Court File and Parties

COURT FILE NO.: 31-1975658 DATE: 20160705

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: In the matter of the Consumer Proposal of Andrzey Pietrzak, a.k.a. Andrew Pietrzak, Andrzej Pietrzak

BEFORE: Master Mills

COUNSEL: M. Tufman, for the Moving Party Creditor, Z. Hillebrandt-Berska (the “Creditor”) I. Klaiman, for the Proponent E. Cukierman, Trustee A. Farber & Partners Inc.

E N D O R S E M E N T

[1] The Creditor seeks an order under s. 69.4 of the Bankruptcy and Insolvency Act (the “BIA”) to lift the stay of proceedings in order to allow her civil action (CV-15-522778), commenced prior to the filing of the proposal, to proceed to judgment. The claim seeks payment of $67,000 for loans advanced plus interest. It also seeks punitive or exemplary damages of $250,000 as a result of conduct alleged to be “outrageous” and designed to “deliberately … take advantage of a vulnerable, elderly woman” which ought to be penalized by the Court. [1]

[2] The conduct in question is in respect of alleged representations made by the Proponent that the monies lent by the Creditor were “safe” and that “he fully intended to repay to her the entire amount owed”. [2] It is alleged these representations were fraudulent and deceitful as the Proponent is accused of having made the representations solely to lull the Creditor into a false sense of security so that she would not pursue him.

[3] The Statement of Claim was served on the Proponent and he shortly thereafter sought the assistance of the Trustee to formulate a proposal for the general benefit of all his creditors.

[4] The Statement of Affairs reflects a total of $417,300 of secured debt and $185,306 in unsecured debt. There is $13,675 in estimated net realizable assets disclosed which represents the Proponent’s 50% interest in real property, without taking into account the usual selling costs should the asset be liquidated. [3]

[5] The Amended Consumer Proposal (the “Proposal”), approved by a majority of the creditors, offers $59,000 payable over 60 months. It is clearly more favourable to the creditors than a bankruptcy. The Creditor was the only opposing vote and she represented 36.16% in value of the proven creditors who registered a vote on the Proposal. The Proposal was deemed accepted and the Proponent commenced making his monthly payments as required.

[6] S. 69.4 of the BIA provides that in order for a creditor to be successful in having the stay of proceedings lifted, the court must be satisfied that the creditor is likely to be materially prejudiced by the continued operation of the stay or that it is equitable on other grounds that the stay be lifted. The onus is on the applicant to establish there are sound reasons consistent with the scheme of the BIA to relieve against the automatic stay. While it is not necessary to establish a prima facie case, the court may consider the merits of the action and if there is little prospect of success, there is no sound reason to lift the stay. [4]

[7] The prejudice to be considered is objective prejudice, not subjective. The prejudice must refer to the degree of prejudice suffered by the creditor in relation to the indebtedness and not to the extent that such prejudice may affect the creditor as a person, organization or entity. The court should also consider the prejudice to the other creditors and the impact a lifting of the stay would have on the administration of the estate. [5]

[8] The Creditor seeks to lift the stay of proceedings on the grounds that she would be materially prejudiced if not permitted to continue the action and seek a judgment that would survive the Proponent’s discharge pursuant to s. 178(1)(e) of the BIA, being a 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.

[9] To fall within s. 178(1)(e), the debt or liability must arise out of or be created as a result of a false pretence or fraudulent misrepresentation. A causal connection between the wrongdoing and the creation of the debt or liability is required. It is not sufficient to show that a fraudulent misrepresentation or false pretence was made unless it is also shown that the property or service was obtained directly as a result thereof. [6]

[10] The Statement of Claim outlines a simple loan arrangement where it is admitted that the Proponent borrowed amounts of money over several years, executing promissory notes for each advance bearing interest at 10% or 12% per annum. The Proponent made numerous payments of interest and on one occasion, repaid a principal indebtedness after which the applicable promissory note was destroyed.

[11] The Creditor now relies on the word “throughout” at the beginning of paragraph 8 of the Statement of Claim as sufficient pleading that the alleged misrepresentations (as to the safety of the Creditor’s money and the intention to repay), establish a sufficient nexus to the creation of the debt such that s. 178(1)(e) ought to apply and the debt should survive a discharge. It is submitted by counsel that the representations were made “throughout” the Creditor’s relationship with the Proponent which thereby induced her to advance the loans. There is no specific pleading in the Statement of Claim or evidence in the affidavit of the Creditor to this effect. Rather, a simple reading of the Statement of Claim would suggest that the representations were made after the loans were in default and after legal action was threatened, as outlined in the immediately preceding paragraph of the Statement of Claim.

[12] The Proponent denies making any such representations and maintains that he never provided the Creditor with any documents or evidence as to his financial affairs or his ability to repay the loans, although he does admit that it was always his intention to fulfill his obligations subject to his financial situation and his means to pay. Due to an adverse change in his financial health, the Proponent filed the Proposal in an effort to address all of his obligations to all of his creditors.

[13] On my reading of the Statement of Claim, as presently drafted, it is not apparent that the loans were advanced based on any representations allegedly made by the Proponent with respect to the safety of the funds or as to his intention to repay the entire amount owed. There is no causal connection between the representations and the creation of the debt. It may be that the representations, if made, caused the Creditor to delay in her enforcement efforts, but I am not persuaded from the pleadings or the Creditor’s affidavit evidence that the loans were advanced as a direct result of any such representations. The allegations of fraud and deceit in the Statement of Claim are bald assertions without any particularity and without any evidence of detrimental reliance by the Creditor in advancing the loans.

[14] Therefore, the Creditor has failed to satisfy me that the debt is one that ought to survive the discharge pursuant to s. 178(1)(e) and I therefore find there are no sound reasons consistent with the scheme of the BIA for lifting the stay to permit this action to proceed to judgment.

[15] In the circumstances, I also cannot find there is material prejudice to be suffered by the Creditor in the continuation of the stay of proceedings. Accepting, as I do, that the Creditor is an elderly woman who is in need of the funds advanced to help supplement her pension income, this only establishes subjective prejudice on her part. As noted above, the Creditor is required to demonstrate objective prejudice in relation to the indebtedness and she has not met this standard.

[16] I am of the view that the balance of the equities favours the Proponent and all the other creditors who have accepted the Proposal. Based on the uncontroverted evidence of the Proponent, to permit the Creditor to pursue her litigation will imperil the Proposal. Conversely, a successful completion of the Proposal will see all creditors paid a substantial dividend when compared to a bankruptcy assignment.

[17] The motion is therefore denied. If the parties wish to make submissions as to costs, they may do so within 10 days and any such submissions are not to exceed two pages in length.

Master J. E. Mills DATE: June 5, 2016

Footnotes

[1] Paragraph 12, Statement of Claim [2] Paragraph 8, Statement of Claim [3] Statement of Affairs, dated March 22, 2015 [4] Re Ma, 2001 CarswellOnt 1019 [5] Toronto Dominion Bank v. Ty (Canada) Inc., 2003 CarswellOnt 1371 [6] Canada Mortgage and Housing Corp. v. Gray, 2014 ONCA 236