ONSC 7635
COURT FILE NO.: CV-13-57031
DATE: 2020-12-09
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Shaver-Kudell Manufacturing Inc., Plaintiff
AND
Knight Manufacturing Inc., Lucy Shaver, Dusko Ballmer and Alexander Knecht, Defendants
BEFORE: The Honourable Mr. Justice Marc Smith
COUNSEL: Charles D. Hammond, Counsel for the Plaintiff Ian Klaiman, Counsel for the Defendant Alexander Knecht
HEARD: October 13, 2020 by video conferencing
REASONS FOR DECISION
M. Smith J
[1] The Plaintiff seeks the following Orders from the Court:
a. A declaration that upon any discharge from bankruptcy granted to the Defendant Alexander Knecht (the “Defendant Knecht”), he is not released from any debts or liabilities arising from the claims of the Plaintiff against him in action number CV-13-57031 (the “Action”), including any outstanding or future costs award;
b. A declaration and Order that the stay under Section 69(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”) no longer operates with respect to the Plaintiff’s claim against the Defendant Knecht in the Action;
c. Costs of this Motion.
[2] The Defendant Knecht opposes the Motion. He submits that the Plaintiff has mischaracterized its claim in an attempt to fall within the ambit of section 178(1)(e) of the BIA. He concedes that there are grounds to make an Order lifting the Stay, but asks that the Court impose the following terms: (i) any judgment obtained against the Defendant Knecht in the Action be considered only as a claim in bankruptcy as against the estate and that there be no enforcement steps taken with respect to any such judgment; and (ii) provided the Defendant does not further defend the Action, he shall not be subject to further productions, discovery or costs.
BACKGROUND
[3] The Plaintiff commenced the Action against the Defendants, claiming, among other things, that they misappropriated its trade secrets and committed a breach of confidence.
[4] A trial proceeded before Justice R. Smith in the spring of 2018 and he released his decision on August 7, 2018: 2018 ONSC 5206. He found as follows:
a. The manufacturing process and tooling developed by the Plaintiff are trade secrets and have the necessary quality of confidence;
b. The Defendants have committed a breach of confidence and misappropriated the Plaintiff’s trade secrets; and
c. The Defendant Lucy Shaver breached her duty of confidence and good faith to the Plaintiff.
[5] Justice R. Smith ordered that the Defendants pay costs of $83,493.00 (inclusive of disbursements and HST) for an earlier summary judgment motion, plus $237,563.00 for fees inclusive of HST), plus $69,465.00 for disbursements in respect to the trial: 2018 ONSC 6895.
[6] The trial on the remaining issue, entitlement to damages, was to proceed in April 2020, but has since been adjourned. A new date for the continuation of this trial has yet to be scheduled.
[7] The Defendant Knecht has filed a Notice of Proposal to Creditors on March 2, 2020 with BDO Canada Limited (the “Notice of Proposal”), resulting in the Action against the Defendant Knecht being automatically stayed (the “Stay”).
THE ISSUES
[8] The issues in this Motion are:
a. Whether upon discharge from bankruptcy, the Defendant Knecht ought to be released from any debts or liabilities arising from the Plaintiff’s claims against him in the Action?
b. Is lifting the Stay appropriate? In the affirmative, should the Court impose terms of lifting the Stay.
THE POSITION OF THE PARTIES
The Plaintiff
[9] The Plaintiff submits that the Defendant Knecht should not be able to escape the debt, as it falls within the ambit of section 178(1) of the BIA. This section sets out the exceptions where an Order of discharge does not release the bankrupt from his debts.
[10] Specifically, the Plaintiff says that the Defendant Knecht’s liabilities fall within the scope of section 178(1)(e) of the BIA, being that it arises from obtaining the property by false pretences. To be clear, the Plaintiff is not relying on the fraud exception in section 178(1)(e) of the BIA.
[11] The Plaintiff argues that to fall under the false pretences exception the impugned conduct need not rise to the level of fraud. A finding of false pretences does not require that fraud be plead and/or proven.
[12] The Plaintiff submits that the Defendant Knecht’s manufacturing and sale of the product, which was found to be as a result of a misappropriation of the Plaintiff’s trade secrets, constitutes obtaining property by false pretences. To permit the Defendant Knecht’s debts to be eradicated on a discharge when he has engaged in unlawful conduct would offend Canadian society’s concept of morality.
[13] In respect to the lifting of the stay, the Plaintiff states that section 69.4 of the BIA provides the Court with the jurisdiction to declare that the Stay does not apply to the Plaintiff on the basis that it would be highly prejudicial to the Plaintiff in not being able to continue to judgment.
[14] In the event that the Stay is lifted, the Plaintiff says that no conditions should be imposed. The Defendant Knecht is a necessary party and his evidence is required in the determination of the damages.
The Defendant Knecht
[15] The Defendant Knecht argues that the Plaintiff has mischaracterized its claim as being grounded in “false pretences” in an attempt to fall within the ambit of section 178(1)(e) of the BIA.
[16] The Defendant Knecht submits that on a motion of this kind, the Court’s task is to determine the nature and substance of the debt by reviewing the pleadings, the proceedings before the Court and the reasons given in granting the earlier judgment.
[17] The Defendant Knecht states that in determining if a claim is based on “false pretences” within section 178(1)(e) of the BIA, the Courts have adopted the Criminal Code definition of false pretences, which includes a fraudulent component. It is submitted that in examining the pleadings and the trial decision, there are no findings or allegations that the Defendant Knecht was deceitful or that he committed fraud.
[18] The Defendant Knecht says that Justice R. Smith’s trial decision does not find that the Defendant Knecht: (1) either expressly or implicitly made false representations or was deceptive to the Plaintiff, its customers or the public at large; (2) obtained the Plaintiff’s confidential information by means of fraud or deceit; (3) made representations relied upon the Plaintiff or anyone else; or (4) had any fraudulent intent.
[19] In regard to lifting the stay, the Defendant Knecht concedes that there are grounds to lift the stay imposed by section 69.3 of the BIA. The Defendant Knecht is principally opposed to this request but seeks terms.
[20] The Defendant Knecht says that since the Plaintiff’s claim will not survive the discharge it is necessary for the Court to impose that the Action proceed only to quantify the damages and not for enforcement purposes. Otherwise, it would offend the purpose and effect of the discharge provisions of the BIA; to release a debtor from his financial burden and give him a fresh start so that he can resume their place in the business community.
[21] It is also requested that the Defendant Knecht not be required to further participate in the Action and that he not be subject to further discovery, productions or costs. It is argued that such a term is not prejudicial, and he seeks to have finality on this issue.
THE LAW
[22] The relevant provisions of the BIA are sections 69(1), 69.3(1), 69.4 and 178(1)(e), reproduced below:
Stay of proceedings — notice of intention
69 (1) Subject to subsections (2) and (3) and sections 69.4, 69.5 and 69.6, on the filing of a notice of intention under section 50.4 by an insolvent person,
(a) no creditor has any remedy against the insolvent person or the insolvent person’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy,
Stays of proceedings — bankruptcies
69.3 (1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.
Court may declare that stays, etc., cease
69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied
(a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or
(b) that it is equitable on other grounds to make such a declaration.
Debts not released by order of discharge
178 (1) An order of discharge does not release the bankrupt from
(e) any 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;
[23] The applicable legal principles that have emerged throughout the years in respect to the issues raised in this Motion can be summarized as follows:
a. The exceptions set out in section 178 of the BIA are types of claims which outweigh any possible benefit to society in the bankrupt being released from those obligations. The exceptions contained in section 178(1)(e) are morality concepts that look at conduct. These types of conduct are not acceptable to society and a bankrupt should not be rewarded with a release of liability: Simone v. Daley, 1999 CanLII 3208 (ON CA), 43 O.R. (3d) 511, 170 D.L.R. (4th) 215;
b. One of the important purposes of bankruptcy is to encourage the rehabilitation of an honest but unfortunate debtor and to permit their re-integration into society: Simone v. Daley;
c. In reaching a conclusion on the scope of section 178, the Court is to consider the pleadings and the evidentiary proceedings at trial: Lawyers’ Professional Indemnity Co. v. Rodriguez, 2018 ONCA 171, 139 O.R. (3d) 641, at paras. 33-35;
d. The onus is on the creditor who seeks to have the debt or liability survive the discharge to bring it within one of the provisions of section 178(1) of the BIA: Gray (Re), 2014 ONCA 236, 2014 119 O.R. (3d) 710, at para. 24;
e. Section 178(1)(e) of the BIA uses the expressions “false pretences” and “fraudulent misrepresentation” disjunctively: McKee (Re), 1997 CanLII 14966 (AB KB), 203 A.R. 283, 47 C.B.R. (3d) 70, at par. 34;
f. “False pretences” and “fraudulent misrepresentation” are similar concepts but not identical. Only one basis of liability must be proven to engage this subsection: Ste. Rose & District Cattle Feeders Co-op v. Geisel, 2010 MBCA 52, 319 D.L.R. (4th) 694, at paras. 98 and 107;
g. The core content of the phrases “false pretences” and “fraudulent misrepresentation” is deceitful statements: Buland Empire Development Inc. v. Quinto Shoes Imports Ltd., 1999 CanLII 1345 (ON CA), [1999] O.J. No. 2807, 11 C.B.R. (4th) 190, at para. 14;
h. The essential test for both “false pretences” and “fraudulent misrepresentation” under section 178(1)(e) of the BIA has been described as determining whether the bankrupt was “deceitful” in obtaining the property (Cruise Connections Canada v. Szeto, 2015 BCCA 363, 388 D.L.R. (4th) 648, at para. 13;
i. For the “false pretences” portion of section 178(1)(e) of the BIA to be satisfied, reliance on any representation need not be shown. Rather, it must be demonstrated that the debtor obtained its property by pretences which they knew to be false: Ste. Rose & District Cattle Feeders Co-op v. Geisel, at para. 106;
j. There is no such thing as a cause of action called “obtaining property by false pretences”. It would be unreasonable to require the plaintiff to plead a case to cover the possibility that the defendant will be filing for bankruptcy at some time in the future: H.Y. Louie Co. v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117 at para. 44;
k. A causal connection between the bankrupt’s wrongdoing and the creation of the debt or liability is required (Re) Gray;
l. The Court may remove a stay of proceedings in a variety of circumstances, including where an action is against a bankrupt for a debt to which a discharge would not be a defence: Advocate Mines Ltd., Re., (1984), 52 C.B.R. (N.S.) 277;
m. To succeed in lifting a stay of proceedings against a bankrupt, the Court must be satisfied that the creditor is likely to be materially prejudiced by the continuance of the stay. The Court has a wide discretion based upon the particular facts of the case in question: Fiorito v. Wiggins, 2017 ONCA 765, at para. 16; and
n. A material prejudice may be found where the claim against the bankrupt is for a debt that would not be released by an order of discharge: Olaivar (Re), [2009] O.J. No. 4469, 60 C.B.R. (5th) 96, at para. 10.
THE ANALYSIS
Issue #1: Is the Defendant Knecht released from any debts/liabilities?
[24] The Plaintiff asserts that the Defendant Knecht’s liabilities fall within the scope of the first branch of section 178(1)(e) of the BIA, being that it arises from acquiring property by false pretences. The Plaintiff does not seek to prove the existence of fraudulent misrepresentation.
[25] The Defendant Knecht seeks a dismissal of the Plaintiff’s Motion because the pleadings and the trial decision do not raise any findings or allegations against him of fraud, deceit or that he engaged in any other deceptive practices or conduct.
[26] The Plaintiff argues that there is no requirement that fraud be plead or proven. Unlike section 178(1)(d) of the BIA, which speaks directly to the “debt or liability arising out of fraud”, it is not a requirement for the concept of “false pretences” in section 178(1)(e) of the BIA. If that were Parliament’s intent, it would have been specifically set out in the section.
[27] The Plaintiff relies upon of Dead End Survival, LLC v. Marhasin, 2020 ONSC 766, a decision it says has many similarities to the case at bar. In that case, Justice Dietrich determined that the act of selling counterfeit goods and receiving proceeds from the sale of those goods created a debt or liability resulting from obtaining property on false pretences.
[28] The Defendant Knecht argues that the Plaintiff’s reliance on Dead End Survival, LLC v. Marhasin is misplaced because, not only did the pleadings in that case specifically allege fraud, but there was also a finding that the bankrupt had engaged in an egregious fraudulent counterfeiting scheme.
[29] The Defendant Knecht relies upon the decision of Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, wherein the Court adopted the definition of false pretence from the Criminal Code. It reads as follows: “A false pretence is a representation of a matter of fact, either present or past, made by words or otherwise, that is known by the person who makes it to be false and that is made with a fraudulent intent to induce the person to whom it is made to act on it”: s. 361(1).
[30] I do not subscribe to the view that we should adopt the Criminal Code definition to ascertain the meaning of the expression false pretences. The purpose of the BIA is to relieve an honest and unfortunate debtor of their debts and liabilities, unless it falls under an exception set out in section 178 of the BIA. Moreover, section 178(1)(e) of the BIA has been described as a morality concept where one must look at the conduct and determine if it is unacceptable to society. It is not an exercise of determining the criminality of the conduct, and I do not believe that raising the requisite level of conduct to that of criminality was Parliament’s intent.
[31] If one accepts the Defendant Knecht’s position that the Criminal Code definition of “false pretences” must be adopted in the context of bankruptcy, as some Courts have previously done, the term “false pretences” would be identical and/or interchangeable with “fraudulent misrepresentation”. I do not believe that this was the legislator’s intent.
[32] The use of the word “or” in section 178(1)(e) of the BIA is important. In my view, this word provides an alternative, meaning that there are two options in 178(1)(e) of the BIA. Either the property was obtained by “false pretences” or it was obtained by “fraudulent misrepresentation”.
[33] Although I accept that there are similarities, these two expressions are not to be read conjunctively. I adopt the Manitoba Court of Appeal’s approach in Ste. Rose & District Cattle Feeders Co-op v. Geisel where the Court concluded that only one of these two expressions need to be proven to engage section 178(1)(e) of the BIA.
[34] In Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. the Ontario Court of Appeal considered the meaning of the word “pretence”, in referring to the New Oxford Dictionary of English (1998) the Court stated that the definition is: “an attempt to make something that is not the case appear to be true”: at para. 14. To further the analysis, the word “false” is defined in the Black’s Law Dictionary as follows: “1. Untrue; 2. Deceitful, lying; 3. Not genuine, inauthentic; 4. Wrong, erroneous.”: Bryan A. Garner, Black’s Law Dictionary, 11th ed. (Thomson Reuters, 2019), p. 745.
[35] It is my view that a dishonest bankrupt who has unlawfully obtained property by lying satisfies the requirements of “false pretences” in section 178(1)(e). Such conduct is deceitful and wrong. It is this type of conduct that is morally objectionable to society. If the bankrupt engages in such a behaviour, they should not be shielded by bankruptcy.
[36] To determine the nature and substance of the liability, it is necessary to review of the pleadings and Justice R. Smith’s decision dated August 7, 2018.
[37] The allegations of wrongdoing against the Defendant Knecht in the Statement of Claim are lumped in with all of the other Defendants in the Action, which includes Knight Manufacturing Inc. (“KM”), a company founded and operated by the Defendant Knecht. It is alleged that the Defendants misused trade secrets, knowingly misused confidential information, infringed on copyright, were unjustly enriched at the expense of the Plaintiff, and wrongfully interfered with the Plaintiff’s contractual relationships and economic interests.
[38] The Defendant Knecht says that the particulars of the allegations against him as outlined in the Statement of Claim, are devoid of any fraudulent wrongdoing. I agree that there are no specific references to fraud, but it does, in my opinion, describe wrongful and morally unacceptable conduct.
[39] In his judgment, Justice R. Smith made a number of findings against the Defendant Knecht, which, in my opinion, point to the Defendant Knecht’s dishonest and unlawful conduct that is captured by the expression of “false pretences”. As enunciated by the British Columbia Court of Appeal, in H.Y. Louie it is not necessary that there are exact allegations in the pleadings to the circumstances listed in section 178 of the BIA, as many of the exceptions do not correspond to a specific cause of action.
[40] The relevant facts and findings are set out below [Emphasis Added].
18 Alexander Knecht ("Alex") is a business owner who emigrated from Germany after selling his interests in a number of computer stores that he had operated. He first met Mr. Ballmer in 2006 through an online immigration forum. Alex learned about SK and its success when researching Mr. Ballmer and Ms. Shaver in advance of their first meeting at his home in about August of 2011. It was during that visit that Alex proposed going into the metal sleeve business with Mr. Balmer. Alex testified that the sleeve business was a test of Mr. Ballmer's abilities prior to them entering a venture together focused on the construction of log homes.
21 KM is a corporation registered in Ontario, Canada. It is one of three sleeve manufacturers worldwide and was founded on March 16, 2012 by Mr. Knecht. Mr. Ballmer and Ms. Shaver worked for KM during its first year of operation. Mr. Ballmer worked for KM as a consultant at a salary of $5,000 per month from March 1, 2012 until the fall of 2016. Ms. Shaver worked for KM as a telemarketer and sales representative from December 2012 to January 2017. Mr. Knecht is the founder and President of KM.
29 SK has not presented any direct evidence that Ms. Shaver took or copied Shaver-Kudell's customer list. However, Ms. Shaver acquired knowledge of many of SK's long-time customers as a result of working with them over the 23 years while she was employed at SK. Her emails to Mr. Knecht and Mr. Ballmer described many SK customers with specificity.
59 SK developed their manufacturing process, [text omitted] over 20 years and received research grants over that period of over 2 million dollars to develop the new tools and manufacturing process. KM did not provide any technical drawings showing an independent path of development and in less than 9 months developed the same tools and used the same manufacturing process as SK had developed. I find that these facts support an inference that KM copied SK's tooling and manufacturing process to make sleeves.
61 For the above reasons I accept Mr. Cashion's opinion that the manufacturing process of making sleeves from a [text omitted] developed by SK were unique and was a new method which was unknown to the public. I also accept Mr. Cashion's opinion that the similarity of KM's process to that used by SK was "beyond coincidence".
76 Alex became aware that SK was in the business of manufacturing sleeves as a result of meeting Mr. Ballmer and Lucy and researching SK's business. In the circumstances I infer that Alex was also aware that Lucy and Mr. Ballmer would use confidential information obtained from SK to manufacture sleeves. I find that Alex agreed to set up a business with Ballmer and employ Lucy to compete with SK because their knowledge of SK's manufacturing process and tooling would allow KM to operate successfully.
78 I find that Mr. Knecht, KM and Ballmer knew that they were receiving confidential information from Lucy about SK's customers. In fact this is why KM and Alex hired Lucy to do marketing for the sale of sleeves when she remained in the Summerstown area, even though KM's operation was located in North Bay. Both Mr. Knecht and Ballmer received many emails from Lucy advising them of the success she was having soliciting SK's customers.
79 In his examination for discovery Alex testified that he had created the product list independent from SK's part list, which was identical to SK's apart from a decimal point. During discovery he denied relying on SK's product list but at trial he changed his evidence and agreed that he had copied SK's product list. Mr. Knecht admitted that he had lied at his discoveries under oath which adversely affects his credibility.
80 Alex was the controlling mind of KM and he wanted to see if Ballmer could find a solution to manufacture sleeves in a modern way. Mr. Knecht was aware of the connection between Lucy and Ballmer and SK and knew that Lucy had worked at SK for many years and was familiar with SK's operation and with SK's customers. Ballmer told him that he had an idea of how to make sleeves, and would require a [text omitted] and that he could achieve results in a short time. I infer that in these circumstances Knecht and KM knew or was wilfully blind to the fact that Ballmer and Lucy intended to wrongfully use SK's confidential information about the manufacturing process and [text omitted] that SK used to make sleeves and that Lucy intended to wrongfully use SK's customer information that she had committed to memory and knew, as a result of her lengthy 23 year employment at SK dealing with its customers.
86 For the above reasons, I find that the Defendants committed a breach of confidence and misappropriated SK's trade secrets concerning its manufacturing process and [text omitted] because the information the Defendants acquired had the necessary quality of confidence, the information was communicated to or acquired by Lucy and Ballmer in circumstances giving rise to an obligation of confidence, that Ballmer communicated SK's trade secrets to Alex and KM who knew or ought to have known that Ballmer and Lucy were breaching an obligation of confidence to SK and the Defendants have made unauthorized use of SK's trade secrets to its detriment.
[41] I find that Justice R. Smith’s findings against the Defendant Knecht amount to deceitful and dishonest conduct which engages section 178(1)(e) of the BIA. The Defendant Knecht, who was the controlling mind of KM, was able to penetrate a very unique market, within a period of nine months when it took twenty years for the Plaintiff to achieve. Justice R. Smith found that this could only be accomplished by copying (which I infer to mean “stealing”) the Plaintiff’s tooling and manufacturing process. Theft is not morally acceptable conduct. Justice R. Smith’s determination of the Defendant Knecht’s conduct can be summarized in the following manner:
a. He knew that confidential information was being used to manufacture the sleeves;
b. He set up a business with individuals, Ballmer and Lucy, who had proprietary knowledge of the Plaintiff’s clients, manufacturing process and tooling, ensuring KM’s success;
c. He knew that Lucy was successfully soliciting the Plaintiff’s customers;
d. He lied at discoveries regarding copying the Plaintiff’s product list;
e. He wanted to find a solution to manufacture sleeves in a modern way and was aware of Lucy and Ballmer’s collective knowledge in the industry;
f. He was wilfully blind to the fact that Ballmer and Lucy intended to wrongfully use the confidential information obtained from the Plaintiff;
g. He knowingly received the Plaintiff’s trade secrets;
h. He knew or should have known that Ballmer and Lucy were breaching an obligation of confidence; and
i. He made unauthorized use of the Plaintiff’s trade secrets to the Plaintiff’s detriment.
[42] The Defendant Knecht’s conduct is precisely the type of conduct that society frowns upon. He is not an “honest but unfortunate debtor”. I find that he is a deceitful wrongdoer and he should be precluded from benefitting from his dishonesty. He lied under oath, which adversely affected his credibility. He willingly participated in the scheme to utilize confidential information that was not his to use. He knowingly partnered and/or employed individuals that had unlawful knowledge of trade secrets and he used this confidential information for his own financial gain and to the detriment of the Plaintiff. Manufacturing a sleeve that was copied and then selling it on the market as his own creation is clearly an attempt at making something that is not the case appear to be true.
[43] It has been found that confidential information is property: Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36, [2006] 2 S.C.R. 189, at para. 22. Also, there is nothing in the language of section 178(1)(e) of the BIA that requires “false pretences” to be made to the party claiming the exception: Alberta Securities Commission v. Hennig, 2020 ABQB 48, at para. 76.
[44] The Defendant Knecht, as the controlling mind of KM, obtained the property unlawfully and by pretences that he knew to be false. Justice R. Smith’s determination that the Defendant Knecht misappropriated the Plaintiff’s trade secrets and confidential information led to an award of costs, which is a debt owed. Further, as a result of the bifurcation of the trial (liability and damages), there remains the potential debt against the Defendant Knecht which could include an award of damages for the profits earned by the Defendant Knecht. In my view, the requirement that there exists a causal connection between the Defendant Knecht’s wrongful conduct and the creation of these foregoing debts is clear and satisfied.
[45] In sum, I am satisfied that Justice R. Smith’s findings demonstrate that the debts and liabilities arose from the Defendant Knecht’s false pretences in accordance with section 178(1)(e) of the BIA. The Plaintiff is therefore entitled to a declaration that upon any discharge from bankruptcy granted to the Defendant Knecht, he is not released against any debts or liabilities arising from the Plaintiff’s claims.
Issue #2: Is the lifting of the Stay appropriate and should terms be imposed?
[46] The Court has a wide discretion to lift the Stay.
[47] The Defendant Knecht concedes that there are grounds to lift the Stay imposed by section 69.3 of the BIA.
[48] The Defendant Knecht argues that if the Stay is lifted, terms should be imposed because it is his position that the Plaintiff’s claims do not survive the discharge of bankruptcy.
[49] Given that I have determined that the Plaintiff’s claims do fall within the exception of section 178(1)(e) of the BIA, I reject the Defendant Knecht’s argument that terms should be imposed. In such a circumstance, the Plaintiff would suffer a significant prejudice if it were not allowed to proceed to judgment in regards to the damages.
[50] Having found that the claims against the Defendant Knecht are for debts and liabilities that will not be released by an Order of discharge, and considering that the Plaintiff was successful during the liability portion of the bifurcated trial, I find that it would be materially prejudicial to the Plaintiff if the Stay continues to operate. Moreover, I agree with the Plaintiff that the Defendant Knecht is a necessary party for the completion of the adjudication of this matter, namely the determination of damages.
[51] Accordingly, a declaration and Order that the Stay under section 69(1) of the BIA no longer operates with respect to the Action will issue.
COSTS
[52] If the parties are unable to agree on costs, the Plaintiff shall serve and file written submissions of no more than three pages, exclusive of its Bill of Costs and Offer(s) to Settle, within 30 days of the date of these Reasons for Decision. The Defendant Knecht shall then serve and file written submissions of no more than three pages, exclusive of his Bill of Costs and Offer(s) to Settle, within 10 days thereafter. If required, the Plaintiff can file a brief reply (1 page), within 5 days of the receipt of the Defendant Knecht’s submissions.
M. Smith J
Released: December 9, 2020
COURT FILE NO.: CV-13-57031
DATE: 2020-12-09
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Shaver-Kudell Manufacturing Inc
Plaintiff
– and –
Knight Manufacturing Inc., Lucy Shaver, Dusko Ballmer, Alexander Knecht
Defendants
REASONS FOR DECISION
Justice Marc Smith
Released: December 9, 2020