COURT FILE NO.: CV-18-59

DATE: 2021/10/05

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Yanic Dufresne Excavation Inc.

Plaintiff

– and –

Saint Joseph Developments Ltd., Vincent Martin Détillieux and Albert Plant

Defendants

J.F. Lalonde and Patrick R. Simon, for the Plaintiff

Christopher McLeod and Nigel McKechnie, for the Defendant Albert Plant

HEARD: January 22, 2021 and May 18, 2021 by Zoom at L’Orignal

REASONS FOR DECISION ON PLAINTIFF’S CROSS-MOTION

Introduction

[1] This is a cross-motion brought by the Plaintiff (“Dufresne”) to vary the default judgment (“Default Judgment”) made by Kane J. on January 25, 2019. The Default Judgment was made within the context of the Plaintiff’s Statement of Claim for breach of contract and breach of statutory trust provisions pursuant to the Construction Lien Act, R.S.O. 1990, c. C30, as it then was. The main purpose of the cross-motion is to determine whether the debt owing by Albert Plant (“Mr. Plant” or “Defendant”) to Dufresne is a debt that survives his bankruptcy pursuant to section 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). Mr. Plant filed for bankruptcy on February 19, 2019, which was after the Default Judgment was obtained.

Original Motion by Mr. Plant

[2] A motion was brought by the Mr. Plant, to set aside the Default Judgment. That motion was stayed on consent of the parties as endorsed by Charbonneau J. on July 3, 2020.

[3] Mr. Plant argues that when Dufresne initially sought a default judgment against the three Defendants, it did not obtain an order to find the directors of the corporate Defendant personally liable for breach of trust. Neither Saint Joseph Developments Ltd. (“SJD”), the Defendant corporation, nor its directors, Mr. Plant and Vincent Détillieux (“Mr. Détillieux”), filed Statements of Defence or Affidavits of Documents. No out of court examinations were held until after:

(1) The Default Judgment was granted; and

(2) Mr. Plant filed a motion to set aside the Default Judgment.

Factual Background

[4] On or around January 29, 2015, Mr. Plant became secretary treasurer of Saint Joseph Properties Ltd. (“SJP”). SJP is the part owner of various properties, including the Medical Complex as defined hereafter. In this case, SJP was part owner of the Medical Complex along with Mr. Plant’s wife, Chantal Plant’s (“Ms. Plant”), company 2464065 Ontario Ltd. (“246”).

[5] On or around January 29, 2015, Mr. Plant became the president of SJD, one of the Defendants in this action. SJD is a development company that developed the Medical Complex mainly by acting as general contractor for SJP. This included hiring Dufresne to do various work.

[6] On or around April 28, 2015, Ms. Plant incorporated 246.

[7] On or around April 30, 2015, SJP and 246 purchased land municipally known as 601 Limoges Street for $339,520. The land was bought to develop a medical complex (the “Medical Complex”).

[8] On or around January 12, 2016, Mr. Plant became a director of 246.

[9] In summary, as of January 12, 2016, Mr. Plant was:

a. A director and secretary treasurer of SJP;

b. A director of 246; and

c. A director and president of SJD.

[10] On or around January 12, 2016, the Plaintiff contracted with SJD for excavation work related to the development of the Medical Complex.

[11] On or around July 4, 2016, Mr. Détillieux, through a company called 2522871 Ontario Ltd., purchased vacant land in Crysler, Ontario (the “Vacant Lot”).

[12] On or around August 2016, Dufresne contracted with SJD to do a road cut job related to the development of the Medical Complex.

[13] On or around October 3, 2016, 246 and SJP obtain financing by way of a charge in the amount of $3,885,000 from Westboro Management (“Westboro”). Mr. Plant, Mr. Détillieux, and Ms. Plant all personally guaranteed the charge securing the loan.

[14] On or around September 30, 2016, Mr. Plant, among others, signs an assignment of rents to Westboro for the construction of the Medical Complex.

[15] On or around October 2016, Dufresne enters a contract with SJD to do work on a property municipally known as 2091 Des Pins (the “Residential Complex”).

[16] On or around December 2016, Dufresne enters a contract with SJD to do work on the Vacant Lot.

[17] On or around May 2017, Dufresne begins sending invoices for completed work on the Medical Complex and the Residential Complex.

[18] On or around September 12, 2017, Mr. Plant, as secretary treasurer of SJP, binds that corporation and increases the mortgage debt with Westboro from $3,885,000 to $4,162,500.

[19] On or around December 2017, Dufresne sends the last invoices for the Residential Complex and Vacant Lot jobs. All of Dufresne’s invoices for work done on the Medical Complex, the Residential Complex, and the Vacant Lot are sent between May 2017 and December 2017.

[20] On or around July 2018, Dufresne makes inquires with Mr. Plant about payments of its invoices in arrears.

[21] On or around September 6, 2018, Dufresne issues a Statement of Claim for collection of outstanding balance owing on account of its work done on the Medical Complex, the Residential Complex, and the Vacant Lot.

[22] On November 20, 2018, Dufresne notes all of the Defendants in default for failing to defend.

[23] On January 3, 2019, Ms. Plant swears an affidavit stating, in part, that:

a. Dufresne received payments from a construction financing mortgage; and

b. Mr. Plant advised Ms. Plant, who verily believed her husband, that Dufresne’s contracts and invoices were never received, which implies that he had a direct hand to play in hiring contractors like Dufresne and reviewing its invoices.

[24] Dufresne served a notice of examination to cross-examine Ms. Plant on her affidavit on January 17, 2019. Ms. Plant failed to attend the cross-examination. A certificate of non-attendance was issued by Catana Reporting Services.

[25] On or around January 25, 2019, Kane J. after the hearing signed the Default Judgment in favour of Dufresne against SJP, Mr. Plant, and Mr. Détillieux in the amount of $181,133.23 plus costs of $9,200 payable jointly and severally.

[26] On or around February 19, 2019, Mr. Plant made an assignment into bankruptcy with Raymond Chabot Inc. (the “Trustee”).

[27] On or around October 3, 2019, Dufresne’s counsel advises the Trustee that it is seeking to have Mr. Plant’s debt survive his bankruptcy. The Trustee advises Mr. Plant that he would need to take steps to defend against this relief sought by Dufresne.

[28] On February 25, 2020, Mr. Plant swears an affidavit in support of his motion to set aside Kane J.’s Default Judgment.

[29] Mr. Plant’s affidavit included copies of bank statements and cheques from SJD and SJP’s bank accounts for the period of April 24, 2015 to September 20, 2019.

[30] According to the Plaintiff, these bank statements show the following:

a. Mr. Plant signed fifty-seven (57) cheques;

b. Although Dufresne was providing invoices for three (3) distinct projects, Mr. Plant and Mr. Détillieux, on behalf of SJD, paid some of Dufresne’s invoices from the same bank account, which made it impossible to know from which project financing Dufresne was being paid. Dufresne was not able to allocate payments received to its various jobs;

c. There are countless Interac e-transfers that cannot be accounted for, with varying amounts depleting the funds over time; and

d. There were numerous cash withdrawals totalling in excess of $50,000.

[31] The Plaintiff states the bank statements showed that Mr. Plant and Mr. Détillieux were paying for items that were totally unrelated to the construction project from the same bank account and from the construction financing funds. Although it is impossible to show every defalcated and misappropriated expense, the Plaintiff argues that some are plainly obvious from the bank statements:

a. On May 1, 2017, $22,527.84 to Dufresne (not defalcated, but showing Mr. Plant and Mr. Détillieux are paying trades from this account);

b. On May 4th, 2017, $250 to The Apostles of Infinite Love;

c. On May 15, 2017, $12,269.03 to the Grads Navan Hockey Team;

d. On May 15, 2017, $22,187.90 to Mr. Détillieux;

e. On May 15, 2017, $250 to Club Optimiste Limoges;

f. On May 24, 2017, $11.87 to Bridgehead Coffee;

g. On May 30, 2017, $26,992.31 to Dufresne (not defalcated);

h. On May 30, 2017, $5,669.21 to City of Om Yoga Festival;

i. June 9, 2017, $8,369.20 to Silver HQ Auto Sales;

j. On July 10, 2017, $750 to Mr. Plant;

k. On July 18, 2017, $19,385.66 to Brazeau Seller LLP;

l. On September 19, 2017, $1,000 to the Medical Limoges Citizens Committee;

m. On September 20, 2017, $1,130 to the Ottawa Real Estate Board;

n. On September 24, 2017, $5,650 to Edelson + Friedman Barrister LLP; and

o. The aforesaid are only some examples and are not an exhaustive list.

[32] On June 1, 2020, Mr. Plant was cross-examined on his affidavit sworn February 25, 2020 and he made the following admissions:

a. He was a 50% shareholder and the secretary treasurer of SJP.

b. He was a 50% shareholder and the president of SJD.

c. That $3,885,000 was advanced by Westboro to SJP to finance the build.

d. SJP purchased lands and SJD would build the structures for a fee.

e. SJD hired Dufresne to build on properties owned by SJP.

f. The construction financing from Westboro ended up in bank accounts of SJD or SJP.

g. Mr. Plant had signing authority, wrote, and signed cheques including, but not limited to, cheques to himself and to the Mission of the Redeemer Ministries Church.

h. Mr. Plant admitted that the Mission of the Redeemer Ministries contributed nothing to improve any of the lands.

i. When asked to provide explanations for various cash withdrawals, Mr. Plant had none. He advised that most of the cash withdrawals were done by Mr. Détillieux.

j. Mr. Plant had multiple cheques from the construction trust fund account drawn and made payable to himself.

k. SJD’s bank account contained construction financing, including money for construction received by investors, banks, and finance companies for the purpose of constructing various projects.

l. SJD’s offices were at 5489 Canotek Road. Both Mr. Détillieux and Mr. Plant had their offices there, next to one another.

m. Mr. Plant was aware that SJD funds in the same bank account used to pay trades were used to donate to the Mission of the Redeemer Ministries.

n. Ottawa Senators season tickets were purchased with the financing funds.

o. Mr. Plant and Mr. Détillieux sponsored Mitch Crete’s son, who played for the Navan Grads hockey club, with the funds impressed with a construction trust account.

p. Mr. Plant was aware of a donation to the City of Om Yoga Festival Inc. He had a tent set up as a sponsor. This donation was made using funds from the account impressed with a construction trust. Mr. Plant specifically authorized this expense.

Motion to Continue Pursuant to section 69.3 of the Bankruptcy and Insolvency Act

[33] Pursuant to section 69.3 of the BIA, an unsecured creditor seeking to take action against a bankrupt can only do so if both the bankrupt and the trustee have been discharged, or if a court order is obtained pursuant to section 69.4 of the BIA to lift the stay of proceedings.

[34] Mr. Plant filed for bankruptcy with the Trustee on February 19, 2019 and was subsequently discharged. In addition, the Trustee was discharged prior to the hearing of the motion on May 18, 2021. Based on the Trustee’s discharge, the section 69.3 stay of proceedings was no longer in place as relates to Mr. Plant.

[35] At the hearing of the motion on May 18, 2021, the court was advised that Mr. Détillieux had filed for bankruptcy. According to section 69.3 of the BIA, there is a stay of proceedings in place and no proceeding can be taken against him unless the stay of proceedings is lifted pursuant to section 69.4 of the BIA, or both he and the trustee are discharged.

Preliminary Objection on the Cross-Motion

Defendant’s Position

[36] The Plaintiff brought a cross-motion to obtain a declaration that its debt survived Mr. Plant’s bankruptcy pursuant to section 178(1)(d) of the BIA.

[37] Counsel for the Defendant raised a preliminary objection prior to the hearing of the cross-motion. They argue that no extrinsic evidence should be allowed on the cross-motion after the court issued the Default Judgment.

[38] They argue that the only things that should be allowed at the cross-motion are the following:

(1) Evidence given by Dufresne at the motion for Default Judgment including the pleadings; and

(2) The endorsement of Charbonneau J. dated July 3, 2020.

[39] They argue that no other evidence after that time should be allowed by the court on the cross-motion, including Mr. Plant’s affidavit filed after the Default Judgment was granted, as well as any cross-examinations held based on the affidavits filed.

[40] The Defendant seeks to have the cross-motion dismissed because when the correct evidentiary records are reviewed, which was the evidence before Kane J., there is no evidence that there would be a finding on section 178(1)(d) of the BIA.

[41] Mr. Plant argues that he was in business with Mr. Détillieux and that their roles were specifically defined with Mr. Détillieux handling the financing and construction aspects of the projects. Mr. Plant said that he was responsible for the post-construction side of the projects, namely tenanting of units and leasing agents for property management. Mr. Plant says that Mr. Détillieux was specifically responsible for the financial aspects of their business and recordkeeping.

[42] Later on, they both started accumulating property management contracts to manage other properties. Mr. Plant was responsible for finding tenants to lease properties and managing the property staff. Mr. Détillieux managed the rent collection and recordkeeping.

[43] Mr. Plant was very specific that he relied on Mr. Détillieux to manage the construction side of the projects and the company’s financing.

[44] Mr. Plant acknowledged that he was an officer and director of SJD, SJP, and 246. He said notwithstanding that, he had no role in directing the corporations’ finances.

[45] The Defendant relies on the Lawyers' Professional Indemnity Company v. Rodriguez, 2018 ONCA 171, 139 O.R. (3d) 647, case to affirm his position that the court can only look at the material filed that leads to obtaining the default judgment, including the facts pleaded in support of the action leading to the default judgment, any evidence that was presented when obtaining the default judgment, and any reasons that were given. A judge cannot consider extrinsic evidence not grounded in the process that produced the judgment.

[46] In Rodriguez, a lawyer sent approximately $179,600 in error to Mr. Rodriguez when it should have been sent to the mortgage company. Mr. Rodriguez did not return the money, spent it on himself, and misappropriated the money. He agreed to repay the money but did not. The debt owed by Mr. Rodriguez was assigned to LawPro and another insurance company.

[47] Mr. Rodriguez went bankrupt in 2009 and did not disclose his debts to LawPro and the other company in his statement of affairs. He was discharged in 2012. LawPro learned of the bankruptcy after the discharge in 2013.

[48] In 2013, a lawyer acting on behalf of Mr. Rodriguez wrote to LawPro’s counsel to advise them, among other things, that Mr. Rodriguez was a discharged bankrupt. They asked that the writ of seizure and sale relating to the Rodriguez default judgment be lifted. This was the first occasion that LawPro and the other insurance company were aware of the bankruptcy or the discharge.

[49] In 2017, LawPro and the other insurance company issued a notice of application relying on section 178(1)(d) and (e) of the BIA for a declaration that the default judgment survived Mr. Rodriguez’s bankruptcy. On the application, however, it appeared that only section 178(1)(d) was relied upon.

[50] Mr. Plant’s counsel argues that on a section 178(1)(d) motion, the creditor relies on the debt in respect of the judgment debt secured by the default judgment. It is the nature of that debt that the motions judge should determine on the motion, whether or not, in addition to the wrong that led to the judgment debt, the creditor had engaged in other conduct that would qualify under section 178(1)(d). In Rodriguez, the court said at paras. 5-6:

[5] While I provide detailed reasons below, our decision can be explained in simple terms. The debt or liability the respondent was relying on during the s. 178(1)(d) application was the judgment debt secured by the default judgment. It was therefore the nature of that debt that the application judge should have determined on the application, not whether, in addition to the wrong that led to that judgment debt, the appellant had engaged in other conduct that would qualify under s. 178(1)(d). Properly read, the case law supports this restricted approach.

[6] To be clear, in characterizing a judgment debt under s. 178(1)(d), a judge is not confined just to the cause of action pleaded in the action that produced the judgment debt. The issue under s. 178(1)(d) relates to the substance of the judgment debt. The judge can therefore look at the material filed that led to the obtaining of the judgment debt, including the facts pleaded in support of the action that led to the judgment debt, any evidence that was presented at the time to secure that judgment debt, and any reasons that might have been given. A judge cannot, however, consider extraneous evidence not grounded in the process that produced the judgment debt. Among other reasons, it could extend the reach of the section to statute-barred claims, and violate cause of action estoppel rules.

[51] Mr. Plant’s counsel argues that the judge is not permitted to go beyond the pleadings of the judgment obtained to make fresh findings of fact. In CBM Ready Mix Division v. 8377278 Canada Inc., 2019 ONCA 886, 75 C.BR. (6th) 70, the court stated at para. 4:

The appellants essentially assert that any misapplication of deemed trust funds, or failure to account, constitutes a defalcation under s. 178(1)(d). That proposition is directly contrary to the decision of this court in Simone v. Daley (1999), 1999 CanLII 3208 (ON CA), 43 O.R. (3d) 511 (C.A.). Further, the generic pleadings in the statement of claim were found by the motion judge to be insufficient to provide the basis to find the type of misconduct required for the exemption under s. 178(1)(d). We agree. It was not the job of the motion judge to go beyond the pleadings and the judgment obtained to make fresh findings of fact: Lawyers Professional Indemnity Company v. Rodriguez, 2018 ONCA 171.

[52] The Defendant’s counsel argues that the cross-motion references extraneous evidence, none of which is admissible on the motion. They also claim that the Statement of Claim is not sufficiently particularized to ground a claim in fraud, breach of trust, embezzlement, or misappropriation.

Plaintiff’s Position

[53] The Plaintiff argues that the Rodriguez case does not apply for the following reasons:

a. In Rodriguez, the Court of Appeal dealt with an application seeking a declaration that a judgment debt resulting from a default on payment of a mortgage, rendered in a separate action, survives bankruptcy under section 178 of the BIA. The case at bar is a motion to vary a judgment rendered in the same underlying action;

b. In Rodriguez, the Court of Appeal was concerned by the application judge’s declaration that a judgment debt was captured by section 178(1)(d) of the BIA when the pleadings on which the same judgment was rendered did not contain a cause of action that could be captured by that section. In the present action, Dufresne included in its pleadings that the judgment should survive bankruptcy pursuant to section 178(1)(d) of the BIA; and

c. In Rodriguez, the Court of Appeal was dealing with a plaintiff who had knowledge of the defendant’s misconduct yet did not plead the misconduct as a cause of action. In this case, the Plaintiff did not know the particulars of the misconduct but dealt with it anyway, intending to rely on the discovery process to obtain supporting evidence. The discovery process did not occur because neither Mr. Plant nor any of the other Defendants defended the action.

[54] The Plaintiff’s counsel argues that unfairness would result if the principles laid out in Rodriguez were applied to the facts of the case at bar.

[55] The Plaintiff argues that the ruling in Rodriguez does not apply, as that case dealt with an application for declaratory relief while the present case is a cross-motion brought by the Plaintiff to vary a judgment in the same action as the judgment was rendered.

[56] The Plaintiff argues that pursuant to para. 27 of the Rodriguez decision, the Plaintiff must establish the following to obtain relief under section 178(1)(d):

(1) Mr. Plant and the other Defendants owed the Plaintiff a debt or liability;

(2) The debt or liability arose out of fraud, embezzlement, misappropriation, or defalcation; and

(3) The fraud, embezzlement, misappropriation, or defalcation occurred while Mr. Plant was acting in a fiduciary capacity.

[57] In this particular case, the Plaintiff argues that those three elements are met:

(1) Mr. Plant owed Dufresne a debt or liability;

(2) The debt or liability arose out of a misappropriation or defalcation; and

(3) The misappropriation or defalcation occurred when Mr. Plant was acting in a fiduciary capacity.

[58] The Plaintiff relies on several cases stated in its multiple factums.

Analysis

[59] The court has considered all materials and arguments raised on the preliminary objections on this cross-motion. Any failure by the court to refer to specific arguments and materials raised does not reflect that the court has not considered those arguments.

[60] The court has reviewed the materials on the motion as they relate to the preliminary objection. The court finds that the preliminary objection fails.

[61] When the Statement of Claim was issued, it sought the following relief:

a. Payment of the sum of $223,253.05 as damages for breach of contract;

b. In the alternative, payment of the sum of $223,253.05 as damages for breach of trust;

c. In the further alternative, payment of the sum of $223,253.05 on the basis of unjust enrichment and quantum meruit;

d. Damages in lost opportunities due to breach of contract, in an amount to be determined before trial;

e. A certificate of pending litigation over the property municipally known as 601 Limoges Street, Limoges, Ontario, and more particularly described as the Medical Complex;

f. A certificate of pending litigation over the property municipally known as 2091 Des Pins, Limoges, Ontario, and more particularly described as the Residential Complex;

g. A certificate of pending litigation over the property on Charles Street, Crysler, Ontario, and more particularly described as the Vacant Lot;

h. A declaration that the monies received by the Defendants for the purpose of financing the improvement, constituted a trust fund for the benefit of the Plaintiff pursuant to the provisions of the CLA, as amended;

i. A declaration that the monies received by the Defendants for the purpose of paying construction trades for their services, constituted a trust fund for the benefit of the Plaintiff pursuant to the provisions of the CLA, as amended;

j. An accounting with the respect to the trust monies converted by the Defendants as aforesaid, a judgment in accordance therewith;

k. A declaration that the Plaintiff is the beneficial owner of the Defendant’s interest in the Medical Complex, the Residential Complex, and the Vacant Lot (together the “Subject Properties”), or, in the alternative, that the Plaintiff has an equitable lien on the Subject Properties in the amount of $223,253.05;

l. A declaration that the Subject Properties held in the name of the Defendant is held by said Defendant as a constructive trustee for the Plaintiff;

m. Prejudgment interest in accordance with the terms of the contract, or in the alternative, section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended;

n. Postjudgment interest in accordance with the terms of the contract, or in the alternative, section 129 of the Courts of Justice Act, as amended;

o. The costs of this proceeding, plus all applicable taxes; and

p. Such further and other relief as to this Honourable Court may deem just.

[62] The Statement of Claim was served. No Statement of Defence was served and filed by any of the Defendants.

[63] Rule 19.02(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, says:

(1) A defendant who has been noted in default,

(a) is deemed to admit the truth of all allegations of fact made in the statement of claim.

[64] Rule 25.06(8) states:

(8) Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

[65] Rule 25.10 states:

Where a party demands particulars of an allegation in the pleading of an opposite party, and the opposite party fails to supply them within seven days, the court may order particulars to be delivered within a specified time.

[66] Rule 25.10 provides that a party can request particulars of an allegation set out in the pleadings of an opposite party. There is no evidence that Rule 25.10 was complied with and that Mr. Plant or any of the other Defendants made a request for particulars.

[67] The court finds that the information available to the Plaintiff when it prepared and served the Statement of Claim was all of the information it had available to it.

[68] The court also finds, pursuant to Rule 19.02(1)(a), that Mr. Plant is deemed to admit the truth of the allegations of fact set out in the Statement of Claim.

[69] On the assumption that Mr. Plant would have defended the action, an affidavit of documents would have been required and examinations could have been held. This would be in addition to any request under Rule 25.10 for particulars of the allegations in the pleadings.

[70] The opportunity to obtain the documents or discovery prior to signing judgment was not available to the Plaintiff because Mr. Plant did not request particulars and he did not defend.

[71] The court finds that Mr. Plant’s inaction in failing to request particulars and failing to defend the action should not place the Plaintiff in a worse position just because he was unable to obtain any type of disclosure. That would be inequitable and unfair.

[72] In the case of Royal Bank of Canada v. Kim, 2019 ONSC 798, 67 C.B.R. (6th) 234, the court discussed the Rodriguez case and the H.Y. Louie Co. Limited v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 177, case. At paras. 55-56, the court said:

[55] As indicated, the Court of Appeal in Rodriguez focused specifically on the fact that, in that case, the judgment creditor had full knowledge of the conduct of the debtor that may qualify under s. 178(1) of the BIA but chose not to plead that conduct or lead evidence on it in the proceeding which resulted in judgment. Similarly in Louie the British Columbia Court of Appeal emphasized as pertinent the fact that the judgment creditor chose not to pursue its claim based on the fraudulent conduct despite knowing of it prior to commencing an action. There was therefore no unfairness in either Rodriguez or Louie in barring the judgment creditor from subsequently raising the offending conduct after judgment in the context of a s. 178(1) application.

[56] I find that the principle in Rodriguez and Louie has no application where a judgment creditor had no prior knowledge of the conduct engaging s. 178(1), and could not have discovered it with reasonable diligence, as such application could result in unfairness.

[73] The court agrees with the reasons in the RBC case and finds that the principle in Rodriguez and H.Y. Louie has no application where a judgment creditor has no prior knowledge of the conduct relating to section 178(1)(d) of the BIA and could not have discovered it with reasonable diligence.

[74] Furthermore, at p. 31 of the Motion for Judgment transcript Kane J. grants judgment against Mr. Plant and Mr. Détillieux as follows:

The judgment against the two individual defendants is for breach of trust for the same amount based on the misappropriation etc. of funds.

[75] Based on this transcript evidence, the court finds that Kane J. found the personal defendants to be in breach of trust for misappropriation of trust funds.

[76] Lastly, the courts have held that no declaration that a debt survives bankruptcy can be made by a court at a time prior to any bankruptcy. In the case of SE Canada Inc. v. Falcon Group Inc., 2016 ONSC 6442, 42 C.B.R. (6th) 112, the court said the following at paras. 2-5:

[2] The plaintiff also seeks a declaration that the judgment shall survive any event of bankruptcy undertaken by Mr. De Guzman in accordance with s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c B-3.

[3] I provided Ms. Phung with two decisions of this court, which hold that judicial declarations should not be made in relation to hypothetical future events, such as Mr. De Guzman's bankruptcy: Royal Bank of Canada v. Elsioufi, 2016 ONSC 5257; B2B Bank v. Batson, 2014 ONSC 6015.

[4] Ms. Phung submitted that these cases are distinguishable from the case at bar because neither of them deal with a breach of a statutory trust. She also submitted that there is authority from both the Ontario Court of Appeal and this court for making such a declaration. She relied on the decisions of the Ontario Court of Appeal in Commdoor Aluminum v. Solar Sunrooms Inc., 2004 CanLII 465 (ON CA), 2004 CarswellOnt 2387 and Bibico Electric Inc. v. Battlefield Electrical Services Inc., 2012 ONCA 676 and on the decision of this court in Toro Aluminum v. Sampogna, 2013 ONSC 5345. However, in all of these cases, the defendant had made an assignment in bankruptcy. The court did not grant a declaration in advance of an event occurring. There is no evidence before me that Mr. De Guzman has undertaken any event of bankruptcy, and I am thus being asked to make a declaration before the issue has arisen.

[5] I am persuaded by the reasoning of Stinson J. and Dunphy J. in the Elsioufi and the B2B Bank cases that courts ought not to make declarations based on events that have not occurred. To grant the declaration sought would require the court to make a ruling in advance of the occurrence of an event and to assume that the legal regime governing the situation today will be the same at some unknown future date, if and when the event occurs.

[77] In the case of Matthews Equipment Limited v. Yalda Contracting Inc., 2021 ONSC 1823, 11 C.L.R. (5th) 33, the question was asked as to whether a declaration under section 178 of the BIA can be made on a motion for default judgment prior to a bankruptcy of the individual against whom the declaration to survive the bankruptcy is sought.

[78] In the Matthews case, Yalda entered into a written credit agreement with Hertz to rent construction equipment for several construction projects in Ontario. Hertz delivered the equipment to various construction sites and invoiced Yalda in accordance with the credit agreement. Yalda acknowledged receipt of the equipment in good order but failed to pay Hertz for the equipment rentals. The amount was $72,669.83.

[79] On March 25, 2019, Hertz issued a statement of claim against Yalda and its principals seeking the amount of $72,669.83 for breach of contract plus pre and post judgement interest. Hertz also sought a declaration that the judgement survived any claim for bankruptcy that might be made by the personal defendants against whom claims were being made.

[80] None of the defendants filed any materials. Hertz brought a motion for default judgment.

[81] The court found that Yalda had breached its credit agreement and that Hertz was owed the $72,669.83.

[82] The court also found that Yalda was a contractor in accordance with section 8 of the Construction Act, R.S.O 1990, c. C.30, in relation to the improvements made.

[83] The court found that Yalda received the $72,669.83 in trust for the benefit of Hertz and that it failed to satisfy its obligations to refrain from taking, using, or converting the money that it received in trust for Hertz until Hertz was paid.

[84] Hertz also sought a declaration that the debt survived the possible bankruptcy of the directors in the future pursuant to section 178(1)(d) of the BIA.

[85] The court found that the evidence was not sufficient to conclude that the breach of trust constituted fraud or misappropriation for the purposes of section 178 (1)(d) or that the breach of trust was a result of something other than inadvertence, negligence, or incompetence. The court left that issue to be decided on a proper record if and when any of the defendants made an assignment in bankruptcy.

[86] The court found that a declaration under section 178 should not be used pre-emptively on a motion for default judgment.

[87] Therefore, following the SE Canada and Matthews decisions, the court finds that Kane J. acted appropriately when he did not make a finding that the debt to Dufresne would survive bankruptcy. To do so would have been to make the declaration pre-emptively. At the time that he gave judgement in favour of the Plaintiff, neither Mr. Plant nor Mr. Détillieux had filed for bankruptcy.

[88] Lastly, the court finds that the Amended Statement of Claim is sufficiently particularized to ground the claim in breach of trust or misappropriation while acting in a fiduciary capacity. The court finds that there is no claim for fraud or embezzlement in relation to the debt surviving the bankruptcy under s. 178(1)(d) of the BIA.

[89] Therefore, the court finds that the evidence provided after the Default Judgment was granted is allowed for the purpose of determining whether the Dufresne debt should survive Mr. Plant’s bankruptcy.

Issue on the Cross-Motion

[90] The court has considered all materials and arguments raised on this cross-motion. Any failure by the court to refer to specific arguments and materials raised does not reflect that the court has not considered those arguments.

[91] Mr. Plant acknowledges that for the purpose of this motion, he breached the trust provisions of section 13 of the CLA giving rise to his personal liability.

[92] Therefore, the remaining issue is:

(1) Does this liability to the Plaintiff survive Mr. Plant’s bankruptcy?

Plaintiff’s Position

[93] The Plaintiff argues that section 178(1)(d) of the BIA provides that an order of discharge does not release the bankrupt from 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.

[94] In this case, the Plaintiff specifically claims that the debt survives bankruptcy because of either misappropriation or defalcation while acting in a fiduciary capacity.

[95] The Plaintiff relies on the case of Commdoor Aluminum, in which the Court of Appeal for Ontario found that when a trial judge finds as a fact that a corporate director has failed to adequately discharge their onus as a trustee to account for the relevant trust funds, that finding, supported by the evidence, is sufficient to trigger section 178(1)(d) of the BIA: Commdoor Aluminum v. Solar Sunrooms Inc., 2004 CanLII 465 (C.A.), at para. 2.

[96] The Plaintiff also relied on the case of Bibico Electric Inc. v. Battlefield Electrical Services Inc., 2012 ONCA 676, at para. 1. In that case, the Court of Appeal for Ontario was satisfied that sufficient facts were pleaded — and, therefore, admitted because of the default — to bring a lower court judge’s judgment within the provisions of section 178(1)(d) of the BIA.

[97] These facts included that the appellants caused, assented to, and acquiesced in the diversion of trust funds established under the CLA for purposes inconsistent with the trust, and that the appellants had failed to account for the trust funds. The judgment was therefore underpinned by the type of “wrongdoing, improper conduct or improper accounting” contemplated by section 178(1)(d) of the BIA.

[98] The Plaintiff also relies on the case of Metric Contracting Services Corp. v. Kepic, 2013 ONSC 7036, 14 C.B.R. (6th) 336, in which the court found that the director of the corporate trustee admitted he comingled funds from many jobs and used comingled funds to meet the corporate trustee’s expenses. Mesbur J. indicates that “[o]ur courts have held that s. 178(1)(d) of the BIA has been applied to trust claims under the [CLA]”: at para. 18.

[99] The Plaintiff also relies on the case of Re: Ieluzzi (#2), 2012 ONSC 1474, 88 C.B.R. (5th) 215, in which the court found that, for there to have been misappropriation, the following elements must be proven:

a. The money taken by the debtor to create the debt must have belonged to someone other than the debtor;

b. The taking must involve a wrongful use of the money; and

c. The taker must have received the money as a fiduciary: at para. 37.

[100] The court in Re: Ieluzzi (#2) then follows Commdoor Aluminum, and reiterates that when the bankrupt, prior to bankruptcy, has breached the trust provisions of the CLA, and the bankrupt has received a discharge, a creditor who supplied material to a particular project constructed by the bankrupt and whose amount was not paid can maintain an action against the discharged bankrupt on the ground that the bankrupt has been guilty of misappropriation while acting in a fiduciary capacity under section 178(1)(d), and the court will grant judgment to the creditor for the unpaid account.

[101] In the present case, the Plaintiff submits that Mr. Plant misappropriated and/or defalcated funds when he took monies that were impressed with a trust for the benefit of Dufresne, wrongfully used that money to pay himself and others that were not involved in construction, and had received that money as a fiduciary through his control as a director and president of SJD and/or a director of SJP. The Plaintiff submits the court should grant judgment to it for the unpaid account, and this judgment should survive bankruptcy as it fits within the exception of section 178(1)(d) of the BIA.

Defendant’s Position on the Cross-Motion

[102] The Defendant acknowledges that for the purposes of this motion, it is conceded that Mr. Plant breached the trust provisions of section 13 of the CLA, giving rise to personal liability.

[103] The Defendant argues that he did not breach section 178(1)(d) of the BIA stating that for a breach of trust to occur, the Plaintiff must be owed a “debt or liability”, and the debt or liability must arise out of one of the listed wrongs: fraud, embezzlement, misappropriation, or defalcation. As well, the wrongful conduct must have occurred while the bankrupt was acting in a fiduciary capacity: BIA, s. 178(1)(d); Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, 65 C.B.R. (6th) 109.

[104] The Defendant argues that the onus is on the creditor to prove that the claim underlying the judgment falls within one of the classes of claims in the provision. The standard of proof is the civil standard of a balance of probabilities: Lang v. Lapp, 2017 BCSC 670, 47 C.B.R. (6th) 56, at para. 37; Peterson v. Peterson, 1995 ABCA 439, 36 Alta. L.R. (3d) 34; Manolescu v. Manolescu, 2003 BCSC 1094, 47 C.B.R. (4th) 77; and Toro Aluminium v. Sampogna, 2008 ONCA 125, 41 C.B.R. (5th) 5.

[105] The Defendant argues that offences under the section are meant to be applied as an exception, not the rule. He argues that breaches under section 178(1)(d) are reserved for “the kinds of conduct [that] are unacceptable to society…” The section is meant to address concepts of morality, and not acts of inadvertence, negligence, or incompetence. The court also rejected cases that stood for including any simple breach of a fiduciary obligation as being under the umbrella of section 178(1)(d) offences: Simone v. Daley (1999), 1999 CanLII 3208 (ON CA), 43 O.R. (3d) 511 (C.A.), at p. 522; rejecting Smith v. Henderson (1992), 2009 BCSC 204, 53 C.B.R. (5th) 181 (B.C.C.A.); Abstainers Insurance Co. v. Pellegrino (1989), 77 C.B.R. (N.S.) 108 (Ont. Dist. Ct.).

[106] The Defendant points out that between the two extremes of an accounting error and a trustee who deliberately misappropriates trust money for his own use, “…there is a spectrum of conduct which breaches the CLA, but which may or may not fall within s. 178(1)(d) of the Bankruptcy and Insolvency Act, depending on the extent to which there was any wrongdoing or improper conduct by his bankrupt in his fiduciary capacity.”: Toro Aluminum Ltd. v. Revah, 1999 CanLII 14847 (Ont. S.C.), at para. 13.

No Fraud or Embezzlement

[107] The Defendant relies on the case of Water Matrix, in which the court found that the defendant was in breach under section 178(1)(d) and cited the principles in Simone: section 178(1)(d) is reserved for conduct that is morally unacceptable to society. The court held that “fraud occurs when a person is deprived dishonestly of something that he owns or would be entitled to but for the perpetration of the fraud.”: Water Matrix, at para. 50. The court established that examples of fraud, for the purposes of section 178(1)(d), can include:

• incorrectly coding fraudulent transactions to prevent their detection;

• misrepresenting the company's accounts receivable to conceal the use of the corporate line of credit to fund fraudulent transactions;

• restricting the access by others to the corporate records to maintain control and to conceal;

• misrepresenting accounting transactions on the corporate general ledgers; and

• miscoding the purpose of the transactions: Water Matrix, at para. 51; Commdoor Aluminum v. Solar Sunrooms Inc., 2003 CanLII 32149 (Ont. S.C.) at paras. 19, 20 and 26; Toro Aluminum Ltd. v. Revah, at para. 43; Simone, at p. 529.

[108] The Defendant argues that the Plaintiff has not proven that Mr. Plant deprived it of the trust funds dishonestly. Mr. Plant knew nothing about Mr. Détillieux’s activities. The evidence establishes that it was Mr. Détillieux who was responsible for the finances and that he is responsible for any dishonest conduct.

No Misappropriation or Defalcation

[109] Relying on the Simone case, the Defendant cites p. 526:

[C]ourts should avoid attempting to sweep into concepts such as “misappropriation” or “defalcation” — which in their ordinary meanings connote some element of wrong doing, improper conduct, or improper accounting — any and all failures by the fiduciary to comply with the obligations attending upon that capacity. When it comes to the application of insolvency legislation, the results of not resisting that temptation can be far reaching and inconsistent with the purposes of such legislation.

[110] For a breach of fiduciary duty by a bankrupt to constitute “misappropriation or defalcation” within the meaning of section 178(1)(d) of the BIA giving rise to a judgment debt that survives the bankrupt’s discharge, there must be “some improper dealing with property entrusted to the fiduciary and some element of moral turpitude in the sense of dishonesty, wrongdoing or misconduct.”: Re Di Paola, 2006 CanLII 23935 (Ont. S.C.), at para. 5; aff’d 2007 ONCA 23, 217 O.A.C. 95.

[111] A breach of the statutory trust under the CLA may qualify as a liability arising out of fraud, embezzlement, misappropriation, or defalcation while acting in a fiduciary capacity: One-Way Drywall Inc. v. Lomax Management Inc., 2016 ONSC 1462, 61 C.L.R. (4th) 288, at para. 51.

[112] The Defendant argues that Commdoor Aluminum, a case relied on by the Plaintiff, involved a sole shareholder/officer who was found to have utterly failed to account for trust funds under the CLA. At trial, he provided no accounts with respect to the company generally or with respect to each job and only provided the company's bank statements. He was found to have lacked basic business knowledge or was purposely vague. The trial judge found that the defendant had failed to account. The Court of Appeal confirmed that finding, which was supported by the evidence in that case and on those facts, and it was sufficient to trigger section 178(1)(d).

[113] The Defendant argues that in Wolfedale, the Plaintiff relied on Commdoor Aluminum in seeking an order whereby a personal defendant, Hammond, should not be released of his trust obligations by virtue of bankruptcy. Kruzick J. remarked that fraud, embezzlement, misappropriation, or defalcation by the defendant Hammond had not been specifically pleaded as against him:

[34] In reviewing the pleadings of the plaintiff, fraud, embezzlement, misappropriation or defalcation by the defendant Hammond was not specifically pleaded. I have no difficulty, however, in finding that both the corporate entities and Hammond breached a duty of care and negligently allowed the plaintiff to enter into a contract with a non existing entity and that Hammond breached the trust under the Construction Lien Act.

[35] While I also find that Mr. Hammond acted personally in a fiduciary capacity as a trustee under the Construction Lien Act, I find myself reluctant to grant the relief that was sought in submissions when it was not specifically pleaded. I accept this court's decision in Commdoor Aluminum v. Solar Sunrooms Inc., [2003] O.J. No. 2173 (Ont. S.C.J.), which cited section 1781(d) of the Bankruptcy and Insolvency Act and which held that a discharge in bankruptcy does not release a debtor from his personal obligations. I am not sure from reading that decision what the pleadings were before the court in that case, nor was I entirely satisfied that that provision was specifically ordered. I therefore make no order on this claim as submitted: Wolfedale Electric Ltd. v. R.P.M.'s Systems Automation & Design Quality in Motion Inc., 2004 CanLII 66291 (Ont. S.C)., at paras. 34-35.

[114] Mr. Plant argues that he rarely signed cheques and that it was done in the normal course of business, typically at the request of Mr. Détillieux. He says that he did not know how Mr. Détillieux was managing the finances. The trust funds were mismanaged, but Mr. Plant cannot be said to have behaved dishonestly or immorally. In fact, when he found out the Plaintiff had not been paid, he turned his attention to helping the creditors.

[115] Finally, the Defendant argues that since the elements of fraud, embezzlement, misappropriation, or defalcation have not been pleaded specifically as against Mr. Plant, the motion should be dismissed.

Analysis

[116] The leading case in the matter of a debt surviving bankruptcy is Simone.

[117] In that case, Blair J. looked at the concepts of “misappropriation” and “defalcation” as found in section 178(1)(d).

[118] The court reviewed the various caselaw on these points both in Canada and the United States and found that the caselaw took two different approaches:

On one hand, the approach reflected in Ironwood Investments Joint Venture v. Leggett and in Jerrard v. Peacock views the words in the context of those with which they are associated in the paragraph and attributes to them some element of dishonesty, wrongdoing, or misconduct. On the other hand, decisions such as that of the British Columbia Court of Appeal in Smith v. Henderson suggest a broader interpretation which eschews the need for dishonesty, wrongdoing or misconduct, and is prepared to extend the exception to all cases in which a fiduciary is in breach of any fiduciary obligation.: at p. 525.

[119] The court says the following at p. 529:

Consequently, I am not persuaded that the exception to a release of liability upon a bankruptcy discharge which is provided for in s. 178(1)(d) of the BIA should be extended to conduct which does not display at least some element of wrongdoing or improper conduct on the part of the fiduciary in question in the sense of a failure to account properly for moneys or property entrusted to the fiduciary in that capacity or inappropriate dealing with such trust property.

[120] In the case of Campoli Electric Ltd. v. Georgian Clairlea Inc., 2017 ONSC 2784, 77 C.L.R. (4th) 70, the court states at para. 55:

Some basic principles have been established. No special mens rea, or intent, is required to establish personal liability under this section. The standard is one of reasonableness and whether the defendant knew or "ought reasonably to have known" of a breach of trust …. Although, s. 13 does not impose strict liability evidence of direct dealing by the officers and directors with the trust property is not required in order to establish liability. The test is subjective. The level of sophistication of the officers and directors is relevant; see Shield Sprinkler & Fire System Ltd. v. Fahuki Construction Inc. (1996), 31 C.L.R. (2d) 156 (Ont. Gen. Div.). Any knowing personal benefit derived from the breach of trust will be conclusive against a defendant.

[121] Sections 8 and 13 of the CLA read as follows:

8 (1) All amounts,

(a) owing to a contractor or subcontractor, whether or not due or payable; or

(b) received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.

Obligations as trustee

(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor.

Contractor’s, subcontractor’s duties re trust funds

8.1 (1) Every person who is a trustee under section 8 shall comply with the following requirements respecting the trust funds of which he or she is trustee:

1. The trust funds shall be deposited into a bank account in the trustee’s name. If there is more than one trustee of the trust funds, the funds shall be deposited into a bank account in all of the trustees’ names.

2. The trustee shall maintain written records respecting the trust funds, detailing the amounts that are received into and paid out of the funds, any transfers made for the purposes of the trust, and any other prescribed information.

3. If the person is a trustee of more than one trust under section 8, the trust funds may be deposited together into a single bank account, as long as the trustee maintains the records required under paragraph 2 separately in respect of each trust.

Liability for breach of trust

By Corporation

13 (1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(a) every director or officer of a corporation; and

(b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities,

who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust.

[122] For the purpose of the cross-motion, Mr. Plant acknowledges that he has breached the trust provisions of section 13 of the CLA giving rise to personal liability.

[123] Mr. Plant was an officer and director of SJD. He also admitted that he was in breach of trust by virtue of section 13 of the CLA. The court makes a finding to this effect.

[124] Section 8.1 of the CLA sets out the requirements to deposit trust funds into a bank account. In addition, the trustee is required to maintain written records respecting the trust funds detailing the amounts that are received into and paid out of the funds, any transfers made for the purpose of the trust, and any other prescribed information.

[125] Mr. Plant acknowledged at his examination that all funds were deposited to a single bank account, which were from various sources including the mortgage financing, investments by various investors and/or loans, as well as other monies.

[126] The real issue to be decided is whether the debt owing to the Plaintiff arose out of “misappropriation or defalcation while acting in a fiduciary capacity.”: BIA, s. 178(1)(d).

[127] In the case of Re: Ieluzzi (#2), Mr. Ieluzzi filed for bankruptcy. At his discharge hearing, which was opposed by a creditor, he was discharged conditionally upon paying the sum of $6252.73 in surplus income on terms to be arranged with the trustee.

[128] At the time of the hearing of the motion to lift the stay of proceedings under section 69.4, some 19 months later, Mr. Ieluzzi had still not satisfied the conditional discharge order.

[129] The court specifically dealt with the phrases “while acting in a fiduciary capacity” and “misappropriation” at paras. 30-40 of the decision.

[130] In the end, the court lifted the stay of proceedings.

[131] Master Short dealt with the issue of “acting in a fiduciary capacity” at paras. 30-35, stating the following:

[30] The words in s. 178(1)(d) "while acting in a fiduciary capacity" refer to the whole of the clause and not only to "misappropriation or defalcation”. In order for a creditor to bring its claim within s. 178(l)(d), it is necessary for the creditor to prove that the debtor was acting in a fiduciary capacity: Re Brant (1984), 52C.B.R. (N.S.) 317 (Ont. S:C),The breach of a fiduciary duty does not, however, of itself lead to the survival of a debt or liability following a discharge; there must, in addition, be fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity: Turner v. Midland Doherty Lid. (1992):1992 CanLII 2304 (BC SC), 13 C.B.R. (3d) 16, 70 B.C.L.R. (2d) 268 (S.C.)

[31] For s. 178(1)(d) of the BIA to be engaged, there are three elements that must be proved:

• the money taken to create the debt must have belonged to someone other than the taker;

• the taking must involve a wrongful use of the money; and

• the taker must have received the money as a fiduciary.

[32] In order for a breach of fiduciary duty by a bankrupt to constitute "misappropriation or defalcation" within the meaning of s. 178(l)(d) so as to give rise to a judgment debt that survives the bankrupt's discharge, there must be some improper dealing with property entrusted to the fiduciary and some element of moral turpitude in the sense of dishonesty, wrongdoing or misconduct: Re Di Paola (2006), 2006 CanLII 23935 (ON SC), 2006 CarswellOnt 4272, 24 C.B.R. (5th) 30 (Ont. S.C.J.); affirmed (2007), 2006 CanLII 37117 (ON CA), 2007 CarswellOnt 150,217 O.A.C.. 95 (Ont. C.A.).

[33] Where fraud was evident, the court must determine whether it arose "while acting in a fiduciary capacity" for the debt to survive discharge and there are three general characteristics attributed to a fiduciary relationship:

• the fiduciary has scope for the exercise of some discretion or power;

• the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and

• the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

[34] An important element of the definition of a fiduciary relationship is the existence of any undertaking or a reasonable belief that the fiduciary was acting in the first party's interest. The test is whether one-party could reasonably have expected that the other party would in the former’s best interests with respect to the subject matter in issue. In Ronec v. Michalik ,2007 CanLII 38400 (ON SC), 2007 CarswellOnt 5878, 36 C.B.R. (5th) 159 (Ont. S.C.J.) the plaintiff had lent money to the defendant, with a promise that property would be held to secure the loan and not sold without the plaintiff's permission, hence a fiduciary relationship was found.

[35] The British Columbia Court of Appeal in Valastiak: v. Valastiak (2010), 2010 CarswellBC 307; 2010 BCCA 71, 63 C.B.R. (5th) 188 held that "misappropriation" under s. 178( 1)( d) of the BIA must be construed in its ordinary sense to connote some element of wrongdoing, improper conduct or improper accounting. In a corporation with only two shareholders, formed husband and wife, were in a special relationship of trust and dependency, the debtor/shareholder/husband as the sole director was acting in a fiduciary capacity in relation to the wife as the other shareholder in respect of the corporation and its assets. Although the general rule is that directors owe their fiduciary duties to the corporation only, and not to the shareholders, there are exceptions to the general rule. His liability arose from his misappropriation of the company's assets while he was in a fiduciary relationship with the plaintiff. There, the Court of Appeal made an order under s, 178(1)(d) declaring that the defendant's discharge did not release him from liability.

[132] Master Short also dealt with the issue of “misappropriation” at paras. 36-40 of the same decision. Those paragraphs read as follows:

[36] Misappropriation is the act of misappropriating or turning to a wrong purpose: Janco (Huppe) v. Vereecken (1982), 1982 CanLII 487 (BC CA), 44 C.B.R. (N.S.) 211, 40 B.C.L.R. 106 (C.A.). Taking money that the common law wife of the bankrupt had turned over to him to manage for her-benefit and his benefit and failing to return it, when requested to do so, constitutes turning the money to a wrong purpose and is a misappropriation under s. 178(l)(d).

[37] For misappropriation, the following elements must be proven:

(a) the money taken by the debtor to create the debt must have belonged to someone other than the debtor;

(b) the taking must involve a wrongful use of the money; and

(c) the debtor must have received the money as a fiduciary.

[38] In Simone v. Daley (1999), 1999 CanLII 3208 (ON CA), 170 D.L.R. (4th) 215, the Ontario Court of Appeal held that "misappropriation or defalcation while acting in a fiduciary capacity" requires some element of dishonesty, wrongdoing or misconduct, and breach of a fiduciary obligation alone is not sufficient. Inadvertence, negligence or incompetence does not constitute misappropriation or defalcation. See also Superior Crane (Canada) Inc. v. Justan Consulting Ltd. (2003), 2003 CanLII 27731 (ON SC), 2003 CarswellOnt 4591, 49 C.B.R. (4th) 295 (Ont. S.C.J.); Re Dicroce (2004), 2004 CanLII 15274 (ON SC), 2004 CarswellOnt 1673, 49 C.B.R. (4th) 196 (Ont. S.C.J.);

[39] Three cases examining the statutory trust provisions under Ontario’s Construction Lien Act are also instructive: Commdoor Aluminum v. Solar Sunrooms Inc. (2004),2004 CanLII 465 (ON CA), 2004 CarswellOnt 2387, 2 C.B.R. (5th) 131 (Ont. C.A.).Vicor Mechanical Ltd. V. Pegah Construction Ltd., 61 C.B.R. (5^th) 300 and Plancha v. Limotta, (2011) 6 C.L.R. (4^th) 169 (Ont S.C.).

[40] In Commdoor Aluminum it was held that where the bankrupt, prior to bankruptcy, has breached the trust provisions of the Construction Lien Act, and the bankrupt has received a discharge, a creditor who supplied material to a particular project constructed by the bankrupt and whose amount was not paid can maintain an action against the discharged bankrupt on the ground that the bankrupt has been guilty of misappropriation while acting in a fiduciary capacity under s. 178(1)(d), and the court will grant judgment to the creditor for the unpaid account.

[133] The court finds that Mr. Plant was acting in a fiduciary capacity at SJD.

[134] Master Short said in para. 32 that there must be an improper dealing with property entrusted to a fiduciary and some element of moral turpitude in the sense of dishonesty, wrongdoing, or misconduct.

[135] Master Short said that for misappropriation, the following elements must be proven:

(1) The money taken by the debtor to create the debt must have belonged to someone other than the debtor. In this case the money taken belonged to either the lender who lent the money, to people who invested money with the debtor or as in this case the suppliers of goods and services to the property.

(2) The taking must involve a wrongful use of the money. The evidence is that some of the monies taken were used to purchase season tickets for a hockey team, payment to a church and sponsorship of a festival. The court finds that none of these uses of the money were for the purposes intended, which were to pay the trades that provided goods and services to SJD including the Plaintiff. The aforesaid uses of the money are only examples of improper uses. They do not encompass the total improper use of the money.

(3) The debtor must have received the money as a fiduciary. Mr. Plant acknowledges that he was a fiduciary and that he breached that fiduciary duty.

[136] According to his evidence, Mr. Plant was a real estate broker for at least 5-10 years and still is one.

[137] As a real estate broker, he is governed by the provisions of Ontario’s Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sched. C, which has subsequently been amended and is now called the Trust in Real Estate Services Act, 2020.

[138] Pursuant to the Real Estate and Business Brokers Act, 2002, every brokerage in Ontario must maintain a designated trust account and deposit into the account all monies that come into the brokerage’s hands in trust for other persons in connection with the business: ss. 27(1)(a), 27(1)(b).

[139] As a broker, Mr. Plant would have had to maintain a separate trust account for brokerage monies belonging to others. He would have had a duty to report the information to the appropriate regulatory authority overseeing the Real Estate Business Brokers Act, 2002 and its regulations, including the proper maintenance of a trust fund.

[140] Based on his past experience, Mr. Plant is not a novice when it comes to dealing with trust funds and being a fiduciary.

[141] The court finds that Mr. Plant, as a real estate broker, had the requisite knowledge of the requirements to operate a trust account. Following the reasoning set out at para. 55 of the Campoli case, the court finds that the test for breach of trust is a subjective one, and that the officers and directors’ level of sophistication is relevant. The court finds that Mr. Plant was highly sophisticated and that he “ought reasonably to of known of a breach of trust” and that a breach of trust occurred in this case.

[142] Mr. Plant argues that the duties at SJD were split between himself and Mr. Détillieux, with Mr. Détillieux handling all of the finances. Mr. Plant said that he handled the property management and leasing aspects of the project.

[143] The evidence is that Mr. Plant has signing authority on the account and that he signed over 55 cheques. While Mr. Plant said that he only signed 30 cheques, the court accepts the evidence of the Plaintiff and makes a finding that he has signed over 55 cheques.

[144] Mr. Plant’s evidence is that while he signed the cheques, most were signed at Mr. Détillieux’s request because Mr. Détillieux was not present in the office or for other reasons.

[145] Mr. Plant’s evidence is that he had no knowledge of what was happening with the corporation’s finances, as that responsibility belonged to Mr. Détillieux.

[146] The offices of Mr. Plant and Mr. Détillieux were right next to each other. If Mr. Plant had questions, he could have walked over and talked to, or called, emailed, or texted, Mr. Détillieux.

[147] The court finds that Mr. Plant conscientiously chose to ignore the requirements of his fiduciary duties.

[148] Mr. Plant had a positive obligation as a fiduciary to ensure that he was carrying out those duties. The court finds that fiduciary duties cannot be delegated to others, unless the fiduciary reviews that person’s work to ensure the fiduciary obligations are being satisfied. The evidence is that Mr. Plant did not review or oversee Mr. Détillieux’s work.

[149] While Mr. Plant may have done his job as a property manager and leasing manager, he did not comply with his obligations as a fiduciary. Mr. Plant distanced himself from those obligations instead of attempting to review and keep up with them.

[150] The court finds that the attempt to pass the fiduciary obligations off to someone else, in this case to Mr. Détillieux, whether that person is a fiduciary or not, is not allowable and amounts to willful blindness.

[151] Mr. Plant was obligated to ensure that he complied with his fiduciary duties from the time he became a fiduciary, not from when he discovered a problem. That is the obligation, regardless of who wrote the cheques, who signed the cheques, or who withdrew the funds. Those factors do not affect the breach of trust.

[152] When a person agrees to become an officer and director, that person must understand that they have fiduciary obligations. If a person does not wish to accept those fiduciary obligations, they should not become a fiduciary. A fiduciary who ignores their obligations does so at their own peril.

[153] It is not an issue if non-trust monies were used to pay for a festival sponsorship, hockey tickets, and other matters. However, once funds become impressed with a trust pursuant to the CLA, a different set of rules and oversight is required.

[154] Mr. Plant had the burden to show that the CLA trust funds were used properly. The court finds that he has not satisfied that burden.

[155] Based on the facts of this case, the court finds that Mr. Plant misappropriated trust funds while acting in a fiduciary capacity. This is based on the aforesaid analysis, which includes his previous business knowledge and experience.

[156] The court finds that Mr. Plant benefitted from the funds that were impressed with the trust, whether they were used for trust or non-trust purposes.

[157] The court finds that there is an element of misconduct on Mr. Plant’s part, in that he did not take his duties as an officer, director, and trustee seriously as required by law. He conscientiously chose to leave that obligation with Mr. Détillieux and allow him to deal with matters.

[158] The court finds that this choice amounts to misconduct and/or wrongdoing on Mr. Plant’s part. The court finds that Mr. Plant did not satisfy his obligation to ensure that the funds were spent on paying the trades.

[159] The court finds that all of SJD’s officers and directors had an obligation to ensure that their fiduciary duties were being satisfied, no matter what role they took in the company.

[160] Furthermore, the court finds that Mr. Plant was not negligent or incompetent, and that the debt did not arise due to inadvertence.

[161] The court accepts that Mr. Plant did not sign the majority of the cheques or withdraw the majority of the money. However, he was aware that the trust account had to be set up properly, that the appropriate funds were to go into the appropriate accounts, that the appropriate bills were to be paid from the appropriate accounts, and that the directors had to comply with their fiduciary duties under the CLA.

[162] Mr. Plant also knew that various trades had been working on various sites and that those trades were billing for their services and expected to be paid. He knew that the trades were entitled to get paid for their services and that, in some cases, the trades were in fact getting paid.

[163] The non-compliance with the trust obligation for the trust funds is relevant. The court finds that Mr. Plant’s conduct was an improper dealing with property entrusted to a fiduciary. Furthermore, the court finds that there was an element of moral turpitude in the sense of wrongdoing or misconduct on his part: Re Di Paola, at para. 5.

[164] Furthermore, according to Mr. Plant’s evidence, both he and Mr. Détillieux had been involved in several projects together prior to the Medical Complex. This included accumulating management contracts, purchasing land, and constructing 4 townhouses and 2, 13-unit buildings.

[165] The court finds that these two gentlemen were sophisticated builders and businessmen prior to the start of the Medical Complex.

[166] The court finds that Mr. Plant benefitted from the monies for various items including purchasing Ottawa Senators seasons tickets, donating to the Holy Redeemer Church, and being a festival sponsor at a local Ottawa festival, among other things.

[167] In the case before the court, there was more than one director. The court finds that notwithstanding Mr. Plant’s position in the corporation, he had “effective control of the corporation”.

[168] The court finds that more than one person can have effective control of a corporation, especially when there are multiple officers and directors. Mr. Plant was definitely a part of management and therefore controlled how the corporation was run.

[169] While Mr. Plant chose to relinquish any responsibility with respect to the corporation’s finances, the court finds that this is not negligence or incompetence, and the evidence is that Mr. Plant only started investigating why the trades were not being paid in full when they started complaining about non-payment.

[170] Furthermore, as set out in the Commdoor Aluminum decision at first instance, 2003 CanLII 32149 (Ont. S.C.), the court said in para. 20 that an officer and director, as trustee, must account for those funds and that Mr. Demarco, in that case, had completely failed in discharging that onus.

[171] While Mr. Plant attempted to provide an accounting for the funds, the court finds that he was only able to do so in a limited fashion.

[172] In Commdoor Aluminum, the Court of Appeal did not accept the argument that the loss of the money in issue was due to the appellant’s incompetence or negligence. That finding was made based on the trial judge’s findings that the appellant had failed to adequately discharge his onus to the trustee and to account for the monies.

[173] The Court of Appeal found that this finding supported by the evidence was sufficient to trigger section 178 based on the reasoning in Simone at p. 529.

[174] This court acknowledges that the Defendant provided an accounting, but only once the Plaintiff sued the Defendant claiming that the debt survived bankruptcy. The Defendant says that the reason for the delay was that the bank was slow in providing the documentation because it was a creditor in Mr. Plant’s bankruptcy.

[175] The court in the present case relies on the reasoning in Commdoor Aluminium at paras. 19-20 of Loukidelis J.’s trial decision:

[19] The onus does not lay with the plaintiff to construct such accounting. I agree with Molloy J.'s analysis and reasoning in St. Mary's Cement Corporation et al vs Construction Ltd., et al 32 O.R. 3(d) 595. The plaintiff need only show as it has, that Solar Inc., received monies from a particular job for which the plaintiff supplied materials and that Solar Inc., owes the plaintiff for those materials, which the evidence has also established.

[20] The trust provisions of section 8 therefore apply and the onus then falls on Solar Inc., and Mr. Demarco, as trustees, to account for those funds. Mr. Demarco has completely failed in discharging that onus.

[176] The plaintiff need only show that the company received the money from a particular job for which the plaintiff supplied materials and that the company owed the plaintiff for those materials and/or services. The court finds that this evidence has been established in this case.

[177] Mr. Plant did not provide any evidence that the monies received were not sufficient to pay the suppliers of the project in question.

[178] The court finds that the comingling of the monies by SJD in its account from the various sources, including mortgage financing and from investors, exacerbated the problem of providing a proper accounting.

[179] As to the allegation of insufficient facts pleaded in this case, in Bibico, the Court of Appeal was satisfied that sufficient facts had been pleaded to bring the judgement within the provisions of section 178(1)(d) of the BIA.

[180] In the Bibico case the court found that the appellants had caused, assented to, and acquiesced in diverting trust funds established under the CLA for purposes inconsistent with the trust and that the appellants had failed to account for the trust funds.

[181] The Court of Appeal said at para. 1 that “[t]he judgement was therefore underpinned by the type of ‘wrongdoing, improper conduct or improper accounting’ contemplated by section 178(1)(d).”

[182] In the Bibico motion decision, 2011 CarswellOnt 16003, granted by Ramsay J., he found that the debt survived bankruptcy pursuant to the above noted section and says the following at para. 5:

The facts pleaded and which the defendants are deemed to admit are that the plaintiff supplied materials to the defendants, who are builders, on credit. The defendants were paid for the materials but did not remit the money to the plaintiffs and instead directed it to other purposes. It is common ground that the construction in question is subject to the terms of the Construction Lien Act.

[183] In the present case, the court finds that Mr. Plant was an officer, director, and fiduciary who assented to and acquiesced in diverting trust funds established under the CLA for a purpose inconsistent with the CLA, e.g. paying for items unrelated to the project, including seasons tickets to hockey games, paying monies to a church, and using monies to sponsor a festival, just to name a few.

[184] In the present case, the court has reviewed the Amended Statement of Claim and finds that some of the key facts are found in the following paragraphs:

[22] Despite the proper supply and installation of materials in accordance with the agreement and requests of the Defendants, and despite request for payment, the Plaintiff has yet to be paid the sum of $223,253.05.

[23] The Plaintiff states by reason of furnishing its services and materials, it has enhanced value of the Subject Properties. Saint Joseph has received a benefit thereof and has been unjustly enriched in the amount of $223,253.05 at the expense of and to the detriment of the Plaintiff. The Plaintiff claims restitution of and from Saint Joseph. The Plaintiff pleads and relies on the doctrines of unjust enrichment and quantum merit.

[28] Dufresne alleges that Saint Joseph received amounts that were used in the financing of the improvement of the Subject Properties. These amounts constituted trust funds for the benefit of the Dufresne and that the Saint Joseph was the trustee of such trust funds pursuant to the provisions of the Construction Lien Act, R.S.O. 1990, c. C30, as amended (the “Lien Act”).

[29] Dufresne alleges that Saint Joseph received amounts on account of Dufresne’s contract price for an improvement of the Subject Properties. These amounts constituted trust funds for the benefit of the Dufresne and that Saint Joseph was the trustee of such trust funds pursuant to the provisions of the Lien Act.

[30] Dufresne further states that all or some of the said trust funds were appropriated and converted by the corporate defendant, and that such actions constituted a breach of trust by the corporate defendant.

[31] Dufresne further alleges that the Defendants, Vincent Martin Détillieux and Albert Plant, at all material times had effective control of Saint Joseph, and its relevant activities, and assented to and acquiesced in the appropriation and conversion of the said monies, which the Defendants, Vincent Martin Détillieux and Albert Plant, knew or reasonably ought to have known amounted to a breach of trust by Saint Joseph.

[32] Dufresne further states that all of the Defendants had a duty to preserve the said trust funds for the benefit of those entitled to them, including the Plaintiff, and accordingly they were acting in a fiduciary capacity. In breach of their fiduciary duties, the Defendants dishonestly and improperly appropriated or converted to their own use, or a use unauthorized by the trust, the funds in the sum of $223,253.05 and therefore caused Dufresne damages as a result of the said breach of trust in the amount of $223,253.05.

[34] Dufresne states that, at all material times, Vincent Martin Détillieux and Albert Plant as officers, directors and controlling minds of Saint Joseph had a legal duty to act honestly and in good faith with a view to the best interests of the said corporation, and were charged with the responsibility to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

[35] Dufresne states that the Defendants, Vincent Martin Détillieux and Albert Plant are liable for breach of trust. Dufresne pleads and relies upon the provisions of section 13 of the Construction Lien Act, R.S.O. 1990, c. C.30.

[185] The court finds in the present case that the Plaintiff’s pleadings are similar to the pleadings by the plaintiff in the Bibico case. The court follows the reasoning in the Bibico case to find that the debt in favour of the Plaintiff survives the Defendant’s bankruptcy.

[186] Therefore, the court finds that based on the evidence, the debt in favour of the Plaintiff falls under section 178(1)(d) of the BIA and survives the bankrupt’s discharge.

Conclusion

[187] The court finds that there was an element of wrongdoing or inappropriate conduct on Mr. Plant’s part as fiduciary. He failed to account properly for the monies and to act appropriately as a fiduciary.

[188] Therefore, the court finds that the judgement debt in favour of the Plaintiff in the amount of $181,133.23 as of January 25, 2019 together with the costs of $9200 and interest at 3% from January 25, 2019, as awarded by Kane J., survives his bankruptcy.

Miscellaneous

[189] The court notes that the findings made on the cross-motion only relate to Mr. Plant and do not relate to Mr. Détillieux, except as set out under the heading of “Motion to Continue pursuant to section 69.3 of the Bankruptcy and Insolvency Act.”

[190] Counsel for Mr. Plant originally put forward an argument of res judicata. At the hearing on the motion, counsel for Mr. Plant acknowledged that they were no longer putting forward this argument.

Costs

[191] Both parties have submitted Cost Outlines. The parties will have 14 days to resolve the issue of costs. If they are unable to do so, they will obtain a date from Trial Coordination in l’Orignal at 9:30 AM to argue their position as to costs. Each party will be allowed 15 minutes.

[192] Order accordingly.

Mr. Justice Stanley J. Kershman

Released: October 5, 2021