Court File and Parties

COURT FILE NO.: CV-15-533624 HANDWRITTEN ENDORSEMENT RELEASED: 20190107 TYPED VERSION RELEASED: 20200219 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: CBM READY MIX DIVISION a division of ST. MARYS CEMENT INC. (CANADA) and ST. MARYS CEMENT INC. (CANADA) doing business as CANADA BUILDING MATERIALS COMPANY, Plaintiffs

AND:

8377278 CANADA INC., operating as CONCEPT CONTRACTING and CHRIS MACE, Defendants

BEFORE: Copeland J.

HEARD: December 21, 2018

COUNSEL: J. Frustaglio, for the Plaintiff E. Spong, for the Defendant Chris Mace

Endorsement

[1] The plaintiff seeks a declaration that a judgment previously entered against the individual defendant survives bankruptcy, pursuant to s. 178(1)(d) of the Bankruptcy and Insolvency Act.

[2] I am not satisfied that the plaintiff has shown that the defendant’s debt arises out of fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity.

[3] The jurisprudence is clear that not every liability arising out of a trust relationship amounts to fraud, embezzlement, misappropriation, or defalcation. In Simone v. Daley (1999 ONCA), the Court of Appeal held that there must be an element of wrongdoing, dishonesty, or improper conduct for a debt to fall within the scope of the exception in s.178(1)(d) of the BIA. This is because s.178(1)(d) is an exception to the general policy of the BIA to allow a “fresh start” to bankrupts: see Simone v. Daley at paras. 25-53; Toro Aluminum v. Revah at paras. 8-13 (ONSC).

[4] In order for a debt to survive bankruptcy under s.178(1)(d), 3 elements must be satisfied:

(1) The defendant must owe a debt or liability to the plaintiff; (2) The defendant must have been in a fiduciary relationship with the plaintiff; and, (3) The debt or liability must have arisen out of fraud, embezzlement, misappropriation, or defalcation by the defendant while acting in a fiduciary capacity.

Only the 3rd element is in dispute in this case. The defendant does not dispute the existence of the debt, or that he was in a fiduciary relationship with the plaintiff.

[5] I have considered both the judgment obtained (and supporting material such as the statement of claim) as well as extrinsic evidence to consider if the criteria of s. 178(1)(d) are satisfied: see Batista v. Mason’s Masonry, 2014 ONSC 3955 at paras. 26-47.

[6] The judgment in this matter was a default judgment obtained from the Registrar for payment of money only. The Registrar could not have made the findings necessary to engage s.178(1)(d): see Batista, supra at paras. 10, 27, 28.

[7] Even looking to the statement of claim and the deemed admissions arising from the default pursuant to rule 19.02(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I am not satisfied that they provided a basis to find the type of misconduct on the part of the defendant required by s.178(1)(d). The pleadings are too general and generic to form the basis of a finding that the defendant engaged in misappropriation or defalcation.

[8] Further, the defendant filed an affidavit on the motion where he set out his version of the circumstances leading to his failure to pay his liabilities to the plaintiff which is the basis for the judgment. Without recounting the details of that affidavit, it involves an unfortunate financial situation, and decisions which, in retrospect, may have been unwise, but does not involve misappropriation, fraud, or defalcation. The plaintiff chose not to cross-examine on this affidavit.

[9] In all the circumstances, the plaintiff has not persuaded me that the criteria are met for the debt (the previous judgment) to survive bankruptcy under s.178(1)(d). The motion is dismissed.

[10] In the circumstances, I make no order as to costs. Although the defendant prevailed on the motion, as a matter of fairness, it is unfair to saddle the plaintiff with the defendant’s costs of the motion, when the plaintiff loses the ability to collect the debt due to the “fresh start” policy of the BIA.

Copeland J. Handwritten Endorsement Released: 2019-01-07 Typed Version Released: 2020-02-19