Court of Appeal for Ontario

Date: March 29, 2018 Docket: C64317 Judges: MacFarland, Huscroft and Nordheimer JJ.A.

In the Matter of the Bankruptcy of Miroslaw Ian Kuczera

of the City of Brampton, in the Regional Municipality of Peel, in the Province of Ontario, Electrician (Disability)

Counsel:

• Robert Klotz, for the appellant, Miroslaw Kuczera
• Patrick Bloomfield in person as Trustee to the Estate of Miroslaw Kuczera, Bankrupt

Heard: March 21, 2018

On appeal from: the order of Justice Frederick Myers of the Superior Court of Justice, dated August 29, 2017, with reasons reported at 2017 ONSC 5140, on appeal from the order of the Registrar in Bankruptcy dated October 21, 2014.

Decision

Nordheimer J.A.:

Background

[1] The appellant was, until about 2007, successfully employed as an electrician. He was married and, with his wife, raised two children. Unfortunately, the appellant's fortunes turned suddenly and dramatically in 2007 when his marriage broke down. The divorce proceedings, which were acrimonious, included allegations of abuse by his wife (which the appellant denied) and took several years to conclude.

[2] The appellant's assets became tied up in the family litigation. When his income became insufficient to meet the demands of paying support, as well as his legal fees, the appellant began to rely on credit and personal loans to cover his legal expenses. In December 2008, he borrowed $16,000 from his brother in Poland, secured against a property the appellant owned in Poland. The loan had to be repaid by 2009, failing which the property would be surrendered to his brother. In fact, the appellant could not repay the loan and his brother obtained judgment against him in Poland and claimed the property.

[3] In 2009, with no end to the divorce proceedings in sight, with his debts continuing to mount and his financial resources continuing to diminish, the appellant sought the assistance of a bankruptcy trustee. The appellant declared bankruptcy on May 20, 2009. Following the Trustee's instructions, he made nine monthly payments of $226 each, totalling $2,034, and was discharged on October 14, 2010.

[4] However, the family litigation continued.

[5] On April 4, 2011, the appellant's discharge was annulled, apparently on the basis of the Trustee's allegation that the appellant had not disclosed the situation with the property in Poland – a fact that the appellant denies.

[6] In June 2011, the appellant made a consumer proposal (the "Proposal") in an attempt to escape from bankruptcy. The Proposal required him to make increasing monthly payments over a five-year period totalling $66,665. At the time of the Proposal, the proven claims in the estate totalled $19,415.58.

[7] By this time, the appellant's mental and emotional health began to deteriorate significantly as a result of the legal battles he was facing, both in the family law and bankruptcy litigation. According to a later report from his psychiatrist, the appellant became clinically depressed and suffered from a "Dissociative Identity Disorder".

[8] The dispute over the proceeds of the matrimonial home was finally judicially resolved in late 2011. In early January, 2012, the appellant received $72,850 from the proceeds of the matrimonial settlement, after all deductions and costs and his own legal fees. He deposited these proceeds in the bank and, as he subsequently determined from his bank statements, withdrew about $5,000 monthly. As the Proposal did not provide for any lump sum payment, the appellant says that he did not realize he should pay all of these monies to his Trustee.

[9] The appellant says that he was simply unable to cope. By this point his mental state had deteriorated so significantly that he was unable to work. He made his monthly Proposal payments to the Trustee until his money ran out in late 2012. He has very little memory of this period, and does not know where all the money went. Consequently, his Proposal was annulled on December 1, 2012, and the appellant was again in bankruptcy. The appellant made payments totalling $4,265 under the Proposal.

[10] The appellant offered some possible explanations for the disappearance of the settlement funds. In this period, he had a daughter who had a drug addiction. He also had a teenaged son who was living at home and who was suffering from some unspecified illness. As a result of the bankruptcy proceedings, the appellant had to deal in cash. He routinely took cash out of the bank in order to cover his living expenses. Consequently, he had the habit of keeping significant sums of money in his wallet. The appellant said that it was possible that his children helped themselves to some of that cash from time to time. The appellant was also buying expensive Chinese medicines to treat the illness that his son had. Finally, the appellant says that, throughout this time, he had periods of "disassociation" where he was unaware of where he was or what he was doing. During these times, he acknowledges that he may well have spent money on things that he does not remember.

[11] On this latter point, the appellant has brought a motion to adduce fresh evidence on this appeal that consists of two detailed reports from his treating psychiatrist. The appellant also attempted, unsuccessfully, to put these reports before the appeal judge. The psychiatric reports outline, among other things, that, during the relevant time frame, the appellant "presented as a distraught, preoccupied man, who demonstrated significant problems in intellectual functioning, difficulties with memory and presenting his history chronologically".

[12] The appellant represented himself at the discharge hearing before the Registrar in Bankruptcy on May 14, 2014. He attempted to have the court understand that he had not intentionally ignored his obligations to the Trustee. Rather, his mental condition at the time left him unable to cope with his day to day responsibilities, let alone understand his obligations in a process that had already proven to be confusing and unpredictable. However, in support of these submissions, he only provided a very brief report from his psychiatrist.

Registrar's Decision

[13] At the discharge hearing, the Registrar refused to grant an absolute discharge to the appellant. Rather, she ordered the appellant's discharge but on two conditions. One was that the appellant had to pay $61,000 (the amount remaining due under the Proposal) and the other was that he had to attend a second counselling. Further, the Registrar suspended the discharge for six months. In reaching her decision, the Registrar said:

When considering all of the facts as disclosed by the trustee and the bankrupt, I conclude that the bankrupt cannot be absolutely discharged, due to the finding of the s. 173 facts as noted above. I am of the view that the bankrupt ought to have performed the proposal. He failed to pay approximately $61,000 to the administrator in the proposal. In my view, that is the amount that the bankrupt should be required to pay as a condition of discharge.

I appreciate that the bankrupt will find an order of payment of this magnitude difficult in light of the circumstances present at the date of the hearing. However, it is my view that this situation could have been avoided had the bankrupt acted reasonably with his creditors. He clearly did not wish to pay his creditors under the proposal when he received significant funds in 2012. His current situation is his own doing.

Appeal to Superior Court

[14] The appellant appealed the Registrar's decision. By this point, he had counsel. There was a delay in the appeal hearing taking place because of difficulties counsel experienced in trying to obtain more detailed information from the appellant's psychiatrist, who had retired. The appeal was eventually heard on August 24, 2017. The appeal was dismissed.

[15] On the appeal, the appeal judge refused to consider the fresh evidence of the psychiatric reports. He did so based on his finding that the fresh evidence was "not sufficiently credible nor sufficiently probative so as to have likely affected the result below". Part of his reasoning for this conclusion was that the appellant's psychiatrist was not "an independent expert witness" and that his detailed reports "add little to the first letter" that was before the Registrar. In the end result, the appeal judge said, at para. 35:

The Registrar made no error in principle in attaching the condition to Mr. Kuczera's discharge. She appropriately weighed all of the relevant factors and her exercise of discretion is entitled to deference. In any event, I agree with the outcome.

Analysis

[16] I begin by addressing the fresh evidence. I am satisfied that it meets the necessary criteria for admission under the principles set out in R. v. Palmer, [1980] 1 S.C.R. 759. The due diligence factor is not a rigid one and must be considered in light of all of the relevant facts, including the salient fact that the appellant was unrepresented at the hearing before the Registrar: R. v. 1275729 Ontario Inc., 205 O.A.C. 359, at para. 29. In terms of the other factors, the evidence is relevant, it is credible, and it could reasonably have affected the result.

[17] It will follow from my conclusion on this point that I disagree with the approach taken by the appeal judge to this fresh evidence. The fact that the psychiatrist was the appellant's treating psychiatrist is not a proper basis for rejecting the evidence. It might go to the weight that the court would give to the evidence, but the asserted lack of independence is not of the type that would normally constitute a disqualifying factor under the Mohan criteria.[1] Indeed, it is well recognized that a treating physician is quite entitled to give expert evidence if properly qualified to do so: see, for example, the discussion in Westerhof v. Gee Estate, 124 O.R. (3d) 721, 2015 ONCA 206.

[18] Nor do I understand the basis upon which the appeal judge found that the evidence was not "sufficiently" credible. As I have said, the reports came from the treating psychiatrist. They detailed the psychiatrist's conclusions and observations from many sessions that he had undertaken with the appellant. It is not clear to me how the reports lacked credibility.

[19] I also do not understand the appeal judge's conclusion that the reports were not "sufficiently probative". The central issue on the discharge hearing was what had happened to the settlement funds and why the appellant had not paid them to his Trustee. The Registrar found that the appellant had failed to account for the loss of those funds which she, in turn, found constituted a fact under s. 173(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. She used this fact to justify her refusal, under s. 172(2), to grant the appellant an absolute discharge. Yet, the appellant had explained that he could not account for the funds because of the problems arising from his mental health. The psychiatric reports went directly to that issue.

[20] In my view, neither the Registrar nor the appeal judge gave proper consideration to the psychiatric evidence, although in fairness to the Registrar, she did not have the detailed reports that were provided subsequently. She did, however, hear directly from the appellant with respect to these issues. The mental health issues, from which the appellant was suffering at the time that the settlement funds were received, were significant. They clearly could have affected both his thinking and his actions. They also clearly affected his ability to recall events. I would add, on this point, that there is no evidence that the appellant personally benefitted from these funds, in the sense that he used them to improve his own situation to the disadvantage of his creditors. Indeed, where the settlement funds went remains something of a mystery.

[21] Further, in reaching the conclusion not only to deny the appellant an absolute discharge, but also to suspend her order of a conditional discharge for six months, the Registrar made an important factual error. She found that the appellant had failed to disclose the Polish property to his Trustee, whereas the Trustee acknowledges that it was disclosed, although not in the appellant's original statement of affairs. Consequently, the fact relied upon by the Registrar did not exist.

[22] The condition imposed by the Registrar that the appellant pay $61,000 as a condition of his discharge, given his personal history, was more than just "difficult" for the appellant. It was crushing.[2] It does not reflect the rehabilitative objective of the Bankruptcy and Insolvency Act, as affirmed by this court in Re Moore, 2013 ONCA 769, 118 O.R. (3d) 161, at para. 30:

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 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.

[23] The appellant does not now suggest that he should have received an absolute discharge at the time. He complains only about the condition requiring him to pay the sum of $61,000. He suggests that a suspension of his discharge alone would be sufficient to penalize him for any errors that he committed in the course of his bankruptcy.

[24] The appeal judge's conclusion was based entirely on his rejection of the psychiatric evidence. I have found that he erred in his conclusion on that point. As a result, his order cannot stand. Given the particular facts of this case, the condition respecting the payment of $61,000, imposed by the Registrar, was not a reasonable one. It was based on an incomplete understanding of the mental health issues under which the appellant was labouring at the relevant times. In light of those concerns, that condition cannot be justified.

[25] I would have been inclined to replace the conditions imposed by the Registrar with a simple suspension for a period of time. However, the appellant has been effectively operating under a suspension for more than three years, since the Registrar made her order. Consequently, it does not appear that a further period of suspension would accomplish any purpose.

[26] I would allow the appeal, set aside the order of the appeal judge, and set aside the order of the Registrar. In place of the latter, I would grant an absolute discharge to the appellant.

[27] This is not an appropriate case to make any award of costs of this appeal or of the proceedings below.

Released: March 29, 2018

"I.V.B. Nordheimer J.A."

"I agree. J. MacFarland J.A."

"I agree. Grant Huscroft J.A."

Footnotes

[1] Regina v. Mohan, [1994] 2 S.C.R. 9

[2] I note that $61,000 was the entire proposal amount which was more than three times the total proven claims at the time.