COURT OF APPEAL FOR ONTARIO
DATE: 20211229 DOCKET: C69190
Strathy C.J.O., Zarnett J.A. and Wilton-Siegel J. (ad hoc)
BETWEEN
Shaver-Kudell Manufacturing Inc. Plaintiff (Respondent)
and
Knight Manufacturing Inc., Lucy Shaver, Dusko Ballmer and Alexander Knecht Defendants (Appellant)
Counsel: Ian J. Klaiman, for the appellant Charles D. Hammond, for the respondent
Heard: October 22, 2021 by video conference
On appeal from the order of Justice Marc Smith of the Superior Court of Justice, dated December 9, 2020, with reasons reported at 2020 ONSC 7635.
Zarnett J.A.:
OVERVIEW
[1] A discharge from bankruptcy releases the insolvent debtor from pre-bankruptcy debts or liabilities [1], subject to certain exceptions. One exception, under s. 178(1)(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) is “any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation”. That kind of debt or liability is not released, and thus remains enforceable against the debtor post-bankruptcy.
[2] The respondent, Shaver-Kudell Manufacturing Inc., successfully sued the appellant, Alexander Knecht, and others, for misappropriating the respondent’s trade secrets and confidential information. The quantum of the damages and the granting of other relief was to be determined at a subsequent hearing. However, before that could occur, the appellant made a proposal to his creditors under the BIA, which automatically stayed the proceedings. The proposal was rejected by a majority of those creditors; the appellant was, as a consequence, deemed to have made an assignment into bankruptcy, continuing the stay.
[3] In the decision under appeal, the motion judge declared that the debt or liability under the trial judgment arose from the appellant having obtained property or services by false pretences, and thus would survive the appellant’s discharge from bankruptcy. He also declared that the stay that the BIA imposes on proceedings or enforcement steps against a bankrupt did not apply to the respondent’s claims against the appellant.
[4] For the reasons that follow, I conclude that the motion judge erred in law in coming to the conclusion that the debt or liability arising under the trial judgment falls within s. 178(1)(e) of the BIA.
[5] At the core of the concept of false pretences is the making of a deceitful statement – that is, a statement that is false to the knowledge of its maker (including through wilful blindness or recklessness). For s. 178(1)(e) to apply, the debt or liability to the creditor must have resulted from the bankrupt having obtained property or services by making such a statement. The nature and substance of the liability of the appellant reflected in the trial judgment is not one that arose from such a statement. Although the liability arose from morally unacceptable conduct of the appellant, that is insufficient to fit it within the exception in s. 178(1)(e) of the BIA.
[6] I would therefore set aside the declaration that s. 178(1)(e) applies to the debt or liability arising under the trial judgment. I would vary the declaration concerning the stay to provide that it is lifted to the extent necessary to allow the respondent to quantify its claim for the purpose of proving it in the appellant’s bankruptcy and to permit enforcement of any injunction granted, as described below.
BACKGROUND
[7] In 2013, the respondent, a corporation that manufactures electric motor sleeves, commenced an action against four defendants: Dusko Ballmer and Lucy Shaver, who were former employees of the respondent; the appellant; and Knight Manufacturing Inc., a corporation of which the appellant was the controlling mind. The thrust of the claim was that the defendants went into business together making use of misappropriated trade secrets and confidential information of the respondent.
[8] The action was directed to proceed in a bifurcated manner. The determination of liability issues was to take place first, with damages and other relief to be determined at a later date.
[9] On August 7, 2018, following a 13-day trial, the trial judge found the defendants jointly and severally liable to the respondent for misappropriation of trade secrets and breach of confidence: Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc. et al, 2018 ONSC 5206. The trial judge found:
a. the respondent had developed a manufacturing process for its products and tooling that were trade secrets with the necessary quality of confidence;
b. the respondent's trade secrets were acquired by Ms. Shaver and Mr. Ballmer in circumstances giving rise to an obligation of confidence; Mr. Ballmer then communicated the trade secrets to the appellant and Knight Manufacturing who knew or ought to have known that Mr. Ballmer and Ms. Shaver were breaching an obligation of confidence to the respondent; and
c. the defendants made unauthorized use of the respondent's trade secrets to its detriment, and also benefitted from the breach by Ms. Shaver of her duty of confidence and good faith to the respondent through her use of the respondent's confidential information, including her knowledge of the respondent's customers and their purchasing patterns and payment history, to solicit the respondent's customers.
[10] On November 19, 2018, the trial judge awarded costs against all of the defendants in the sum of $83,493 for a summary judgment motion, and $307,028 for the trial. They remain unpaid.
[11] The trial of the issue of damages and other relief has not yet been held.
[12] The appellant filed a Notice of Proposal to Creditors under the BIA on March 2, 2020. On April 27, 2020, at a meeting of creditors, the proposal was rejected, resulting in the appellant’s deemed assignment into bankruptcy.
The Motion Judge’s Decision
[13] The respondent brought a motion seeking: (a) a declaration that any discharge from bankruptcy granted to the appellant will not release him from any debts or liabilities arising from the claims in the action against him by the respondent; and (b) a declaration that the stay under s. 69(1) of the BIA no longer operates with respect to the respondent’s claim against the appellant in the action. The motion judge granted the relief sought.
[14] The motion judge began his analysis by considering the meaning of false pretences, the ground relied on by the respondent for the declaration it sought. He held that the Criminal Code, R.S.C. 1985, c. C-46, s. 361(1) definition of false pretences should not be adopted to ascertain its meaning in s. 178(1)(e) of the BIA. He said:
The purpose of the [BIA] is to relieve an honest and unfortunate debtor of their debts and liabilities, unless it falls under an exception set out in section 178 of the [BIA]. Moreover, section 178(1)(e) of the [BIA] has been described as a morality concept where one must look at the conduct and determine if it is unacceptable to society. It is not an exercise of determining the criminality of the conduct, and I do not believe that raising the requisite level of conduct to that of criminality was Parliament’s intent.
[15] After reviewing certain authorities, the motion judge settled upon the following interpretation of the term “false pretences” as it is used in the BIA:
It is my view that a dishonest bankrupt who has unlawfully obtained property by lying satisfies the requirements of “false pretences” in section 178(1)(e). Such conduct is deceitful and wrong. It is this type of conduct that is morally objectionable to society. If the bankrupt engages in such a behaviour, they should not be shielded by bankruptcy.
[16] The motion judge then turned to a review of the pleadings and the trial judge’s findings. He noted there was no plea of fraud, but that the statement of claim described “wrongful and morally unacceptable conduct”, and that it was unnecessary that there be an exact plea in the statement of claim of circumstances described in s. 178(1). He then went on to summarize what he took from the trial judge’s reasons about the conduct of the appellant that brought it within s. 178(1)(e) of the BIA:
a. He knew that confidential information was being used to manufacture the sleeves;
b. He set up a business with individuals, [Mr.] Ballmer and [Ms. Shaver], who had proprietary knowledge of the [respondent’s] clients, manufacturing process and tooling, ensuring [his corporation’s] success;
c. He knew that [Ms. Shaver] was successfully soliciting the [respondent’s] customers;
d. He lied at discoveries regarding copying the [respondent’s] product list;
e. He wanted to find a solution to manufacture sleeves in a modern way and was aware of [Ms. Shaver] and [Mr.] Ballmer’s collective knowledge in the industry;
f. He was wilfully blind to the fact that [Mr.] Ballmer and [Ms. Shaver] intended to wrongfully use the confidential information obtained from the [respondent];
g. He knowingly received the [respondent’s] trade secrets;
h. He knew or should have known that [Mr.] Ballmer and [Ms. Shaver] were breaching an obligation of confidence; and
i. He made unauthorized use of the [respondent’s] trade secrets to the [respondent’s] detriment.
[17] The motion judge continued:
The [appellant’s] conduct is precisely the type of conduct that society frowns upon. He is not an “honest but unfortunate debtor”. I find that he is a deceitful wrongdoer and he should be precluded from benefitting from his dishonesty. He lied under oath, which adversely affected his credibility. He willingly participated in the scheme to utilize confidential information that was not his to use. He knowingly partnered and/or employed individuals that had unlawful knowledge of trade secrets and he used this confidential information for his own financial gain and to the detriment of the [respondent]. Manufacturing a sleeve that was copied and then selling it on the market as his own creation is clearly an attempt at making something that is not the case appear to be true.
[18] The motion judge found a causal connection between the appellant’s wrongful conduct and the debts that arise under the trial judgment, including the costs awarded to date and damages when quantified. Therefore, he granted the declaration that the debts would not be released upon discharge from bankruptcy. He also held that the stay of proceedings under s. 69 of the BIA should be lifted without conditions.
THE ISSUES
[19] The issues to be decided are as follows:
a) Did the motion judge err in finding that the liability under the trial judgment comes within s. 178(1)(e) of the BIA?
b) Did the motion judge err in declaring that the stay of proceedings in s. 69 of the BIA did not apply to the respondent’s claim against the appellant?
ANALYSIS
(1) Statutory Provisions
[20] Section 178(1) and (2) of the BIA provide, in relevant part:
(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;
(2) Subject to subsection (1), an order of discharge releases the bankrupt from all claims provable in bankruptcy.
[21] Section 69(1) of the BIA stays any action or execution proceedings against a debtor in respect of a claim provable in bankruptcy on the filing of a notice of intention to make a proposal. Section 69.3(1) imposes a stay, on the same terms, upon bankruptcy. Section 69.4 permits the court to make an order that the stay no longer operates, subject to any qualifications the court considers proper.
(2) Does the Liability Under the Trial Judgment Fall Within s. 178(1)(e) of the BIA?
(a) Introduction
[22] In my view, the motion judge erred in two interrelated ways in deciding that s. 178(1)(e) applied. First, he treated lying during the proceedings (that is, during examinations for discovery) as engaging the section. What the section requires is that the debt or liability arose from false pretences — that is, deceitful statements on the basis of which the debtor obtained property or services. No matter how reprehensible telling falsehoods on examination for discovery may be, it does not turn a debt or liability into one resulting from obtaining property or services by deceitful statements.
[23] Second, the motion judge erred in focusing on the morally objectionable nature of the appellant’s conduct in participating in the misappropriation of the respondent’s trade secrets and confidential information, elevating that to a kind of implied deceit that could be present in any objectionable commercial behaviour, but without relating the conduct to the specific requirements of s. 178(1)(e). The section applies to certain specific conduct that is morally objectionable; it does not equate all morally objectionable commercial conduct with false pretences.
(b) Statutory Interpretation
[24] At the heart of this issue is a question of statutory interpretation — what conduct is captured by the phrase “debt or liability resulting from obtaining property or services by false pretences” in s. 178(1)(e) of the BIA? [2]
[25] Legislation is to be interpreted by conducting a “textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole”: Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, at para. 10. The fundamental principle is that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, at para. 26, citing Elmer Driedger, Construction of Statutes, 2nd ed. (Toronto, Ont.: Butterworths, 1983), at p. 87.
(i) The Text
[26] Section 178(1)(e) requires that the debt or liability owed to the creditor have resulted from the debtor having obtained property or services by false pretences. “False pretences” is not defined in the BIA. It is, however, defined in the Criminal Code, s. 361(1) as follows:
A false pretence is a representation of a matter of fact either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it.
[27] The motion judge rejected use of this definition. He expressed two reasons: first, that Parliament’s intent was not to require criminality in order for s. 178(1)(e) to apply; and second, that to do so would deprive the term “false pretences” of any meaning beyond that conveyed by the term “fraudulent misrepresentation”, which is also used in s. 178(1)(e).
[28] I agree with the motion judge that s. 178(1)(e) does not require the debtor to have been convicted of the offence of false pretences, or that it is necessary to show facts sufficient to prove that the debtor would be criminally convicted if charged. But that does not mean the Criminal Code definition does not assist in determining the sense in which the words were used in s. 178(1)(e) of the BIA. A phrase with legal meaning, chosen by Parliament for use in a statute, may have its meaning illuminated by the way the same phrase is used in other statutes of the same legislative body since interpretations “favouring harmony between the various statutes enacted by the same government should indeed prevail” [3]: Therrien (Re), 2001 SCC 35, at para. 121.
[29] A number of courts have followed this interpretive approach, and have referenced the Criminal Code definition to illuminate the meaning of false pretences for the purpose of applying it under the BIA: Celanese Canada Inc. v. Murray Demolition Corp., 2010 ONSC 29089, [2010] O.J. No. 6347 (S.C.), at para. 22; H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117, at para. 49, citing Szeto (Re), 2014 BCSC 1563, 15 C.B.R. (6th) 255, at paras. 37-41, rev’d on other grounds, 2015 BCCA 363, 388 D.L.R. (4th) 648, leave to appeal requested but appeal discontinued, [2015] S.C.C.A. No. 444; and Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, 65 C.B.R. (6th) 109, at para. 63, aff’d 2016 ONCA 875.
[30] Reference to the Criminal Code definition underscores that to come within the false pretences branch of s. 178(1)(e), the debt or liability to the creditor must have arisen from the debtor having made, or being responsible for, a representation known to be false, that is, a knowingly false statement, designed to induce another person to act upon it. Because s. 178(1)(e) requires that the debtor obtained property or services by false pretences, it contemplates that a person actually relied upon the false statement.
[31] The respondent argues that false pretences is properly understood without reference to the Code. False pretences in s. 178(1)(e) was held by this court to require the making of a deceitful statement in Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. et al. (1999), 123 O.A.C. 288 (C.A.). The court said, at para. 14:
The New Oxford Dictionary of English (1998) defines the verb “misrepresent” as “give a false or misleading account of the nature of”. The noun “pretence” is [defined] as “an attempt to make something that is not the case appear to be true”. It is clear from these definitions that the core content of the phrases “false pretences” and “fraudulent misrepresentation” is deceitful statements. [Emphasis added.]
[32] A similar observation appears in the decision of the British Columbia Court of Appeal in Cruise Connections Canada v. Szeto, 2015 BCCA 363, 388 D.L.R. (4th) 648, leave to appeal requested but appeal discontinued, [2015] S.C.C.A. No. 444, at para. 13: “The essential test for both ‘false pretences’ and ‘fraudulent misrepresentation’ under s. 178(1)(e) has been described simply as determining whether the bankrupt was ‘deceitful’ in obtaining the property”.
[33] I do not read the decisions in Buland or Cruise Connections to mean that the Code definition is unhelpful. Although the descriptions of false pretences in those decisions did not expressly reference the Code definition, they are harmonious with it. The description in Buland was adopted in a passage quoted with approval in H.Y. Louie that also referenced the Code definition. The conclusions in Buland and in Cruise Connections on whether the debt or liability there in issue fell within s. 178(1)(e) expressly turned on whether the liability arose from the debtor having obtained property by the making of or participation in deceitful statements: Buland, at paras. 13-15; Cruise Connections, at para. 49. The term “deceitful” has within it the notion of a knowingly false statement [4] that caused a person to act to their prejudice: Bruno Appliance and Furniture, Inc. v. Hryniak, 2014 SCC 8, [2014] 1 S.C.R. 126, at paras. 18-21.
[34] The motion judge’s second reason for rejecting use of the Code definition is that it would merge the concepts of fraudulent misrepresentation and false pretences. I do not accept this proposition.
[35] Most cases, when discussing s. 178(1)(e), treat fraudulent misrepresentation and false pretences as closely connected terms with the same requirements. The core concept of making a deceitful statement applies to both: see Montréal (City) v. Deloitte Restructuring Inc., 2021 SCC 53, at paras. 24-25. To the extent that they are not identical concepts, if any, it may be that fraudulent misrepresentation requires the creditor itself to have relied on a false statement made to it, while false pretences may extend to cases where a false statement was made by the debtor to, and relied on by, a third party, depriving the creditor of property to which it was entitled: Ste. Rose & District Cattle Feeders Co-op v. Geisel, 2010 MBCA 52, [2010] 11 W.W.R. 251, at paras. 104-7 [5]. But that distinction does not take away from the requirement that a deceitful statement by the debtor, on the basis of which property or services were obtained by the debtor, must be the source of the debt or liability to the creditor, when the false pretences branch of s. 178(1)(e) is relied upon.
[36] Reading the text of s. 178(1)(e) with the benefit of the definition of false pretences in the Code illuminates its core concept: it only applies to a debt or liability that has arisen from one or more deceitful statements, by the debtor or for which the debtor is responsible, on the basis of which the debtor obtained services or property. It does not apply to other kinds of lying or wrongdoing, no matter how morally objectionable, that do not have these basic characteristics.
(ii) Context
[37] Reading s. 178(1) as a whole reinforces the view that s. 178(1)(e) refers to specific types of wrongdoing, within specific parameters.
[38] Section 178(1)(a.1) provides that a debt reflected in a judgment for sexual assault or intentional infliction of bodily harm is not released. Section 178(1)(d) provides that a debt is not released if it arose from fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity. Similarly, s. 178(1)(e) provides that debts are not released if they arose from the obtaining of property or services by fraudulent misrepresentation or false pretences.
[39] In other words, rather than legislating a catchall of debts arising from morally objectionable conduct, the BIA identifies categories of specific wrongful conduct that give rise to debts that are not released, and specifies the criteria to be applied. In doing so, Parliament must be taken to have intended that only these specific categories, on the specific terms identified, will be given this effect, even though other forms of morally objectionable conduct giving rise to debts can easily be imagined.
(iii) Purpose
[40] As has been observed, one of the purposes of bankruptcy legislation is to encourage the rehabilitation of an honest but unfortunate debtor by providing, subject to reasonable conditions, a discharge of their debts. Section 178(1) provides for certain debts to survive bankruptcy as exceptions to the general principle, stemming from different policy considerations. For example, the provisions of s. 178(1)(b) and (c), which provide that debts for support obligations are not released by bankruptcy, are rooted in an overriding social policy to protect spouses and children. Others, like ss. 178(1)(a.1), (d), and (e), are based on considerations of morality. Section 178(1)(e) is a moral sanction against the bankrupt for obtaining property through deceitful means, and prevents a bankrupt being rewarded for such conduct by a release of liability: Simone v. Daley (1999), 43 O.R. (3d) 511, at pp. 521-22; Cruise Connections, at para. 15.
[41] The purpose of s. 178(1) and the legislation as a whole supports reading s. 178(1)(e) as applying to debts or liabilities that result from the obtaining of property by the deceitful means of false statements. It does not support reading the subsection as applying to any conduct without those attributes that a court might characterize as morally objectionable or that prevents a debtor being described as honest but unfortunate.
[42] In other words, for the purposes of s. 178(1)(e), it does not follow that all morally objectionable behaviour involves false statements – the core of the concept of false pretences. As Buland makes clear, at paras. 13 and 15, wrongful conduct that does not involve false statements by which property was obtained is not covered by s. 178(1)(e):
In his judgment, Lederman, J., equated fraudulent removal by a tenant of his own property with false pretences or fraudulent misrepresentation. The appellant asserts that this conclusion is wrong because the removal of goods is an entirely different activity than the making of statements. We agree with this submission.
There is nothing in the record before either Marchand, J., or Lederman, J., to establish that the appellant ever said anything about the removal of goods from the store. Indeed, the statement of claim prepared by the landlord asserts that the tenants engaged in unlawful conduct, namely, failing to pay rent, vacating the premises and removing stock. One can sympathize with Lederman, J.’s, desire to give s. 178(1)(e) “a broad interpretation as it is remedial legislation”. However, such an interpretation must be anchored in the conduct proscribed by the provision. That conduct is false statements which the landlord did not claim, and Marchand, J., did not find, had been made by the tenants. [Emphasis in original.]
(c) The Motion Judge Did Not Find False Statements Within the Meaning of s. 178(1)(e) And Therefore Erred in Finding That the Debt or Liability Came Within It
[43] The motion judge’s list of findings by the trial judge (reproduced in para. 16 above) refers to only one incident of lying. The reference was to the appellant having lied on his examination for discovery.
[44] Although lying on examination for discovery reflects on whether the appellant was honest, it is not the type of false statement that satisfies s. 178(1)(e), which requires a deceitful statement by which the debtor obtained property or services, causing the debt or liability of the creditor to arise. By focusing on a lie told on examination for discovery, the motion judge failed to focus on whether false statements were the source of the liability.
[45] A false statement on discovery may have damaged the appellant’s credibility in his unsuccessful attempt to fend off liability, but it is not the source of his liability. It is not a statement on the basis of which he obtained property or services. It could not make the liability one arising from obtaining property by false pretences.
[46] The balance of the motion judge’s list refers, to be sure, to morally objectionable commercial conduct — wrongfully appropriating and using trade secrets and confidential information. But, there is no suggestion that the misappropriation was committed by the appellant in a fiduciary capacity attracting s. 178(1)(d), and a misappropriation in another capacity cannot be brought within s. 178(1)(e) unless effected by deceitful statements. As was the case in Buland, conduct, although wrongful, that does not involve false statements is not captured by s. 178(1)(e).
[47] The only other passage of the motion judge’s reasons germane to whether the liability reflected in the trial judgment was one that arose from the appellant obtaining property or services by false pretences is the motion judge’s observation that “[m]anufacturing a sleeve that was copied and then selling it on the market as his own creation is clearly an attempt at making something that is not the case appear to be true.”
[48] However, the motion judge did not attribute the observation that the sleeves were sold as the appellant’s own creation to the trial judge. I can find no reference in the trial judge’s findings, and we were not pointed to anything in argument, that the appellant ever said anything to anyone in any manner about where the processes that led to making the sleeve came from in the course of manufacturing or selling the product. There was no finding that the appellant made a false statement to a customer to effect a sale, or that any customer relied on any such statement. Although a false statement need not be made expressly, and can be made by means other than words, the motion judge did not identify how a false statement on the basis of which the appellant obtained property or services could be implied here.
[49] In effect, the motion judge took morally objectionable behaviour – misappropriation of trade secrets – and implied deceit. But that approach does not respect the proper scope of s. 178(1)(e), which requires a deceitful statement as the source of the liability. If it were to be implied that every sale of a manufactured item carries with it an implicit representation that no third party’s rights were infringed by the manufacturing process used, the scope of s. 178(1)(e) would be inappropriately expanded.
[50] In the absence of deceitful statements from which the liability arose, the motion judge’s findings that the appellant is not an honest but unfortunate debtor, or that his conduct was morally objectionable, are insufficient to bring the matter within s. 178(1)(e). I would therefore set aside the declaration the motion judge made that s. 178(1)(e) applies to prevent the release of any debts or liabilities arising from claims in the action, including any outstanding or future costs award.
(3) Did the Motion Judge Err in Declaring That the Stay Under s. 69 of the BIA No Longer Operates?
[51] An order under s. 69.4 of the BIA declaring that a stay no longer operates is discretionary: Fiorito v. Wiggins, 2017 ONCA 765, 415 D.L.R. (4th) 562, at para. 35, leave to appeal refused, [2017] S.C.C.A. No. 466. However, here the premise of the motion judge’s order was the erroneous legal conclusion that s. 178(1)(e) applied to the appellant’s liability for the respondent’s claims. The declaration that the stay does not apply at all to the proceedings in the action as against the appellant or to enforcement of any judgment against the appellant cannot stand.
[52] The appellant agrees that the stay as it pertains to the claim in the action against him should nonetheless be lifted subject to conditions. The appellant’s proposed conditions would allow the respondent’s claim in the action to continue against him, but would prevent enforcement, other than as a claim in bankruptcy against the bankrupt estate, of any judgment against the appellant. The conditions would also insulate the appellant from any costs, production or discovery obligations if he does not further defend the action. The respondent takes issue with the extent of these proposed conditions, including because they would interfere with enforcement of the respondent’s claim against the appellant for return of equipment and injunctive relief against ongoing use of the trade secrets.
[53] I agree that the stay should be lifted to allow the action to proceed against the appellant for the purpose of quantifying any damages or accounting of profits owing by the appellant, establishing the identity of any property still in the possession of the appellant that incorporates the trade secrets, and for any forward-looking injunctive relief against the appellant. Any monetary judgment shall only be a claim in bankruptcy against the bankrupt estate of the appellant and may not be otherwise enforced against the appellant. Any order for the return of any equipment in the possession of the appellant that was made using the trade secrets, and any injunctive relief that is granted against the appellant restraining any future use by him of the trade secrets may be enforced against him. The questions of whether the stay should be lifted to permit the respondent to seek any documentary or oral discovery from the appellant, or to enforce any future costs awards that arise from his continued participation in defending claims against him, are dependant on circumstances in the continuing action as they evolve. Accordingly, those issues are best left for determination by the Superior Court on a future motion, if required.
CONCLUSION
[54] For these reasons, I would allow the appeal, set aside the declaration that s. 178(1)(e) applies, and vary the declaration concerning the stay as described above.
[55] In accordance with the agreement of the parties, I would award costs to the appellant in the sum of $10,000, inclusive of disbursements and applicable taxes.
Released: December 29, 2021 “G.R.S.” “B. Zarnett J.A.” “I agree. G.R. Strathy C.J.O.” “I agree. Wilton-Siegel J.”
Footnotes
[1] As long as they are claims provable in bankruptcy: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 178(2). There is no issue about the debts and liabilities in this case meeting that definition.
[2] The respondent did not assert in the court below or this court that the conduct of the appellant fell within the meaning of fraudulent misrepresentation in s. 178(1)(e).
[3] The presumption is even stronger when the statutes relate to the same subject matter. It is unnecessary in this case to resort to the stronger presumption.
[4] In the sense that the statement was false to the knowledge of its maker, or was made without belief in its truth, or was made recklessly as to whether it was true or false.
[5] There is a view that even for the false pretences branch of s. 178(1)(e), the deceitful statement must have been made to the creditor: see Alberta Securities Commission v. Hennig, 2021 ABCA 411, at paras. 90-93. It is not necessary to consider which view is correct. The appellant presented his case on the basis that false pretences could include a deceitful statement to a third party, as did the respondent who does not point to any false statements made to it.
