SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 97-CU-117784
BANKRUPTCY COURT FILE NO. 31 414623

DATE: 20130816

RE: Toro Aluminum, Applicant

AND:

Antonio Sampogna, Respondent

BEFORE: Backhouse J.

COUNSEL:
Neil Kotnala, for the Applicant

Lauren Kenley, for the Respondent

MOTION HEARD: August 13, 2013

Reasons for decision of backhouse, j. released august 16, 2013

[1] The applicant seeks a declaratory order pursuant to Section 178 (d) of the Bankruptcy and Insolvency Act (“BIA”) that its May 11, 1998 judgment against the respondent is not released upon the respondent’s discharge from bankruptcy, because the debt arises out of fraud, embezzlement, misappropriation or defalcation while acing in a fiduciary capacity.

[2] In this case, moneys obtained to finance an improvement were not used to pay the applicant who made the improvement. Such funds are impressed with a trust under the Construction Lien Act, Section 13 of which provides for personal liability. In this case, the applicant has a default judgment based on a statement of claim which sets out facts, all deemed to be admitted, which disclose a breach of trust for which the respondent is liable.

[3] The respondent makes 2 arguments in opposing the granting of the declaration:

(1) The May 11, 1998 judgment was obtained improperly; and

(2) If the judgment stands, the declaration ought not to be made because there is no evidence of wrongdoing.

1) The May 11, 1998 judgment was obtained improperly

[4] The respondent alleged in his affidavit sworn April 9, 2013 that he was never served with the statement of claim nor did its existence ever come to his attention. He further alleged that he was never served with the motion seeking him to file an affidavit of documents, the ensuing order or the judgment. The applicant’s supplementary motion record and particularly the documents at Tabs E, F, G and J to Q leave no doubt that the respondent was not only served but filed a defence and consented to the order requiring him to deliver an affidavit of documents. The respondent’s claim that his cousin, Nick Sampogna, the other personal defendant, filed the statement on his defence without his knowledge is not credible, given the lack of explanation for why his cousin would leave the proceeding undefended against himself but see fit to file a defence for the respondent without letting him know or indeed ever discussing it with him.

[5] The respondent alleges that the order obtained on his consent to file an affidavit of documents was improperly obtained because he did not understand what he was signing, that he did not have counsel and counsel for the applicant did not explain to him that by signing the draft order he would be held liable for a breach of trust claim.

[6] The claim of non est factum does not apply on these facts. There was no obligation on the applicant’s counsel to explain the order to him. There is no suggestion that the respondent was coerced, misled or pressured by counsel for the applicant. The respondent did not sign a consent to a breach of trust claim. It was only after the respondent failed to deliver the affidavit of documents as ordered that the applicant proceeded to obtain default judgment.

[7] The evidence before the court does not substantiate the allegation that there were any improprieties in the way the judgment was obtained.

2) If the judgment stands, the declaration ought not to be made because there is no evidence of wrongdoing

[8] The respondent makes the following arguments in support of the declaration not being granted:

(1) The declaration ought only to be made by a judge sitting in Bankruptcy Court;

(2) The wording in the order against the other personal defendant, Nick Sampogna, lacked a declaratory finding;

(3) The applicant never filed a proof of claim in the respondent’s bankruptcy and did not oppose his discharge;

(4) No attempt was made to collect on the judgment;

(5) Any monies owed were set off by monies paid to the applicant in a subsequent construction project;

(6) The respondent is not guilty of any wrongdoing.

[9] No authority was produced that Bankruptcy Court had exclusive jurisdiction in regard to the declaration sought. There is authority that the declaration sought will not be made at a bankruptcy discharge hearing. (Matthew (Trustee of) [2003]A.J. NO.180.

[10] Other than the bald statement that there was a set-off, no documents to support this were provided. Except for the last argument, the submissions have no merit and raise irrelevant considerations. It is only on the last argument upon which the respondent could theoretically succeed on this motion. Notwithstanding that the court made an order finding the respondent in breach of trust and personally liable, declaratory relief ought not to be automatically made unless it can be shown that the respondent is culpable on the grounds of some wrongdoing. Not all breaches of trust automatically allow a court to make a finding that the judgment survives bankruptcy. It is incumbent upon the court to examine the facts to determine if there is evidence of wrongdoing.

[11] In this case, the respondent consented to an order to make disclosure in the original proceeding. No disclosure has ever been made accounting for the funds. The funds were received. The respondent’s affidavit contains nothing other than a bald statement that he had nothing to do with the financing. An affidavit by Nick Sampogna confirms this. Neither Nick nor Antonio Sampogna deposes that there is an inability to account for the funds. There is a high degree of cooperation between Nick and Antonio Sampogna. In 2006, the respondent filed an affidavit in a related proceeding in support of Nick Sampogna in which he clearly concedes that he was aware of the action and the 1998 judgment, contradicting his sworn evidence on this motion. Nick Sampogna filed an affidavit in support of the respondent in this proceeding. This is a case where the respondent is in a very good position to produce evidence accounting for the funds and provide more than a brief statement in an affidavit that there was no wrongdoing.

[12] The respondent’s credibility is in issue. The abundance of evidence contradicting his allegations suggests that this was not simply a case of his having a vague recollection of the facts. Rather, it suggests he was engaged in an active effort to mislead the court. Given the lack of documentation produced and the respondent’s lack of credibility, the record does not establish on a balance of probabilities that he had nothing to do with the finances.

[13] Nick and Antonio Sampogna have collectively failed to account for the relevant trust funds and therefore committed a wrongdoing sufficient to trigger s. 178(1(d) of the BIA. (Commdoor Aluminum v. Solar Sunrooms Inc., [2003] O.J.No.2173 at paras.19, 20, 26; Simone v. Daley, 1999 3208 (ON CA), [1999] 434 O.R. (3d) 511, [1999] O.J. No.571 at para.52; Toro Aluminum Ltd. v. Revah, [1999] O.J. No.5346 at para.43).

[14] In the result, the May 11, 1998 judgment against the respondent, having fallen within the provisions of Section 178 (1)(d) of the BIA, is not discharged in bankruptcy. The applicant shall be at liberty to issue writs of seizure and sale and notices of garnishment and to otherwise enforce the judgment at its discretion. The Sheriff is directed not to withdraw the writ of seizure and sale already issued and filed in this proceeding.

[15] The applicant shall have 14 days from the issuance of these reasons to deliver brief written submissions on costs. The respondent shall have 14 days thereafter to respond.

Backhouse J.

Released: August 16, 2013