SUPERIOR COURT OF JUSTICE – Ontario

IN BANKRUPTCY AND INSOLVENCY

COURT FILE NO.: 31-890423
Estate No. 31-890423
DATE: 20131113

IN THE MATTER OF THE BANKRUPTCY OF RONALD STEPHEN KEPIC

RE: METRIC CONTRACTING SERVICES CORPORATION, Applicant

A N D:

RONALD KEPIC, Respondent

BEFORE: MESBUR J.

COUNSEL:
G. McConnell, for Ronald Kepic
M. Drudi, for Metric Contracting Services Corporation

HEARD: November 12, 2013

E N D O R S E M E N T

Background to the motions:

[1] These two motions arise out of an unusual set of circumstances. Ronald Kepic was the sole shareholder, officer and director of 1033277 Ontario Inc. which operated under the name A&E Enterprises.

[2] A&E was a subcontractor on a project on which a company called Eton Construction (Canada) Inc. was the general contractor. A&E subcontracted part of its work on the project to Metric Contracting Services.

[3] Disputes arose on the project, resulting in Metric commencing lien proceedings against both Eton and A&E in around 1998. Before the lien claim against A&E could be adjudicated, A&E made an assignment into bankruptcy. Metric later settled its lien claim against Eton. Its settlement did not involve A&E or Kepic as officer and director of A&E.

[4] Metric then commenced another action in 2002 against Kepic personally, as officer and director of A&E. Metric alleged Kepic had breached A&E’s trust obligations under the Construction Lien Act, and was liable as A&E’s sole shareholder, officer and director.

[5] Kepic delivered a defence to the breach of trust claim. He failed, however, to comply with numerous disclosure orders in that proceeding. As a result, his statement of defence was struck in April of 2005.

[6] At that point, Metric was in a position to proceed with an uncontested trial in order to prove its claim. That trial was not able to be scheduled until late November of 2007. In November of 2007 Conway J. heard the uncontested trial, and granted Metric judgment for about $229,000, significantly less than the total Metric claimed. Apparently she gave oral reasons for her decision. No one has those reasons.

[7] Metric then obtained a writ of execution pursuant to its judgment.

[8] Unbeknownst to Metric, in August of 2006 Kepic himself made a voluntary assignment in bankruptcy. He was discharged on May 31, 2007, months before the uncontested trial before Conway J. Metric did not know about Kepic’s bankruptcy because the trustee sent the requisite notice to Metric care of its lawyer, but neglected to include the lawyer’s suite number in the address. The lawyer did not receive it, and as a result Metric had no knowledge Kepic had gone bankrupt. Therefore, although the trustee attempted to give Metric notice of Kepic’s bankruptcy proceedings, Metric never actually learned of them until sometime in 2010. Metric’s counsel then contacted the trustee to advise Metric was a judgment creditor. Counsel received no response.

[9] In December of 2011 Kepic attempted to have Metric’s writ of seizure and sale against him withdrawn pursuant to rule 60.15(5)(8). That rule permits a debtor to ask the Sheriff to withdraw the writ when the debt has been released by an order of discharge under the Bankruptcy and Insolvency Act. Since Kepic had been discharged from bankruptcy, he assumed the writ could be withdrawn.

[10] As required, the sheriff gave Metric notice of Kepic’s request. That gave rise to these motions in which Kepic seeks to set aside the default judgment, have the breach of trust claim stayed and the writ of seizure and sale withdrawn. Metric seeks to obtain an order nunc pro tunc to permit the breach of trust claim to continue notwithstanding the bankruptcy, a declaration that Conway J’s judgment survives Kepic’s discharge in bankruptcy and that the writ of seizure and sale continues in full force and effect.

The law and discussion:

[11] Under s. 69.3(1) of the Bankruptcy and Insolvency Act, once a person makes an assignment in bankruptcy, no creditor may commence or continue any action, execution or other proceedings for the recovery of a claim provable in bankruptcy.

[12] The court has the ability under s. 69.4 of the Act to lift the stay imposed under s. 69.3(1) if the creditor is likely to be materially prejudiced or that it is equitable on other grounds to make such a declaration lifting the stay.

[13] Section 178(1)(d) provides that than an order for discharge does not release the bankrupt from “any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity…”

[14] Kepic takes the position that since Metric never obtained an order under 69.4 its lawsuit against him was automatically stayed. He says that since he is now discharged from bankruptcy, any debt to Metric has been discharged by the bankruptcy, and the writ or seizure and sale must therefore be withdrawn.

[15] Metric says had it received notice of Kepic’s bankruptcy it would have sought and no doubt obtained an order to continue its breach of trust suit on the basis that its breach of trust claim is the kind of claim that would have survived bankruptcy. It says its failure to do so is through no fault of its own. It relies on the decision of the Saskatchewan Court of Queen’s Bench in Canada (Wheat Board) v. Krupski[1] to support its view that it is merely an irregularity where a creditor commences or continues a proceeding without obtaining leave. That case also provided the leave to do so, nunc pro tunc.

[16] Kepic, however, suggests that the judgment Metric obtained from Conway J should be set aside because of certain calculation mistakes Metric made in its submissions to the court. He says the decision should be set aside on that basis as well. I disagree. Kepic’s defence was struck. As a result, he was deemed to admit all the allegations in the statement of claim. His defence was struck because of his failure to provide the required accounting of the trust funds he had received from the general contractor that should have been paid to Metric. It can hardly lie in his mouth today to complain about deficiencies in the evidence that he alone could have cured.

[17] Kepic also suggests that there is insufficient evidence to support Metric’s position that his actions fall into the kind of debts that survive bankruptcy as contemplated by s. 178(1)(d). Again, I disagree.

[18] The trust provisions of the Construction Lien Act are designed to give additional protection to trades and suppliers on construction projects, in addition to the protections they are afforded by their right to file liens against the property they improve.[2] The duty of the trustee to preserve the trust fund is a continuous one. The onus to show it has done so lies on the trustee. Kepic failed to provide the accounting of the trust funds he was ordered to make. On cross-examination on these motions, he admitted he comingled funds from this job with funds from other jobs, and used comingled funds to meet A&E’s expenses. Our courts have held that s. 178(1)(d) of the BIA has been applied to trust claims under the Construction Lien Act.[3]

[19] I thus conclude that had Metric actually known about Kepic’s bankruptcy, it would likely have sought and obtained leave to continue its action against him, having regard to the provisions of s.178(1)(d). It would thus have properly obtained judgment against him, with the writ properly supported by that judgment.

[20] Metric should be in no worse position because of circumstances beyond its control – namely, that it had no actual notice of Kepic’s bankruptcy so that it could have sought leave to continue.

[21] I conclude that its failure to obtain leave to continue is merely an irregularity that can be cured by granting leave nunc pro tunc, to the date of Kepic’s bankruptcy.

Decision:

[22] For these reasons, an order will issue on the following terms:

a) Granting Metric leave, nunc pro tunc, with effect as of August 23, 2006 (the date of Kepic’s bankruptcy) to continue action number 02-CV-238015 CM1 between Metric Contracting Services Corporation and Ronald Kepic, pursuant to section 69.4 of the Bankruptcy and Insolvency Act;

b) Declaring that the writ of seizure and sale number 14712590-6762476B held by the Sheriff of the City of Toronto remains in full force and effect.

[23] As the parties agreed, there will be no order as to costs of these motions.

MESBUR J.

[1] 1994 4772 (SK QB), 1994 CarswellSask 25, 26 C.B.R. (3d) 293, 26 C.P.C. (3d) 137, 122 Sask.R.260

[2] St. Mary’s Cement Corp. v. Construc Ltd., 1997 CarswellOnt 939 (S.C.J.)

[3] Toro Aluminum Ltd. v. Revah (1999), 1999 14847 (ON SC), 3 C.L.R.(3d) 1; Re Zumba (2000), 2 C.L.R. (3d) 297