ENDORSEMENT

Introduction

[1] This is a motion for judgment by the Plaintiff (“BMO”) under r. 19.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, following the service upon and noting in default of the Defendant. BMO seeks judgment in the amount of $35,723.71 plus pre and post-judgment interest because of an unpaid conditional sales agreement. It further seeks a declaration that “the debts incurred herein arose by way of fraudulent misrepresentations and under false pretences”. Such a declaration has no effect on the monetary judgment sought, but may hypothetically have some effect should the Defendant later declare bankruptcy.

[2] The key issue in this motion is whether I should grant the declaration that BMO seeks.

[3] For the reasons that follow, I grant judgment to BMO for the amount that it claims as liquidated damages, but dismiss its claim for a declaration regarding fraudulent misrepresentation and false pretences.

BMO’s Pleadings

[4] In its statement of claim, BMO pleaded that the Defendant misrepresented her income and employment in her application for credit under a conditional sales agreement for a BMW vehicle. It adds that it relied on those misrepresentations. It pleaded as follows:

Affidavit of Jocelyn Sauve

[5] In support of this motion, BMO filed an affidavit, which it did not serve upon the Defendant because it had noted her in default. In that affidavit, Jocelyn Sauve, who describes herself as “the manager at the National Special Handling Office, Personal & Business Banking and Wealth Management Operations” for BMO, stated that in that role, she has knowledge of the matters to which she deposes. She does not claim to have had any personal dealings with this matter.

[6] Ms. Sauve then sets out that the Defendant entered into a conditional sales agreement to purchase the vehicle from a car dealer, which was then assigned to BMO. Her affidavit continues by setting out that monthly statements were sent to the Defendant, which are attached as exhibits to her affidavit. She then states that BMO sold the subject vehicle, leaving the amount of the claim owing.

[7] Ms. Sauve then turned to the issue of fraud. She alleged that “the Defendant misrepresented that she had been employed in as [sic] a manager for Swiss Pick Restaurant in Toronto…for eight years and that she earned a monthly income of $7,500.” Ms. Sauve attached a copy of the credit application filled out by the Defendant, which contained that representation, as an exhibit to her affidavit.

[8] Then, as proof of the falsity of the defendant’s income and employment representations, Ms. Sauve referred to her information and belief provided by Tonia Pietroniro, an analyst employed by BMO. Ms. Pietroniro advised Ms. Sauve that on or about November 29, 2019, she had telephoned the number for the Swiss Pick Restaurant provided in the Defendant’s credit application. The number was not in service. Ms. Sauve adds that a Google search of the Swiss Pick Restaurant provides a different telephone number, which was identical to the one supplied by the Defendant, other than the last digit. It too was not in service.

[9] That is the sum total of BMO’s evidence of the Defendant’s alleged fraudulent misrepresentations and false pretences regarding her application for credit.

[10] Ms. Sauve adds another ground of alleged fraud in her affidavit; one that was not pleaded in BMO’s statement of claim. Therefore, I cannot rely on that evidence in support of the veracity of the facts pleaded in the statement of claim.

[11] This motion is brought under r. 19.05, which reads as follows:

BY MOTION FOR JUDGMENT

19.05 (1) Where a defendant has been noted in default, the plaintiff may move before a judge for judgment against the defendant on the statement of claim in respect of any claim for which default judgment has not been signed.

(2) A motion for judgment under subrule (1) shall be supported by evidence given by affidavit if the claim is for unliquidated damages.

(3) On a motion for judgment under subrule (1), the judge may grant judgment, dismiss the action or order that the action proceed to trial and that oral evidence be presented.

(4) Where an action proceeds to trial, a motion for judgment on the statement of claim against a defendant noted in default may be made at the trial.

[12] Under r. 19.02(1)(a), with a finding of default, a defendant is deemed to have admitted all of the allegations of fact in the statement of claim. However, under r. 19.06: “[a] plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.” As Favreau J. describes it in Canada Mortgage and Housing Corp. v. CMC Medical Centre Inc., 2017 ONSC 7551, at para. 14, this rule “requires the judge to inquire into whether the deemed factual admissions resulting from the default support a judgment on liability as well as damages.”

[13] In support of that statement, Favreau J. cited the decision of Himel J. in Fuda v. Conn, 2009 CanLII 1140 (ON SC), [2009] O.J. 188 (S.C.J.), who wrote at para 16:

[A]lhough the Rules provide the consequences for noting in default, the court has the jurisdiction and the duty to be satisfied on the civil standard of proof that the plaintiff is able to prove the claim and damages. If the court finds the evidence to be lacking in credibility or lacking "an air of reality", the court can refuse to grant judgment or grant partial judgment regardless of fault.

[14] In Elekta Ltd. v. Rodkin, 2012 ONSC 2062, D.M. Brown J., as he then was, stated at para. 14 that the court considering a motion for judgment must engage in the following enquiry:

(i) What deemed admissions of fact flow from the facts pleaded in the Statement of Claim?

(ii) Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim?

(iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?

As set out below, I engage in that enquiry.

(i) What deemed admissions of fact flow from the facts pleaded in the Statement of Claim?

[15] The deemed admissions of fact that flow from the statement of claim are that:

The Defendant represented to BMO that she was employed as a manager at the Swiss Pick Restaurant in Etobicoke, earning $7,500 per month;
BMO relied on those representations and granted the Defendant credit to the Defendant;
The information provided by the Defendant was false;
That information was “devised” solely for the purpose of defrauding BMO to extend credit;
BMO provided credit based on those representations.

(ii) Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim?

[16] As r.19.06 implicitly demonstrates, while the facts set out in the statement of claim are deemed to have been admitted, the legal consequences of those facts are not. As Corkery J. wrote in Nikore v. Jarmain Investment Management Inc., 2009 CarswellOnt 5258 (S.C.J.), at para. 20:

Under Rule 19.02 a defendant noted in default is deemed to have admitted all allegations of fact in the statement of claim. Allegations of law or mixed fact and law do not bind the court as admissions.

[17] BMO’s statement of claim fails to state what was false about the defendant’s employment and income representations or how they amounted to fraud. It does not say whether they were material or minor. It simply offers the conclusion that they were false and fraudulent. In light of those omissions, the pleadings in the statement of claim are insufficient to support a finding, let alone a declaration of fraudulent misrepresentation and false pretences.

[18] In Canada (Attorney General) v. Bourassa (Trustee of), 2002 ABCA 205, McClung J.A. made that point clear for the Alberta Court of Appeal when he wrote at para. 9:

Fraud and its proof have their own distinct biosphere. In commercial disputes, allegations of fraud are frequently levelled. But they must be levelled with caution. At common law the claim must be specified and with particulars, or it will be struck: see Canadian Abridgement, vol. R17D, (2d) ed. (Toronto: Carswell, 1991) at Digest 1689 et seq. Regarding evidence of fraud, Kerr on Fraud and Mistake notes that; "fraud is not to be assumed on doubtful evidence. The facts constituting fraud must be clearly and conclusively established."

[19] McClung J.A. concluded on the point at para. 10 that “[h]e who alleges must prove. It is that simple.”

(iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?

[20] The evidence that BMO relies upon to buttress its allegations in support of a declaration does not support its claims. The fact that the alleged employer’s phone number was not in service over 1 ¼ years after the representation was made says nothing about the Defendant’s employment and income status at the time that she filled out the BMO credit application. In fact, the reference to the fact that there had been a Google listing of a phone number for a Swiss Pick Restaurant with a phone number almost identical to that of the one given by the Defendant offers some confirmation for the truth of the representation in her credit application. That is especially the case since businesses often have more than one telephone line, many with very similar telephone numbers.

[21] Thus, the facts deposed to by Ms. Sauve as set out above do not support a finding of fraudulent misrepresentation or false pretences. Given the unopposed opportunity to put forward its evidence of fraudulent misrepresentation and false pretences, the Plaintiff has not proven:

that the defendant’s employment and income representations in the BMO credit application were untrue when they were made;
what was untrue about them; and
even if they were untrue, that they amount to fraudulent misrepresentation or false pretences.

Potential Effect of the Declaration Sought by BMO

[22] To be clear, the issue in this motion is not the amount of the judgment, but its effect. Should I grant BMO the declaration it seeks, it is likely that the judgment will survive any potential bankruptcy by the Defendant. I say that because of the provisions of s. 178(1) and (2) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (“the BIA”).

[23] Under the BIA s. 178(2), a discharge from bankruptcy releases the bankrupt from all claims provable in bankruptcy. However, exceptions to that rule are found under s. 178(1), which refers to claims based on various types of misconduct that are not released by a bankruptcy discharge.

[24] Among the exceptions set out in s. 178(1) are debts or liabilities that arise from “fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity”: s. 178(1)(d); or “false pretences or fraudulent misrepresentation”: s. 178(1)(e). The applicable provisions read as follows:

Debts not released by order of discharge

178(1) An order of discharge does not release the bankrupt from

(d) any debt or liability arising out of fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity or, in the Province of Quebec, as a trustee or administrator of the property of others;

(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;

The Court Should not Issue Hypothetical Declarations

[25] In Royal Bank of Canada v. Elsioufi, 2016 ONSC 5257 (“RBC v Elsioufi”), Dunphy J. considered facts remarkably similar to those in this case. A bank sued a defendant, who had obtained credit to purchase a luxury automobile. The defendant then vanished with the vehicle, not having paid anything on the loan. The bank sued the defendant for the outstanding loan and a declaration that the judgment "shall survive an order of discharge from any proceedings brought by or against the Defendant ... pursuant to the Bankruptcy and Insolvency Act." Dunphy J. granted the judgment for the financial relief claimed by the bank but refused to grant the declaration sought by the bank.

[26] Dunphy J. was aware of the r. 19.02(1)(a) deemed admission in the face of default proceedings. He even stated, on the facts before him, that “there is clearly a strong case to be answered” in regard to the fraudulent misrepresentation claim. In that regard, I note that the inference in favour of the bank in that case was stronger than either the evidence or any inference arising from it in this case. Nonetheless, as Dunphy J. pointed out, it was not necessary to make a finding of fraud in order to grant the full monetary judgment requested in that case.

[27] Dunphy J. continued, stating that even if a positive finding of fraud were required to issue a judgment, he would not do so. That is because it would represent a hypothetical declaration applicable to a bankruptcy proceeding prior to that proceeding commencing.

[28] Dunphy J. referred to the decision in B2B Bank v. Batson, 2014 ONSC 6105, where, in facts similar to those before him, Stinson J. refused to grant a declaration of fraud, even on consent. Dunphy J. concluded at para. 10:

Judicial declarations ought to be made on the basis of examined evidence and not solely on the basis of admissions or even consent: B2B Bank at para. 11 and in any event ought not to be made in the case of hypothetical circumstances that may never arise: B2B Bank at para. 13.

[29] Dunphy J. expanded upon the point regarding hypothetical judgments by stating:

12 I note that it is now well established that any future court considering whether the defendant can claim the benefit of a bankruptcy discharge notwithstanding this judgment will be able to go behind the formal judgment issued by me to consider both the claim on which it was based and these reasons. The strong policy of our courts in discouraging wrong-doers from abusing the bankruptcy process is in no way blunted by maintaining our court's traditional unwillingness to pronounce on hypothetical issues before their time.

[30] Here, the requested declaration is not in the same words as the declaration sought in RBC v Elsioufi. But its effect is the same, particularly in regard to the reference to the terms “fraudulent misrepresentation” and “false pretences”, used in the BIA s. 178(1)(e).

[31] In RBC v Elsioufi, Dunphy J. stated:

7 Even if I had been required to make a positive finding of fraud in order to issue my judgment, I should still have declined to make an advance declaration under s. 178(1)(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 as requested because I have reached the conclusion that I have no jurisdiction to make such a hypothetical declaration before the issue actually arises.

The reasoning of Dunphy J. applies with equal force in this case.

Conclusion

[32] Accordingly and for the reasons cited above, I grant BMO judgment for the monetary claims set out at paras. 1-4 of its notice of motion. But I dismiss its claim for a declaration against the Defendant.

Addenda

[33] I add two notes to this endorsement. First, in RBC v Elsioufi, Dunphy J. offered a final statement that is applicable here and to my own judicial practice. He wrote:

11 I am moved to issue this brief endorsement for publication purposes as I have noticed a growing practice of some to request such declarations on a routine basis. I may even have signed one or two before giving the matter further thought and research and I have reached the conclusion that the practice is to be discouraged.

[34] It is unfortunate that that authority was not brought to my attention before I too signed one or two endorsements offering the relief sought in this motion. It should be brought to the court’s attention when a litigant such as BMO brings a motion such as this, without notice to the other side.

[35] Second, in Elekta Ltd. v. Rodkin, 2012 ONSC 2062, D.M. Brown J., as he then was, wrote of the best practice for a motion such as this, stating:

10 Although once noted in default a party is not entitled to notice of a motion for default judgment, by far the better practice is to serve the default judgment motion materials on the defendant in any event. The main reason for this practice is a simple, but important, one. Often the materials filed on a Rule 19.05 motion for default judgment will raise questions about the adequacy of the service of the Statement of Claim.

[36] Here, the issue is not service but the issue of a declaration. Nonetheless the principle offered by D.M. Brown J. applies in the face of r. 19.06 (see also Canada Mortgage and Housing Corp. v. CMC Medical Centre Inc.). This motion should have been served on the Defendant despite the noting in default.

Costs

[37] Based on my findings above, BMO should not receive its costs of this motion. It was entitled to judgment on the liquidated damages in this action without bringing this motion. I grant it costs of the action on a partial indemnity basis of $847.50 (inclusive of HST) + $628.68 in disbursements for a total of $1,476.18.

“Marvin Kurz J.”

Electronic signature of Justice Marvin Kurz,

Original will be placed in court file

Date: April 6, 2021

Bank of Montreal v. Mathivannan, 2021 ONSC 2538

Case Summary

ENDORSEMENT

Introduction

BMO’s Pleadings

Affidavit of Jocelyn Sauve

(i) What deemed admissions of fact flow from the facts pleaded in the Statement of Claim?

(ii) Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim?

(iii) If they do not, has the plaintiff adduced admissible evidence which, when combined with the deemed admissions, entitles it to judgment on the pleaded claim?

Potential Effect of the Declaration Sought by BMO

The Court Should not Issue Hypothetical Declarations

Conclusion

Addenda

Costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 5

Legal Tests 1

Legislation 2