Citation: Re Kuczera, 2017 ONSC 5140

COURT FILE NO.: 32-1207800

DATE: 20170829

ONTARIO SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST – IN BANKRUPTCY)

IN THE MATTER OF THE BANKRUPTCY OF MIROSLAW IAN KUCZERA OF THE CITY OF BRAMPTON, IN THE REGIONAL MUNICIPALIOTY OF PEEL, IN THE PROVINCE OF ONTARIO

BEFORE: F.L. Myers J.

COUNSEL: Robert A. Klotz, counsel for the appellant Patrick Bloomfield, Trustee in Bankruptcy

HEARD: August 24, 2017

ENDORSEMENT

The Appeal

[1] The bankrupt appeals from the order of the Registrar dated October 21, 2014 requiring him to pay $61,000 as a condition of being discharged from bankruptcy. He also moves to admit fresh evidence on the appeal.

[2] For the reason that follow the motion to admit fresh evidence and the appeal are both dismissed.

Scope of Review

[3] An appeal under the statute is a true appeal. It is not a re-hearing of the discharge. The bankrupt bears a burden to establish that the Registrar erred in principle, erred in law, or failed to take into account a proper factor that demonstrably led her to a wrong conclusion. Borden, Re (2010), 2010 ONSC 3506, 69 CBR (5th) 251 (Ont SCJ).

[4] Mr. Klotz submits that the Registrar committed an error in principle in failing to take into account or to sufficiently take into account the mental illness from which Mr. Kuczera was suffering in the key year of 2012. To that end, the bankrupt has delivered a new affidavit sworn this year as well as two letters from the bankrupt’s former psychiatrist that Mr. Klotz asks the court to accept as fresh evidence pending the appeal.

[5] The Registrar’s discharge order was made almost three years ago. The delay in having it heard relates to some degree to the difficulty experienced by Mr. Klotz in obtaining the evidence that he desired from the treating psychiatrist. The evolution of that evidence is reviewed below. On a more general level, under a businesspersons’ statute like the Bankruptcy and Insolvency Act, that deals with matters that evolve in real time, three years can be an eternity. I have no idea, for example, what has happened to the bankrupt in the ensuing period. I do not know of the efforts that he has made to comply with the condition imposed by the Registrar, if any, or any hardship that he might have encountered in doing so, if any. Those are matters for a different kind of proceeding. But they strike me as much more important, practically speaking, to any effort to assist the bankrupt in making his fresh start as compared to trying to parse today what might have been the case three years ago before the Registrar and five years ago in the bankrupt’s life. However, this is an appeal and I approach it accordingly.

The Background Facts

[6] As described in his factum, “Mr. Kuczera was a hard-working Canadian immigrant who was, until about 2007, successfully employed as an electrician.” He refers to his life to that time as a “Canadian success story…as a result of hard work and diligence.”

[7] In 2007, Mr. Kuczera’s marriage broke down. His former spouse alleged that Mr. Kuczera had abused her. She obtained exclusive possession of the matrimonial home.

[8] Mr. Kuczera developed mental health issues associated with his confusion and frustration dealing with the animosity displayed by his former spouse and the “confusing, hostile world of family law litigation.”

[9] The family law proceedings eroded Mr. Kuczera’s savings and income. In May, 2009 he approached a trustee in bankruptcy who helped him declare bankruptcy. Mr. Kuczera was discharged from bankruptcy in October, 2010. But, in March 2011, the trustee in bankruptcy brought a motion to annul the discharge on the basis that Mr. Kuczera had failed to disclose that he had disposed of a piece of land in Poland prior to his discharge. The motion succeeded and Mr. Kuczera found himself back in bankruptcy.

[10] Much time was spent in the materials and in the oral hearing dealing with Mr. Kuczera’s concerns with respect to the treatment of the Polish property. However, the annulment of the initial bankruptcy discharge is not before me. The only relevancy of that issue is that the Registrar mentioned in her ruling that is before me that the “bankrupt had failed to disclose assets” in relation to the Polish land holding previously made by a different Registrar. In fact, the failure alleged was not a failure to disclose the asset, but a failure to disclose the disposition of the asset and Mr. Kuczera has an explanation of how that came about. One point that is clear however, is that the Registrar did not find the non-disclosure amounted to a “fact” under s. 173 of the BIA on which she based her decision. Even if the Registrar made an error of fact in mis-describing the non-disclosure as relating to the existence of the land itself rather than to the transfer of the land by the bankrupt to his brother/creditor in Poland, the error was neither palpable nor overriding. The Registrar makes it clear two paragraphs later that her decision is based on the “facts” that she found under s. 173 and the issues concerning the bankrupt’s proposal in bankruptcy to which I now turn.

The Failed Proposal in Bankruptcy

[11] In June, 2011, as settlement of Mr. Kuczera’s family law proceedings approached, Mr. Kuczera made a proposal to his creditors to enable him to emerge from bankruptcy. Creditors’ claims at that time exceeded $145,000. Mr. Kuczera proposed making monthly payments to his creditors over a five year period totally $66,665. The proposal was deemed approved and Mr. Kuczera emerged from bankruptcy once again.

[12] Shortly after that time, in January, 2012, Mr. Kuczera received a lump sum of $80,000 ($72,850 net of fees) from his family law proceedings. Rather than paying off his creditors, he spent all of the money. In all, Mr. Kuczera paid $4,265 on his proposal before he defaulted in the fall of 2012. He was deemed bankrupt due to the default on December 1, 2012.

[13] The Registrar’s decision dated October 21, 2014 that is the subject of this appeal, is the discharge of Mr. Kuczera’s third round of bankruptcy that arose due to his failure to make the payments to which he committed in his proposal.

The Registrar’s decision

[14] The Registrar’s reasons commence with the recitation of the chronology of the proceedings. When she turned to the bankrupt’s request for a discharge, the first thing that the Registrar noted was that Mr. Kuczera had been under a doctor’s care for depression since 2009. The Registrar noted that had Mr. Kuczera remained in bankruptcy, the funds that he received from the matrimonial settlement would have been paid to his trustee for the benefit of creditors. The key paragraphs of the Registrar’s reasons are as follows:

I am faced with the case where the bankrupt failed to disclose assets (the Poland property, the computershares), where the bankrupt subsequently received about $80,000 from the settlement of the matrimonial litigation and the sale of shares), where the bankrupt failed to perform a consumer proposal (a s. 173 (1)(j) fact) despite having received sufficient funds to perform the consumer proposal. There was no explanation for the dissipation of these funds in 2012. I conclude the bankrupt could have made a viable proposal to the creditors, a s. 173 (1)(n) fact. I also conclude that the bankrupt has failed to account for the loss of assets to meet liabilities, a s. 173 (1)(d) fact.

In 2013, the bankrupt experienced further medical issues. While the court is not unsympathetic, the court must also consider the interests of the creditors and the public interest in maintaining the integrity of the insolvency system.

When considering all of the facts as disclosed by the trustee and the bankrupt, I conclude that the bankrupt cannot be absolutely discharged, due to the finding of the s. 173 facts as noted above. I am of the view that the bankrupt ought to have performed the proposal. He failed to pay approximately $61,000 to the administrator in the proposal. In my view, that is the amount that the bankrupt should be required to pay as a condition of discharge.

I appreciate that the bankrupt will find an order of payment of this magnitude difficult in light of the circumstances present at the date of the hearing. However, it is my view that this situation could have been avoided had the bankrupt acted reasonably with his

creditors. He clearly did not wish to pay his creditors under the proposal when he received significant funds in 2012. His current situation is his own doing. The bankrupt is still relatively young and despite some medical issues, which appear to have resulted from the matrimonial issues and financial difficulties, I am confident that the bankrupt will be able to continue fulsome remunerative employment on a going forward basis.

The Proposed Fresh Evidence

[15] In his affidavit, the bankrupt advises that he represented himself at his discharge hearing. Prior to the discharge hearing his treating psychiatrist suggested that he present a medical note to the court. The doctor prepared a brief letter that the bankrupt gave to the Registrar.

[16] The doctor’s letter indicated that the bankrupt had been under his care since March 2011, “for management of depression and situational issues arising out of separation and divorce.” The letter noted that although the bankrupt had been able to return to work with the help of psychotherapy and medication, “ongoing problems with arbitration proceedings continue to contribute to his depressive symptoms to a point where his work may be endangered”. The letter concluded with a prognosis that the bankrupt will require ongoing “psychiatric management involving psychotropic medication for depression and anxiety.”

[17] Mr. Klotz happened to be in court on the day of the bankrupt’s discharge hearing. He approached the bankrupt after the hearing and expressed concern that his doctor’s note had not sufficiently dealt with the bankrupt’s mental health during the 2012 period in which the bankrupt defaulted on his proposal.

[18] The bankrupt appealed and then retained Mr. Klotz to represent him. Mr. Klotz sought further evidence from the psychiatrist. However, the doctor had retired in the interim. Apparently, Mr. Klotz’s office had difficulty locating the doctor.

[19] In a further letter dated January 19, 2015, the bankrupt’s treating psychiatrist provided greater details about the bankrupt’s presentation and symptoms. The doctor recounts that in 2011, the bankrupt presented as, “disoriented, obviously self neglected [sic] individual who had difficulty in concentrating and presenting his situation in a chronologically pregressive [sic] manner.”

[20] The psychiatrist discussed Mr. Kuczera’s status through 2011 and 2012 during which “clear indications of ongoing frustration resulting in confusional thinking were and [sic] inevitable feature of his functioning.” The doctor recited the bankrupt’s ongoing fears as a result of his unresolved legal situation. The doctor went on to mention improvements in the bankrupt’s functioning as a result of psychotherapy antidepressants and anxiety medications. He concluded as follows:

In summary Mr. Kuczera suffered from depression and anxiety associated with dissociative, confusional cognitive impairment which prevented him from his functioning in his potentially dangerous work situation from October 2010 until May 2013.

His cognitive impairment with episodes of preoccupation and even dissociation from his environment started to improve early in 2013 and appeared to be largely resolved by March 2013.

Regardless of his improvement however he requires ongoing psychiatric support and preventative management on antidepressants and anxiolytics.

[21] Mr. Klotz was dissatisfied with this letter and sent his associate back to obtain better evidence from the treating psychiatrist. By letter dated March 9, 2016, the doctor responded. His letter commences as follows:

In your letter of Feb. 2016 you informed me of issues arising out of Mr. Kucheras [sic] application for bankruptcy and the opinion of the Registrar who stated in her conclusion that : [sic] His is current situation was his own doing.”

You wish to appeal this decision since it clearly does not take into consideration his severely distressed mental and emotional status at the time.

[22] The doctor goes on to repeat some of his observations regarding Mr. Kuczera’s initial presentation. He expands upon the degree to which Mr. Kuczera was “constantly thrown off balance” by the “unpredictability and vindictiveness of his wife.” He then expanded upon his reference to Mr. Kuczera’s episodes of dissociation referring to him as presenting, “with high emotional fragility, preoccupation and more significantly a befuddled dissociative state, many of his ruminative concerns with the wife characteristic of hysterical-like break with reality.”

[23] The second letter concludes as follows:

Aside from his depressive disorder during the period under my care he demonstrated many features of Dissociative Identity Disorder (DSM 5 code 300.14) with discontinuity in the sense of self, with alterations in behaviour,memory [sic] and cognitionconsistent [sic] with the ordinary forgetting.

In view of all above severe dysfunctionality I have no doubt that he was incapable of making responsible financial decisions in 2012, nor was he able to appreciate the ethics and morality of his behaviour.

I hope this will assist you in his appeal

[24] In his affidavit the bankrupt says that he has little memory of 2012. He put the matrimonial settlement funds in the bank and withdrew money from time to time as needed often in $5,000 tranches. He paid his bills and initially kept up with his proposal payments during the period. But he did not realize that he should have paid the matrimonial proceeds to the trustee. He laments that no one told him what to do with the proceeds.

[25] It was Mr. Kuczera’s practice to keep cash in his wallet. His money ran out in September, 2012. While he does not know where the money went, he speculates that his daughter may have taken money from his wallet to fund her drug habit. Alternatively, his son may have taken money from him as he, “may have developed the habit of taking money from my wallet during this period.” He also recalls taking expensive Chinese medicine for alternative healing. While he has no idea of how much he spent, he says he knows that it was quite expensive. Finally, he reiterates that there were periods when he dissociated. He would come to his senses and not know where he was or how he got there. He says that “[d]uring these periods, I could easily have lost money, or spent money on something, or been taken advantage of.”

Analysis of Fresh Evidence

[26] The court has a broad discretion to accept fresh evidence on an appeal. This is particularly the case where the proceedings below were informal and especially where the appellant was self-represented. The test governing admission of fresh evidence is not controversial. In R. v. 1275729 Ontario Inc., 2005 CanLII 47589 (ON CA), Doherty JA set out the principles governing the exercise of the court’s discretion as follows:

• the evidence should generally not be admitted if, by due diligence, it could not have been adduced at trial;

• the evidence must be relevant to a fact in issue;

• the evidence must be credible; and

• the evidence, considered with the rest of the trial evidence, must be reasonably capable of having affected the result at trial.

[27] In my view, in light of the bankrupt’s self-represented status below, it is only the third and fourth bullets that are in issue.

[28] It is clear from those portions of the Registrar’s decision that are recited above that the Registrar had in mind the bankrupt’s mental health issues. She noted his depression at the outset of her analysis. She noted it again in conducting the balancing of relevant factors. And she noted it again in discussing the potential difficulty that she understood the imposition of the conditional discharge might have on the bankrupt.

[29] However, Mr. Klotz argues that the Registrar failed to take the bankrupt’s mental health into account in considering the cause of his failure to fulfil his proposal. The Registrar wrote that there was no explanation for the dissipation of funds by the bankrupt in 2012. Mr. Klotz argues that the bankrupt’s mental illness is indeed an explanation and one which removes any moral culpability from his conduct. Moreover, it negates the necessary element of intent from a finding of “dissipation.” Mr. Klotz argues that if the Registrar had properly considered the bankrupt’s mental health and, in particular, if she had before her the fresh evidence, she could have concluded that the bankrupt’s failure to fulfil his proposal was not a situation of his own making. That would have lessened or entirely obviated the support for the condition that she imposed.

[30] I do not see how the doctor’s two new letters can be seen to provide a credible basis to undermine or even assist the Registrar’s findings. I am minded that the doctor is not put forward as an independent expert witness. Rather, he is a treating expert. As Mr. Kuczera’s doctor, he is a fiduciary who is bound to act in what he perceives to be the best interests of his patient. He is not an objective and independent expert trying to assist the court draw specialized inferences. The opening of the doctor’s final letter makes clear his goal to assist in challenging the Registrar’s findings. His closing hope that he has assisted in the appeal lays bare his motivation.

[31] I am prepared to ignore for this motion that the letters are not sworn and the unusual manner in which they were incrementally encouraged by counsel. Nor do I find that the doctor’s statements are untruthful or motivated by anything other than a good faith desire to help the bankrupt. But considered closely, the two new letters actually add little to the first letter that was before the court. The expanding description of Mr. Kuczera’s initial presentation in 2011, while colourful, is a factor in the diagnosis of depression that was before the court. It is the symptomology in 2012 that Mr. Klotz relies upon to suggest that Mr. Kuczera was not responsible for his spending in that period. At one point Mr. Klotz argued that Mr. Kuczera was essentially incapable during 2012. Then, he adopted the doctor’s discussion of morality to submit that Mr. Kuczera did not know right from wrong in 2012. His client went from being an unfortunate bankrupt to a person who needed a guardian for his property to one who could mount a “not criminally responsible” defence to a criminal charge in the course of three escalating doctor’s notes.

[32] In Mr. Kuczera’s own affidavit, he discussed how he paid his bills and conducted his banking throughout 2012. Apparently, it is just the proposal that suffered. His speculation that his children may have stolen his money or perhaps someone cheated him during a period of dissociation is not evidence at all. One thing that is noticeable in the affidavit however, is Mr. Kuczera’s confidence in blaming others for his predicaments – be it his brother, his trustee, the Registrar who set aside his initial discharge, his former spouse, his daughter, his son, his Chinese medicine practitioner, and possibly unknown thieves. I am not making light of mental health issues. Rather, I am pointing out that what Mr. Kuczera wishes the court to hear today, is what the Registrar knew in 2014: Mr. Kuczera suffered serious depression and needed treatment and serious medication from 2009. His ability to work remained endangered throughout. In 2013 there were still issues. By 2014, while a future payment of $61,000 would be difficult for Mr. Kuczera, given his age and history and despite his ongoing medical issues, the Registrar was confident that he would be able to succeed and that the integrity of the bankruptcy process weighed in favour of the condition that she imposed.

[33] The effort by Mr. Klotz and the treating doctor to expand upon Mr. Kuczera’s symptomology and to have the doctor stray into expert testimony regarding financial, moral and ethical matters would not have been helpful, credible, or necessarily admissible before the Registrar. While Mr. Klotz argued that the passage of two years were necessary to have the doctor expand upon his 2015 letter because it did not deal with the crucial 2012 period, in fact it did deal with that period as quoted above. Mr. Klotz simply wanted the doctor to use more words to describe intermittent periods of dissociation that he had already referred to and he asked the doctor to venture an opinion on Mr. Kuczera’s financial responsibility and morality utterly disembodied from the facts concerning financial management decisions that Mr. Kuczera admits he was making at the time.

[34] Mr. Klotz feels that the Registrar’s condition was harsh. He would like the bankrupt to be rehabilitated by being released from his debts. The Registrar considered all of the relevant issues and concluded that doing so in the circumstances would undermine the integrity of the bankruptcy system. I agree. People with mental health challenges are not automatically incapable of managing their affairs or to be stereotypically assumed to be of lesser capability. Nothing in Mr. Kuczera’s proposed evidence says why his mental illness might have been a basis for him to fail to make his payments when due. He apparently paid his rent and other costs of living as he says. Moreover, while he says that no one told him what to do with his family law proceeds, it must be borne in mind that he entered into the proposal to pay $66,000 just a few months before receiving those proceeds. In other words, the family law proceedings were close to settled when he made the proposal. I infer that the basis for making the proposal was that Mr. Kuczera would be receiving money from the family law proceedings shortly. Otherwise, there was no reason to make the proposal when he did. He was not yet working in August 2011 on his evidence. He had no ability to fund the proposal then. But, he knew that the money was coming soon. It is no accident that the proposal payment of $66,000 just about equals the proceeds that he received and would have been expecting just a few months earlier. Wild speculation of thefts and progressively more emotive descriptions of the same symptomology do not provide any explanation for Mr. Kuczera’s failure to pay the funds that he expected to use on the proposal. I agree with the Registrar that Mr. Kuczera’s mental illness was not shown to have any bearing on the issue and there was no explanation for his dissipation of funds.

[35] The fresh evidence is not sufficiently credible nor sufficiently probative so as to have likely affected the result below. The Registrar made no error in principle in attaching the condition to Mr. Kuczera’s discharge. She appropriately weighed all of the relevant factors and her exercise of discretion is entitled to deference. In any event, I agree with the outcome.

[36] Appeal dismissed.

[37] If the trustee seeks costs, it may deliver up to five pages of submissions to my office by September 8, 2017. Mr. Kuczera may deliver no more than five pages of responding submissions by September 22, 2017.

F.L. Myers J.

Date: August 29, 2017