ETR Concession Co. (2013), 118 O.R. (3d) 161, [2013] O.J. No. 5837, 2013 ONCA 769, at paras. 27-30, leave to appeal to S.C.C. granted [2014] S.C.C.A. No. 25, 2014 23006, appeal heard and reserved January 15, 2015. In furtherance of these objectives, s. 178(2) of the BIA provides that "an order of discharge releases the bankrupt from all claims provable in bankruptcy".

[2] However, s. 178(1) of the BIA creates limited exceptions to this general rule. These exceptions are designed to ensure that purposeful wrongdoers cannot take unjustified advantage of the bankruptcy regime's protections. This appeal concerns the scope of the exception in s. 178(1)(d). It reads:

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[.]

[3] In this case, the trial judge held that s. 178(1) (d) applies only if the bankrupt owed a fiduciary duty to the creditor who seeks to obtain declaratory relief under s. 178(1)(d). In other words, s. 178(1)(d) requires the fiduciary duty in question to have been one that the bankrupt owed directly to the claiming creditor.

[4] The narrow issue on this appeal is whether the trial judge erred in this construction of s. 178(1)(d). The appellant Korea Data Systems (USA), Inc. ("KDS USA") argues that a creditor of a bankrupt may rely on s. 178(1)(d) in any case in which the debt in question arose out of one of the enumerated activities in s. 178(1)(d) while the bankrupt was acting in a fiduciary capacity, even if the bankrupt did not owe a fiduciary duty directly to the creditor bringing the claim.

[5] This interpretive issue is a matter of first impression for this court. For the reasons that follow, I agree with the trial [page84 ]judge's construction of s. 178(1)(d). Accordingly, I would dismiss the appeal.

I. Background in Brief

(1) Litigation history

[6] The litigation between the parties has a tortured and protracted history in the courts of both Ontario and California. Much of that history is irrelevant to this appeal. The following outline of the pertinent facts will suffice to place the appeal in context.

[7] The major players in this litigation were involved in the computer monitor manufacturing and sales business in California in the 1990s. Korea Data Systems Co. Ltd. ("KDS Korea") was formed in Korea in about 1983 as a manufacturer of computer monitors and accessories. It was controlled by two brothers, Jung Koh and Dae Soo Koh.

[8] John Hui, a friend of the Koh brothers, began selling KDS Korea computer monitors in California in late 1987 or early 1988. Mr. Hui, together with Julius Chiang and a third individual, incorporated a company, Amazing Technologies Corp. ("ATC"), in 1989. ATC intended to bring computer monitors -- including ones manufactured by KDS Korea -- to market under ATC's own brand name.

[9] That same year, and apparently unbeknownst to Mr. Hui, Julius Chiang's brother, the respondent Jay Chiang, formed a separate company known as Aamazing Technologies Inc. or Ajay Amazing Technologies Inc. ("Aamazing").

[10] Mr. Hui first learned of Aamazing's existence within about one year of ATC's incorporation. He discovered that one of ATC's suppliers had shipped computer monitors to Aamazing, which had declined to pay for them. Since the supplier believed that Mr. Hui controlled Aamazing, it refused to supply any further monitors to ATC.

[11] Mr. Hui subsequently learned that his business partner's brother owned Aamazing. This damaged the relationship between the two men. Soon thereafter, Mr. Hui gave up his ownership interest in ATC. After his departure, Julius Chiang owned 50 per cent and the Koh brothers together owned the remaining 50 per cent of the company. Jay Chiang was a director and officer of ATC.

[12] In 1992, the Koh brothers and Mr. Hui incorporated KDS USA for the purpose of importing KDS Korea's computer monitors and selling them to distributors in North America. [page85 ]

[13] In June 1995, Mr. Hui purchased KDS USA from the Koh brothers.

(a) Litigation in California

[14] By March 1993, the KDS companies and the Koh brothers had sued ATC, Aamazing and the Chiang brothers in California for, among other things, amounts allegedly owing on unpaid invoices.

[15] In September of that year, the parties entered into a handwritten settlement agreement (the "settlement agreement"), ending all outstanding litigation. Pursuant to the settlement agreement, ATC apparently paid approximately US$4 million to KDS Korea and KDS USA released a further shipment of computer monitors to ATC.

[16] Unfortunately, the settlement fell apart. Each side accused the other of breaching its terms. In May 1994, the KDS companies and the Koh brothers commenced another action in California against ATC, Aamazing and the Chiang brothers, claiming damages for breach of the settlement agreement and amounts owing on unpaid invoices.

[17] The action was tried on January 26, 1998. Julius Chiang defended the action and testified at trial. Jay Chiang initially defended the action but later decided not to defend the claim. He did not appear at trial.

[18] The California court found that Jay and Julius Chiang were alter egos of ATC; that they had "controlled [ATC] and used it for their benefit to the detriment of the corporation and its other shareholders"; that they had "manipulated [ATC] to take advantage of their control of it"; and that they had used ATC as their "personal play thing" and "piggy bank".

[19] The California court further held that the Chiang brothers had acted in bad faith; that they had "violated their fiduciary duties as officers and directors to [ATC] and acted for their self interest rather than the corporate self interest"; that "[they] colluded together to manipulate [ATC] to defraud the K[oh] brothers, KDS [Korea] and KDS-USA" and that "[t]hey wrongfully used their control of [ATC] to further this fraudulent scheme".

[20] The Chiang brothers were held personally liable to KDS Korea for the outstanding amount owed under the settlement agreement because they had signed it in their individual capacities -- as well as on behalf of ATC and Aamazing -- and had failed to honour their obligations under it in full.

[21] They were also held personally liable to KDS Korea for the same amount because they were found to be alter egos of [page86 ]ATC. On the same basis, they were held personally liable to KDS USA for the amount of unpaid invoices pertaining to computer monitors received by ATC and/or Aamazing.

[22] Notably, the California court did not find that either of the Chiang brothers owed a fiduciary duty to KDS Korea or KDS USA or that they had breached such a duty. As I will explain, this is a matter of significance to this appeal.

[23] In the result, on April 20, 1998, the KDS companies obtained judgment against ATC, Aamazing and the Chiang brothers personally in the approximate amounts of US$6.4 million (KDS Korea) and US$3.27 million (KDS USA) for sums owing under the settlement agreement and unpaid invoices (the "1998 California judgment"). Because he did not appear at trial, default judgment was entered against Jay Chiang. He did not appeal.

[24] That, however, was not the end of the matter. On March 20, 2004, KDS USA obtained a second default judgment in California. This judgment issued against Jay Chiang's wife, Christina, and others, for the amount of US$5 million on account of fraudulent conveyances and the improper transfer of funds that KDS USA said could have been used to satisfy Jay Chiang's debt under the 1998 California judgment (the "2004 California judgment").[^1]

(b) Litigation in Ontario

[25] On September 28, 1998, Jay Chiang filed an assignment in bankruptcy in Ontario. He declared the 1998 California judgment as a liability. Mendlowitz & Associates Inc. (the "trustee") is the appointed trustee in bankruptcy for Jay Chiang's estate. Jay Chiang remains an undischarged bankrupt to date.

[26] KDS Korea and KDS USA both filed proofs of claim in Jay Chiang's bankruptcy pursuant to the 1998 California judgment. In addition, on October 5, 1998, they commenced proceedings in Ontario against the Chiang brothers and Aamazing, seeking to enforce the 1998 California judgment (the "enforcement action"). Among other relief, they sought a declaration that Jay Chiang's debt under the 1998 California judgment would survive his discharge from bankruptcy under s. 178(1)(d) of the BIA. [page87 ]

[27] By court order dated November 1, 1999, the KDS companies obtained leave under the BIA to continue the enforcement action against Jay Chiang and to enforce any judgment obtained, on the basis that Jay Chiang's judgment debt to them was grounded in fraud.

[28] The following year, on July 28, 2000, KDS Korea, KDS USA and the trustee issued a notice of action in Ontario against Jay Chiang, Christina Chiang and various relatives and associated corporations seeking damages in the amount of $10 million for alleged conspiracy and fraudulent conveyances (the "fraudulent conveyances action").

[29] On August 18, 2008, KDS Korea assigned its interest in both Ontario actions to KDS USA.

[30] The Ontario litigation involving the KDS companies, the trustee and the Chiangs has persisted for more than a decade. It has generated an extraordinary number of court attendances, related proceedings in California, Hong Kong and elsewhere, dozens of witness examinations under the BIA, numerous reported decisions and, as I will explain, three contempt proceedings against the Chiangs. This appeal is simply the latest foray before the courts of this province in the seemingly endless litigation war among the parties.

(2) Decision under appeal

[31] The enforcement and fraudulent conveyances actions were tried together before Marrocco J. (as he then was) of the Superior Court of Justice over approximately 51 days in 2011.

[32] KDS USA was partially successful in the enforcement action. The trial judge found that it was entitled to enforce the 1998 California judgment against Jay Chiang for the full judgment amount of about US$9.7 million. However, as I have already said, he declined to issue a declaration that the debt owed to KDS USA survived Jay Chiang's eventual discharge from bankruptcy by reason of s. 178(1)(d) of the BIA.

[33] The trial judge made the following critical findings in the enforcement action:

(1) Jay Chiang was never a director or officer of KDS Korea or KDS USA, nor was he a shareholder of KDS USA (at paras. 89 and 120);

(2) as a director of ATC, Jay Chiang owed a fiduciary duty to that company, but he did not owe a fiduciary duty to ATC's creditors or to KDS USA (at paras. 88-90, 121 and 124); [page88 ]

(3) there was no relationship between KDS USA and Aamazing, nor did John Hui entrust property to Aamazing at any time (at para. 109);

(4) no "misappropriation" or "defalcation", as those words are used in s. 178(1)(d) of the BIA, occurred in respect of the supply of computer monitors to ATC, which ATC then shipped to Aamazing, because the monitors were never entrusted to Jay Chiang or Aamazing (at paras. 114-15); and

(5) on his reading of the 1998 California judgment, the California court made no finding of fraud in respect of Jay Chiang's indebtedness to KDS Korea under the settlement agreement entered into by him; in fact, Jay and Julius Chiang paid approximately one-half of the funds owed under that agreement to KDS Korea (at para. 110).

[34] In this context, the trial judge held that KDS USA could not avail itself of the creditor protection afforded by s. 178(1)(d) of the BIA. In his view, s. 178(1) (d) of the BIA "should be interpreted as requiring that the fiduciary duty referred to in that subsection is owed to the creditor who is seeking a declaration that its debt survives the bankrupt's discharge": at para. 123. Since Jay Chiang owed no fiduciary duty to KDS USA, s. 178(1) (d) was not available to that company to obtain a declaration that his debt to it under the 1998 California judgment would survive his discharge from bankruptcy. That determination is the focus of this appeal.

[35] The defendants were successful in the fraudulent conveyances action. No appeal has been taken from that decision.

II. The Sanction Ruling

[36] Jay and Christina Chiang have been held in contempt of court in Ontario on multiple occasions in connection with their conduct concerning the KDS companies' attempts to collect on the 1998 California judgment. Three contempt trials involving the Chiangs were held, in 2005, 2007 and 2010. In at least one instance, the Chiangs were sentenced to jail as a result of their continuing contempt of court. On appeal against sentence to this court, their sentences were reduced to time served but their ongoing contempt was described as "shocking and disgraceful", leading to "one of the worst cases of civil contempt to come before this court": Chiang (Trustee of) v. Chiang (2009), 93 O.R. (3d) 483, [2009] O.J. No. 41, 2009 ONCA 3, at paras. 1 and 103.

[37] The trial judge in the present case presided at the third contempt trial. At the conclusion of that trial, he deferred [page89 ]consideration of sanctions pending the outcome of the enforcement and fraudulent conveyances actions. On January 26, 2015, he released his reasons for decision on the sanction hearing: Mendlowitz & Associates Inc. v. Chiang, [2015] O.J. No. 538, 2015 ONSC 571 (S.C.J.). His formal order was issued on March 30, 2015, shortly before the argument of this appeal. I will refer to his reasons and his order, collectively, as the "sanction ruling".

[38] At the hearing of this appeal, Jay Chiang sought leave to file the sanction ruling as "fresh evidence". He argued that the factual findings underpinning the sanction ruling are directly relevant to the interpretive issue before this court and that the sanction ruling meets the test for admission of fresh evidence on appeal.

[39] I make two comments. First, the sanction ruling is not evidence. It is a publicly available judicial decision of the Superior Court of Justice rendered in related judicial proceedings -- namely, contempt proceedings against the Chiangs. As with any other pertinent judicial decision, it may be considered by this court to the extent of its relevancy.

[40] Second, in my view, the sanction ruling provides additional context to the issue on this appeal, that is, whether Jay Chiang's debt to KDS USA survives his eventual discharge from bankruptcy under s. 178(1)(d) of the BIA.

[41] It is unnecessary to review the sanction ruling in detail. I simply observe at this point that, based on information obtained by the trustee after the date of the decision under appeal, the trustee sought leave of the court to withdraw its contempt proceedings against the Chiangs. The post-judgment information includes allegations made by the KDS companies' former counsel in California that KDS Korea had been running "an Enron[-]type accounting fraud" and that John Hui acquired the shares of KDS USA from the Koh brothers in 1995 in order to thwart Korean securities laws. These allegations were unknown to the trustee at the time of the trial of the enforcement and fraudulent conveyances actions.

[42] In the sanction ruling, Marrocco A.C.J.S.C.J. found that KDS Korea and KDS USA, together with John Hui, failed to make proper disclosure in the enforcement and fraudulent conveyances actions, thereby permitting them "to inaccurately portray themselves as victims of [Jay] Chiang's fraud throughout the Ontario litigation": at para. 193. He also found that "Jay Chiang, [KDS Korea and KDS USA] have each attempted to take advantage of our laws while not complying with them": at para. 198. [page90 ]

[43] At the least, these findings, made by the same Superior Court justice who presided at the trial of the enforcement and fraudulent conveyances actions, cast serious doubt on the depiction of KDS Korea and KDS USA as innocent creditor-victims of Jay Chiang's fraudulent wrongdoing.

[44] Based on his findings, Marrocco A.C.J.S.C.J. rescinded the court order that had granted the KDS companies leave under the BIA to continue the enforcement action against Jay Chiang. He also granted the trustee leave to withdraw its contempt proceedings against the Chiangs, among other relief.

III. Issues

[45] The sole issue on appeal is whether the trial judge erred in concluding that Jay Chiang's debt to KDS USA under the 1998 California judgment will not survive his eventual discharge in bankruptcy under s. 178(1)(d) of the BIA.[^2]

IV. Analysis

[46] KDS USA attacks the trial judge's s. 178(1)(d) ruling on two fronts.

[47] First, it argues that the trial judge's interpretation of s. 178(1)(d) of the BIA undermines, rather than advances, the policy objective of s. 178. It contends that a proper reading of s. 178(1)(d), as applied to the facts of this case, compels the conclusion that Jay Chiang's debt to KDS USA will survive his eventual discharge from bankruptcy.

[48] Second, KDS USA submits that, on the undisputed findings of the California court, Jay Chiang breached his fiduciary obligations to ATC and used ATC to further his fraudulent scheme, thereby defrauding KDS USA. KDS USA says that, on these findings, the requisite elements of s. 178(1)(d) are satisfied and the declaratory relief sought before the trial judge "ought to have been inevitable".

(1) Trial judge's interpretation of section 178(1) (d)

[49] I turn, first, to the trial judge's impugned interpretation of s. 178(1)(d). For convenience, I repeat his core holding, at para. 123 of his reasons: [page91 ]

[Section] 178(1)(d) of the BIA should be interpreted as requiring that the fiduciary duty referred to in that subsection is owed to the creditor who is seeking a declaration that its debt survives the bankrupt's discharge.

[50] KDS USA contends that the trial judge erred in law by adopting a narrow construction of s. 178(1)(d) that undermines, rather than advances, the policy objective of that section -- that is, to deny certain wrongdoers the protections of the bankruptcy regime. KDS USA submits that s. 178(1) (d) applies to any debt incurred as a consequence of a bankrupt's acting fraudulently while in a fiduciary capacity; the fiduciary duty at issue need not be owed directly to the creditor who claims relief under s. 178(1)(d).

[51] I disagree. In my view, the trial judge did not err in his construction of s. 178(1)(d). I say this for the following reasons.

[52] First, contrary to KDS USA's submission, I regard the trial judge's interpretation of s. 178(1)(d) as consistent with the purposes of both the BIA regime in general and of s. 178 in particular.

[53] The purposes of s. 178(1)(d) of the BIA must be understood in the context of the overall statutory bankruptcy scheme established by the BIA. In 407 ETR Concession Co., at paras. 27, 29 and 30, this court explains the BIA bankruptcy regime as follows:

Bankruptcy is triggered by insolvency. It is a procedure that is governed by statute. The BIA is the comprehensive code that addresses bankruptcy. Rand J. captured the essence of the bankruptcy process in Canadian Bankers' Association v. Attorney General of Saskatchewan, 1955 78 (SCC), [1956] S.C.R. 31, at p. 46:

Bankruptcy is a well understood procedure by which an insolvent debtor's property is coercively brought under a judicial administration in the interests primarily of the creditors. To this proceeding not only a personal stigma may attach but restrictions on freedom in future business activity may result. The relief to the debtor consists in the cancellation of debts which, otherwise, might effectively prevent him from rehabilitating himself economically and socially.

In Husky Oil Operations Ltd. v. M.N.R., 1995 69 (SCC), [1995] 3 S.C.R. 453, [1995] S.C.J. No. 77, at para. 7, Gonthier J. stated that the bankruptcy system serves two distinct goals: the equitable distribution of a bankrupt's assets among the estate's creditors inter se and the financial rehabilitation of insolvent individuals.

In The 2013 Annotated Bankruptcy and Insolvency Act (Toronto: Carswell, 2013), at p. 2, Lloyd W. Houlden, Geoffrey B. Morawetz and Janis P. Sarra describe the purposes of the BIA as follows:

It is a fundamental purpose of the Act to provide for the financial rehabilitation of insolvent persons. The Act permits an honest debtor, who [page92 ]has been unfortunate, to secure a discharge so that he or she can make a fresh start and resume his or her place in the business community.

The Act was passed to provide for the orderly and fair distribution of the property of a bankrupt among his or her creditors on a pari passu basis.

The Act provides a regime whereby the creditors of the bankrupt will pursue their claims by collective action through the trustee so that the assets of the bankrupt can be realized and distributed on an equitable basis subject to the priorities of preferred creditors and the rights of secured creditors.

(Citations omitted; emphasis added)

[54] As appears from this description of the purposes of the statute, the BIA seeks to strike a balance between the financial rehabilitation of insolvent debtors and the legitimate interests of creditors who have lost money because of the bankrupt's conduct: see Bank of Montreal v. Giannotti (2000), 2000 16928 (ON CA), 51 O.R. (3d) 544, [2000] O.J. No. 4272 (C.A.), at paras. 11-12. The interpretation of s. 178 of the BIA must be informed by these twin objectives.

[55] In Simone v. Daley (1999), 1999 3208 (ON CA), 43 O.R. (3d) 511, [1999] O.J. No. 571 (C.A.), this court addresses the purpose and scheme of s. 178. In his reasons, at p. 521 O.R., Blair J. (ad hoc) (as he then was) commences his analysis of s. 178 by placing the section in its legislative context under the BIA:

An important purpose of bankruptcy legislation is to encourage the rehabilitation of an honest but unfortunate debtor, and to permit his or her re-integration into society -- subject to reasonable conditions -- by obtaining a discharge from the continued burden of crushing financial obligations which cannot be met.

Debts which survive a bankruptcy as a result of the provisions of subsection 178(1), therefore, are exceptions to this overriding principle, and should be addressed accordingly.

(Citations omitted)

[56] Justice Blair then adopts, at p. 522 O.R., the following analysis of s. 178, set out in Jerrard v. Peacock, 1985 1148 (AB KB), [1985] A.J. No. 513, 57 C.B.R. (N.S.) 54 (Master), at pp. 62-63 C.B.R. (N.S.):

Considering the new start object ingrained in the Act, the logical interpretation of the two subsections in question is that subs. (2) creates the general principle (being a release of all debts) with subs. (1) being an exception to the general principle. Subsection (2) [sic] establishes exceptions, not the principle, and must be viewed in that light.

It is as if the section literally reads that the order of discharge releases the bankrupt from all claims provable in bankruptcy "except the following" and then lists the seven (now six) categories in subs. (1). [page93 ]

All of the exceptions in the section are based on what might be classed as an overriding social policy. In other words, they are the kinds of claims which society (through the legislators) considers to be of a quality which outweighs any possible benefit to society in the bankrupt being released of these obligations.

Paragraphs (d) and (e) are morality concepts which look at conduct. Those kinds of conduct are unacceptable to society and a bankrupt will not be rewarded for such conduct by a release of liability.

(Emphasis added)

[57] As Simone makes clear, s. 178 has two related components. Section 178(2) sets out the controlling principle that a bankruptcy discharge "releases the bankrupt from all claims provable in bankruptcy". Section 178(1), in turn, establishes specific exceptions to this principle, which must be construed in the context of the societal aim of encouraging the financial rehabilitation of debtors. The exceptions have a limited but important purpose: to ensure that certain wrongdoers do not benefit from the protections afforded by the bankruptcy regime.

[58] That this is the import of s. 178 is buttressed by the Supreme Court of Canada's decision in Schreyer v. Schreyer, [2011] 2 S.C.R. 605, [2011] S.C.J. No. 35, 2011 SCC 35. In that case, the court comments, at paras. 19-20, regarding the effect of a debtor's bankruptcy:

The very design of insolvency legislation raises difficult policy issues for Parliament. Legislation that establishes an orderly liquidation process for situations in which reorganization is not possible, that averts races to execution and that gives debtors a chance for a new start is generally viewed as a wise policy choice. Such legislation has become part of the legal and economic landscape in modern societies. But it entails a price, and those who might have to pay that price sometimes strive mightily to avoid it. . . . So creditors seek to obtain security or third-party guarantees. In other cases, statutory exemptions from the application of the BIA may apply. . . . However, the more exemptions there are, the less likely it is that the basic policy objectives of insolvency legislation can be achieved.

As a consequence, the interpretation of the BIA requires the acceptance of the principle that every claim is swept into the bankruptcy and that the bankrupt is released from all of them upon being discharged unless the law sets out a clear exclusion or exemption.

(Emphasis added)

[59] Thus, the starting point for analysis of s. 178 is that all claims against a bankrupt are "swept into the bankruptcy" and [page94 ]are released upon the bankrupt's discharge unless this result is clearly excluded or exempted by law.[^3]

[60] In Simone, the central issue was whether, for s. 178(1)(d) to apply, a bankrupt's "misappropriation" or "defalcation" must involve an element of dishonesty. With respect to this question, the court rejects a broad interpretation of the terms "misappropriation" and "defalcation" under s. 178(1)(d) and holds, instead, at p. 526 O.R., that "the courts should avoid attempting to sweep into [these] concepts . . . any and all failures by the fiduciary to comply with the obligations attending upon that capacity". Justice Blair explains this court's narrower construction of the s. 178(1)(d) exception, at pp. 529-30 O.R.:

Consequently, I am not persuaded that the exception to a release of liability upon a bankruptcy discharge which is provided for in paragraph 178(1)(d) of the BIA should be extended to conduct which does not display at least some element of wrongdoing or improper conduct on the part of the fiduciary in question in the sense of a failure to account properly for monies or property entrusted to the fiduciary in that capacity or inappropriate dealing with such trust property. Had Parliament intended that any innocent breach of an obligation on the part of a fiduciary would give rise to a debt that would not be released by a discharge from bankruptcy it could very easily have said so, by providing that an order of discharge does not release the bankrupt from any debt or liability arising from a breach of fiduciary obligation. It did not do so. It chose to couch the types of debts or liabilities "while acting in a fiduciary capacity" which would attract the exceptions of s. 178(1), in the context of debts or liabilities arising from fraud, embezzlement or misappropriation, as well as defalcation. While these notions may have slightly different shades or gradations of meaning, I can only conclude that Parliament intended the words "misappropriation" and "defalcation" to bear their plain and ordinary meaning, as the context in which they are used suggests.

(Emphasis added)

[61] In Simone, the court does not consider the interpretive question raised in this case -- namely, whether a creditor may seek a declaration under s. 178(1)(d) only if it was itself in a fiduciary relationship with the bankrupt.[^4] Nonetheless, in my opinion, Simone is instructive for the following reasons. [page95 ]

[62] First, Simone reinforces the centrality of the rule established by s. 178(2): that a discharged bankrupt is released from all claims unless a clear exception is engaged. This recognizes the key purpose of the BIA, which is to enable insolvent debtors to make a fresh start and resume a productive role in society.

[63] Second, Simone emphasizes [at p. 521 O.R.] that surviving debts under s. 178(1) are exceptions to this "overriding principle" and "should be addressed accordingly". I take this to mean that the exceptions set out in s. 178(1) are to be construed narrowly and applied only in clear cases.

[64] Third, by limiting the scope of s. 178(1)(d) to conduct by the fiduciary that has [at p. 529 O.R.] "some element of wrongdoing or improper conduct . . . in the sense of a failure to account properly for moneys or property entrusted to the fiduciary in that capacity or inappropriate dealing with such trust property", Simone instructs that a bankrupt's wrongdoing or improper conduct is not itself sufficient to bring a debt within the ambit of the section. Rather, the impugned conduct must relate to the fiduciary relationship itself. In other words, it is the relationship between the claiming creditor and the bankrupt, as well as the nature of the bankrupt's conduct, that anchors s. 178(1)(d). The provision protects a creditor that was in a vulnerable position in relation to the bankrupt when its claim arose.

[65] And it is here that the flaw in KDS USA's suggested interpretation of s. 178(1)(d) becomes clear. KDS USA argues that s. 178(1)(d) applies to any debt or liability arising out of a bankrupt's wrongdoing of the type envisaged by the section -- fraud, embezzlement, misappropriation or defalcation -- so long as the bankrupt was in a fiduciary relationship with someone when the debt arose through the bankrupt's wrongful activity. Under this interpretation, the relationship between the claiming creditor and the bankrupt is virtually irrelevant.

[66] I do not accept this construction of s. 178(1) (d). In my view, a creditor cannot bring its claim within the exception set out in s. 178(1)(d) when that claim arose out of the bankrupt's breach of a fiduciary duty to a third party. To hold otherwise would expand the reach of s. 178(1)(d) well beyond what it exists to protect: the relationship between a vulnerable creditor and a fiduciary debtor. Absent clear statutory language indicating such a legislative intention, a broad interpretation of the exception must be rejected. No such language appears in s. 178(1) (d).

[67] KDS USA's urged interpretation of s. 178(1)(d) is also inconsistent with the policy objective reflected in s. 178(2) of the BIA and with the interpretive approach to s. 178(1)(d) that this [page96 ]court adopts in Simone. See, also, McAteer v. Billes, [2007] A.J. No. 593, 2007 ABCA 137, 34 C.B.R. (5th) 1, at para. 28, leave to appeal to S.C.C. refused [2007] S.C.C.A. No. 342. In a bankruptcy scheme in which the cardinal rule is the release of a bankrupt's debts upon discharge, s. 178(1)(d) provides for an exceptional measure of creditor protection. That exception, therefore, must be construed narrowly.

[68] Properly read, the purpose of s. 178(1)(d) is to prevent a bankrupt from avoiding his or her just debts and liabilities to a vulnerable creditor where the bankrupt was entrusted, in a fiduciary capacity, with moneys or property belonging to that creditor. Contrary to KDS USA's contention, the trial judge's interpretation of s. 178(1) (d) accords with this statutory purpose.

[69] This interpretation of s. 178(1)(d) is also consistent with appellate authority. In Valastiak v. Valastiak, [2010] B.C.J. No. 233, 2010 BCCA 71, 63 C.B.R. (5th) 188, a husband and wife had sold their matrimonial home and invested the proceeds in a restaurant operated by the husband's corporation. They later divorced. By the time of the divorce trial, the restaurant business had failed due to the husband's mismanagement. The trial judge awarded damages to the wife for the loss of value in her share of the business due to the husband's mismanagement.

[70] When the husband later made an assignment in bankruptcy, the wife applied for a declaration under s. 178(1)(d) that her former husband's judgment debt survived his discharge because it arose out of misappropriation while he was acting in a fiduciary capacity. The application judge held that s. 178(1) (d) did not apply because the wife had "failed to demonstrate that [her husband's liability] to her arose out of a misappropriation while he was acting in a fiduciary capacity in relation to her": [2009] B.C.J. No. 292, 2009 BCSC 204, 53 C.B.R. (5th) 181, at para. 26. The application judge thus proceeded on the basis that, for s. 178(1)(d) to apply, the bankrupt husband must have owed a fiduciary duty to his wife, the creditor, and not to a third party.

[71] In allowing the wife's appeal, the British Columbia Court of Appeal proceeded on the same basis. At the outset of his reasons for the court, at paras. 3-4, Finch C.J.B.C. summarizes the matter before him as follows:

The learned [application] judge . . . held that the facts as found by [the trial judge] would support the conclusion that the [husband] had misappropriated funds. However, she held that the [wife] had failed to establish that the [husband] misappropriated funds while he was acting in a fiduciary capacity in relation to her. As a result, the chambers judge dismissed the [wife's] application. [page97 ]

For the reasons that follow, I have concluded that the [husband] held 50% of the shares in a family business on a resulting trust for the [wife] and that this is one of those exceptional cases where the director of a company, the [husband], owed a fiduciary duty to the [wife] as a beneficial shareholder of the company. As the [husband's] misappropriation of funds occurred while he stood in a fiduciary relation to the [wife], her right to recover on the compensation order is protected by the provisions of s. 178(1)(d) of the BIA.

(Emphasis added)

[72] Chief Justice Finch first determines that, "while [the husband] held the whole legal interest in the shares [of the corporation that operated the restaurant], he was the resulting trustee of one-half of the beneficial interest of the shares for" his former wife: at para. 43. He then carefully distinguishes between the fiduciary duties the husband owed to the corporation as a director and officer and those he owed in the circumstances to his then wife, as a fellow shareholder: at paras. 46-51. He concludes, at paras. 52-53:

[The husband] substantially depleted the restaurant business of its assets, and thereby diminished the value of [the wife's] share of equity in the company. [The husband] was able to do that because he was the sole director and shareholder of the business. In the circumstances of this case, his liability . . . may be said to arise from his misappropriation of the company's assets while he was in a fiduciary relationship with the [wife].

(Emphasis added)

[73] The court's focus in Valastiak is on the nature of the relationship between the bankrupt (the husband) and the claiming creditor (the wife). If s. 178(1)(d) applied so long as the bankrupt breached a fiduciary duty, regardless of the beneficiary of that duty, then Finch C.J.B.C.'s analysis of the fiduciary duty owed by the husband to his former wife is superfluous. I therefore read Valastiak as supporting the proposition that, for s. 178(1)(d) to apply, the bankrupt must have owed a fiduciary duty to the claiming creditor -- and not merely to a third party.

[74] The trial judge's construction of s. 178(1)(d) is also consistent with the Supreme Court of Canada's jurisprudence on the law of fiduciaries. In Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, [1987] S.C.J. No. 49, at p. 136 S.C.R., Wilson J. (in dissent but not on this point) states that fiduciary relationships possess three general characteristics: (i) "[t]he fiduciary has scope for the exercise of some discretion or power"; (ii) "[t]he fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests"; and (iii) "[t]he beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power". See, also, Hodgkinson v. Simms, 1994 70 (SCC), [1994] 3 S.C.R. 377, [1994] S.C.J. No. 84, at p. 408 S.C.R. Moreover, "what is required in all cases is an undertaking [page98 ]by the fiduciary, express or implied, to act in accordance with the duty of loyalty reposed on him or her": Galambos v. Perez, [2009] 3 S.C.R. 247, [2009] S.C.J. No. 48, 2009 SCC 48, at para. 75.

[75] Both the fiduciary's duty of loyalty and a beneficiary's peculiar vulnerability to the fiduciary are acutely beneficiary-specific. The trial judge's interpretation of s. 178(1)(d) of the BIA thus places the same emphasis on the relationship between fiduciary and beneficiary that fiduciary law itself does. The law imposes obligations on fiduciaries for the purpose of protecting only those beneficiaries to whom fiduciary obligations are owed. The trial judge's interpretation of s. 178(1)(d) reads the same purpose into that section.

[76] Finally, the trial judge's interpretation of s. 178(1) (d) respects the scheme of the BIA as a whole. The trial judge held, at para. 123, that his construction of s. 178(1)(d) is "consistent with ss. 172(2) and 173 of the BIA, which require the court to refuse a discharge, suspend a discharge or order a conditional discharge when it is of the view that 'the bankrupt has been guilty of any fraud'".

[77] I agree. Sections 172(2) and 173 of the BIA[^5] seek to ensure that dishonest debtors do not benefit from their dishonesty by requiring the court to refuse or suspend a bankrupt's discharge in bankruptcy, or to grant a discharge on terms (s. 172(2)), on proof that the bankrupt has been guilty of "any fraud or fraudulent breach of trust" (emphasis added) (s. 173(1)(k)). The existence or breach of a fiduciary duty is not a prerequisite to the application of these sections.

[78] Accordingly, it is unnecessary to expand the scope of the term "fiduciary capacity" in s. 178(1)(d) in order to prevent a bankrupt from profiting under the BIA from his or her own fraud or fraudulent breach of trust. As Jay Chiang put it in his factum:

[T]he mischief that [KDS USA] seeks to resolve by urging [its] interpretation [of s. 178(1)(d)] is already addressed in sections 172(2) and 173(1)(k) of the BIA.

By removing the requirement that the fraud be committed while the bankrupt was acting in a fiduciary capacity, these provisions provide a complete answer to [KDS USA's] concern that [the trial judge's] interpretation of s[.] 178(1) (d) would result in some bankrupts['] being able to benefit from their wrongdoing. [page99 ]

[79] For all these reasons, I agree with the trial judge's interpretation of s. 178(1)(d). Section 178(1)(d) is available to a creditor of a bankrupt if the bankrupt has abused his or her fiduciary position with the claiming creditor by incurring a debt to the creditor through fraud, embezzlement, misappropriation or defalcation, in violation of the bankrupt's fiduciary duty to the claiming creditor.

(2) Failure to satisfy requisite elements of section 178(1)(d)

[80] KDS USA also argues that, on the findings of the California court, the requisite elements of s. 178(1)(d) are met. Consequently, the trial judge erred by declining to grant the requested declaratory relief under s. 178(1) (d).

[81] I disagree.

[82] In McAteer, at para. 22, the Alberta Court of Appeal described the two required elements of a claim under s. 178(1)(d): (i) the debt at issue must be linked to the bankrupt's fraud, embezzlement, misappropriation or defalcation; and (ii) the fraud, embezzlement, misappropriation or defalcation must occur in the context of a fiduciary relationship.

[83] For the foregoing reasons, it is clear that the second element -- the fiduciary relationship requirement -- is not satisfied in this case. Accordingly, it is unnecessary for the disposition of this appeal to determine whether the first element -- proof of a nexus between the debt at issue and fraud, embezzlement, misappropriation or defalcation by Jay Chiang -- is established on the record before this court.[^6]

[84] KDS USA relies on the California court's findings that Jay Chiang breached his fiduciary duty to ATC and participated, together with his brother Julius Chiang, in using ATC to advance a fraudulent scheme. At trial, the trial judge in the present case accepted these findings. However, as I have already emphasized, the decision of the California court contains no finding that Jay Chiang owed or breached any fiduciary duty in respect of either KDS company. Nor did the trial judge in the present case make such findings. Indeed, his findings, detailed above, are to the contrary. [page100]

[85] KDS USA concedes that Jay Chiang did not owe it a fiduciary duty. This was a proper concession. Nothing on the record before this court suggests that Jay Chiang's relationship with KDS USA bore any of the indicia of a fiduciary relationship. In particular, the record does not reveal any special relationship between KDS USA and Jay Chiang, any exercise of discretion or power by Jay Chiang in relation to KDS USA, any reliance by KDS USA on Jay Chiang or Aamazing or any position of vulnerability by KDS USA in its dealings with Jay Chiang.

[86] In the absence of a fiduciary relationship between KDS USA and Jay Chiang, and wrongdoing by Jay Chiang in the context of such a relationship, Jay Chiang's judgment debt to KDS USA does not fit within s. 178(1)(d).

[87] Finally, there is the matter of the sanction ruling. The trial judge found in his sanction ruling that the KDS companies failed to make full and candid disclosure in the enforcement and fraudulent conveyance actions, including in Anton Pillar and Mareva injunction proceedings in those actions. Further, the Trustee argues that the post-judgment information discussed in the sanction ruling, as well as the trial judge's findings in that ruling, call into question the foundation for a personal judgment against Jay Chiang for the alleged debts of ATC and Aamazing to the KDS companies. As a result, Jay Chiang and the trustee argue that Jay Chiang should be given an opportunity to seek his discharge from bankruptcy, free of his judgment debt to KDS USA.

[88] Of course, the sanction ruling does not affect the trial judge's ruling on KDS USA's s. 178(1)(d) claim. The evidence at the sanction hearing was not put before the trial judge at trial and was then unknown to the trustee. That said, the sanction ruling casts new and unfavourable light on the bona fides of the conduct of the KDS companies and John Hui and their respective roles in the disputes among the parties. As one additional contextual factor, it lends some further support to the dismissal of the s. 178(1)(d) claim.

V. Disposition

[89] I would dismiss the appeal.

[90] The respondent Jay Chiang is entitled to his costs of the appeal, fixed in the amount of $25,000 as agreed by counsel, inclusive of disbursements and all applicable taxes.

[91] Since there is no agreement among counsel on the trustee's entitlement to costs, the parties may deliver written [page101] submissions on this issue to the registrar of this court, limited to a maximum of five pages each, within 21 days from the date of the release of these reasons.

Appeal dismissed.

SCHEDULE A

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 172(2) and 173(1)

172(2) The court shall, on proof of any of the facts referred to in section 173, which proof may be given orally under oath, by affidavit or otherwise,

(a) refuse the discharge of a bankrupt;

(b) suspend the discharge for such period as the court thinks proper; or

(c) require the bankrupt, as a condition of his discharge, to perform such acts, pay such moneys, consent to such judgments or comply with such other terms as the court may direct.

173(1) The facts referred to in section 172 are:

(k) the bankrupt has been guilty of any fraud or fraudulent breach of trust[.]

Notes

[^1]: On November 28, 2006, KDS USA obtained a default judgment in the Superior Court of Justice in the approximate amount of US$6.1 million for the enforcement in Ontario of the 2004 California judgment against Christina Chiang.

[^2]: As initially framed, KDS USA's appeal to this court concerned both the trial judge's s. 178(1)(d) ruling in the enforcement action and his costs award in the fraudulent conveyances action. However, shortly before the appeal hearing, the parties resolved the costs issues in the fraudulent conveyances action.

[^3]: As the Supreme Court observes in Schreyer, at para. 25, this may sometimes produce harsh results. Schreyer itself is a case in point. In Schreyer, a wife's equalization claim under provincial family law legislation -- a debt owed to her by her spouse -- was held to be released by her spouse's discharge from bankruptcy. Since no clear exception applied, the bankrupt husband was released from his debt by operation of s. 178(2).

[^4]: Most recently, in Canada Mortgage and Housing Corp. v. Gray (2014), 119 O.R. (3d) 710, [2014] O.J. No. 1480, 2014 ONCA 236, this court considers the proper interpretation and application of s. 178(1)(e) of the BIA. The Gray court was not required to address the interpretation and application of s. 178(1)(d).

[^5]: The full text of ss. 172(2) and 173(1)(k) of the BIA is set out in Schedule "A" to these reasons.

[^6]: I note that the trial judge held, at para. 115, that no "misappropriation" or "defalcation" occurred in respect of the supply of computer monitors to ATC. There is no suggestion that Jay Chiang's conduct constituted "embezzlement". The relevant issue at trial, therefore, was whether Jay Chiang's conduct amounted to "fraud" as that term is used in s. 178(1)(d).

End of Document