COURT FILE NO.: 31-2117602

DATE: 2023-08-14

ONTARIO SUPERIOR COURT OF JUSTICE –

IN BANKRUPTCY

IN THE MATTER OF THE BANKRUPTCY OF

ALAN SASKIN

OF THE CITY OF TORONTO,

IN THE PROVINCE OF ONTARIO

BEFORE: Associate Justice Ilchenko, Registrar in Bankruptcy

COUNSEL: Colby Linthwaite for Moving Party Bankrupt Alan Saskin (the “Bankrupt”)

Emilio Bisceglia and R. Battista Frino for Respondent Alpa Stairs and Railings Inc. (“Alpa”)

Trustee, Fuller Landau Group Inc. (the “Trustee”) taking no position on Motion, and not attending

Guy Gissin (in his individual capacity “Gissin”), the Israeli Court-appointed functionary officer and foreign representative (the "Functionary") of, inter alia, Urbancorp Inc. ("UCI"), not attending and not making submissions

HEARD: May 18, 2023

E N D O R S E M E N T

1. The Relief Sought and Procedural Context

[1] This Motion is by the Bankrupt to Strike certain evidence (the “Strike Motion”) filed by Alpa in response to a Motion by the Bankrupt to expunge the Proof of Claim of Alpa (the “Alpa Proof of Claim”) dated November 14, 2016 in the Bankruptcy (the “Expungement Motion”), where the Bankrupt is requesting the following relief in the Notice of Motion dated August 26, 2021:

“1. An order expunging, or in the alternative reducing, the proof of claim of the alleged creditor, Alpa Stairs and Railings Inc. ("Alpa") dated November 14, 2016.”

a) The Original Relief Sought on Strike Motion

[2] The Strike Motion by the Bankrupt was originally for relief set out in a Notice of Motion served by the Bankrupt dated August 2, 2022 (the “August 2022 Notice of Motion”):

1. An order and declaration that the Affidavit of Guy Gissin sworn October 15, 2018 in Court File No. CV-16-11549-00CL, in the matter of a Plan of Compromise or Arrangement of Urbancorp (Woodbine) Inc. et al. (the “Gissin Affidavit”) is not evidence admissible in respect of Saskin’s motion to have the proof of claim of Alpa Stairs and Railings Inc. (“Alpa”) reduced or expunged in this proceeding.

2. An order that the Gissin Affidavit be removed from the Court File.

3. An order striking paragraphs 24, 25, 26, 27, 28, 33, 34, 35, 36, 37, 39, 40, 44, 45, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60 and 61 (the “Improper Paragraphs”), together with Exhibits M, O (consisting of 136 pages), Q, S, T, U (consisting of 129 pages), DD (consisting of 99 pages), EE (consisting of 75 pages), FF, GG, HH, II, KK and LL (the “Improper Exhibits”) of the Affidavit of Zena Hanson sworn July 15, 2022 (the “Hanson Affidavit”) (collectively, the “Impugned Material”).

4.An order and declaration that the Improper Exhibits and the information in the Improper Paragraphs are inadmissible on the expungement motion.

5. An order denying Alpa leave to amend or replace the Improper Paragraphs or the Improper Exhibits.

6.An order denying Alpa leave to replace the Gissin Affidavit.

7.Costs of this motion on a substantial indemnity basis.

[3] In the Factum of the Bankrupt on the Strike Motion, the Bankrupt makes submissions relating to paragraphs of, and exhibits to, the Hanson Expungement Affidavit (as defined below) other than those listed in the specific relief requested in the August 2022 Notice of Motion which has been the subject of the scheduling of this Strike Motion. Those paragraphs, and specifically paragraph 62 and exhibit MM, which were not specifically requested to be struck in the August 2022 Notice of Motion, will not be dealt with on this Strike Motion.

b) Context of Motion to Strike and Scheduling of Motion

[4] The Expungement Motion, and the Strike Motion, are a (small) part of a series of engagements in the Bankruptcy Estate that I have attempted to Case-Manage, and the factual, procedural and legal context of this Strike Motion within the multi-verse of other related proceedings, both inside and outside the Bankruptcy Estate, must be understood to determine the evidentiary issues on this Strike Motion.

[5] In this wider context, Alpa was the creditor with a proven claim that obtained from Registrar Jean an Order dated December 14th, 2020 under Section 38 of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (the “BIA”) in favour of Alpa (the “S.38 Order”).

[6] The Trustee consented to Alpa bringing of Motion to obtain the S.38 Order on the basis that there were insufficient funds in the estate for the Trustee to commence or continue an action against the Bankrupt, members of his family, and other alleged non-arm’s length parties, to set aside certain transactions and obtain the proceeds of sale of a wine collection (the “S.38 Action”).

[7] The S.38 Action was commenced by Alpa on May 7, 2021. There are 5 other creditors that have joined Alpa in prosecuting the S.38 Action, including the Functionary. Given the wording of the s.38 Order, and that Alpa was the lead creditor that obtained the s.38 Order and commenced the S.38 Action, the outcome of the Expungement Motion has relevance to the S.38 Action and the Plaintiff Creditors in that proceeding.

[8] In addition, Alpa, has also served a motion under s.69.4 of the BIA for leave to lift the stay of proceedings against the Bankrupt to obtain a judgement and declaration under s.178 of the BIA (the “Alpa Leave Motion”) with respect to the claims made against the Bankrupt under the trust provisions of the Construction Act in the Alpa Proof of Claim contained in a Trust Action commenced as Action CV-15-537936 against Urbancorp (The Beach) Developments Inc. (“The Beach”) and Urbancorp (Leslieville) Developments Inc. (“Leslieville”) and the Bankrupt personally on October 7, 2015, which action was stayed by the filing of the Proposal by the Bankrupt, and subsequently the Bankruptcy (the “Alpa Saskin Trust Action”).

[9] Separately, Alpa had commenced Lien Actions against each of The Beach and Leslieville, as well as Canadian Imperial Bank of Commerce (“CIBC”), Terra Firma Capital Corporation (“Terra Firma”) and Travelers Guarantee Company of Canada, the Mortgagees of The Beach and Leslieville properties as actions CV-15-537937 and CV-15-537936 (the “Alpa Lien Actions”). The Bankrupt was not a defendant in the Alpa Lien Actions, as would be anticipated given the nature of the relief sought, being separate from the Alpa Saskin Trust Action, for reasons relevant to the determination of the Expungement Motion set out in the decisions of Associate Justice Wiebe in Damasio Drywall v. 2444825 Ontario Limited, 2021 ONSC 8398 and 6628842 Canada Inc. v. Topyurek, 2022 ONSC 253, now affirmed as being the correct reasoning by the Divisional Court in Devlan Construction Ltd. v SRK Woodworking Inc., 2023 ONSC 3035 (“Devlan”), and as stated in Devlan:

“[24] In addition, as stated by the Associate Judge in Damasio Drywall, the Act is as far as possible a summary procedure and the adding a breach of trust claims to breach of contract claims would result in adding further issues that would significantly complicate the narrow issues of breach of contract in a lien action that undoubtedly increase documentary production, examinations for discovery, the number of parties and issues to be tried that would undoubtedly increase the cost of the proceeding and length of trial.”

[10] In that regard I issued a number of endorsements regarding the hearing of the Expungement Motion and the Strike Motion and the exchange of materials. They read:

“September 14, 2022

As envisioned in my June Endorsement this Case Conference could deal with both the scheduling of the Alpa Proof of Claim Expungement Motion and the Discharge hearing.

New Motions Regarding Alpa Expungement

Certain events have conspired against that, namely after Alpa served its materials in accordance with the Case Timetable for the Expungement Motion, Mr. Tayar on behalf of the Bankrupt brought a Motion to Strike the Affidavit in those materials wholly or partially, so that Motion to Strike must be dealt with prior to the actual Expungement Motion.

Mr. Tayar and Alpa are going to be the only parties on that Motion, and they took out a Case Conference request for a Special Appointment on September 22nd, along with a second request by Alpa the same day September 22, for a case conference to schedule a Motion by Alpa to obtain leave under s.69.4 of the BIA to determine whether the claims in the Alpa Action constitute a s.178 Debt.

Given that we are all here today and this all deals with the Alpa Proof of Claim that the Bankrupt is seeking to expunge, I decided to deal with all of those issues today rather than on September 22nd , likely to the consternation of the Bankruptcy Court Staff.

Alpa Expungement Motion

Given the engagement of the Bankrupt and Alpa on a new field of Battle, the Motion to Strike, scheduling of the hearing of the Expungement Motion cannot be done until that additional preliminary issue is dealt with.

With respect to Alpa s.69.4 Motion, the viability of that motion on the Re Ma and Re Advocate Mines tests may be directly affected by my determination of the Expungement Motion, which deals with the enforceability of the Action that underlies the Alpa Proof of Claim, which is dependant on a determination of whether the evidence relied upon by Alpa on the Expungement Motion is struck out in the Motion to Strike brought by the Bankrupt.

So, for the time being, I will deal with the Motion to Strike first, then deal with finishing the scheduling of the Expungement Motion, then thirdly after the determination of those two motions, the Alpa s.69.4 Motion.

Preliminary to the Motion to Strike may be the determination as to whether leave is necessary for Alpa to file further responding materials to the Bankrupt’s Motion to Strike, which ordinarily under the Rules of Civil Procedure proceed on the existing affidavit being sought to be struck out.

But in order to make that determination Ms. Frino wishes to file materials first on behalf of Alpa.

This will be done on the following schedule:

1. Alpa to serve Responding Materials to the Bankrupt’s Motion to Strike by October 21;

2. Counsel for the Bankrupt to provide their position as to whether they oppose the filing of the Materials, or will be consenting to such filing by October 28.

3. Parties to schedule a Case Conference on November 14 at 9:30 before me so that I can determine whether we will be scheduling the Motion to Strike, or the Motion for Leave to Submit further evidence, and to timetable either or both.

January 30, 2023

Alpa Expungement Motion and Motion to Strike

As per my September 14, 2022 Endorsement, the first Motion to be heard of this group of motions will be the Motion by the Bankrupt to Strike some or all of the Affidavit of Gena Hanson sworn on behalf of Alpa for the Expungement Motion.

That Motion to Strike will be heard on Thursday May 18, 2023 for a full day.

The Bankrupt shall serve his Factum and Authorities by April 14th, and Alpa shall serve its Factum and Authorities by May 5th.

As that motion deals primarily with legal argument, that Motion will be heard by Zoom. The Expungement Motion will be scheduled after I render reasons in the Motion to Strike.

The Alpa s.69.4 Motion will be dealt with after the Expungement Motion is heard.”

[11] Ultimately the parties agreed that further materials could be filed by both sides on the Expungement Motion, as mentioned in my September 14, 2022 Endorsement (the “September Scheduling Endorsement”) and the January 30, 2023 Endorsement (the “January Scheduling Endorsement”) relating to the scheduling of the Expungement Motion and this Strike Motion (collectively, the “Scheduling Endorsements”).

b) Prior Security for Costs Motion by Alpa on Expungement Motion rejected

[12] Prior to making these scheduling and procedural endorsements set out above, on May 2, 2022, I had ruled on a Security for Costs Motion brought by Alpa against the Bankrupt in the context of the Expungement Motion, published as Re Saskin, 2022 ONSC 7377, (the “Security for Costs Motion”).

[13] I refused to grant the Order for Security for Costs requested by Alpa, ruling:

“[125] For all of the reasons set out above, and utilizing my Judicial discretion as Registrar under the BIA, and after taking into account all of the factors set out above as summarized by A.J. McGraw in Baca incorporating Glustein, J.’s (as he now is) summary of the tests under R.56.01 in Coastline, and taking into account the approach required in Yaiguaje for the court to consider the justness of the order holistically, examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made, I find that on all of the evidence submitted by Alpa and the Bankrupt, and after considering all of the arguments made by the parties in their Materials and in Oral argument before me that:

1. under the test in 7868073 Ontario, in respect of R.56.01(1)(e), Alpa has NOT met the “high standard” for establishing that the Expungement Motion is “frivolous and vexatious”, expressed as one which “on its face, is so unreal that no reasonable or sensible person could bring it” or more simply that the Expungement Motion is “devoid of merit”; and

2. on the test in Konstantinou, that Alpa has NOT met the test set out in Rule 56(1)(e) that there is “good reason to believe” that the Expungement Motion has “…virtually no chance of succeeding”; and

3. that on the test in Yaiguaje I do not find that the overriding interests of justice make it just that the Security for Costs order requested by Alpa be made.

[126] Accordingly the Motion by Alpa for an Order compelling the Bankrupt to pay into Court the sum of $22,029.35 or in the alternative, such other amount as the Court deems is just, as security for the partial indemnity costs of the Creditor, Alpa, within fifteen days of the date of the Order requested, is dismissed.”

[14] In that decision, issued almost a year ago to the date of the hearing of this Strike Motion, one of the issues raised by the Bankrupt, in opposing the Security for Costs Motion, was that the evidence presented on the Security for Costs Motion by Alpa was defective. I wrote the following on these evidentiary issues that were germane to the evidence used by Alpa to support the Security for Costs motion, some of which evidence by Alpa has now been sought to be struck out by the Bankrupt on this Motion to Strike in the August 2022 Notice of Motion, for the factual reasons I will set out in detail (the defined term “Urbancorp Companies” used by me in this quotation meant The Beach and Leslieville):

“[69] In this case there is no evidence before me on this Motion that:

a) a judgment has been obtained by Alpa, or any other plaintiff against the Urbancorp Companies where the Court has found that there has been a breach of Trust under s.8 of the Construction Act by the Urbancorp Companies;

b) that Saskin as an officer and director of the Urbancorp Companies has been found liable under s.13(1) of the Construction Act;

c) that Alpa had obtained leave to lift any applicable stay of proceedings to pursue the Alpa Saskin Claim to determine the above issues, and/or to obtain a determination that the claim against the Bankrupt is a claim to which s.178 of the BIA applies;

[70] Accordingly, there is no evidence before me that there has been a judicial determination made to date that there has been a breach of Trust by the Urbancorp Companies under s.8 of the Construction Act, and no similar judicial determination that the Bankrupt is liable under s.13 of the Construction Act.

[71] Currently there is apparently no active judicial forum, other than the proof of claim process in the Saskin Bankruptcy, for determining that liability by the Urbancorp Companies and the Bankrupt for breach of trust under the Construction Act. A result I must review the evidence properly presented on this Motion.

[72] It is also not clear to me what findings, if any, Alvarez & Marsal, the Court Appointed Receiver of the Urbancorp Companies (the “Receiver”) has made and reported to the Court with respect to the allegations of breach of Trust made by the Urbancorp Companies made by Alpa, and the allegations made by Alpa against the Bankrupt under s.13 of the Construction Act.

[73] Counsel for Alpa stated in the Hanson Transcript at Q89 the evidence filed on this motion “… is really the four corners of our affidavit which we provided both in the November motion as well as this motion”. But my tedious recitation of the Hanson Transcript above indicates that that is not actually true.

[74] From the review of the Hanson Transcript, as I have highlighted above, it is apparent that for many of the issues that would be required to be proven by Alpa under s.8 and s.13 of the Construction Act to support a finding that the Urbancorp Companies had breached trust and the Bankrupt had “assented to, or acquiesced in” that breach and was therefore liable to Alpa, as alleged in the Alpa Proof of Claim and the Hanson Proof of Claim Affidavit, the evidence relied upon by Hanson is not in her direct knowledge, but rather Hanson is relying on evidence in:

1. the Gissin Affidavit;

2. the transcript of the examination of Jeremy Cole, (“Cole”) the accountant for the Bankrupt and his family companies, under the provisions of s.163 of the BIA held on November 29, 2019 (the “Cole s.163 Examination”) (at Exhibit “M” to the Hanson S.38 Affidavit);

3. information and belief statements in the Hanson S.38 Affidavit regarding the occurrences of alleged transfers at undervalue based on information provided by Jeremy Sacks, another inspector of the Bankruptcy Estate of the Bankrupt, and counsel for other creditors of the Bankrupt (“Sacks”), and in particular, Sacks advising Hanson of the testimony of the Bankrupt at a s.163 examination under the BIA, which transcript is not attached to the Hanson S.38 Affidavit (although some exhibits to that examination are).

[75] As I pointed out to counsel for Alpa at the hearing, pointing at an affidavit of another party, in another proceeding, and saying that your agree with their evidence, does not make that evidence admissible for the purpose of proving matters in issue in this Motion.

[76] The Gissin Affidavit is nowhere in evidence for this hearing - it was not included as an Exhibit to any of the Hanson affidavits, and was not made an exhibit to the Hanson Cross- Examination, but was uploaded to Caselines by Alpa at some point prior to the hearing. Counsel for the Bankrupt objected to its use on this Motion.

[77] I do not know the context of the filing of the Gissin Affidavit in the CCAA proceeding or the ultimate result of the Motion for which it was filed, or whether:

i) Gissin was cross-examined on the Gissin Affidavit,

ii) any of the facts as stated in that affidavit have changed since it was sworn in 2018,

iii) there was ever a judicial determination of the credibility of Gissin with respect to the evidence presented in the Gissin Affidavit,

iv) any of the facts cited in the Gissin Affidavit were determined by a Court.

There is no evidence before me that the Bankrupt, in particular, had an opportunity to test that evidence.

[78] The majority of the paragraphs of the Alpa Reply Factum refer to the Gissin Affidavit or other “voluminous materials” in the CCAA proceedings as support for the arguments presented by Alpa on this Motion.

[79] The Transcript of the Cole s.163 Examination is an exhibit to the Hanson s.38 Affidavit, but it is apparent from the Transcript that counsel for the Bankrupt was not present at that examination. Similarly, there is no evidence before me that the Bankrupt, in particular, had an opportunity to test that evidence either.

[80] I note that R.4.06(2) states:

“(2) an affidavit shall be confined to the statement of facts within the personal knowledge of the deponent or to other evidence that that deponent could give if testifying as a witness in court except where these rules provide otherwise.”

[81] Rule 39.01(4) governs affidavit evidence on motions:

“Contents - Motions

39.01(4) An affidavit for use on a motion may contain statements of the deponent’s information and belief, if the source of the information and the fact of the belief are specified in the affidavit.”

[82] I note that in Glasjam Investments Ltd. v. Freedman, 2014 ONSC 3878, (now) RSJ Macleod summarized some of the problems that I am raising:

“32 The affidavit tendered in support of Ms. P's motion is illustrative of three problems which are unfortunately all too common. The first of these is misuse of "information and belief." Of course affidavits in Ontario may be based on information and belief. Rule 39.01 (4) says so. This rule permits efficiency in drafting of affidavits by making what might otherwise be hearsay admissible. It is also a useful provision for relief such as injunctions or freezing of assets when the very issue before the court is whether there is good reason to believe a state of affairs that cannot be proven.

33 Rule 39.01 (4) is not, however, a mechanism for magically transforming speculation into hard evidence. Information and belief may be admissible. It will not necessarily have probative value nor will it preclude a court from drawing a negative inference from the failure to put forward the best available direct evidence on a contentious issue. An uninformed or unqualified witness swearing that they believe a particular assertion made by someone else is evidence of little or no weight at all.”

[83] I also note the following statement of Beaudion, J. (as he is now) in Canadian Blood Services v. Freeman, 2004 CanLII 35007 (ON SC).

“19 A number of paragraphs in the Lapierre affidavit appear to offend rule 39.01(4). That rule requires that an affidavit in support of a motion should be based on the deponent’s personal knowledge. Where the statements are not based on the deponent’s personal knowledge, the source of the information and the fact of the belief should be included. The rule is well known and, in the face of an objection being taken, the Court may not waive the irregularity.”

[84] I am constrained by the jurisprudence on a Security for Costs motion to be making evidentiary determinations of admissibility for the purposes of the Expungement Motion, but rather only with respect to the issues relating to the tests under R.56 on this Motion.

[85] What is plain however, that on many of the “very issues” that are needed to be proven by Alpa to support the Alpa Proof of Claim with respect to the Expungement Motion, and for this Motion, at present, a significant proportion of evidence supporting the Alpa Proof of Claim appears to be, at best, information and belief reliance by Hanson on the testimony or information of other persons, namely Gissin, Cole and Sacks, in other proceedings, which testimony the Bankrupt may not have been able to test for the purposes of the Expungement Motion or this Motion.

[86] The submissions by the Bankrupt relating to the Daland Developments case, cited in the Bankrupt’s Factum, are applicable to this issue as well.

[87] I appreciate that, as counsel for Alpa stated at the hearing, and as she stated in the Hanson Transcript:

“…this first motion is the motion for security for costs, and the second part of this motion will be the motion to expunge where Alpa will have its materials arguably to substantiate its position in terms of the breach of trust.”

from which I understand that Alpa is intending to file responding materials on the Expungement Motion, that will provide additional, better, evidence for its Trust claim against the Bankrupt.

[88] But that does not assist me on this Motion, where such better evidence is absent, from making the determination that, as argued by Alpa, the Expungement Motion by the Bankrupt is “frivolous and vexatious”, being “devoid of merit”, or there is “good reason to believe the claim has virtually no chance of succeeding”.

[89] On the evidentiary record before me, and particularly in the Hanson Cross Examination, the Bankrupt has successfully raised issues relating to the strength of the evidence in support of the Alpa Proof of Claim necessary to prove that Alpa has a claim against the Bankrupt under s.13 of the Construction Act, that provides evidence that the Expungement Motion is not “devoid of merit”, or there is “good reason to believe the claim has virtually no chance of succeeding”.

[90] Also, the circumstances of the presentation of this “evidence” for this Motion, also gives rise to consideration of whether the attempted use of this evidence on this Motion affects the justness of granting a security for costs order as part of the requirement in Yaiguaje for the Court to holistically examine all the circumstances of the case and to be guided by the overriding interests of justice to determine whether it is just that the order be made.

[91] As the Urbancorp Companies are in Receivership, where presumably the Receiver has custody of the records of those companies, and a Trustee has been appointed with respect to the Bankrupt who may also be in possession of necessary evidence, it is not clear to me whether either or both of Alpa and the Bankrupt have direct access to the documentation and evidence that each will require to permit them to discharge the respective onus’ imposed on them by s.8 and 13 of the Construction Act and s.135(5) of the BIA. These are not evidentiary issues for this Motion, but need to be considered by the parties on the Expungement Motion.”

[15] In the same Security for Costs Endorsement, to provide the proper context for this Strike Motion, I described the evidentiary materials at issue in the Security For Costs Motion for the Expungement Motion that I was referring to above in my Security for Costs Endorsement:

“[28] The evidence on the Motion for Alpa was provided by Zena Hanson the Manager of the Legal and Credit Department of Alpa, in an affidavit sworn on December 22, 2021 (the “Hanson Affidavit”). Attached as Tab 3 to Motion Record of Alpa for the Motion was the Affidavit of Zena Hanson sworn for the s.38 motion to obtain the S.38 Order (the “Hanson S.38 Affidavit”), but lacking the exhibits. Separately on this Motion Alpa filed the entire Motion Record used for the S.38 Order, including the Hanson S.38 Affidavit and all exhibits.

[29] Also separately on this Motion Alpa, at some point, uploaded to Caselines the Affidavit of Guy Gissin (“Gissin”) affirmed October 15, 2018 in the CCAA proceedings of Urbancorp (the “Gissin Affidavit”). As noted in the Gissin Affidavit Gissin states:

“1. I am the Israeli Court-appointed functionary officer and foreign representative (the "Functionary") of Urbancorp Inc. ("UCI") and the assignee of the claims of the holders of bonds issued by (the "Bondholders").

2. This affidavit is made in support of the position of KSV Kofman Inc. ("KSV"), the monitor ("Monitor") of the Applicants in this proceeding, requesting that this Honourable Court uphold the disallowance of the claim of Terra Firma Capital Corporation ("TFCC") as against the Applicants.”

[30] Gissin is one of the 5 creditors mentioned in the Hanson Affidavit as participating in the S.38 Action, but did not appear in this proceeding, and his Motion regarding his standing to appear on the Expungement Motion was heard by me subsequently.”

[16] The Bankrupt has objected to the evidence filed by Alpa on the Expungement Motion, and for this Strike Motion, for reasons similar to the misgivings I expressed above (a year ago) with respect to the evidence filed by Alpa on the Security for Costs Motion.

[17] The crux of the issue on this Strike Motion is the chronic habit of counsel for Alpa of recycling prior Alpa affidavit materials in unrelated motions, and the affidavit and other materials of other parties in other proceedings, and repackaging those materials in whatever motions happen to be before the Court, whether they fit or not.

[18] As I noted above in the Security for Costs Motion, a different Affidavit of Zena Hanson dated December 22, 2021 was filed (the “Hanson Security for Costs Affidavit”) that did not contain the Gissin Affidavit, as well as the Affidavit of Gena Hanson on the S.38 Motion in this Bankruptcy sworn November 30, 2020 (the “Hanson S.38 Affidavit”).

[19] The Affidavit of Guy Gissin sworn October 15, 2018 in Court File No. CV-16-11549-00CL, in the matter of a Plan of Compromise or Arrangement of Urbancorp (Woodbine) Inc. et al. (the “Gissin Affidavit”) at issue on this Strike Motion, is the very same “Gissin Affidavit” which I referred to above in my Security for Costs Endorsement, that was not an exhibit to either the Hanson Security for Costs Affidavit, or the Hanson s.38 Affidavit on the Security for Costs Motion, but at some point was uploaded to Caselines by Alpa prior to the hearing of the Security for Costs Motion.

[20] The Hanson Security for Costs Affidavit also attempted to incorporate by reference the Hanson S.38 Affidavit. The Hanson S.38 Affidavit was attached at Tab 3 to the Motion Record for the Security for Costs Motion, but was not an actual Exhibit to the Hanson Security for Costs Affidavit.

[21] With respect to this Strike Motion, the very same Gissin Affidavit is now, again, attached as Tab 2 to the Responding Motion Record of Alpa dated July 15, 2022 (the “Responding Motion Record”) but, again, is not an actual exhibit to the Affidavit of Zena Hanson sworn on July 15, 2022 which was the initial subject of this Strike Motion (the “Hanson Expungement Affidavit”).

[22] As has been typical in these proceedings, the Hanson Expungement Affidavit has many paragraphs that are similar to the Hanson Proof of Claim Affidavit (as defined below), the Hanson Security for Costs Affidavit and the Hanson S.38 Affidavit, as well as the Hanson Affidavit filed in relation to the Discharge Hearing of the Bankrupt sworn January 4, 2023 (the “Hanson Discharge Affidavit”).

[23] With respect to the Urbancorp corporations at issue in this Strike Motion, the Expungement Motion, the Alpa Proof of Claim, the Alpa Leave Motion and the Alpa Saskin Trust Action, being The Beach and Leslieville, the Receiver appointed was Alvarez & Marsal Canada Inc. (“A&M”).

[24] It should be noted that the “Applicants” referred to in my prior endorsement on the Security for Costs Motion, are the Applicants in one of several CCAA Proceedings relating to the various Urbancorp entities one of which proceeding (the “Woodbine Bridlepath CCAA Proceedings”) where KSV Kofman Inc. ("KSV") is the Monitor, was the proceeding in which the Gissin Affidavit described above, and which is the Gissin Affidavit which the Bankrupt was seeking to strike on this Motion was filed:

Urbancorp (Woodbine) Inc.

Urbancorp (Bridlepath) Inc.,

The Townhouses Of Hogg’s Hollow Inc.,

King Towns Inc.,

Newtowns at Kingtowns Inc.

Deaja Partner (Bay) Inc.

TCC Urbancorp (Bay) Limited Partnership

(collectively, the “Woodbine Bridlepath CCAA Applicants”)

[25] To add complexity, there is an entirely different CCAA Proceeding (the “UTMI CCAA Proceeding”) where KSV is also the Monitor and the Applicant Companies are:

Urbancorp Toronto Management Inc.,

Urbancorp (St. Clair Village) Inc.,

Urbancorp (Patricia) Inc.,

Urbancorp (Mallow) Inc.,

Urbancorp (Lawrence) Inc.,

Urbancorp Downsview Park Development Inc.,

Urbancorp (952 Queen West) Inc.,

King Residential Inc.,

Urbancorp 60 St. Clair Inc.,

High Res. Inc.,

Bridge On King Inc.

Urbancorp Power Holdings Inc.

Vestaco Homes Inc.

Vestaco Investments Inc.

228 Queen's Quay West Limited

Urbancorp Cumberland 1 LP

Urbancorp Cumberland 1 GP Inc.

Urbancorp Partner (King South) Inc.

Urbancorp (North Side) Inc.

Urbancorp Residential Inc.

Urbancorp Realtyco Inc.

(collectively, the (“UTMI CCAA Applicants”)

[26] To add even more complexity, the Trustee of the Bankrupt, Fuller Landau Group Inc. (“Fuller Landau”), is also the Monitor in another entirely different CCAA Proceeding involving former Urbancorp CCAA entities (the “Cumberland CCAA Proceedings”) relating to:

Urbancorp Cumberland 2 GP Inc.,

Urbancorp Cumberland 2 L.P.,

Bosvest Inc.,

Edge On Triangle Park Inc.,

Edge Residential Inc.

(collectively, the “Cumberland CCAA Applicants”)

[27] It does not appear on the evidence before the Court on this Strike Motion that included amongst the companies in the Woodbine Bridlepath CCAA Proceedings, the UTMI CCAA Proceedings, or the Cumberland CCAA Proceedings (collectively the “Urbancorp CCAA Proceedings”, and all of the applicant companies to all of the Urbancorp CCAA Proceedings collectively, the “Urbancorp CCAA Applicants”), are the two corporate entities at issue here in relation to the Expungement of the Alpa Proof of Claim, namely The Beach and Leslieville. It appears that The Beach and Leslieville were also not entities being restructured in the Woodbine Bridlepath CCAA Proceeding for which the Gissin Affidavit was sworn.

d) Role of Guy Gissin and prior motion for Standing on Expungement Motion

[28] In a motion (the “Standing Motion”) heard on April 5, 2022 and in reasons released on June 20, 2022 (the “Standing Endorsement”) I granted standing to, inter alia, Gissin, as the Israeli Court-appointed functionary officer and foreign representative of, inter alia, UCI, to appear and provide evidence and submissions on the Expungement Motion with the following disposition:

“[74] For all of the reasons set out above, and utilizing my Judicial discretion as Registrar under the BIA, and after taking into account all of the factors set out above, and in particular the general rule in Gariepy that “Ultimately, the court can and must control its own process”, and after examining all the circumstances of the case and guided by the overriding interests of justice to determine whether it is just that the order be made, I will grant standing to Dolvin and to Gissin to appear and provide evidence and submissions on the issue of the potential effect of the Expungement Motion on their interests as Participating Creditors in the s.38 Action, as governed by the s.38 Order.”

[29] Gissin is an inspector of the Bankruptcy Estate of the Bankrupt, and in the capacity as Functionary, has filed a proof of claim in the Bankruptcy, and has also had assigned to him certain other proven, non-contingent claims, (including certain claims by Terra Firma, the entity described in the excerpt from the Gissin Affidavit cited above, and a defendant to the Alpa Lien Actions, but not the Alpa Saskin Trust Action). Counsel for Gissin as Functionary and as creditor has appeared on the Discharge Hearing of the Bankrupt, has filed an opposition to the Bankrupt’s Discharge and is opposing the Discharge.

[30] In both the Motion for Security for Costs, and the Standing Motion, Alpa, the Functionary and another Creditor Dolvin Mechanical Contractors Limited (“Dolvin”) previously raised arguments that the Expungement Motion was a collateral attack on the S.38 Order, which I did not determine on either Motion, finding that the appropriate forum for those arguments was the actual Expungement Motion.

[31] The stated purpose for the filing of the Gissin Affidavit in the Woodbine Bridlepath CCAA Proceeding is:

1. “I am the Israeli Court-appointed functionary officer and foreign representative (the “Functionary”) of Urbancorp Inc. (“UCI”) and the assignee of the claims of the holders of bonds issued by UCI (the “Bondholders”).

2. This affidavit is made in support of the position of KSV Kofman Inc. (“KSV”), the monitor (“Monitor”) of the Applicants in this proceeding, requesting that this Honourable Court uphold the disallowance of the claim of Terra Firma Capital Corporation (“TFCC”) as against the Applicants.

3. This affidavit provides details around the role TFCC played in the UCI bond raise (“Bond Raise”) and its relationship to the transaction that ultimately forms the underlying basis for the alleged TFCC claim in this proceeding. The information in this affidavit does not come from my direct personal knowledge. Instead, it is based upon my review of e-mails that the Monitor recently provided to me pursuant to the Order of the Honourable Mr. Justice Myers dated June 26, 2018 which cover the period from July 1, 2015-April 21, 2016, as well as other materials provided to me in the framework of investigations I have undertaken in my capacity as Functionary. To the extent that I rely on such e-mails or investigations, I have identified the source of such information.”

e) Alpa Responding Affidavits to Motion to Strike

[32] As noted above, Hanson on behalf of Alpa had sworn the Hanson Expungement Affidavit that the Bankrupt sought to strike portions of for the specific relief contained in the August 2022 Notice of Motion in this Strike Motion.

[33] The Alpa Responding Motion Record dated July 15, 2022 (the “Alpa Responding Motion Record”) also contained the Gissin Affidavit from the CCAA Proceedings as a Tab, but Gissin has sworn no specific affidavit to date for either this Strike Motion or for the Expungement Motion. The Alpa Responding Motion Record on this Strike Motion was 1710 pages, of which the Hanson Expungement Affidavit and Exhibits constituted 1,400 pages, with the Gissin Affidavit and Exhibits constituted 310 of those pages.

[34] The Hanson Expungement Affidavit that the Bankrupt is disputing on this Strike Motion was sworn AFTER I released my Security for Costs Endorsement, in which I pointed out the evidentiary issues I saw with the evidence provided by Alpa on the Security for Costs Motion, with the lengthy excerpt that I have quoted verbatim in these reasons dealing with the specific evidentiary concerns I had with the Alpa evidence on the Security for Costs Motion and the Expungement Motion, and in the specific legal context of the test for the Court to Grant a security for Costs Order, which I refused.

[35] Many of those same evidentiary issues I pointed out, a year ago, are present, again, in the Hanson Expungement Affidavit, and objected to by the Bankrupt on the same basis, as set out in the August 2022 Notice of Motion by the Bankrupt.

[36] Hanson is an inspector of the Bankruptcy Estate of the Bankrupt and the Manager of the Legal and Credit Department of Alpa.

[37] The Affidavit of Paul Montgomery sworn May 25, 2016, (the “Montgomery Affidavit”) filed on behalf of CIBC to obtain the Appointment Order for the Beach and Leslieville is at Exhibit “M” to the Hanson Expungement Affidavit and the Second Report of A&M as Receiver of the Beach and Leslieville dated April 21, 2017 (the “Second Receiver’s Report”) is attached at Exhibit “N” to the Hanson Expungement Affidavit, with the CIBC Credit Agreement with Leslieville, an exhibit to the Montgomery Affidavit, is at Exhibit “O” (the “CIBC Credit Agreement”).

[38] Also attached as Exhibit “L” to the Hanson Expungement Affidavit were the First Report dated June 9, 2016 (the “First Monitor’s Report”) of KSV Kofman Inc. as CCAA Monitor of the CCAA Applicant Companies in the CCAA Proceedings (the “Monitor”), which did not include the companies at issue here, Beach and Leslieville.

[39] Also attached as Exhibit “U” to the Hanson Expungement Affidavit is the transcript of the Examination of Jeremy Cole (the “Cole Examination”), the accountant to the “Urbancorp Companies” generally as well as to the Bankrupt (“Cole”), under s.163(1) of the BIA and dated November 29, 2019 (the “Cole Transcript”).

[40] As the Bankrupt is seeking the specific relief to strike the specific paragraphs and exhibits to the Hanson Expungement Affidavit, in the August 20222 Notice of Motion, I will deal with those specific paragraphs and exhibits granularly in my analysis.

[41] The Gissin Affidavit at Tab 2 to the Alpa Responding Motion Record contains many pieces of correspondence, particularly with representatives of Terra Firma, which correspondence Hanson has appropriated and included in the Hanson Expungement Affidavit as exhibits FF, HH, II, JJ, KK, and LL (the “Emails”).

[42] Also filed on this Strike Motion was a short Supplementary Affidavit of Hanson sworn October 21, 2022 (the “Hanson Supplementary Strike Affidavit”) that seeks to clarify the Hanson Expungement Affidavit, and specifically the nature of the reliance by Hanson on the Gissin Affidavit, the sources of certain of the documentation contained in the Gissin Affidavit, particularly the Emails, and Gissin’s knowledge of those documents as a result of being given access to certain documentation by the Order of Myers, J. in the CCAA Proceedings dated June 26th, 2018 (the “Myers, J. Documentation Order”), and also the basis for reliance by Hanson on the Montgomery Affidavit.

[43] It should be noted that the Myers, J. Documentation Order at Exhibit “A” to the Hanson Supplementary Strike Affidavit contains a detailed procedure for resolving objections by the Bankrupt to the production of documentation in the possession of the Monitor (KSV) to the Functionary for the specific purposes permitted by the Myers, J. Documentation Order.

[44] The Functionary is in a very unique position, in that the Functionary is an Israeli Court Officer, whose position and obligations have been recognized by the Commercial Court in the Urbancorp CCAA Proceedings, and has been given standing to appear in the Urbancorp CCAA Proceedings on specific terms that are not in evidence before me.

[45] In addition, as is clear from the wording of the Meyers. J. Documentation Order, that after careful consideration, Myers, J. gave the Functionary access to certain books and records of the Applicant Companies in the possession of the Monitor, but subject to a procedure to determine the objections of the Bankrupt to the production of documentation, and imposed duties obligations and restrictions on the Functionary regarding the use of that documentation, the entirety of which is also not in evidence before me on this Motion, and the Functionary and his counsel did not appear on this Strike Motion.

f) Attempt by Alpa to Examine Witnesses by issuance of Summons to Witness under R.39.03(3):

[46] To add more spice to this Strike Motion, on May 2, 2023, two weeks prior to the hearing of this Motion on May 18, the Bankrupt served a Second Notice of Motion (the “Summons Strike Notice of Motion”) for the following additional relief:

1.An order striking the Summons to Witness dated April 27, 2023, addressed to Jeremy Cole (the “Summons”) by counsel for Alpa Stairs and Railings Inc. (“Alpa”).

2.An order denying Alpa leave to file any further evidence in respect of the pending motion to strike evidence filed by Alpa in response to the pending motion by the bankrupt Alan Saskin (“Saskin”) to expunge or reduce Alpa’s proof of claim.

3.Costs of this motion on a substantial indemnity basis.

[47] No part of my September Scheduling Endorsement or my January Scheduling Endorsement permitted the examination of third parties on this Strike Motion. No leave under Bankruptcy and Insolvency General Rule 14 was obtained by Alpa prior to sending the Summons to Witness. There is no evidence before the Court as to whether similar Summons’ were issued to other witnesses by Alpa. Mr. Chaiton, counsel to Cole, did not appear on this Strike Motion.

[48] Counsel advised that the examination of Cole did not occur prior to the hearing of the Strike Motion.

[49] In the Summons to Strike Notice of Motion, the Bankrupt, in addition to the specific relief listed above, also goes on at some length regarding the similarity of the Hanson Expungement Affidavit, the Second Hanson Affidavit, and the Affidavit Material filed by Alpa on the Security for Costs Motion, and that the similar statements of fact and conclusions by Hanson have been recycled from prior affidavits and in reliance on the same exhibits.

[50] The Bankrupt pointed out the defects relating to reliance by Alpa on the Gissin Affidavit, the Montgomery Affidavit, and the Cole Examination for the conclusions made by Hanson in her evidence therein.

[51] Again, with respect to the specific Relief sought by the Bankrupt on the Summons Strike Notice of Motion, I will deal granularly with those specific paragraphs of the Hanson Expungement Affidavit and exhibits being sought to be struck by the Bankrupt in my analysis.

2. Factual Context of the Bankruptcy, Receivership of Beach and Leslieville, the Expungement Motion and the Strike Motion:

[52] The Bankrupt filed a notice of intention to make a proposal under the BIA on April 29, 2016 appointing Fuller Landau as the Proposal Trustee.

[53] On October 27, 2016, a Holding Proposal was filed with the Official Receiver. A meeting of creditors to consider the Holding Proposal was adjourned without a fixed date by the creditors. In May 2019 the Bankrupt was assigned into bankruptcy and Fuller Landau then became the Trustee of the Bankrupt.

[54] The Bankrupt was the manager of numerous corporations and partnerships which developed condominiums in or about the City of Toronto.

[55] Many of these entities filed notices of intention, and later, became the CCAA Applicant Companies in the Urbancorp CCAA Proceedings where KSV, A&M or Fuller Landau were appointed as the Monitor by the Court. However as noted previously, the two corporate entities at issue in this Strike Motion, The Beach and Leslieville, were instead placed into Receivership and A&M was appointed as the Receiver.

[56] A&M was appointed by the Order of Justice Newbould dated May 31st, 2016 (the “Appointment Order”) in the capacities as receiver and manager (in such capacity, the “Receiver”), pursuant to section 243 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended, and section 101 of the Courts of Justice Act, R.S.O. 1990, c.C.43, as amended, (the “CJA”) and in its capacity as construction lien trustee (in such capacity, the “Construction Lien Trustee”), pursuant to section 68 of the Construction Lien Act, R.S.O. 1990, c.C.30, as amended (the “CLA”). The Endorsement of Newbould, J. that granted the relief sought by CIBC on that motion reads, in its entirety:

“The Order as Blacklined this Morning is approved, various parties expressing reservations of rights.”

[57] The evidence used to obtain the Appointment Order by CIBC was the Montgomery Affidavit.

[58] The Appointment Order contained paragraphs 6,7 and 8 that had the Standard Receivership Order language requiring cooperation with the Receiver in turning over property and records to A&M as the Receiver of The Beach and Leslieville.

[59] By the Order of Chief Justice Morawetz dated September 14, 2020 (the “Discharge Order”), A&M was discharged as Construction Receiver and Construction Lien Trustee of, inter alia, The Beach and Leslieville.

[60] In the 10th Report of A&M as Receiver, filed to obtain the Discharge Order, one of the “Remaining Activities” listed at paragraph 64 was:

“d. arranging for record retention and storage in accordance with applicable

requirements;”

[61] Under the provisions of the Receivership Administration Order of Justice Newbould dated May 2, 2017, (the “Receivership Administrative Order”) A&M as Receiver was authorized to file an assignment in bankruptcy on behalf of, inter alia, The Beach and Leslieville. The Beach and Leslieville were apparently assigned into Bankruptcy.

[62] It was not in evidence before me on the Strike Motion whether A&M was also appointed as Trustee in Bankruptcy of Beach and Leslieville, or whether the Bankruptcy is ongoing or whether the Trustee in Bankruptcy for The Beach and Leslieville has been discharged.

[63] Prior to the Bankruptcy of the Bankrupt, The Beach and Leslieville, Alpa had commenced against the Bankrupt personally, as well as The Beach and Leslieville, the Alpa Saskin Trust Claim, alleging inter-alia that:

"Curzon Street Project

7. Alpa supplied and installed railings and stairs and provided services

and materials with respect to the property municipally known as 50 Curzon Street,

Toronto ("Curzon Street Project").

8. Alpa rendered invoices in the amount of $194,532.33 to Urbancorp with

respect to the Curzon Street Project which remain outstanding.

9. The Defendants have neglected or refused to pay the outstanding

amounts owing to Alpa.

10. Alpa states that the revenue and payments received by Urbancorp

and the Defendants in relation to the Projects that used Alpa's materials are impressed with a trust in favour of Alpa. Full particulars of these trust payments and the Projects are within the knowledge of the Defendants.

11. Saskin is an officer, director or person with effective control of the affairs of Urbancorp, and was a fiduciary of Alpa with respect to funds received by him. He assented to, or acquiesced in, conduct that he knew or reasonably ought to have known amounted to a breach of trust and are personally, jointly and severally, liable to Alpa for such breaches pursuant to section 13 of the Construction Lien Act.

12. The Defendants participated in a breach of trust by participating in a

conversion and/or defalcation of the trust funds described above. Further; and in

the alternative, the Defendants, or any of them, have been unjustly enriched by

their use and benefit of the materials provided by Alpa, with a corresponding

deprivation to Alpa and in the absence of a juristic reason. Alpa relies on the

principles against unjust enrichment and on a quantum meruit basis.

13. Alpa states the Defendants had a duty to preserve the trust funds for the benefit of those entitled to them and accordingly, were acting in a fiduciary capacity. In breach of their fiduciary duty, the Defendants dishonestly and/or improperly appropriated or converted to their own use, or a use unauthorized by the trust, the funds referred to in the previous paragraphs, and therefore, caused Alpa damages to the extent of its claim.

14. In the further alternative, the Defendants, as agents of the trustee or fiduciary, are liable as they assisted with knowledge in a dishonest and fraudulent design on the part of the trustee to appropriate trust funds. The Defendants had actual knowledge of the trustee or fiduciary's breach of trust or fiduciary duty. In the alternative, the Defendants were willfully blind or reckless with respect the trustee's or fiduciary's breach of trust or fiduciary duty. As such, the Defendants are personally liable for the breach of trust.

15. In the further alternative, the Defendants, or any of them, have been unjustly enriched by their use and benefit of the materials provided by Alpa, with a corresponding deprivation to Alpa and in the absence of a juristic reason. Alpa relies on the principles against unjust enrichment

and on a quantum meruit basis.

16. Alpa further requests a tracing order allowing it to follow all funds found to be trust funds.

17. Alpa pleads and relies upon the Construction Lien Act R.S.O. 1990, c.C.30, in particular Part II.

18. At all material times, the Defendants were, and each of them was, acting in concert and/or as mutual agents each for the other and/or under the control and direction of each other and with the knowledge of each was the knowledge of all and communications to one was communication to all. They are and, each of them is, jointly and severally liable in respect of all matters complained of in the within proceeding. "

[64] The Alpa Saskin Trust Claim also made claims against the defendants for breaches of contract and under the Oppression Remedy. The Alpa Saskin Trust Claim was attached as Exhibit “F” to the Hanson Expungement Affidavit.

[65] Alpa had filed the Alpa Proof of Claim in the proposal proceedings of the (now) Bankrupt dated November 14, 2016 which states that it is "based on an indebtedness to Alpa "…in the sum of $244,727.68, as specified in the reports attached and marked as Schedule "A" to the Proof of Claim”. The Alpa Proof of Claim then was filed in the Bankruptcy Estate upon the Bankruptcy occurring.

[66] The Hanson Proof of Claim Affidavit states the basis for the claim by Alpa against the Bankrupt personally:

“3. Alan Saskin is an office and director ("Alan") of Urbancorp (The Beach) Developments Inc. and Urbancorp (Leslieville) Developments Inc. (collectively ''Urbancorp Companies").

4. Alpa supplied and installed railings and stairs and provided services and materials with respect to the property municipally known as 42 Edgewood Avenue in Toronto ("Edgewood Avenue Project").

5. Alpa rendered invoices in the amount of $33,083.39 to the Urbancorp Companies with respect to the Edgewood Avenue Project which remain outstanding.

Curzon Street Project

6. Alpa supplied and installed railings and stairs and provided services and materials with respect to the property municipally known as 50 Curzon Street, Toronto ("Curzon Street Project").

7. Alpa rendered invoices in the amount of $179,860.26 to the Urbancorp Companies with respect to the Curzon Street Project which remain outstanding.

8. Revenue and payments received by the Urbancorp Companies In relation to the Projects that used Alpa's materials are impressed with a trust in favour of Alpa,

9. Alan is an officer and director of the Urbancorp Companies is thus personally liable under section 13 of the Construction Lien Act for any breach of trust with respect to the funds received for the Projects.

10. Alpa is owed the sum of $244,727.68 as a secured creditor calculated as follows: Principal Amount Owing $212,943.85

DAYS from September 15, 2015 to April 29, 2016 227

Rate of interest in accordance invoices rendered, and alternatively the Courts of Justice Act. 24

Interest accrued to April 29, 2016. $31,784.03

Total $244,727.68

Attached and marked as Exhibit "A" is a trial balance for the Urbancorp Companies.”

[67] The Hanson Expungement Affidavit states that the Trustee has allowed the Alpa Proof of Claim in full. There is correspondence from counsel from the Trustee dated February 8, 2022 at Exhibit “A1” to the Hanson Expungement Affidavit that confirms the allowance of the Alpa Proof of Claim in full, as well as attaching the Claims Register in the Bankruptcy, also evidencing the acceptance of the Alpa Proof of Claim. The Trustee has not disputed this factually and does not appear on this Strike Motion.

[68] There are minimal assets in the Bankruptcy Estate of the Bankrupt. The basis for the Expungement Motion as stated in the Notice of Motion of the Bankrupt is:

“6. There is no legal or factual support or basis for Alpas's [sic] Proof of Claim. Alternatively, the amount claimed is excessive.”

[69] In his Affidavit in support of the Expungement Motion, (the “Saskin Expungement Affidavit”) the Bankrupt states:

“2. Attached hereto and marked as Exhibit "A" is a true copy of the November 14, 2016 Proof of Claim of Alpa Stairs and Railings Inc. ("Alpa"). As can be seen from the Proof of Claim, it states that it is "based on an indebtedness to Alpa "in the sum of $244,727.68, as specified in the reports attached and marked as Schedule "A" to the Proof of Claim". Attached as Schedule "A" to the Proof of Claim is a document titled Detail Historical Aged Trial Balance of Alpa which shows Alpa's customer referenced as Urbancorp 009. It does not indicate that the Bankrupt is a debtor in that ledger, nor in the attached Construction Lien Claims which state that the claim is asserted against Urbancorp (Leslieville) Developments Inc. and Urbancorp (The Beach) Developments Inc. (the "Projects").

3. Notwithstanding that the Proof of Clam asserts no claim of personal liability on the part of the Bankrupt, in an affidavit sworn November 30, 2020, which has recently been received by the Bankrupt, Zena Hanson, the "Manager of the Legal and Credit Department" of Alpa, asserts a personal claim on the basis of an alleged breach of trust under the Construction Lien Act. Attached to her affidavit is a statement of claim issued on February 26, 2016, alleging a breach of trust.

4. Contrary to what is pleaded in paragraph 11, I did not receive any funds in relation to the Projects that used Alpa's materials. Nor did I assent to, or acquiesce in, any conduct that amounted to a breach of trust. I am not aware of any breach of trust in relation to these Projects.

5. On or about May 16, 2016, the Projects went into receivership at the request and upon the application of the Canadian Imperial Bank of Commerce because of cost overruns. The Projects were only partially built at the time.

6. Following its appointment, the receiver, Alvarez and Marsal, completed the Projects over the following four years. All revenues received by the receiver and disbursed by it were done with court approval. Included in such disbursements were payments by the receiver to Alpa of

$94,152.23.

8. I am not aware of any revenue or payments that were used for any purpose other than proper payments made in respect of the Projects.”

III) LAW AND ARGUMENT

[70] The Court has considered all materials and arguments raised by all parties on this 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. Where quotations are underlined in these reasons, that emphasis has been added by me.

A. Legislation and Jurisdiction:

[71] The BIA and the Bankruptcy and Insolvency General Rules (the “BIAR”) do not have specific provisions relating to the striking out of evidence relating to a Motion under the BIA.

[72] The BIA Rules state:

“R.3 In cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdictions, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules.”

[73] The Court of Appeal in Murphy v. Sally Creek Environs Corporation, 2010 ONCA 312, stated the following:

“[149] We agree with the respondents that, in exercising this discretion, registrars and courts have often been guided by the Rules of Civil Procedure, the Courts of Justice Act and the case law flowing from them. Rule 3 of the General Rules states: “In cases not provided for in the Act or these Rules, the courts shall apply, within their respective jurisdictions, their ordinary procedure to the extent that that procedure is not inconsistent with the Act or these Rules.” Provincial rules of procedure thus perform a gap filling function in the interpretation and application of the General Rules.”

Preliminary Issue- What is the legal context of the Bankrupt’s motion to Expunge?

[74] The nature of the Strike Motion, and the tests for the proof of the underlying Expungement Motion being dealt with, are relevant to the Court’s determination of a Motion to Strike evidence for that Expungement Motion.

[75] Section s.135 of the BIA reads:

Trustee shall examine proof

135 (1) The trustee shall examine every proof of claim or proof of security and the grounds therefor and may require further evidence in support of the claim or security.

Determination of provable claims

(1.1) The trustee shall determine whether any contingent claim or unliquidated claim is a provable claim, and, if a provable claim, the trustee shall value it, and the claim is thereafter, subject to this section, deemed a proved claim to the amount of its valuation.

Expunge or reduce a proof

(5) The court may expunge or reduce a proof of claim or a proof of security on the application of a creditor or of the debtor if the trustee declines to interfere in the matter.

[76] A motion under s. 135(5) has been termed to be, in effect, an appeal by a creditor or the debtor against an allowance by the trustee of a proof of claim or proof of security: Re Cassidy (1922), 2 C.B.R. 459, 22 O.W.N. 241 (S.C.) (“Cassidy”); Re Transportation & Power Corp. (1939), 21 C.B.R. 125 (Ont. S.C.). (“Re Transportation & Power”)

[77] In my recent decision of Re Malhotra, 2023 ONSC 2291 (“Malhotra”) I dealt with the various tests for the determination as to whether the Bankruptcy Court should expunge a proof of claim that had been accepted by the Trustee.

[78] In Malhotra the Trustee had settled with the creditor after a claim was initially disallowed for a lower amount, and the Bankrupt, like in this case, moved to have the proof of claim expunged. Like in this case, the creditor in Malhotra whose claim the Bankrupt sought to expunge had obtained an Order under s.38 to assign to him a chose in action to set aside certain transactions. Also, counsel for the Bankrupt on the Strike Motion, was also one of the counsel representing the successful Bankrupt in Malhotra.

[79] I summarized the various tests for Expungement in Malhotra as follows:

“Onus of Proof and Standard of Proof on Motion to Expunge

[130] The onus of proof on a motion to expunge is on the party seeking to have the claim expunged: Badger, Re (1929), 1929 CanLII 129 (SK CA), [1930] 2 D.L.R. 88 (Sask. C.A.)

[131] As per Re Marsuba Holdings Ltd. (1998), 1998 CanLII 5248 (BC SC), 8 C.B.R. (4th) 268, 1998 CarswellBC 2792 (B.C. Master) (“Marsuba”) on this application under s. 135(5), it is unnecessary for the Bankrupt to show that the trustee acted unreasonably or improperly in allowing the claim. The Bankrupt must prove on the merits that the claim should not be allowed.

[132] In Marsuba Registrar Bolton states:

“15 Quite apart from questions of natural justice raised by this position (where officials would be given the power to make decisions on the legitimacy of claims, subject to no review other than on questions of the reasonableness of their conduct) this construction of s.135(5) is contrary to the tenor of s.135 as a whole. The first four sub-sections deal with the procedure to be followed where a creditor appeals the disallowance of a claim by a trustee, and in such cases the appeal is decided simply on the basis of the legitimacy of the claim. There is no reason at all why different considerations should apply to appeals of a decision by the trustee to allow a claim. The only question should be whether the claim is indeed legitimate.”

[133] The correct standard of proof for a motion to expunge is that of the balance of probabilities: Re Karataglidis (2003), 2003 CanLII 64281 (ON SC), 47 C.B.R. (4th) 241, 2003 CarswellOnt 5795 (Ont. S.C.J.) (“Karataglidis”) and Marsuba at para. 19.

[134] Burnyeat, J. in Roberts v. E. Sands & Associates Inc. 2013 CarswellBC 1618, 2013 BCSC 902, [2013] B.C.W.L.D. 7278, 228 A.C.W.S. (3d) 925 reversed on other grounds Roberts v. E. Sands & Associates Inc. 2014 BCCA 122, 2014 CarswellBC 846, [2015] B.C.W.L.D. 1412, 353 B.C.A.C. 217, 603 W.A.C. 217, 241 A.C.W.S. (3d) 22, 60 B.C.L.R. (5th) 259, 10 C.B.R. (6th) 263, [2014] B.C.W.L.D. 2759 (B.C. C.A., Apr 2, 2014) (“Roberts v. E. Sands”) states:

“31. The onus is on Mr. Roberts who seeks to have the claim expunged: Badger, Re (1929), 1929 CanLII 129 (SK CA), [1930] 2 D.L.R. 88 (Sask. C.A.); Purdy, Re (1997), 1997 CanLII 2168 (BC SC), 50 C.B.R. (3d) 225 (B.C. S.C. [In Chambers]), at para. 32; Marsuba Holdings Ltd., Re (1998), 1998 CanLII 5248 (BC SC), 8 C.B.R. (4th) 268 (B.C. Master); Karataglidis, Re (2003), 2003 CanLII 64281 (ON SC), 47 C.B.R. (4th) 241 (Ont. S.C.J.) at para. 6; Magi, Re, [2008] Q.J. No. 14841 (C.S. Que.) at para. 20; Royal Bank v. Insley (2010), 2010 SKQB 17, 64 C.B.R. (5th) 105 (Sask. Q.B.); and Yehia, Re, [2012] B.C.J. No. 2042 (B.C. S.C.).

32 In a civil action, the Represented Respondents would have to prove a claim on a balance of probabilities. Mr. Roberts bears the same onus of showing that the claims of the Represented Respondents should be expunged in whole or in part.”

[135] The Bankrupt in his Factum states the test under s.135 differently:

67. On a motion pursuant to s. 135(5), the moving party has the onus of demonstrating on a balance of probabilities that the impugned proof of claim does not disclose a claim provable in the bankruptcy.52 Stated differently, the moving party must “establish error on the part of the trustee in finding that the claim was legitimate.”53 Malhotra can discharge that onus.

[136] For this proposition, that error by the Trustee must be established by the Moving Party on a section 135 Motion, the Bankrupt cites Re Yehia 2012 BCSC 1467 (“Yehia”) at paragraph 16 where Weatherill, J. states:

“[16] Where a creditor appeals a decision by a trustee to allow a claim, the only question for consideration is whether the claim is indeed legitimate: Marsuba Holdings Ltd. (Re), 1998 CanLII 5248 (BC SC), [1998] B.C.J. No. 2943, 8 C.B.R. (4th) 268 at para.

15. The onus rests with the applicant to establish error on the part of the trustee in finding that the claim was legitimate: Royal Bank of Canada v. Insley, 2010 SKQB 17, 64 C.B.R. (5th) 105 at para. 30.”

But in Paragraphs 24-25 Weatherill, J. states:

“[24] On the evidence before me, I cannot find that Wilson’s claim that he is entitled to $556,000 is legitimate. The appeal of Master Baker’s decision in that regard is dismissed.”

[25] Master Baker awarded costs of the application before him against Wilson. Wilson argues that he was simply opposing the applicant’s challenge to the decision of the trustee and that Master Baker ought not to have awarded costs against him. If anything, he argues, the costs should have been awarded against the trustee. I disagree. The application before Master Baker was necessitated by Wilson providing the trustee with an illegitimate claim. The award of costs against Wilson was appropriate.”

[137] The “error by the Trustee” aspect of the test in Yehia is not discussed, and it is clear that the issue under s.135 (as opposed to s.37 of the BIA that does deal with aggrievement from the decision of the Trustee, not necessarily involving a proof of claim) is the legitimacy of the claim, rather than the “error of the trustee” in admitting it, making the process by which the Trustee admitted the claim less important than the actual legitimacy of the claim. In most cases that distinction would not be that relevant, but in the unique circumstances in this case where the Nagra Claim was compromised and settled by the Trustee, it is.

[138] I note that in Yehia costs were awarded against the Creditor filing the illegitimate claim, and opposing the s.135 motion, and not against the Trustee in Yehia, and as in this case, it does not appear that the Trustee opposed the s.135 motion.

[139] The quote from Royal Bank of Canada v. Insley, 2010 SKQB 17, 64 C.B.R. (5th) 105 at para. 30, (“RBC v. Insley”) cited by Weatherill, J. in Yehia indicates that there are TWO different roads that a Court can follow under s.135, and reads:

[30] The application before me is one to expunge two claims filed and admitted by the trustee. The onus rests with RBC to establish error on the part of the trustee, or in keeping with the approach taken in Marsuba, to establish these were not “legitimate” claims. In my view there is no need to explore the contours of what is or is not a legitimate claim, or other collateral issues arising on appeal (issues not argued by the parties) for the simple reason that RBC abandoned its initial argument that the impugned claims were not filed prior to Insley’s discharge or disclosed by the trustee. In any event, no argument was advanced nor evidence presented concerning the underlying validity of the claims or their allowance. There is no suggestion whatsoever that the trustee improperly interpreted the law, ignored crucial facts, exercised its discretion improperly or acted outside of its authority in the course of exercising its function under s. 135. For all of these reasons, RBC’s initial argument fails.”

[140] Accordingly, based on this combined jurisprudence in Marsuba, Yehia and RBC v Insley, under s.135(5) the court may expunge or reduce a proof of claim or a proof of security on the application of a creditor or of the debtor if the trustee declines to interfere in the matter, where the Moving Party satisfies it’s onus to prove, on the balance of probabilities, that:

1. the claim was admitted through error on the part of the Trustee; OR

2. in keeping with the approach taken in Marsuba, to establish these were not “legitimate” claims.”

[80] From Insley, applying Yehia, it appears that the matters to be considered on the “error by Trustee” test are:

Did the Trustee:

1. improperly interpret the law,

2. ignore crucial facts,

3. exercise its discretion improperly or

4. act outside of its authority;

in the course of the Trustee exercising its function under s. 135 to determine claims.

[81] Also in Insley, Registrar Schwann stated the following regarding the meaning of the determination of whether a claim was “legitimate”, per Marsuba:

“27 Marsuba Holdings Ltd., Re (1998), 1998 CanLII 5248 (BC SC), 8 C.B.R. (4th) 268 (B.C. Master) is another case where a s. 135(5) application was explored. At paragraphs 14 and 15 the learned Master examined the scope of the provision, commenting as follows on the applicable test.

Counsel for the trustee says the applicant must show that the trustee acted unreasonably or improperly in accepting the proof of loss. Counsel would have it that so long as the trustee acted reasonably, the actual legitimacy of the claim is irrelevant. I respectfully disagree.

Quite apart from questions of natural justice raised by this position....this construction of s. 135(5) is contrary to the tenor of s. 135 as a whole. The first four sub-sections deal with the procedure to be followed where a creditor appeals the disallowance of a claim by a trustee, and in such cases the appeal is decided simply on the basis of the legitimacy of the claim. There is no reason at all why different considerations should apply to appeals of a decision by the trustee to allow a claim. The only question should be whether the claim is indeed legitimate.

[emphasis added]

28 No further elaboration was offered in Marsuba as to what constitutes a "legitimate" claim nor did the Court expand upon whether an appeal under this subsection proceeds on the record or is de novo in nature.”

[82] I am not making determinations of the legal issues to be dealt with on the Expungement Motion, but it is relevant to this Strike Motion involving Alpa’s responding evidence on the Expungement Motion that the jurisprudence suggests that the onus on these tests under s.135(5) for the Expungement of a proof of claim appears to be on the Moving Party, being the Bankrupt in this case, to prove that the Alpa Proof of Claim against the Bankrupt was admitted through error by the Trustee, or that Alpa’s claims as set out in the Alpa Proof of Claim were not “legitimate claims”.

[83] Given the subject matter of the Alpa Proof of Claim sought to be expunged, the onus of proof of elements of the s.8 and s.13 tests under the Construction Act may also be on the Bankrupt as per Snell v. Farrell, 1990 CanLII 70 (SCC), [1990] 2 SCR 311 at para. 16 as approved in Firenze Exteriors Inc. v. Westwing Construction Group Inc., 2005 CanLII 5880 (ON SC) and Clearwater Structures v. 614128 Ontario Ltd. o/a Trisan Construction, 2021 ONSC 5601 at para. 25-27 in the s.13 Construction Act context.

[84] Determinations on this Strike Motion of whether evidence put forward by Alpa on the Expungement Motion should consider the tests that the parties are required to meet and the nature of the evidence that would be required to be put forward to meet those tests, by both Alpa and the Bankrupt.

B. Nature of Claim by Alpa in Alpa Proof of Claim:

[85] In my Security for Costs Endorsement, I found the following with respect to the nature of the Alpa Proof of Claim that the Bankrupt is seeking to expunge:

“ [56 ]Alpa is claiming that the Bankrupt, as a result of being an Officer and Director of Urbancorp (The Beach) Developments Inc. and Urbancorp (Leslieville) Developments Inc. (collectively the "Urbancorp Companies"), is liable under s.13 of the Construction Act, and the Bankrupt denies that allegation.

[57] That is the basis of the Alpa Proof of Claim as stated in the Hanson Proof of Claim Affidavit, and Alpa must prove that the Bankrupt’s defence of that allegation, as the basis for the Bankrupt seeking to reduce or expunge the Alpa Proof of Claim in the Expungement Motion is “frivolous and vexatious”, on the tests above as being “devoid of merit”, or proving that there is “good reason to believe the claim has virtually no chance of succeeding.”

[62] Section 13 of the Construction Act reads:

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. R.S.O. 1990, c. C.30, s. 13 (1).

Effective control of corporation

(2) The question of whether a person has effective control of a corporation or its relevant activities is one of fact and in determining this the court may disregard the form of any transaction and the separate corporate existence of any

participant. R.S.O. 1990, c. C.30, s. 13 (2).

Joint and several liability

(3) Where more than one person is found liable or has admitted liability for a particular breach of trust under this Part, those persons are jointly and severally liable. R.S.O. 1990, c. C.30, s. 13 (3).

Contribution

(4) A person who is found liable, or who has admitted liability, for a particular breach of a trust under this Part is entitled to recover contribution from any other person also

liable for the breach in such amount as will result in equal contribution by all parties liable for the breach unless the court considers such apportionment would not be fair and, in that case, the court may direct such contribution or indemnity as the court considers appropriate in the circumstances. R.S.O. 1990, c. C.30, s. 13 (4).

[63] Again, I am constrained by the jurisprudence from ruling on the merits of the dispute, but I must deal with the basis of alleged liability of the Bankrupt under the Construction Act claimed in the Alpa Proof of Claim, for the purpose of making the determination under the R.56(1)(e). tests.

[64] As I noted to counsel at the hearing, s.13 of the Construction Act does not create an absolute liability offence for officers and directors of a corporation that deals with trust funds under that Act if an alleged breach of Trust by the Corporation is proven. A court must still determine that the officer or director assented to, or acquiesced in, conduct that the officer or director knows or reasonably ought to know amounts to breach of trust by the corporation in order to be found liable for the breach of trust.

[65] An example of the analysis of liability required under s.13 of the Construction Act, leading to a determination under s.178(1)(d) of the BIA, is found in the leading decision of the Court of Appeal in Delco Automation Inc. v. Carlo's Electric Limited, 2016 ONCA 591 . If s.13 of the Construction Act was an absolute liability offence, no such judicial analysis would be required.

[66] I noted to counsel that the Colautti Construction Ltd. v. Ashcroft Development Inc. quotation noted above from the Alpa Reply Factum deals with the liability of the Trustee company, the “Developers” from the quote cited, and not the officers and directors of the company.

[67] As I also noted to counsel, the test for determining a Breach of Trust under s.8 of the Construction Act is also not an absolute liability offence and the Court must make a determination of whether trust funds were received, and were misapplied by the Trustee company for purposes other than those permitted under the Construction Act, employing the detailed analysis set out by Milloy, J. in the leading case of St. Mary’s Cement Corp. v. Construc Ltd. (1997), 1997 CanLII 12114 (ON SC), 32 O.R. (3d) 595 (Ont. Gen. Div.) used by the trial Judge in Colautti, and cited with approval by the Court of Appeal in Colautti.

[68] After the quote from Colautti used in the Alpa Reply Factum, the Court states the following regarding the depth of evidence being reviewed in Colautti by the trial judge to make the determination of whether the “Developers” breached their trust obligations in Colautti:

“[82] As set out above, the Developers received significant financing funds in relation to the Projects. Further, there is no dispute that the Contractor supplied services on the Projects. The only s. 7 prerequisite in issue, therefore, was whether the Contractor remained unpaid for any of those services. The trial judge held that there was “some amount of debt” owed to the Contractor “at all times relevant to the litigation”. For the reasons already given, I have concluded that this key finding was open to the trial judge on the evidence.

[83] In these circumstances, the Developers were obliged to demonstrate that they had met their s. 7 trust obligations. They failed to do so. The trial judge found that the Developers failed to produce a detailed accounting or banking records with respect to the bank accounts that they maintained for the Projects. The Developers also failed to maintain records of funds paid out of the Projects’ operating accounts, to contractors or others. Further, based on Mr. Jacobs’ evidence, the frailties of their accounting system precluded the Developers from identifying which of the Contractor’s invoices had been paid.

[84] In contrast, the trial judge found that there were a “great number” of invoices to the Developers shown as outstanding on the Contractor’s accounting system. Although the Developers complain of the sufficiency of the accounting documentation produced by the Contractor, the Contractor tendered copious volumes of invoices and supporting materials at trial. The Developers acknowledged at trial that the Contractor’s invoices on the Seven Contracts were tendered and received. The Developers made no contemporaneous written objection to the invoices. Moreover, on the accepted evidence of John Stokes, there were at least some approved purchase orders for the Contractor’s services that were not honoured.”

[85] On these facts, a finding that the Developers had breached their trust obligations to the Contractor was inevitable. As the trial judge aptly said, citing St. Mary’s Cement Corp., at p. 610, a trustee “who deposits trust funds into a general business bank account and intermingles them with other funds from other sources does so at [its] peril”. I agree.”

[86] The analysis by Milloy, J. in St. Mary’s Cement Corp. v. Construc Ltd. (1997), 1997 CanLII 12114 (ON SC), 32 O.R. (3d) 595 (Ont. Gen. Div.) (“St. Mary’s”) set out above, and affirmed by the Court of Appeal in Colautti Construction Ltd. v. Ashcroft Development Inc., 2011 ONCA 359, (“Colautti”), and by dozens of other cases, states:

“In my view, the language of s. 8(2) of the Act which sets out the obligations of the trustee is mandatory. It provides that the trustee shall not use the trust funds for any purpose inconsistent with the trust until all trades and suppliers are paid all amounts owed to them. Section 8(1) specifically provides that the trust fund is held for the benefit of persons who supplied goods and services to the improvement and who are owed money. In my view, it is the clear intention of the statute that trust funds be used only to pay the claims of beneficiaries until such time as all of them have been paid in full: see Andrea Schmidt Construction Ltd. v. Glatt, supra. If the trust funds held in respect of one project are used to pay suppliers on a different project or to pay other expenses of the contractor, the contractor has violated the Act and is in breach of trust. Although there is no specific requirement in the Act that trust funds be segregated in a special bank account, a contractor who deposits trust funds into a general business bank account and intermingles them with funds from other sources does so at its peril.

The defendants argue that if the total amount paid to trades and suppliers on a project is equal to or greater than the trust moneys received by the contractor, there is no breach of the Act and no breach of trust. In my opinion, this interpretation is not consistent with the clear language and the intent of the Act. The Act not only creates a specific project-related trust fund, but also specifically directs the trustee to hold those moneys and to pay them only to the beneficiaries until there are no unpaid claims from those beneficiaries. In my opinion, the Act contemplates a separate trust fund for every project in which the contractor is involved and separate accounting for every trust fund. It is only by separately accounting for the moneys held in trust that a contractor can ensure that trust moneys are not in fact applied to other purposes. The fact that the Act does not expressly require that trust funds be kept separate from the general accounts of the contractor is not determinative of whether a failure to do so constitutes a breach of trust. A trustee has an obligation to protect the trust funds. Allowing trust funds to be intermingled with other moneys and used for general purposes is inconsistent with the trustee's duty to maintain proper control of the trust funds: see Air Canada v. M&L Travel Ltd. (1991), 1991 CanLII 7332 (ON CA), 2 O.R. (3d) 184 at p. 205, 77 D.L.R. (4th) 536 at p. 556, 26 A.C.W.S. (3d) 674 (C.A.), affirmed 1993 CanLII 33 (SCC), [1993] 3 S.C.R. 787 at pp. 826-27, 108 D.L.R. (4th) 592 at pp. 618-19.

Accordingly, in my opinion, the manner in which Construc dealt with the trust funds was a breach of its obligations as trustee and a breach of the trust provisions of the Act. However, if all of the trades and suppliers on a particular project had been paid in full, there would be no repercussions for Construc as there would be no damages sustained as a result of the breach of trust. That, of course, is not the situation in this case. Also, if there are facts to support the application of the defence or exception provisions of Part II of the Act, then Construc would not be in breach of trust. The provision relied on by Construc in this case is s. 11(1) which states:

11(1) Subject to Part IV, a trustee who pays in whole or in part for the supply of services or materials to an improvement out of money that is not subject to a trust under this Part may retain from trust funds an amount equal to that paid by the trustee without being in breach of trust.

It is argued by Construc that it is entitled to the benefit of this provision to the extent of the amount which it paid out to beneficiaries. I disagree. Section 11(1) is quite specific about the source of the payments which will give rise to a credit in favour of the trustee. It only applies to "money that is not subject to a trust under this Part". The onus is on Construc to establish the source of the moneys it paid out. However, Construc's method of accounting was such that it is not able to demonstrate the source of the $83,325.81 which it paid to trades and suppliers on this project. The cheques were drawn on the company's general accounts which contained intermingled funds from various sources, including trust funds relating to other projects. Therefore, Construc has not proven that the money used was not subject to a trust under Part II and is not entitled to the benefit of this provision. It is entirely possible that the money used to pay some of the trades on the Grovedale Project was in fact impressed with a trust in favour of trades and suppliers on another project. This practice of in effect "robbing Peter to pay Paul" is inconsistent with the legislative scheme of the trust provisions and cannot be condoned. In the result, therefore, Construc is liable to CBM for breach of trust on this project in the amount of $7,268.62.”

[87] At the Security for Costs Motion stage, Alpa argued that the following methodology of proving a Trust Claim as set out in Colautti was applicable to the methodology Alpa was implementing to defend the Alpa Proof of Claim on the Expungement Motion:

“[81] In order to establish a breach of trust under s. 7 of the Act, the Contractor was required to demonstrate that the Developers had received funds that were to be used in the financing of the Projects (s. 7(1)), that the Contractor had supplied materials or services related to the improvement of the Projects (ss. 7(2) to (4)), and that the Contractor remained unpaid for at least some of those materials or services (s. 7(4)). On proof of these prerequisites, it fell to the Developers to demonstrate that they had complied with their trust obligations under the Act.

[82] As set out above, the Developers received significant financing funds in relation to the Projects. Further, there is no dispute that the Contractor supplied services on the Projects. The only s. 7 prerequisite in issue, therefore, was whether the Contractor remained unpaid for any of those services. The trial judge held that there was “some amount of debt” owed to the Contractor “at all times relevant to the litigation”. For the reasons already given, I have concluded that this key finding was open to the trial judge on the evidence.”

[88] It should be noted that with respect to the Lien Actions, Alpa had obtained default judgments on February 26, 2016 against The Beach ($36,020.11 and $1,262 in costs in CV-15-537937 and $195,825.94 and $1,262 in costs), prior to the Receivership of The Beach and Leslieville on May 31, 2016. Although the Hanson Expungement Affidavit states:

“10. On or about February 26, 2016, Alpa obtained judgments against Urbancorp in both the Beach action, bearing Court File No. CV-15-537936, and the Leslieville action, bearing Court FileNo. CV-15-537937. Attached and marked as Exhibit “G” are the Judgments dated February 26,2016 in Court File Nos. CV-15-537936 and CV-15-537937.”

I note that the Default Judgments attached at Exhibit “G” to the Hanson Expungement Affidavit only relate to The Beach. No Default Judgment against Leslieville is attached as an exhibit to the Hanson Expungement Affidavit.

[89] In relation to these Lien Actions, under the Lien Claims filed by Alpa in the Receivership of The Beach and Leslieville, Alpa received payments in the total amount of $94,152.23 from A&M as Receiver of The Beach and Leslieville which has reduced the amount claimable in the Alpa Proof of Claim in the Bankruptcy. This reduction is one of the grounds on which the Bankrupt brought the Expungement Motion. Alpa does not dispute the reduction of the Alpa Claim for this amount.

[90] In the Transcript of the Examination by the Trustee of the Bankrupt on November 1, 2022, (the “Saskin s.163 Examination”) filed on this Motion by Alpa, under s.163(1) of the BIA (the “Saskin s.163 Transcript”), numerous questions were asked by the Trustee, and undertakings to produce documentation were requested from the Bankrupt, that revealed one of the central evidentiary issues on this Strike Motion and the Expungement Motion.

[91] Ordinarily, outside of the Bankruptcy of the Bankrupt, and the Bankruptcy and Receivership of The Beach and Leslieville, the determination of whether Alpa had a valid Trust claim against the Bankrupt would have been determined using ordinary civil litigation procedure in the Alpa Saskin Trust Claim, through the exchange of pleadings, documentary and oral discovery and trial. The Bankrupt, The Beach and Leslieville would have had to produce relevant documentation in their possession and control to the Plaintiff indicating whether the tests in Colautti and St. Mary’s had been met regarding the use of trust moneys by The Beach and Leslieville, under the supervision of the Bankrupt, as an admitted director of The Beach and Leslieville.

[92] Typically this would involve a detailed review of transactions in the trust account(s) of the corporate builders, to determine whether monies received by the corporations from the owner or the construction lender were used for purposes other than that specific project, or that a single account was used to commingle funds received and funds expended in numerous projects for purposes other than the payment of sub-trades on specific projects for which funds were specifically received.

[93] With the Bankruptcy of the Bankrupt, the determination of the claim by Alpa against the Bankrupt reverts to the proof of claim determination process by the Trustee of the Alpa Proof of Claim under s.135 of the BIA, but without the benefit of the regular litigation processes that would have occurred had the Alpa Trust Claim been normally litigated, including the production of documentation from The Beach and Leslieville, now in the possession of A&M as Receiver and/or Trustee in Bankruptcy.

[94] A good example of the nature of how such a Construction Act trust claim is determined post-bankruptcy in the context of proving a s.178 debt is the very thorough analysis conducted by Kershman, J. in Yanic Dufresne Excavation Inc. v. Saint Joseph Developments Ltd., 2021 ONSC 6633 affirmed 2022 ONCA 556.

[95] With the Receivership and Bankruptcy of The Beach and Leslieville, the Alpa Lien Actions were effectively litigated as against The Beach and Leslieville by the determinations made by A&M as Receiver, with Alpa receiving partial payment of its lien claims in those proceedings, which reduced the amounts claimable by Alpa in the Alpa Proof of Claim against the Bankrupt, as admitted by Alpa.

[96] Many questions and requests for undertakings in the Saskin s.163 Examination, relating to many companies that were formerly in the “Urbancorp Group”, such as UCI, Urbancorp Management Inc. (“UMI”) and Urbancorp Toronto Management Inc. (“UTMI”), were answered similarly to the following:

“227. Q. Sir, was any of the art purchased with funds of yours or funds from any of the companies that you were an owner and/or director?

A. Not to my recollection.

228.Q. What does that mean? Can you go back and check for me, please?

MR. TAYAR: If you can do it by way of undertaking as to whether you paid for it, Mr. Saskin, I don’t have a problem with that, but whether a company that is within CCAA paid for it or a company that’s in receivership paid for it that is not a question for him to answer. He may have been a director back then but you can go and ask the monitor or receiver of those entities, either KSV or Fuller Landau. You have equal access, in fact from what I can see in terms of the GL that you have got considerable access to the books and access that the monitor and receiver controls.”

[97] A&M is the Court Appointed Receiver of The Beach and Leslieville. It is not in evidence on the Strike Motion who the Trustee in Bankruptcy of these entities is. KSV is the Monitor of certain of the CCAA Applicant Companies, A&M is the Monitor of others. The Trustee of the Bankrupt, Fuller Landau is also the CCAA Monitor of yet other Urbancorp entities not related to the Expungement Motion and the Strike Motion.

[98] It is not in evidence on this Motion as to what documentation is still in the possession of the Bankrupt relating to The Beach and Leslieville, and whether the entirety of that documentation is in the possession or control of A&M as Receiver and/or Trustee in Bankruptcy of The Beach and Leslieville. It was also not argued before me whether if it is true that the Bankrupt as a director retained absolutely no copies of documentation from The Beach and Leslieville, how that accords with his duties as a corporate director and under the Construction Act.

[99] Certainly the Appointment Order for A&M as Receiver of The Beach and Leslieville has the traditionally worded provisions requiring all parties to cooperate with A&M in providing information and documentation relating to the business and affairs of The Beach and Leslieville.

[100] If The Beach and Leslieville are also Bankrupt, the provisions of the BIA, and the BIAR would require similar cooperation with the Trustee in Bankruptcy of The Beach and Leslieville, including by the Bankrupt under s.159 of the BIA.

[101] In the Hanson Expungement Affidavit, the following is stated about the central practical evidentiary issue relating to the Alpa Proof of Claim, the Expungement Motion and this Strike Motion for the evidence filed by Alpa on the Expungement Motion:

“22. Given Saskin’s bankruptcy and Urbancorp’s Receivership, we have almost no access to information regarding Saskin’s actions and the documentation. However, based on a review of the documents filed in the various insolvency proceedings, I have learned the following information, which I believe show that Urbancorp Leslieville did receive funds on these projects and that Saskin directed how these monies were dispersed and distributed.”

[102] As I have set out above regarding the tests under s.135(5), the crucial distinction on the Expungement Motion, as opposed to the Security for Costs Motion, is that on the Expungement Motion the Bankrupt, as the Moving Party, appears to have the onus of proving the tests for Expungement under the Motion, while in the Security for Costs Motion, obviously Alpa had the onus of proof as the Moving Party seeking to obtain a Security for Costs Order.

[103] As I pointed out to Counsel for both Alpa and the Bankrupt at the hearing of this Strike Motion,

i) if the Bankrupt is being truthful in his s.163 examination testimony, and in responses to requests for undertakings regarding the records of The Beach and Leslieville,

ii) that ALL of the records relating to The Beach and Leslieville have apparently been provided by the Bankrupt, The Beach and Leslieville to A&M as Receiver under the terms of the Appointment Order, and

ii) which likely currently reside in the possession of A&M as Receiver, albeit discharged, or as Trustee in Bankruptcy of The Beach and Leslieville (if so appointed) under BIAR 68, and have not been yet returned by the Trustee under BIAR 68;

then BOTH the Bankrupt and Alpa are going to have the same evidentiary difficulty on:

1. the Expungement Motion,

2. the Alpa Leave Motion, and if leave is granted,

3. any subsequent continuation of the Alpa Saskin Trust Action by Alpa against the Bankrupt,

of proving the constituent elements of EACH of their cases in EACH of these proceedings, as unlike the usual situation of an action to prove a breach of trust claim under the Construction Act, A&M appears to be currently in possession of those records of The Beach and Leslieville.

[104] The recent decision of Feth, J. in MNP Ltd (Eco-Industrial Business Park Inc) v Symmetry Asset Management Inc, 2023 ABKB 429 (“Symmetry”) is instructive on this evidentiary issue, in the context there of an application by the Trustee under s.96 of the BIA and what evidence the Trustee needs to provide to prove that the transaction was at an undervalue:

“[19] The parties tendered some potentially conflicting affidavit evidence about Symmetry’s funding of the ADT Action, the extent of Symmetry’s disclosure in response to requests from MNP, and whether Mr. White had a fraudulent intention when transferring the legal claims from Eco-Industrial to Symmetry.

[20] Generally, conflicting evidence on material facts cannot be resolved in chambers: Charles v Young, 2014 ABCA 200 at para 4; Nieuwesteeg v Barron, 2009 ABCA 235 at para 9.

[21] The Court’s obligation, however, is to resolve bankruptcy disputes in a cost-effective and timely manner having regard for proportionality and the interests at stake, so long as procedural fairness is preserved. Protracted and costly litigation should be avoided when the issues can be determined summarily. Findings about uncontested facts and those facts not seriously challenged may be sufficient to arrive at a fair and just disposition: Royal Bank of Canada v Racher, 2017 ABQB 181 at paras 11-12 [Racher]; Re National Telecommunications Inc, 2017 ONSC 1475 at paras 33-39 [National Telecommunications].

[22] This approach to litigation economy was discussed in Sandhu v Siri Guru Nanak Sikh Gurdwara of Alberta, 2015 ABCA 101 at para 81:

Therefore, conflict on certain points in the parties’ affidavits does not alone mean [the application] should have been adjourned for oral testimony or a full trial. It may be that the conflicts do not arise on essential facts. It may be that analysis shows no factual conflict exists, but only a conflict of the litigants’ separate opinions. It may be, as here, that one party relies on several affidavits, which contain internally conflicting evidence, including some evidence which agrees with or supports the evidence lead by the opposite party, and thus amount to admissions against interest. It may be that issues can be resolved on the basis of those portions of the affidavits which are not in dispute ...

[23] The Court may also consider whether the issues can be determined by applying the correct burdens of proof: Racher at para 14; Wildeman v Wildeman, 2014 ABQB 732 at paras 16-17.

[24] In Racher, where a similar application was made to set aside a transfer at undervalue per s 96(1) of the BIA, or to find a fraudulent preference or conveyance, my colleague Justice Eamon cautioned at paras 15-16 that a respondent’s vague and self-serving affidavit evidence is generally insufficient to raise a triable issue:

...A self-serving affidavit alone is not sufficient to create a triable issue in the absence of detailed facts and supporting evidence ... statements in affidavits that are merely conclusory, argumentative, or have no detailed evidence supporting them may not be sufficient to require a trial of an issue. ...

In determining whether there is a proportional means short of trial that should be used in a bankruptcy or related application, where final relief is sought, a self-serving affidavit alone may not be sufficient to create a meritorious issue in the absence of detailed facts and supporting evidence. The respondents in such proceedings should provide more. Otherwise, respondents could force trials merely by swearing to a set of general conclusions. The tolerance for that has long passed given the concerns for facilitating access to justice through proportionate procedures. [authorities omitted]

[25] This approach respects the objects of the BIA as a “businessperson’s statute ... particularly focused on efficiency and affordability”: National Telecommunications at para 33.

Evidentiary principles

[38] MNP bears the legal burden of establishing a transfer at undervalue: Racher at para 76. However, where the facts are particularly within the knowledge of the respondent, the evidence adduced by the applicant may result in an adverse inference being drawn against the respondent in the absence of contrary evidence or an explanation for not calling it: Sopinka, Lederman & Bryant, The Law of Evidence in Canada, 6th Edition (Toronto: LexisNexis Canada Inc, 2022) at 437. Moreover, “very little affirmative evidence will be sufficient where the facts lie almost entirely within the knowledge of the other side”: Snell v Farrell, [1990] 2 SCR 311 at 328-330, 1990 CanLII 70 [Snell]; see also Servus Credit Union v JRD Investments Inc., 2020 ABQB 249 at para 37.”

[105] As noted by counsel for Alpa in argument on the Strike Motion, and by me to both counsel, Alpa may be at a disadvantage in this case as A&M may have the documentation relating to The Beach and Leslieville needed to prove the constituent elements of the Colautti/St. Mary’s test, but the Bankrupt in this case, the Moving Party on the Expungement Motion, is likely to know, or be deemed to know as director, what HE DID in relation to the accounting of the flow of monies related to those projects.

[106] This Strike Motion relating to the evidence filed by Alpa on the Expungement Motion must be considered in the factual and practical context of all of these broader practical evidentiary issues in adjudicating the Expungement Motion, and in relation to the question “How will both the Bankrupt and Alpa prove their cases on the Expungement Motion?”

Legal Tests for admissibility of Information and Belief Affidavit Evidence:

[107] I stated the following in my Security for Costs Endorsement, a year ago, specifically regarding the issues with admissibility that I foresaw with respect to the Alpa evidence on the Security for Costs Motion, and filed to date on the Expungement Motion:

“[80] I note that R.4.06(2) states:

“(2) an affidavit shall be confined to the statement of facts within the personal knowledge of the deponent or to other evidence that that deponent could give if testifying as a witness in court except where these rules provide otherwise.”

[81] Rule 39.01(4) governs affidavit evidence on motions:

“Contents - Motions

39.01(4) An affidavit for use on a motion may contain statements of the deponent’s information and belief, if the source of the information and the fact of the belief are specified in the affidavit.”

[82] I note that in Glasjam Investments Ltd. v. Freedman, 2014 ONSC 3878, (now) RSJ Macleod summarized some of the problems that I am raising:

“32 The affidavit tendered in support of Ms. P's motion is illustrative of three problems which are unfortunately all too common. The first of these is misuse of "information and belief." Of course affidavits in Ontario may be based on information and belief. Rule 39.01 (4) says so. This rule permits efficiency in drafting of affidavits by making what might otherwise be hearsay admissible. It is also a useful provision for relief such as injunctions or freezing of assets when the very issue before the court is whether there is good reason to believe a state of affairs that cannot be proven.

33 Rule 39.01 (4) is not, however, a mechanism for magically transforming speculation into hard evidence. Information and belief may be admissible. It will not necessarily have probative value nor will it preclude a court from drawing a negative inference from the failure to put forward the best available direct evidence on a contentious issue. An uninformed or unqualified witness swearing that they believe a particular assertion made by someone else is evidence of little or no weight at all.”

[83] I also note the following statement of Beaudion, J. (as he is now) in Canadian Blood Services v. Freeman, 2004 CanLII 35007 (ON SC).

“19 A number of paragraphs in the Lapierre affidavit appear to offend rule 39.01(4). That rule requires that an affidavit in support of a motion should be based on the deponent’s personal knowledge. Where the statements are not based on the deponent’s personal knowledge, the source of the information and the fact of the belief should be included. The rule is well known and, in the face of an objection being taken, the Court may not waive the irregularity.”

[108] In Glasjam Investments Ltd. v. Freedman, 2014 ONSC 3878 (“Glasjam”) from my Security for Costs Endorsement, the affidavit sought to be struck was described as follows by RSJ MacLeod (as he is now):

“27. It contained an affidavit of Denise Atkinson, a law clerk at Radnoff Law Offices which affidavit asserts inter alia based on information and belief that “the Notice of Discontinuance is highly misleading because there is likely a tolling agreement …” and “the tolling agreement (if one exists) has been used as a scheme to prevent our client from obtaining an order to consolidate …”

[109] Relevant to the context of this Strike Motion, RSJ MacLeod expands on the above quote as to the basis for striking portions of the offending affidavit:

“[34] The second problem is the practice of having a law clerk swear that they are informed on contentious matters by counsel who is arguing the motion. Counsel of course cannot appear before the court on his or her own affidavit. Rule 4.02 of The Rules of Professional Conduct reinforces this principle. It is no better to have a law clerk swear she is advised about contentious facts by the lawyer arguing the motion. In fact it is worse because the lawyer therefore seeks to insulate himself from cross examination but it remains his or her evidence.[3]

[35] Finally the affidavit suffers from containing opinion rather than fact. An affidavit is supposed to be sworn evidence of facts within the knowledge of the deponent. Opinion and argument are not facts but conclusions and unless the witness is tendered as an expert then the witnesses’ opinion is neither admissible nor probative of anything. Having a law clerk swear that “I am further advised by Mr. Radnoff and verily believe it to be true, that it is likely that the Notice … has been used as a scheme” is simply improper. Even had Mr. Radnoff sworn the affidavit, the court would not be interested in his opinion.[4] Counsel may properly ask the court to reach a conclusion based on facts properly before the court but the fact that counsel believes the conduct of the other party to be improper is neither here nor there. Argument should be reserved for the factum and generally has no place in an affidavit.

[36] I agree that the offending paragraphs or sentences should be struck from the Atkinson affidavits. That would include much of paragraph 5 & 6 of the new affidavit and the arguments contained in paragraph 7 of the original affidavit. It was unnecessary to create this controversy by inserting those paragraphs since the real purpose of the affidavits was simply to put correspondence, events and the chronology before the court.

[37] It is relevant and admissible that Mr. Radnoff had not been told about the tolling agreement and it is relevant that he has now asked for disclosure of that agreement and been refused. A chronology of events and relevant correspondence sent or received are precisely the sort of non-contentious facts that could properly be put in evidence by a law clerk who has reviewed the file. In the final analysis those are the only facts that are necessary to determine the motion. It is for the court to determine if the facts give rise to a finding of impropriety.

[38] Accordingly striking the improper paragraphs has no real impact on the motion. The basis for Mr. Radnoff’s submissions and his request that the court conclude there was an abuse of process is to be found in the chronology of events, the correspondence between counsel and the transcripts of evidence. All of that evidence was before the court so Mr. Radnoff was not hampered in advancing his evidence by inability to rely on the improper paragraphs. Indeed, he did not refer to those paragraphs at all. In the words of Rule 25.11 (b) the offending paragraphs are clearly scandalous, frivolous or vexatious (or all three), do not advance the moving party’s case in any way and should be struck out.

[39] The cross motion is granted by striking the paragraphs referred to above. It is not necessary to strike the affidavits in their entirety.”

[110] The specific evidentiary issues leading to the determination above by Beaudoin J. in Canadian Blood Services v. Freeman, 2004 CanLII 35007 (ON SC) (“Freeman”) were:

[18] CBS submits that paragraphs 25, 26, 27 and 28 of Paul Lapierre’s affidavit contravene Rule 4.06(2) because they constitute opinion as opposed to fact. In paragraph 25, Mr. Lapierre expresses the view that current CBS blood screening practices convey the message that “AIDS is a gay disease and that all heterosexuals are safe blood donors”. In paragraphs 26 and 27, Mr. Lapierre further sets out his opinions about the impact of current blood donor screening practices. I concur that these paragraphs do contain expressions of opinion, argument or illegal submissions and that these offend Rule 4.06(2). They contain conclusions that must be drawn by the Court itself and is not appropriate for a witness to do that.1. On the other hand, I do not find that paragraph 28 offends that Rule as Mr. Lapierre is entitled to set out CAS’s position in this litigation.

[19] A number of the paragraphs of the Lapierre affidavit appear to offend Rule 39.01(4). That Rule requires that an affidavit in support of a motion should be based on the deponent’s personal knowledge. Where the statements are not based on the deponent’s personal knowledge, the source of the information and the fact of the belief should be included. The Rule is well known and, in the face of an objection being taken, the Court may not waive the irregularity.2 Paragraphs 18 and 19 of the Lapierre affidavit do not state the source of the deponent’s information and belief. The only source of information that Mr. Lapierre identifies, aside from his own personal knowledge, is the advice from his solicitor, Patricia A. LeFebour. In paragraphs 33 and 34, Mr. Lapierre specifically states that Ms. LeFebour is the source of the information deposed to in each of those paragraphs. Nowhere else in this affidavit does Mr. Lapierre state that his statements are based on information and belief. On the other hand, Mr. Lapierre can only have very limited personal knowledge in his position as Executive Director of CAS since he has only held this position since 2002. He provides no information about any activities or involvement with the CAS prior to 2002. Since paragraphs 18 and 19 purport to set out the opinions of the medical and scientific community in the 1980s and 1990s and, since his affidavit is silent as to his involvement in this history, there is no basis on which to conclude that these statements are within his personal knowledge. For these reasons, those paragraphs should be struck.

[20] Finally, CBS argues that paragraphs 17, 18, 19, 22, 25, 26, 27 and 28 should be struck as being contrary to Rule 25.11 as they consist of statements which are irrelevant to the issue. Paragraphs 18, 19, 25, 26, 27 and 28 have been previously dealt with and I don’t propose do deal with them here. At Paragraph 17, Mr. Lapierre reproduces comments in the Krever Report that certain screening practices used by the Canadian Red Cross Society twenty years ago were unscientific and premised on stereotypes. CBS argues that these comments are irrelevant. While their relevance may be marginal, I do not view such a paragraph as being a frivolous, or scandalous or vexatious or otherwise offending Rule 25.11. At Paragraph 22 however, Mr. Lapierre boldly states that “CAS is aware that many young persons object to donating blood because they perceive the questionnaire to be homophobic”. This paragraph is unsupported by any evidence beyond Mr. Lapierre’s unqualified assertion, and I concur with the Plaintiff’s submission that this statement is inflammatory and prejudicial and ought to be struck. For these reasons, I concur with CBS’s submission that those portions of the Lapierre affidavit identified above ought to be disregarded by the Court in assessing the Intervenor’s evidence in support of this motion.”

[111] Rule 25.11, cited as a basis for expungement by Beaudoin, J. in Freeman, confers on the Court a general power to strike out or expunge part or all of any document, including an affidavit if it is scandalous, frivolous or vexatious or an abuse of the process of the Court. That Rule reads:

Striking out a Pleading or Other Document

25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,

(a) may prejudice or delay the fair trial of the action;

(b) is scandalous, frivolous or vexatious; or

(c) is an abuse of the process of the court.

[112] In Allianz Global v Attorney General of Canada, 2016 ONSC 29 (“Allianz”) RSJ MacLeod (as he is now) set out the general considerations for striking out affidavit evidence under R.25.11 in advance of a main motion to be heard by the same judge, as will occur in this case:

“[10] This rule gives the court broad discretion to “strike out or expunge” all or part of any court document which is sufficiently improper to engage the rule. While most commonly used for pleadings, there is no doubt that the rule may also be used to strike an affidavit because an affidavit falls within the definition of “other document”.3 The pertinent question is whether it is appropriate to exercise this jurisdiction in the circumstances before the court.

[11] Notwithstanding that the rule may be applied to different types of documents, striking an affidavit is different from striking a pleading. Different purposes are served by pleadings and affidavits and different rules apply. Specifically affidavits are the evidentiary record for use on a motion or an application and striking the affidavit or portions of it in advance of the main hearing is a narrowing or pruning of the evidentiary record. Moreover different rules apply to interlocutory motions than apply to summary judgment motions, applications under rule 14 or applications for judicial review. Thus each situation must be considered in context. 4

[12] There is conflicting case law concerning whether it is appropriate to strike an affidavit on a preliminary motion or whether the evidentiary issues should be left to the judge or master presiding at the main hearing. I was referred to Lockridge v. Director, Ministry of the Environment5 in which Harvison Young J. enunciated the competing principles as follows. On the one hand courts are generally reluctant to deal with issues of admissibility and relevance in advance of the hearing on the merits and the court must take care not to usurp the role of the court that will consider the merits. On the other hand defining the record appropriately in advance of the hearing enhances the ability of the court to focus on the merits.6

[13] The latter principle has enhanced importance in applications, applications for judicial review and perhaps in class proceeding certification motions. The importance of those hearings, the length and complexity of those hearings and concerns for judicial economy suggest that limiting the record by excluding evidence that is clearly improper and inadmissible in advance may be appropriate and desirable.7 In the case of judicial review or of applications under Rule 14, the proper scope of affidavit evidence is more narrowly circumscribed than is the case on interlocutory motions.8

[14] For interlocutory motions, evidence based on information and belief is specifically made admissible. Rule 39.01 (4) provides that the affidavit may contain statements of the deponent’s information and belief if the source of the information and the fact of the belief are specified in the affidavit. Evidently this permits both hearsay and opinion evidence that might not be admissible at a trial though of course this does not guarantee the motions judge or master will give that evidence much weight. Opinion evidence tendered as expert evidence on a motion is treated separately under Rule 39.01 (7).

[15] In 876502 Ontario Inc. et. al. v. Propco Holdings, Dambrot J. held that the rule does not contemplate that a master should review in advance affidavits filed on a motion which will be argued later before an undetermined master or judge and make evidentiary rulings on admissibility or relevance.9 It is also clear that while identification of the source of information and belief in an affidavit is a precondition to admissibility, it is an error to approach that requirement in an overly rigid fashion.10 The rule is not designed to require a formulaic recital and it may be sufficient if the source of the information and belief is obvious if the affidavit is read generously. For example a general recital that the witness is familiar with the sequence of events from reading the file or reviewing correspondence may not have to be repeated in each paragraph. If the exhibits to the affidavit clearly support the evidence of the deponent and appear to be the source of the belief that may also suffice.

[16] In Neighbourhoods of Windfields, D.S. Ferguson J. accepted what he described as the general view “that evidence should not be struck on an interlocutory motion unless there is some special reason to do so.” 11 I adopt this statement of the law. He identified four rationales for this approach which may be summarized as follows:

a) Granting such a preliminary motion will encourage more such motions and contribute to cost and delay;

b) It is unnecessary to make such rulings in advance because the motions judge will be in an equally good or better position to determine admissibility;

c) Judges frequently learn of and disregard inadmissible evidence and are presumed not to take it into account; and,

d) The judge hearing the merits can sanction any inappropriate introduction of evidence by disregarding it and awarding costs.

[17] I would observe that the situation is little different if the same person is hearing the motion and the preliminary motion. Where a different master or judge is hearing the main motion, the concern must be that the judicial officer hearing the preliminary motion not usurp the role of the judicial officer hearing the merits. If the same person is hearing both then the concern must be not to inappropriately form opinions about the weight to be given to evidence that may bias the hearing on the merits. In addition, treating the preliminary motion as a separate motion opens the possibility of two sets of appeals, one an appeal of the preliminary motion and the other an appeal on the merits. This should generally be avoided in my view.

[18] One “special reason” to strike an affidavit in advance of the main motion might be where the affidavit is clearly improper and it would inevitably give rise to extraordinary cost or difficulty for the other party.12 For example an affidavit might introduce an issue which would require lengthy cross examination and responding affidavit material unless the opposing party wishes to take the risk of not responding to it. As there are various remedies for this at the hearing of the main motion, this in my view is appropriate only in the clearest of cases. It is not mandatory that the offending portions of the affidavit be struck under Rule 25.11 as the rule is discretionary.

[19] In summary, with respect to interlocutory motions for production of documents, a preliminary motion will generally not be the preferable approach. Any issues of admissibility, relevance or weight should generally be dealt with by the judicial officer hearing the main motion. Rule 25.11 may be appropriate to deal with clearly scandalous or improper affidavit material or with abuse of process where it can be demonstrated that it is more efficient to deal with the record in advance than it will be to complicate the hearing of the main motion and leave the parties uncertain as to whether or not they must respond to the improper material.13”

[113] RSJ Macleod refers to the decision of D. S. Ferguson J in Neighbourhoods of Windfields Limited Partnership v. Death, 2007 CanLII 31756 (ON SC) (“Neighbourhoods of Windfields”) for many of these principles:

“[29] For instance, counsel relied on the reasons of Cullity J. as establishing a principle that one could not contend that hearsay evidence was inadmissible on the ground that it was contentious as contemplated by rule 39.01 unless the moving party filed an affidavit establishing that it was contentious. I am not at all sure Cullity J. was propounding such a general principle. He was dealing with an unusual situation where the moving party claimed the information was subject to privilege. I can easily think of cases where it would be obvious that the subject was contentious without the need for additional evidence. Further, it would not seem practical or in the contemplation of the rule makers that a party would be expected to file affidavits and be subject to the delay involved in cross-examination just because they contended that certain hearsay information was contentious. Applying such a general principle here would seem particularly inappropriate where the whole point of the exercise is to determine whether the moving parties are obliged to respond to all of the subjects in the voluminous material filed by the Applicants.

[30] Further, it is obvious the cases take different views as to whether it is appropriate to strike evidence which falls within rule 25.11 in order to assist a party avoid an election between ignoring it and risking the hearing judge considering it either unconsciously or as admissible evidence, or, on the other hand electing to file responding evidence even though the initial evidence is irrelevant, scandalous, vexatious or an abuse of process. Different views are expressed in Albert, op.cit. at para. 28, and by the same judge in Anderson v. St. Jude Medical Inc. (2002), 2002 CanLII 32019 (ON SC), 29 C.P.C. (5th) 234 at para. 11-12, and by J.W. Quinn J. in Foster Wheeler Canada Ltd. V. MBB Power Services Inc., [2007] O.J. No. 981 (S.C.J.) at para. 17.

[31] I am inclined to the view that one cannot create many principles of general application in this area and that each case must be considered in its own context.

[32] In the context of this Application, I start with the observation that we are not dealing with an attempt to strike a pleading but rather an attempt to remove from the record evidence which the moving parties claim should not be before the court on the hearing of the merits.

[33] I accept the general view expressed above that evidence should not be struck on an interlocutory motion unless there is some special reason to do so. The underlying rationales for this view which I glean from the cases are applicable here:

(a) To grant relief on such a motion will encourage more such motions and simply create extra cost and delay;

(b) There is no need to make such rulings because the judge who will hear the merits will be in an equally good or better position to determine admissibility;

(c) It is an inherent part of our judicial process that judges frequently learn of, but disregard, inadmissible evidence and are presumed not to take it into account;

(d) In addition, the judge hearing the merits can sanction any inappropriate introduction of evidence by disregarding it and awarding costs.

[37] In my view a special reason which in some cases might warrant granting relief on motions such as those before me is that two factors are present: the impugned material is clearly inappropriate, and that if the moving parties chose to respond to it nevertheless, to do so would entail unreasonable effort or cost or would result in further voluminous material being filed.

[38] I have considered the evidence targeted on these motions but I conclude that those two factors are not present for any of the impugned evidence.

[39] I also have considered the consequences of striking the targeted evidence. To so would result in a complicated editing process or the refilling of the Applicants’ material and would inevitably result in further cost and delay especially in the context of the many parties involved. Those consequences must be balanced against the possible benefits of striking any inappropriate evidence.”

[114] In 876502 Ontario Inc. v. I.F. Propco Holdings (Ontario) 10 Ltd., 1997 CanLII 12196 (ON SC), (“Propco”) also cited by RSJ MacLeod in Allianz, Dambrot, J. deals with the interpretation of the specific grounds for striking portions of affidavits under R.25.11, the history of the Rule and the role of relevance to the tests:

“I note that while this rule plainly applies to affidavits, it is found under the heading "Pleadings", in a rule entitled "Pleadings in an Action", and clearly has pleadings as its main focus. I further note that "irrelevance" is not listed in the rule as a ground for striking a document.

It seems to me that the learned authors are quite correct that the new rule makes no change in substance with respect to the striking of pleadings, but the same cannot be said for the striking of parts of an affidavit. Formerly, the only power that existed was the power to strike a scandalous affidavit. It is understandable that there should be a remedy to remove from the public record material which was harmful to a party's reputation, but which could not advance the pending litigation. Advertently or not, the power in Rule 25.11 is far broader. It provides for the striking of parts of affidavits, rather than entire affidavits, for the first time, and introduces several new grounds for doing so, some of which do not appear to me to be particularly apt in the case of affidavits.

I do not propose to consider in this decision the full extent of the power to strike found in rule 25.11, but rather will limit myself to the breadth of the power to strike for scandalousness, frivolousness or vexatiousness, or for abuse of process, and then only as this power applies to affidavits. That is all that is in issue on this motion.

In view of the foregoing, I return to the question whether irrelevance can be the basis for striking a paragraph in an affidavit. The question, I believe, should really be framed as follows: Does irrelevance, standing alone, amount to scandalousness, frivolousness or vexatiousness, or abuse of process? To answer this question it is necessary to consider what each of those words mean.

The concept of scandalousness is well defined. Scandal refers to indecent or offensive matters or allegations made for the purpose of abusing or prejudicing the opposite party, allegations which are unbecoming of the court to hear, or unnecessary allegations bearing cruelly on the moral character of an individual: see Holmested and Gale, Ontario Judicature Act and Rules of Practice, vol. 2, p. 1196. Relevance only enters the picture if the impugned material is otherwise scandalous. If material is relevant, it cannot be scandalous ((Re Erinco Homes Ltd. (1977), 3 C.P.C. 227 (Ont. Master)); but irrelevant material is not, for that reason alone, scandalous.

Unfortunately, a review of the cases does not readily shed so clear a light on the definitions of frivolousness and vexatiousness. These words are often used compendiously, without any individual definition, and pleadings are said to be frivolous and vexatious for fact-specific reasons, without any delineation of a test. A frivolous action has been defined, however, to be one which, on its face, is so unreal that no reasonable or sensible person could bring it. A frivolous and vexatious pleading has been defined as one which is "hopeless factually", and which it is "plain and obvious . . . cannot succeed": Zurich Investments Ltd. v. Excelsior Life Insurance Co. (1988), 1988 ABCA 209, 28 C.P.C. (2d) 264, 59 Alta. L.R. (2d) 209 (C.A.). These definitions do not translate readily into the context of affidavits. Nevertheless, it is clear, in any event, that frivolous and vexatious material will only be struck where it could procure no legitimate advantage to the party advancing it, and only in the clearest of cases, or where this conclusion is plain and obvious: see Holmested and Gale, supra, at pp. 1064-65.

It is apparent, to me at least, that the rule does not contemplate that a master should review in advance affidavits filed on a motion which will be argued later before an undetermined master or judge, and make evidentiary rulings on admissibility or relevance. Our system ordinarily reserves that function to the judicial officer hearing the merits of the matter. I view that as desirable, for two reasons. First, such rulings are better left to the person charged with acquiring a full understanding of the matter, who is then best positioned to balance the competing arguments and rule wisely. Second, encouraging interlocutory rulings and appeals on admissibility can only serve to fragment proceedings and encourage delay, as evidenced by this case, without appreciably assisting the ultimate decider of the matter in his or her task. I am reinforced in this view by the omission of the word "embarrassing" from the consolidated rule. As already noted, "embarrassing" had acquired the meaning of irrelevance: see, for example, Everdale Place v. Rimmer (1975), 1975 CanLII 337 (ON SC), 8 O.R. (2d) 641 (H.C.J.), which was, in my view, wrongly adopted in the context of rule 25.11(a) in Panalpina Inc. v. Sharma (1988), 29 C.P.C. (2d) 222 (Ont. Master).

Accordingly, I am of the view that Master Clark erred in law in striking any of the paragraphs in Scalisi's affidavit. I am also unable to agree with Master Clark that the four impugned paragraphs in Jaffary's affidavit are scandalous, and in any event I am of the view that he erred in law in concluding that they are irrelevant. I have previously expressed my view that when a master's decision in an interlocutory motion is grounded on relevance, it is a matter of law and may be interfered with on appeal if it is in error: see Republic National Bank of New York (Canada) v. Normart Management (1996), 1996 CanLII 8224 (ON SC), 31 O.R. (3d) 14, 6 C.P.C. (4th) 206 (Gen. Div.).”

[115] The Bankrupt cites, inter alia, for these issues:

a) the Supreme Court of Canada decision White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 SCR 182 (“White Burgess”)

“[14] To the modern general rule that all relevant evidence is admissible there are

many qualifications. One of them relates to opinion evidence, which is the subject

of a complicated exclusionary rule. Witnesses are to testify as to the facts which

they perceived, not as to the inferences — that is, the opinions — that they

drew from them. As one great evidence scholar put it long ago, it is “for the jury

to form opinions, and draw inferences and conclusions, and not for the

witness”: [citations omitted]. While various rationales have been offered for this

exclusionary rule, the most convincing is probably that these ready-formed inferences are not helpful to the trier of fact and might even be misleading”

b) the Federal Court of Appeal decision of Foodcorp Ltd. v. Hardee's Food Systems, Inc., 1982 CanLII 5220 (FCA), [1982] 1 FC 821;

c) the decision of C.J.Q.B. Gerein in Mallard v. Killoran, 2005 SKQB 203 (“Mallard”):

“In conclusion, I find that paragraph D of the defendant's affidavit is nothing more than an expression of opinion based on [the affiant’s] reading of the attached 31 exhibits, of which all are inadmissible except for Exhibit #13. In the circumstances, the whole of paragraph D and all the exhibits, with the one exception, are struck.”

d) and the decision of Perrell, J. in Raponi v. Olympia Trust Company, 2022 ONSC 4480 (“Raponi”)

“Unless qualified as an expert or testifying about a matter of everyday human experience, a witness's opinion about the facts is inadmissible; the general rule is that a witness does not opine but testifies as to facts he or she perceived.

It is inappropriate for a witness to provide evidence that constitutes argument on

the issues that are to be decided by the Court. Legal argument and legal

submissions belong in the party's factum, usually authored by his or her legal

representative, and may be struck out as an abuse of process if they are included

in a witness's affidavit. … and neither a lay or an expert witness may provide an

opinion on a pure question of law”

[116] Recently, in Bank of Montreal v Garasymovych, 2023 ONSC 3630 Kurz, J., in the context of a Default Judgement motion by a Bank to prove that a debt was an undischargeable s.178 Debt, where leave had been granted to bring the Action, and where the Bank provided screenshots from its proprietary software as evidence that the Bankrupt had provided misleading income and employment information as the basis of the Bank’s fraudulent misrepresentation claim, stated the following regarding the Best Evidence Rule:

“Best Evidence Rule

[52] I may also consider whether the absence of any credit application form filled out by the Defendant or any other direct evidence allegedly produced by the Defendant to the unidentified bank employee violates the best evidence rule. That rule, which may generally be seen as one going to weight rather than admissibility, was summarized by Charron J.A. (as she then was) in R. v. Shayesteh, 1996 CanLII 882 (ON CA), [1996] O.J. No. 3934, at para. 90 (Ont. C.A.), as follows:

“When considering any proposed method of proof, the old principle known as the “best evidence rule”, in my view, can still provide a useful starting point. The rule may be used, not so much as a criterion for determining questions of admissibility and exclusion with respect to any item of evidence sought to be adduced, but as a general guide for choosing the appropriate method of proof. The parties (usually the Crown) should endeavour to put forth the best evidence “that the nature of the case will allow” (Halsbury, 17 Hals., 4th ed., pp. 8-9, para. 8) for consideration by the triers of fact. Such evidence can then be supplemented by secondary evidence to the extent that such secondary evidence remains relevant. What particular use will be made of the evidence during the course of the trial then becomes essentially a matter of discretion for the trial judge depending on the particular circumstances of any given case.”

[53] The authors of Sopinka, Lederman & Bryant: The Law of Evidence in Canada, 6th Ed., state at ch. 18.03 that “…the rule continues to find application in the Canadian caselaw, in flexible form. In most cases the question is one of weight and not admissibility.” They add that:

“Where the best evidence rule survives, it seems particularly suited to addressing the admissibility or weight of the contents of documents — hence, the alternate terminology of the “documentary originals rule”. For example, where there is a dispute as to the contents of correspondence, the terms of a contract, the authenticity of an affidavit, or the validity of a will, or there is an issue whether a document has been altered or changed, a strict application of the best evidence or documentary originals rule might be applied to exclude or otherwise minimize the weight to be placed on a copy of the document. It should be noted, however, that the rule does not apply to a party who tenders a document solely for the purpose of identifying it or proving its existence. Further, the test of necessity under the principled approach to hearsay should not be applied formalistically to mirror the best evidence rule.”

[54] Here, the combination of deemed admission and the knowledge and information evidence of Ms. Sauve are insufficient to prove that elements of fraud that BMO relies upon.

[55] Recall that the four elements of civil fraud set out in Hryniak at para. 87 are: (1) a false representation by the defendant; (2) some level of knowledge of the falsehood of the representation on the part of the defendant (whether knowledge or recklessness); (3) the false representation caused the plaintiff to act; (4) the plaintiff's actions resulted in a loss.

False Representation

[56] Dealing with the allegedly false representations by the Defendants:

1. While BMO’s claims of fraud and fraudulent misrepresentation are broadly pleaded, the deemed admissions in themselves do not prove the fraudulent behaviour or intention claimed. The exact representations made by the Defendant to BMO are not proven with any degree of specificity.

2. There is no direct evidence of what was asked of or actually represented by the Defendant as to his current income. The computer records that BMO relies upon are not admissible as business records for the truth of the facts alleged by Ms. Sauve.

3. Further, in the absence of any actual evidence regarding any dealings between the Defendant and the unknown bank employee, the facts alleged may as easily speak to negligent rather than fraudulent misrepresentation, if a misrepresentation was made.

4. In addition, even if the BMO computer records are admissible, I must consider whether they are so ambiguous as to meet the high test of proving fraud. I must consider that question within the context of the best evidence rule and BMO’s failure to explain the absence of any direct evidence of the actual representations to BMO made by the Defendant. In other words, even if they were admissible, the BMO computer records in themselves are insufficient to prove the fraud alleged by BMO.

Knowledge of Falsity

[57] BMO must prove the defendant’s knowledge of the falsity of his alleged representations. But here there is no evidence of that knowledge. Ms. Sauve’s personal opinion is irrelevant in that regard. But it is the only evidence that BMO produces.”

Use of s.163(1) Cole Transcript on Expungement Motion

[117] As argued by the parties, and as tested by me at the hearing, there are three separate issues with respect to this aspect of the evidence in the Cole Transcript from the Cole Examination being sought to be Struck by the Plaintiff from the Alpa motion materials on the Expungement Motion:

1. Do the provisions of s.163(3) of the BIA prevent the use of the entirety of the Cole Transcript on the Expungement Motion?

2. If the Cole Transcript can be used, is the wording of the Hanson Expungement Affidavit relating to the Cole Transcript inadmissible hearsay, and are the conclusions made by Hanson in the Hanson Affidavit from reviewing the testimony of Cole in the Cole Transcript also inadmissible, as argued by the Bankrupt?

3. If the Cole Transcript can be used on the Expungement Motion, what does procedural fairness to Cole, the Bankrupt, Alpa and the Trustee require to allow admission and use of the Cole Transcript on the Expungement Motion?

[118] The relevant portions of Section 163 read:

(1) The trustee, on ordinary resolution passed by the creditors or on the written request or resolution of a majority of the inspectors, may, without an order, examine under oath before the registrar of the court or other authorized person, the bankrupt, any person reasonably thought to have knowledge of the affairs of the bankrupt or any person who is or has been an agent or a mandatory, or a clerk, a servant, an officer, a director or an employee of the bankrupt, respecting the bankrupt or the bankrupt's dealings or property and may order any person liable to be so examined to produce any books, documents, correspondence or papers in that person's possession or power relating in all or in part to the bankrupt, or the bankrupt's dealings or property.

(3) The evidence of any person examined under this section shall, if transcribed, be filed in the court and may be read in any proceedings before the court under this Act to which the person examined is a party.

[119] Houlden & Morawetz at § 6:262. Evidence in Support of Proof of Claim or Proof of Security states:

“To obtain information concerning a claim, the trustee may, with the permission of the inspectors, conduct examinations and obtain production of documents under s. 163(1): see § 7:30 “Examination by Trustee under Section 163(1)”. If the trustee disallows the claim and the creditor appeals, both the trustee and the creditor can use the examinations as evidence on the appeal: Re Christie Grant Ltd., 1921 CanLII 720 (MB KB), 1 C.B.R. 489, [1921] 3 W.W.R. 264 (Man. K.B.); Re Dumfermline Trading Co., 1922 CanLII 107 (SK KB), 3 C.B.R. 178, [1922] 2 W.W.R. 1274, 66 D.L.R. 813, 16 Sask. L.R. 71 (Q.B.).”

[120] In this Bankruptcy, examinations under s.163 were conducted of the Bankrupt, and of Cole, and others, on many topics. In those examinations the evidence I have set out above was collected that may be relevant to the issue of determining the admission of the Alpa Proof of Claim. The Alpa Proof of Claim was admitted.

[121] As the Trustee did not participate on this Strike Motion, there is no evidence before me that this evidence by Cole in the Cole Transcript, or arising from undertakings given by Cole at the s.163 examination of Cole, was or was not specifically used by the Trustee in deciding to admit the Alpa Proof of Claim. On my reading, neither The Beach or Leslieville are specifically mentioned in the Cole Transcript.

Position of the Bankrupt on the admissibility of the Cole Transcript:

[122] The Bankrupt argues as follows in its factum on the issue of the exclusion of the Cole Transcript and the evidence in the Alpa Motion materials on the Expungement Motion derived from the Cole Transcript:

(c) The excerpts from the transcript of Cole’s examination pursuant to s. 163 of the

BIA, and the exhibits to that examination, are impermissible further to section

163(3), which states:

163 (3) The evidence of any person examined under this section shall, if

transcribed, be filed in the court and may be read in any proceedings before

the court under this Act to which the person examined is a party.

Cole is not a party to this proceeding. His evidence cannot, therefore, be

admitted.

25 Ms. Backman seeks to introduce as evidence the transcript of the

examination of her former husband September 5, 1995 by the Trustee

pursuant to s. 163 (1) of the BIA. Dr. Backman claims in that examination

that he discussed "in detail [the Wendzac partnership] with Mr. Sprackman.

I believe he contacted the general partner at the time." The defendants

object.

26 S. 163 (3) of the BIA provides that this evidence "may be read in any

proceedings before the court under this Act to which the person examined

is a party." Dr. Backman is not a party to the action at hand. In my view, the

transcript is not properly evidence given s. 163 (3). [Citation omitted]45

[123] With respect to the attempt by Alpa to subpoena Cole for an examination under R.39.03, under a Notice of Examinations issued on April 27, 2023 for an examination of Cole on May 3, 2023, an examination for which no permission was granted under any of the Scheduling Endorsements for the Expungement Motion or the Strike Motion, the Bankrupt argues the following with respect to the use of the Cole Transcript by Alpa in the Hanson Expungement Affidavit:

“14. On April 28, 2023, more than six months after the passing of AJ Ilchenko’s deadline for the filing of Alpa’s materials in response to the Strike Motion, two weeks after it was served with Saskin’s factum, and one week before its own factum was due, Alpa served the Summons on Cole. The Summons states on its face that Cole’s examination is to be

“in aid of a pending motion which is to be heard on May 18, 2023...”

15. Alpa’s obvious motive in seeking to examine Cole is to reproduce the Cole Transcript, and to thereby place otherwise inadmissible evidence before the Court through the mechanism of a Rule 39.03 examination, rather than via the Second Hanson Affidavit. Whether Alpa believes this gambit somehow regularizes the Second Hanson Affidavit is unknown (and irrelevant).

16. In violation of Rule 14(1) of the Bankruptcy Rules, Alpa had not, before serving the Summons, obtained leave of the Court to conduct an examination of Cole.

14 (1) A party to any court proceedings may, with leave of the court, examine the other party or any other person and require them to produce documents.

17. Leave should not be granted. The deadline for Alpa to file evidence on the Strike Motion passed six months ago. By serving the Summons now, Alpa is casually disregarding AJ Ilchenko’s direction, as well as Rule 39.03(3).

To be Exercised with Reasonable Diligence

(3) The right to examine shall be exercised with reasonable diligence, and the court may refuse an adjournment of a motion or application for the purpose of an examination where the party seeking the adjournment has failed to act with reasonable diligence.

18. Further, nothing Cole might say – even if Alpa is able to obtain a word-for-word reproduction of the Cole Transcript – is relevant to the Strike Motion. That motion is about whether any of the content of the Responding Record is admissible as evidence on the Expungement Motion. It is not about Saskin’s past finances, which is the matter within Cole’s direct knowledge. The examination would therefore be frivolous.

19. Permitting Alpa to ignore the schedule imposed by AJ Ilchenko in a misguided effort to bolster its argument on the Strike Motion would be to sanction an abuse of the Court’s process, and would be prejudicial to the just adjudication of the Strike Motion.”

[124] Ultimately no examination of Cole under R.39.03 actually occurred prior to the hearing of the Strike Motion, so the actual relief sought in the Notice of Motion of the Bankrupt returnable on May 18, 2023 the date of the hearing of the Strike Motion, was not required to be dealt with, but the arguments made by the Bankrupt in this Notice of Motion to quash the Summons to Witness for Cole relating to the Cole Transcript must still be addressed.

[125] However, given the possible severe consequences to the administration of Bankruptcy estates of the Bankrupts interpretation of the provisions of s.163(3), that issue must be fully explored and dealt with.

General interpretive principles under BIA

[126] If evidence on a s.163 examination relating to a claim is usable on the appeal of a Trustee’s disallowance of a claim, how is it inadmissible on a Motion to expunge, in effect an appeal of the admission of a claim as per Cassidy, Re Transportation & Power and Malhotra?

[127] The “proceeding” that is being dealt with on this Strike Motion is not the Alpa Saskin Trust Claim or the s.38 Claim. It is the expungement of the Alpa Proof of Claim admitted in the Bankruptcy Estate, by the Trustee, in the same “proceeding” in which the Cole s.163 Examination was conducted. The evidence gleaned from the Cole Examination may or may not have influenced the decision of the Trustee to admit the Alpa Proof of Claim, but no evidence of either has been placed before the Court on this Strike Motion, and the Trustee did not appear.

[128] Therefore the words in s.163(3):

“The evidence of any person examined under this section shall, if transcribed, be filed in the court and may be read in any proceedings before the court under this Act to which the person examined is a party.”

have to be interpreted in that context.

[129] The principles of interpretation of the BIA are succinctly summarized as follows in Houlden & Morawetz at § 1:8. Interpretation of Bankruptcy and Insolvency Legislation:

“The Supreme Court of Canada has held that the starting point for statutory interpretation in Canada is Driedger's definitive formulation in Construction of Statutes (2nd ed. 1982) at p. 87:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament.

Barrie Public Utilities v. Canadian Cable Television Assn. (2003), 2003 CarswellNat 1226, 2003 CarswellNat 1268, 2003 SCC 28, [2003] 1 S.C.R. 476.” (“Barrie Public Utilities”)

[130] In Re Handelman 1997 CanLII 12409 (ON SC), 1997 CarswellOnt 2891, [1997] O.J. No. 3599, 48 C.B.R. (3d) 29, 73 A.C.W.S. (3d) 896 , (“Handelman”) Farley, J. stated:

“2 The BIA must be given efficacy in the insolvency context. That is, the language of the Act must be given a reasonable interpretation which supports the framework of the legislation. Unless the language is unambiguous, an absurd result should be avoided.”

Specific Jurisprudence related to use of s.163 Evidence

[131] In Goodyear Canada Inc. v. Meloche 1996 CanLII 8261 (ON SC), 1996 CarswellOnt 1763, [1996] O.J. No. 1711, 2 O.T.C. 174, 41 C.B.R. (3d) 112, 50 C.P.C. (3d) 398, 63 A.C.W.S. (3d) 240, 7 W.D.C.P. (2d) 265 (“Goodyear”), cited by Alpa, Granger, J. interpreted s.163(3) in the context of the request by the a Trustee and Receiver of corporate bankrupts to use the s.163(1) transcripts of individuals examined in the Bankruptcy Proceedings, in other proceedings against some of those individuals, and other corporations, under the Ontario Business Corporations Act, as well as the Fraudulent Conveyances Act and the Assignments and Preferences Act. Granger, J. stated the following on the restrictions on use of s.163(1) evidence contained in s.163(3):

“20 However, as the Bankruptcy and Insolvency Act is a federal statute and as such applicable throughout Canada, it would be dangerous to come to the conclusion that Rule 30.1 should apply in bankruptcy proceedings in Ontario when other provinces have held that there is no such deemed undertaking regarding the discovery process. Accordingly, I am satisfied that Rule 30.1 does not apply to proceedings instituted under the Bankruptcy and Insolvency Act.

21 Even if Rule 30.1 is applicable to proceedings under the Bankruptcy and Insolvency Act, the examination by the Trustee would not be subject to any implied undertaking within the Rule, as that procedure does not fall within the ambit of Rule 30.1(2), which expressly enumerates the procedures to which the implied undertaking rule applies.

22 Additionally, pursuant to Rule 30.1(5)(a), the implied undertaking created by Rule 30.1(3) does not prohibit the use, for any purpose of evidence which is filed with the court. Pursuant to s. 163(3) of the Bankruptcy and Insolvency Act, the evidence of any person examined under s. 163(1) of the Act must be filed with the court, if it is transcribed. Accordingly, even if Rule 30.1 did apply to an examination conducted by a trustee pursuant to s. 163(1) of the Bankruptcy and Insolvency Act, the exception provided in Rule 30.1(5)(a) would operate to defeat the implied undertaking under Rule 30.1(3), if that evidence was transcribed.

23 As Rule 30.1 does not apply to proceedings under the Bankruptcy and Insolvency Act, I must consider if there is any implied undertaking at common law which could limit the use of the information obtained by the Trustee.

27 Accordingly, the decision of O’Leary J. in so far as it relates to information obtained on an examination for discovery remains binding on this court and as there is no such implied undertaking at common law, it would be incumbent upon Stan Meloche, and/or David Chittle, and/or David Torti to seek an Order of this Court to prevent the use of the information obtained pursuant to s. 163(1).

28 In my opinion, any implied undertaking rule, whether it be founded in the Rules of Civil Procedure or decisions of this Court, arises from the obligation of parties being sued to attend on an examination for discovery and make disclosure of documents and other material facts prior to the commencement of the trial. Notwithstanding that an examination for discovery has been conducted or documents produced, the answers of the deponents or documents produced may not be admissible at trial or may never be used as evidence. There is always the concern that answers given on an examination for discovery will be used for an improper purpose. In 755568 Ontario Ltd. v. Linchris Homes Ltd. (1990), 1990 CanLII 6665 (ON SC), 1 O.R. (3d) 649 (Gen. Div.), in discussing the purpose of the implied undertaking rule, I stated at p. 655:

In Ontario a party to a civil action is obligated to answer all relevant questions put to him on his examination for discovery even if such answers might tend to incriminate him in a criminal offence: see Royal Bank of Canada v. Wilford (1985), 16 C.R.R. 80, 2 C.P.C. (2d) 281 (Ont. Master).

The public interest in investigating possible crimes is not per sea sufficient ground to relieve counsel of his or her implied undertaking to keep such information private. In this case the plaintiff has not by affidavit set out its reasons, if any, for wishing to have the police conduct an investigation. In my view a reasonable inference emerges that the plaintiff hopes the police will find additional information which will assist its action or that the police investigation will force the defendants to offer to settle this matter. Neither of these reasons support the plaintiff’s request to be released from its undertaking and both are clearly improper motives.

The pressure on a defendant to settle a civil action when faced with a criminal investigation was described in R. v. Jones (1978), 1978 CanLII 2263 (BC SC), 40 C.C.C. (2d) 173, 4 C.R. (3d) 76, [1978] 3 W.W.R. 271 (B.C.S.C.) by Anderson J. at pp. 283-84 W.W.R.:

The pressures brought to bear on any person facing criminal charges for the first time are real pressures and not imaginary or fanciful pressures. The accused faces the fact that he must go through the court process. He is faced with expense. If he is convicted he will have a criminal record. The proceedings will be publicized and both the accused and his family will suffer the stigma resulting from a criminal prosecution. Lawyers and judges become so familiar with these matters that there is a tendency to overlook the real and heavy pressures affecting accused persons in respect of even the most trivial offences. It follows that the average person when faced with criminal charges will accept almost any burdens in order to avoid facing criminal charges.

I agree with the above statement and the defendants in this action as in all other actions should not be subjected to this type of pressure tactic. Accordingly, the appeal is dismissed.

29 The matter before me does not arise from a discovery process. Here the evidence of any person examined by the Trustee shall, if transcribed, be filed in the Court and may be read in any proceeding before the Court under the Bankruptcy and Insolvency Act. Accordingly, if the examination is transcribed, it is mandatory that it be filed in Court and such transcript then becomes a public document and thereby loses any implied undertaking which could have attached to such transcript. As in the discovery process, the use which can be made of such evidence is always subject to the direction of a trial Judge. The Bankruptcy and Insolvency Act, although not subjecting the Trustee to any implied undertaking, may limit the use which can be made of such evidence, but this is a matter for the trial Judge.”

[132] Goodyear does not stand for the proposition that “there is no implied undertaking in Bankruptcy” as argued by Alpa. Granger, J. had a very specific reason for determining there was no implied undertaking imposed under the Rules of Civil Procedure or generally for s.163 transcripts, namely that the specific wording of s.163(3) removes the discretion of the Court regarding the filing of the Transcript in Bankruptcy Proceedings. I do not read Goodyear as creating a general rule that “there is no implied undertaking in Bankruptcy” involving other forms of evidence gathered in Bankruptcy proceedings.

[133] This is supported by Rieger Printing Ink Company (Re), 2009 CanLII 7766 (ON SC)(“Reiger Printing”), cited by Alpa, where Pepall, J. (as she then was) dealt with the issue of the filing and use of a s.163(1) transcript under s.163(3):

“[5] Is Ms. Dion obliged to attend the s. 163 examination absent a sealing order? Positions of the Parties

[6] The Trustee submits that Ms. Dion is adequately protected by the current state of the law. He particularly relies on the Supreme Court of Canada decision in R. v. S. (R.J.) [See Note 2 below] and also submitted for the court's consideration the cases of Innisfil Beach Gardens Retirement Residence Ltd. (Re); [See Note 3 below] Leard (Re); [See Note 4 below] 303687 Ontario Ltd. (Re); [See Note 5 below] and Goodyear Canada Inc. v. Meloche. [See Note 6 below]

[7] Ms. Dion relies on the Supreme Court of Canada decision in Juman v. Doucette [See Note 7 below] to submit that she is entitled to greater protection. Her counsel states that the state should not be entitled to have access to the transcript so that it may be used as an investigative tool. He also submitted the Goodyear decision for consideration by the court.

Discussion

[8] Section 163(1) of the BIA provides that:

163(1) The trustee, on ordinary resolution passed by the creditors or on the written request or resolution of a majority of the inspectors, may, without an order, examine under oath before the registrar of the court or other authorized person, the bankrupt, any person reasonably thought to have knowledge of the affairs of the bankrupt or any person who is or has been an agent or a mandatory, or a clerk, a servant, an officer, a director or an employee of the bankrupt, respecting the bankrupt or the bankrupt's dealings or property and may order any person liable to be so examined to produce any books, documents, correspondence, or papers in that person's possession or power relating in all or in part to the bankrupt or the bankrupt's dealings or property. [page443]

[9] Section 163(3) states:

163(3) The evidence of any person examined under this section shall, if transcribed, be filed in the court and may be read in any proceedings before the court under this Act to which the person examined is a party. Section 167 provides that any person being examined is bound to answer all questions relating to the business or property of the bankrupt, to the causes of his bankruptcy and the disposition of his property.

[10] The purpose of a s. 163 examination is to provide information to assist the trustee in carrying out its duty to administer the bankrupt estate by collecting the property of the bankrupt and distributing the proceeds to its creditors. A trustee needs to find out the extent of the property of the bankrupt and whether there have been dispositions or dealings with that property which should be challenged: 303687 Ontario Ltd. (Re). [See Note 8 below] The evidence obtained may then be used in the bankruptcy proceedings including reports made by the trustee to the court.

[11] Based on the statute, the Trustee is clearly entitled to compel Ms. Dion's attendance at the examination. The onus is therefore on Ms. Dion to establish that a sealing order is justified.

[12] As mentioned, Ms. Dion relies on the Supreme Court of Canada decision in Juman v. Doucette in support of her position. That decision involved an examination of the implied undertaking rule. This rule, now codified in Ontario's Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and described as the deemed undertaking rule, provides that subject to certain exceptions, the evidence and information obtained from an examination for discovery will not be used by the parties or their counsel for purposes other than the proceeding in which it was obtained. In Juman, the Attorney General of British Columbia sought the release of a discovery transcript in civil proceedings to assist in a criminal investigation and/or prosecution. Binnie J. examined the rationale for the implied undertaking. He noted that an examination for discovery compels a party to participate fully in pre-trial discovery. If the opposing party seeks information that is relevant and is not protected by privilege, it is to be disclosed even if it tends to self-incrimination. He observed that while the public interest in finding the truth in a civil action outweighs the examinee's private interest, the latter is nevertheless entitled to a measure of protection. This is provided by the implied undertaking rule. In addition, with the implied undertaking rule, a litigant is encouraged to provide a more complete and candid [page444] discovery. In analyzing the issue, Binnie J. noted that pre-trial discovery does not take place in open court and the implied undertaking rule recognizes the examinee's privacy interest.

[13] In my view, an examination for discovery and a s. 163 examination are quite different. The provisions of s. 163 reflect a policy of public access, public scrutiny and transparency. It is clear that Parliament contemplated that the evidence of any person examined be public. Firstly, the evidence, if transcribed, must be filed with the court as set forth in s. 163(3). This is mandatory. Secondly, this is not a private examination between private parties; rather, s. 163(1) contemplates an examination by a trustee who is a court officer before the registrar who is a judicial officer (although it may also be conducted before an official examiner and indeed this is the practice in Ontario: see Bankruptcy Rule 115). The decision in Goodyear Canada Inc. v. Meloche [See Note 9 below] reflected this policy distinction by concluding that s. 163 evidence is not subject to any implied undertaking rule.

[14] As mentioned, the constitutionality of s. 163 is not challenged. Furthermore, s. 5 of the Canada Evidence Act, [See Note 10 below] s. 13 of the Charter of Rights and Freedoms [See Note 11 below] and derivative use immunity as described by the Supreme Court of Canada in R. v. S. (R.J.) provide adequate protection for Ms. Dion's rights [page445] against self-incrimination. As noted by Iacobucci J. writing for four judges in R. v. S. (R.J.) and repeated by Binnie J. in Juman, [See Note 12 below] derivative use immunity is a question for the criminal court to address.

[15] At the hearing before me, I invited counsel to address Sierra Club of Canada v. Canada (Minister of Finance). [See Note 13 below] That case deals with the granting of a confidentiality or sealing order. Although dealing with the Federal Court Rules, the Supreme Court held that a confidentiality order should only be granted when:

(1) an order is needed to prevent serious risk to an important interest because reasonable alternative measures will not prevent the risk, and (2) the salutary effects of the order outweigh its deleterious effects, including the effects on the right to free expression, which includes public interest in open and accessible court proceedings.

[16] In the case before me, no criminal charges have been laid, nor is there any evidence of any criminal investigation. While I accept that there is an important interest at stake, there is no serious risk and as discussed, protective measures are available to Ms. Dion. The second branch of the test has also not been met. A sealing order is contrary to the spirit and intent of Parliament and the principle of open courts. Furthermore, the Trustee is obliged to fulfill its duties and to report to the inspectors and the court and a sealing order would inappropriately fetter its ability to do so.”

[134] There have been several cases where the testimony under s.163 predecessor sections was admitted to be used in proceedings relating to the Trustee’s disallowance of the Creditor’s Proof of Claim.

[135] In order to avoid misinterpreting the law on this Strike Motion, and creating an improper precedent that may seriously undermine the efficacy of s.163 of the BIA as an investigative and adjudicative tool in the administration of Bankruptcy Estates, the Court has had to review all of these relevant cases, many of which were not cited by either party on this Strike Motion, despite their relevance.

[136] Re Christie Grant, 1921 CanLII 720 (MB KB), 1921 CarswellMan 2, [1921] 3 W.W.R. 264, 1 C.B.R. 489 (“Christie Grant”), not cited by Alpa or the Bankrupt, interpreted the wording of s.56 of the Bankruptcy Act, 1919 which read:

“56. Where a receiving Order or an authorized assignment has been made, the trustee, upon ordinary resolution passed by the creditors present or represented at a meeting regularly called, or upon the written request or resolution of a majority of the inspectors of the estate, may, without an order, examine under oath before the registrar of the court or other prescribed person, the debtor or any person who is or has been an agent, clerk, servant, officer, director or employee of the debtor, respecting the debtor, his dealings or property, and, in the case of a bankrupt, as to any property, acquired or disposed of by him subsequently to the date of the receiving order;”

[137] In 1921 when Christie Grant was decided there was no specific section equivalent to s.163(3) dealing with use of s.163 testimony. In that case the directors of the bankrupt company were examined, and a creditor whose claims had been disallowed by the Trustee wished to use the transcript of the s.56 examination in their appeal. The Report of the caser reads in its entirety:

“On the hearing of an appeal from the decision of an authorized trustee disallowing a claim under sec. 53 of The Bankruptcy Act and Bankruptcy Rule 117, the authorized trustee is permitted to use any part or the whole of the examinations of the directors of the assignor corporation taken pursuant to sec. 56 of the Act. The claimant has the like privilege.

Christie Grant, Limited, made an assignment to the Canadian Credit Men’s Trust Association, Limited, an authorized trustee under The Bankruptcy Act, in the month of January, 1921. Shortly thereafter proof of claim was filed by Stobarts Limited, claiming to rank for a large amount. For the purpose of obtaining information with regard to the claim the authorized trustee caused the managing director and another director of the company to be examined under sec. 56 of the Act and acting largely upon the information obtained under these examinations and under advice of counsel decided to disallow the claim of Stobarts Limited and served a notice of disallowance of the claimant pursuant to sec. 53.

Stobarts Limited appealed to the Court from the trustee’s decision and an appointment was made for the hearing of the appeal. A ruling was then asked for as to the admissibility, on the hearing of the appeal, of the said examinations.

Macdonald, J.:

1 on the conclusion of the argument made an order permitting the authorized trustee to use such part or parts or the whole of the said examinations and each of them as he may be advised, on the hearing of the appeal as evidence for the authorized trustee against the claimant; the claimant to have the like privilege.”

[138] Similarly in In re Dumfermline Trading Company 1922 CanLII 107 (SK KB), 1922 CarswellSask 9, [1922] 2 W.W.R. 1274, 16 Sask. L.R. 71, 3 C.B.R. 178, 66 D.L.R. 813 (“Dumfermline”), not cited by Alpa or the Bankrupt, was a case where the Trustee wished to use the transcript of the examination conducted of the representative of the Bankrupt under the same wording of s.56 of the 1919 Bankruptcy Act, Ch. 36, which was also interpreted in Christie Grant, in the creditor’s appeal from the Trustee’s disallowance.

[139] MacDonald, J. ruled as follows:

“1 This is an appeal by the Reliable Trading Company from the decision of the trustee disallowing the claim of said company against the estate of the assignor.

2 A preliminary question I am called upon to decide is whether the trustee can on this appeal use against a person claiming to be a creditor, the examination of the debtor, held under sec. 56 of The Bankruptcy Act, 1919, ch. 36 [1 C.B.R. 61.]

3 In In re Christie Grant Ltd., 1921 CanLII 720 (MB KB), [1921] 3 W.W.R. 264, 1 C.B.R. 489, it was ordered that such examination might be used.

4 In In re Brunner, 19 Q.B.D. 572, 56 L.J.Q.B. 606, it was held that the answers of a debtor at his public examination cannot be used in subsequent motions in the same bankruptcy against parties other than the debtor himself.

5 In In re Bottomley; Ex parte Brougham, [1915] H.B.R. 75, 84 L.J.K.B. 1020, such answers are held not to be evidence against the trustee.

6 The provisions of the English Bankruptcy Act, 1914, ch. 59, with respect to the examination of a debtor are however different from those in our Act. Subsec. 8 of sec. 15 of the English Act provides, among other things, that the debtor’s answers “may *** save as in this Act provided, be used in evidence against him.”

7 To my mind this contains an implication that such answers may not otherwise be used. No such provision is to be found in our Act.

8 Under General Rule 4 all matters and applications shall be heard and determined in Chambers unless the Court or a Judge shall in the particular matter or application otherwise direct. On an application in Chambers the affidavit of the debtor might be used and I cannot see any reason why this examination should not be held of equal probative value. I therefore hold the examination may be used against the claiming creditor.”

[140] In Eastern Land & Housing Ltd., Re 1971 CarswellNS 15, 16 C.B.R. (N.S.) 222, 23 D.L.R. (3d) 700, 3 N.S.R. (2d) 117 (“Eastern Land”), not cited by Alpa or the Bankrupt, the New Brunswick Court of Appeal, in an appeal from a trial judge’s decision setting aside a preferential transfer under then s.64 (now s.95 as amended of the BIA), considered the issue of the admission by the Trial Judge of the testimony of the President of the Corporate Bankrupt at an “official examination”, to support the trustee’s claim against a creditor in an action to which the President, Hoeltken, was not a “party” to the proceeding.

[141] One of the grounds for appeal by the Creditor was that because the witness Hoeltken was not a “party” to the action between the Trustee and the Creditor to set aside the conveyance under the BIA, that the testimony of Hoeltken at the “official examination” was inadmissible, which is very similar to what the Bankrupt has argued here on the Strike Motion.

[142] The report of the case does not specifically excerpt the section of the Bankruptcy Act, R.S.C. 1952, c. 14 as am. then current, stating instead the following at para. 43:

“The appellant says that this is not evidence in these proceedings at all although it might be read in proceedings under the Bankruptcy Act to which Hoeltken himself was a party by virtue of s. 121(3) of the Act”

[143] The provisions of s.121 of the Bankruptcy Act, R.S.C. 1952, c. 14 as am., applicable at the time Eastern Land was heard, read:

“121. (1) The trustee, upon ordinary resolution passed by the creditors or upon the written request or resolution of a majority of the inspectors, may, without an order, examine under oath !before the registrar of the court or other authorized person, the bankrupt, any person reasonably thought to have knowledge of the affairs of the bankrupt or any person who is or has been an agent, clerk, servant, officer, director or employee of the bankrupt, respecting the bankrupt, his dealings or property and may order any person liable to be so examined to produce any books, documents, correspondence or papers in his possession or power relating in all or in part to the bankrupt, his deal­ings or property.

(2) Upon the application of any creditor or other interested person to the court, and upon sufficient cause being shown, an order may be made for the examination under oath, before the registrar or other authorized person, of the trustee, the bankrupt, an inspector or a creditor, or any other person named in the order, for the purpose