COURT OF APPEAL FOR ONTARIO

CITATION: Yanic Dufresne Excavation Inc. v. Saint Joseph Developments Ltd., 2022 ONCA 556

DATE: 2022-07-27

DOCKET: C69975

Tulloch, Lauwers and Paciocco JJ.A.

BETWEEN

Yanic Dufresne Excavation Inc.

Plaintiff (Respondent)

and

Saint Joseph Developments Ltd., Vincent Martin Detillieux and Albert Plant

Defendants (Appellant)

Nigel McKechnie, for the appellant

J.F. Lalonde and Andrew Donaldson, for the respondent

Heard: May 25, 2022

On appeal from the order of Justice Stanley J. Kershman of the Superior Court of Justice, dated October 5, 2021, with reasons reported at 2021 ONSC 6633.

Paciocco J.A.:

OVERVIEW

[1] The respondent, Yanic Dufresne Excavation Inc. [“Yanic Inc.”], secured an order varying a default judgment it had obtained against the appellant, Albert Plant, to include a declaration that the judgment debt survives bankruptcy. Mr. Plant appeals that order, arguing that the motion judge erred by admitting and considering fresh evidence, and by making this order in the absence of a proper pleading and proof that the debt arose “out of fraud, embezzlement, misappropriation or defalcation while [Mr. Plant was] acting in a fiduciary capacity” within the meaning of s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 [“BIA”]. For the reasons that follow, I would dismiss the appeal.

MATERIAL FACTS

[2] Pursuant to a series of contracts entered into in 2016, the respondent Yanic Inc. supplied excavation and landscaping services to Saint Joseph Developments Ltd. [“SJD Ltd.”], a development company. Those services were provided in connection with three of SJD Ltd.’s projects: the construction of a Medical Complex, the development of a Residential Complex, and work on a parcel of vacant land. The appellant, Albert Plant, was at all material times the president and a director of SJD Ltd. A business associate of Mr. Plant’s, Vincent Martin Detillieux, was also a director and officer of SJD Ltd.

[3] SJD Ltd. secured financing for the work being done on the properties. It is not contested that the amounts advanced to SJD Ltd. to finance the projects were impressed with a trust pursuant to Part II of the Construction Act, R.S.O. 1990, c. C.30, including for the benefit of Yanic Inc. Nor is it contested that SJD Ltd. failed to pay all of the invoices that Yanic Inc. issued for the work it had done on the three projects.

[4] On September 6, 2018, Yanic Inc. sued SJD Ltd., Mr. Plant and Mr. Detillieux for the outstanding balance, alleging breach of contract, breach of trust and unjust enrichment. None of the defendants responded.

[5] On November 20, 2018, all three defendants were noted in default. On the return of Yanic Inc.’s motion on January 25, 2019, Kane J. granted default judgment against all three defendants in the amount of $181,133.23 plus costs and prejudgment interest [“Default Judgment”].

[6] Three weeks later, on February 19, 2019, Mr. Plant made an assignment into bankruptcy.

[7] In October 2019, Yanic Inc. notified Mr. Plant’s bankruptcy trustee that it was seeking to have Mr. Plant’s debt survive bankruptcy. This prompted Mr. Plant to move to set aside the Default Judgment on February 25, 2020 so that he could defend the action. He presented a draft statement of defence in which he claimed that Mr. Detillieux handled the finances for SJD Ltd. and that he himself was unaware of the non-payment of creditors. He swore an affidavit in support of this motion that included SJD Ltd. bank account statements as exhibits. Mr. Plant does not contest that these bank statements verified that some of the trust money SJD Ltd. had received was indeed paid to Mr. Plant or on his behalf, instead of being applied to the trusts. On June 1, 2020, Mr. Plant was cross-examined on his affidavit. Yanic Inc. interprets a number of Mr. Plant’s responses as evidence that his breaches of trust constituted “fraud” or “defalcation while acting in a fiduciary capacity” within the meaning of s. 178(1)(d) of the BIA.

[8] The motion by Mr. Plant to set aside the Default Judgment was scheduled to be heard on May 18, 2021. A case conference was conducted on July 3, 2020 to determine how to proceed because Yanic Inc. intended to bring a cross-motion to vary the Default Judgment to include a declaration that the Default Judgment survive Mr. Plant’s bankruptcy. At the case conference, Yanic Inc. and Mr. Plant agreed that Mr. Plant’s motion to set aside the Default Judgment would be stayed so that Yanic Inc. could move forward with its motion to vary the Default Judgment [the “Motion to Vary”]. This mode of proceeding was adopted because there would be no need for Mr. Plant to seek to set aside the Default Judgment if Yanic Inc. was unsuccessful in securing a declaration that Mr. Plant’s debt arising from the Default Judgment survive bankruptcy. During the case conference, a schedule was established for the parties to “deliver [their] evidence” on the Motion to Vary.

[9] On July 10, 2020, Yanic Inc. formally brought the Motion to Vary pursuant to Rule 59.06(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. As anticipated, in the Motion to Vary, Yanic Inc. requested an amendment to the Default Judgment to include a declaration that the judgment could be enforced against Mr. Plant notwithstanding his bankruptcy.

[10] The Motion to Vary was heard on January 22, 2021 and May 18, 2021. In support of the Motion to Vary, Yanic Inc. offered as fresh evidence documentation that Mr. Plant had produced in support of his own motion to set aside the Default Judgment, including his cross-examination on that motion. Mr. Plant objected, arguing that this fresh evidence was extrinsic evidence that is inadmissible in support of Yanic Inc.’s Motion to Vary. He argued, in effect, that Yanic Inc.’s Motion to Vary is to be decided solely on the record that was before Kane J. when he granted the Default Judgment.

[11] The motion judge disagreed. He found that it would be “inequitable and unfair” to exclude the evidence and place Yanic Inc. in a worse position than it would have been in had Mr. Plant defended the action and made himself available for discovery. Although he did not expressly state that Yanic Inc. exercised due diligence in seeking out this evidence, it is clear from his decision that he made such a finding. The motion judge ruled that the evidence produced in support of Mr. Plant’s motion to set aside Yanic Inc.’s Default Judgment was admissible and he relied upon it in ultimately granting the Motion to Vary.

[12] In resisting the Motion to Vary, Mr. Plant relied upon limitations he perceived in Yanic Inc.’s pleadings, arguing that these deficiencies prevent an order under s. 178(1)(d) of the BIA from being made. Specifically, he argued that since Yanic Inc.’s statement of claim had not alleged “fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity” within the meaning of s. 178(1)(d), the Default Judgment debt was not, by its nature, a debt that could survive bankruptcy. Relatedly, he objected that even if such an allegation was included, it was not sufficiently particularized, as required by Rule 25.06(8) of the Rules of Civil Procedure, which specifies that pleadings of “fraud, misrepresentation, breach of trust, malice or intent […] shall contain full particulars”.

[13] Once again, the motion judge disagreed. He found that Yanic Inc.’s amended statement of claim was sufficiently particularized to ground the claim in breach of trust or misappropriation while acting in a fiduciary capacity.

[14] Finally, Mr. Plant argued that the evidence available for consideration on the Motion to Vary did not support a finding that would trigger the application of s. 178(1)(d) of the BIA. Pursuant to this court’s decision in Simone v. Daley (1999), 1999 3208 (ON CA), 43 O.R. (3d) 511 (C.A.), at p. 522, Mr. Plant’s fiduciary breach must be morally unacceptable to society, as opposed to simply inadvertent, negligent or incompetent, in order to trigger the application of s. 178(1)(d). The motion judge rejected Mr. Plant’s submission that the evidence did not support a finding that his fiduciary breach was morally unacceptable. The motion judge noted that Mr. Plant is “not a novice when it comes to dealing with trust funds and being a fiduciary.” He further found that:

Mr. Plant was an officer, director, and fiduciary who assented to and acquiesced in diverting trust funds established under the CLA for a purpose inconsistent with the CLA, e.g. paying for items unrelated to the project, including seasons tickets to hockey games, paying monies to a church, and using monies to sponsor a festival, just to name a few.

[15] The motion judge therefore issued an order that the Default Judgment “is hereby varied and that the judgment in favour of [Yanic Inc.] survives the bankruptcy of the Defendant, Albert Plant”.

ISSUES

[16] Mr. Plant appeals this order, offering three grounds of appeal that can be stated as follows:

A. Did the motion judge err by admitting and relying upon extrinsic evidence to make fresh findings of fact?

B. Did the motion judge err in finding that the statement of claim was sufficiently particularized to ground a claim for misappropriation while acting in a fiduciary capacity?

C. Did the motion judge err in finding that Mr. Plant engaged in morally unacceptable misconduct in his fiduciary breach of trust?

[17] For the reasons that follow, I would not allow any of these grounds of appeal and I would dismiss the appeal.

ANALYSIS

A. Did the motion judge err by admitting and relying upon extrinsic evidence to make fresh findings of fact?

[18] Where a party brings an application for a declaration that a judgment debt survives bankruptcy pursuant to s. 178(1)(d), the issue is whether, by its nature, that judgment debt qualifies as a debt enumerated under s. 178(1)(d) of the BIA. Section 178(1)(d) provides:

s. 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.

[19] Since the issue on a s. 178(1)(d) application relates to the nature of the judgment debt, an applicant cannot rely on previously unmade allegations against the judgment debtor that they engaged in additional wrongs: Lawyers’ Professional Indemnity Company v. Rodriguez, 2018 ONCA 171, 139 O.R. (3d) 641, at paras. 5, 32; H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117, at para. 88. Put simply, before an application judge can make a finding that the judgment debt survives bankruptcy pursuant to s. 178(1)(d), the judge must determine that the judgment debt arose out of fraud, embezzlement, misappropriation or defalcation while the judgment debtor was acting in a fiduciary capacity.

[20] Given that this is the relevant inquiry, the application judge is confined during a s. 178(1)(d) application to evidence “grounded in the process that produced the judgment debt”: Rodriguez, at para. 6. To be clear, the application judge may “look to the entire context of the proceedings in the [action that produced the judgment debt] to determine whether the judgment debt can be characterized as one falling within s. 178(1)”: Cruise Connections Canada v. Szeto, 2015 BCCA 363, 388 D.L.R. (4th) 648, at para. 29. This includes the “material filed that led to the obtaining of the judgment debt, including the facts pleaded in support of the action that led to the judgment debt, any evidence that was presented at the time to secure that judgment debt, and any reasons that might have been given”: Rodriguez, at para. 6. But any other evidence is “extrinsic” and inadmissible, as it is irrelevant in showing the nature of the judgment debt. Indeed, consulting extrinsic evidence could effectively alter the nature of the debt, creating a new or different debt that has never been the subject of a judgment. It could also “extend the reach of [s. 178(1)(d)] to statute-barred claims, and violate cause of action estoppel rules”: Rodriguez, at para. 6. For the purpose of this judgment, it is convenient to refer to this body of law as “the rule in Rodriguez”.

[21] Mr. Plant contends that the motion judge violated the rule in Rodriguez by admitting and relying upon the extrinsic evidence produced during Mr. Plant’s motion to set aside the Default Judgment, months after the Default Judgment was secured. I would reject this submission. In the motion before the motion judge, Yanic Inc. did not simply seek a declaration pursuant to s. 178(1)(d). Instead, having discovered previously unavailable evidence of what it believed to be fraud or defalcation by Mr. Plant while acting in a fiduciary capacity, Yanic Inc. brought a motion pursuant to Rule 59.06(2)(a) to vary the Default Judgment. Rule 59.06(2)(a) provides:

59.06 (2) A party who seeks to,

(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made

may make a motion in the proceeding for the relief claimed.

[22] It is obvious that fresh evidence is admissible at a Rule 59.06(2) hearing. In order to secure a variation under Rule 59.06(2), the moving party must prove, with evidence, either that the order was obtained by fraud, or that material facts supporting the variation arose or were discovered after the order was obtained: Royal Bank of Canada v. Korman, 2010 ONCA 63, 81 C.P.C. (6th) 1, at paras. 20‑21. Plainly, the rule in Rodriguez does not apply during a Rule 59.06(2) motion to vary.

[23] Moreover, given the implicit finding by the motion judge that the new evidence could not have been discovered with reasonable diligence, no question of res judicata concepts, such as cause of action estoppel or merger in the judgment, arises: H.Y. Louie Co., at paras. 62-65. Nor are there any abuse of process considerations arising out of the Motion to Vary: Cruise Connections, at para. 28.

[24] In my view, the motion judge did not err in these proceedings by admitting and considering the evidence that he did. I would dismiss this ground of appeal.

B. Did the motion judge err in finding that the Statement of Claim was sufficiently particularized to ground a claim for misappropriation while acting in a fiduciary capacity?

[25] Rule 59.06 “does not contemplate altering a judgment or order to provide for relief never sought in the moving party’s pleading”: Korman, at para. 24. Therefore, in Korman, Rouleau J.A. held that a motion judge should not have varied a default judgment to include a declaration that it was a judgment in fraud that survived bankruptcy, given that fraud had not been pleaded in the statement of claim.

[26] Mr. Plant argues that the motion judge erred in this case by failing to determine “whether, based on the record that was before the Default Judgment judge, the statement of claim was sufficiently particularized to ground allegations of fraud, misrepresentation, or breach of trust that would allow the default judgment to survive bankruptcy”. I would reject this submission because it is not factually correct. As described in paragraph 12 above, the motion judge expressly found that “the Amended Statement of Claim is sufficiently particularized to ground the claim in breach of trust or misappropriation while acting in a fiduciary capacity.” This finding is amply supported by the record. When the allegations contained in the Amended Statement of Claim are read as a whole, the Amended Statement of Claim specifically alleges that “[SJD Ltd.] received amounts that […] constituted trust funds for the benefit of [Yanic Inc.]”; that Mr. Plant “at all material times had effective control of [SJD Ltd.]” and was “acting in a fiduciary capacity”; that “some of the […] trust funds were appropriated and converted by [SJD Ltd.] and that such actions constituted a breach of trust”; and that Mr. Plant “assented to and acquiesced in the appropriation and conversion of the said monies, which [Mr. Plant] knew […] amounted to a breach of trust by [SJD Ltd.]”, and that “[Mr. Plant] dishonestly and improperly appropriated or converted [the trust funds] to their own use, or a use unauthorized by the trust”.

[27] Mr. Plant also argues that the motion judge erred in making this determination when the allegations of “fraud, misrepresentation, breach of trust, malice or intent” were not pleaded with full particulars. I do not accept this submission. The motion judge found that Yanic Inc. pleaded all of the information it had available to it. In these circumstances, I agree with the motion judge that it would be unfair to permit Mr. Plant to defeat the Motion to Vary because of an absence of full particulars, after shielding himself from all discovery processes that could have revealed full particulars by not defending the action. In any event, it is enough for the purposes of s. 178(1) of the BIA if, in substance, the pleadings as a whole suggest fraudulent conduct: H.Y. Louie Co., at para. 41.

[28] Nor do I accept Mr. Plant’s argument that the motion judge engaged in impermissibly circular reasoning by finding: (1) that Yanic Inc. had no prior knowledge of the conduct engaging s. 178(1)(d) at the time of pleading, and (2) that Yanic Inc. had provided sufficient particulars to meet the requirement of s. 178(1)(d). In Mr. Plant’s view, these conclusions are inconsistent. I disagree. Properly understood, the motion judge simply found that the pleadings provided a sufficient allegation of misappropriation by Mr. Plant while acting in a fiduciary capacity to enable the nature of the judgment debt to be characterized as falling within s. 178(1)(d), and that Yanic Inc. became aware of specific evidence that could support that allegation after Mr. Plant produced that evidence in support of his motion to set aside the Default Judgment. There is nothing impermissibly circular or inconsistent in this.

[29] Mr. Plant also argues that the motion judge erred in relying on his finding that “breach of trust or misappropriation while acting in a fiduciary capacity” had been sufficiently pleaded as a basis for considering the extrinsic evidence. His point appears to be that the sufficiency of the pleadings and the admissibility of extrinsic evidence are unrelated considerations, yet the motion judge relied upon the former to find in favour of the latter. In support of his argument, Mr. Plant relies upon the juxtaposition of two paragraphs in the reasons below:

[88] Lastly, the court finds that the Amended Statement of Claim is sufficiently particularized to ground the claim in breach of trust or misappropriation while acting in a fiduciary capacity. […]

[89] Therefore, the court finds that the evidence provided after the Default Judgment was granted is allowed for the purpose of determining whether [Yanic Inc.’s] debt should survive Mr. Plant’s bankruptcy.

[30] Paragraph 89 is in fact the last paragraph in a 53-paragraph long discussion of the admissibility of the extrinsic evidence conducted under the heading “Preliminary Objection on the Cross-Motion”. In context, the motion judge’s use of “Therefore” in paragraph 89 clearly refers to his reliance on all of the reasoning contained in that section of the reasons, not solely or even specifically on the prior paragraph where he summarized his conclusion on the sufficiency of the particularization. In any event, I have already explained why the motion judge was correct in admitting the extrinsic evidence. Even if the motion judge had erred by relying on the sufficiency of the pleadings as a basis for admitting extrinsic evidence, that error would not be overriding.

[31] Finally, Mr. Plant also submits that the motion judge engaged an irrelevant consideration by commenting that Mr. Plant never brought a motion for particulars. Even if this was an error, which I need not decide, it would not be an overriding error because it had little if any effect on the outcome.

[32] I would dismiss this ground of appeal.

C. Did the motion judge err in finding that Mr. Plant engaged in morally unacceptable misconduct in his fiduciary breach of trust?

[33] Case law makes it clear that a mere breach of trust, or even a negligent or an incompetent breach of trust, is insufficient to enable an order to be made that the debt survives bankruptcy pursuant to s. 178(1)(d) of the BIA. The judgment debt, whether it arises from “fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity”, must arise from conduct that “display[s] at least some element of wrongdoing or improper conduct” that would be “unacceptable to society” because of its “moral turpitude”, or “dishonesty”: Simone, at pp. 523-526, 529-530; Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., 2015 ONCA 465, 126 O.R. (3d) 81, at para. 60; Dugas v. Gaudet et al., 2016 NBCA 19, 401 D.L.R. (4th) 253, at para. 130. In the appellant’s factum, Mr. Plant argued that the pleadings do not support the requisite level of wrongdoing. However, in the course of oral submissions, Mr. Plant conceded that if the extrinsic evidence was properly admitted, we should defer to the motion judge’s determination that this level of wrongdoing was met. Given this concession, it is not necessary to examine this ground of appeal further.

CONCLUSION

[34] I would dismiss the appeal.

[35] I would award costs to the respondent on the appeal in the amount of $11,200, inclusive of HST and disbursements.

Released: July 27, 2022 “M.T.”

“David M. Paciocco J.A.”

“I agree. M. Tulloch J.A.”

“I agree. P. Lauwers J.A.”